Personal Financial Planning Study Set 5

Answer:

Since Person RH died in 2012, the tax regulations for 2012 will be used to fill in the worksheet to calculate the federal estate tax due. Each line item is described below.
1) This is the gross estate value. Enter $7,850,000.
2a) This is the funeral expenses. Enter $16,800.
2b) This is the total of the administrative expenses. $40,000 was paid to attorneys, $5,000 to accountants and $30,000 paid to the trustee of his living trust, for a total of $75,000 in administrative expenses. Enter $75,000.
2c) This is the amount of debts. Enter $125,000.
3) This is the adjusted gross estate. The total of items 2a, 2b and 2c is $216,800. This amount is subtracted from the gross estate to obtain the adjusted gross estate.
The adjusted gross estate is $7,633,200
4a) This is the marital deduction. Since the deceased was unmarried, enter $0.
4b) This is the total of all Charitable donations. $20,000 was donated to the local hospital and $160,000 was donated to the alma mater, for a total of $180,000. Enter $180,000.
5) The Taxable estate is the adjusted gross estate less the marital and charitable deductions.
6) This is the amount of adjustable taxable gifts. No gifts were mentioned. Enter $0.
7) The estate tax base is equal to the taxable estate since there was no adjustable taxable gift. Enter $7,453,200.
8) This is the tentative tax, which is found using the Federal Unified Transfer Tax Rates. The values for each rate of the taxes are found in the brackets shown below. Since the taxable estate value is over $500,000, the tentative tax is 35% on the excess over $500,000.
Federal Unified Transfer Tax Rates
The tentative taxes are computed as follows:
Enter $2,589,420.
9) This is the unified tax credit obtained from the Unified Credits and Applicable Exclusion Amounts for Estates and Gifts. Since the estate is valued at over $5,120,000, the Unified Tax credit is $1,772,800. Enter $1,772,800.
10) This is the Total estate taxes, which is the tentative tax with the Unified tax credit applied.
11) There are no other credits. Enter $0.
12) This is the estate tax due. Since there are no other credits, the estate tax due is the total estate tax that was found in step 10. The estate tax due is $816,620.
The worksheet is shown below:

Answer:

Discuss the importance and goals of estate planning:
Estate planning is the process of developing a plan to administer and distribute the person's assets after death in a manner consistent with his wishes and needs of his survivors while minimizing taxes. To minimize the tax exposure is the major goal of estate planning. Estate planning is used by people to accumulate enough capital to meet their personal needs as well as financial security to the family members in case of death, major physical disability and retirement. Estate planning can be done mainly in the area of people planning and asset planning.
People planning include predicting the needs, both psychological and financial, of close and loved ones and providing enough income and capital so that they can continue their life in the way in which they want. When an estate involves closely held business, estate planning is essential to stabilize and maximize its asset and income producing values, both during the owner's lifetime and at the owner's death or disability.
Explain why estates often breakup:
The estates often break up. The estate die with people because of number of reasons which includes; death related costs, inflation, lack of liquidity, improper use of vehicle of transfer, and disabilities.
• Death related costs: During the lifetime, generally people do not account for death related costs. Sometime, death related cost is so much that they have to spend their whole estate to cover up them. Medical bills for final illness, funeral expenses, fees for attorneys, appraisers and accountants, administrative expenses, federal estate taxes and state death taxes, current bills unpaid, outstanding long term obligations and unpaid taxes are some of the examples of death related costs.
• Inflation: The value of the money decreases with the time. So, the value of the estate has to be rearranging periodically to counter the effect of inflation someone fails to do so, then it can hamper the ability of assets to provide steady and adequate levels of financial security and reduces its usefulness.
• Lack of liquidity: When people do not have enough capital to cover their death related cost, and then their estate tends to shrink.
• Improper use of vehicles of transfer: It involves passing property to the unintended beneficiaries or to the proper beneficiaries in an improper manner or at an incorrect time.
• Disabilities: Loss of income due to long term disability of a family wage earner may diminish the value of the estate.
Difference between probate estate and gross estate:
Probate estate consists of the real and personal property that can be transferred at death according to the terms of a will or in case of no valid will, under intestate law. Whereas, gross estate includes all the property- both probate and nonprobate- that might be subject to federal estate taxes at death. Life insurance, jointly held property with rights of survivorship, and property passing under certain employee benefit plans are examples of nonprobate assets that might be subject to federal estate taxes.

Answer:

The last will of James Gayle
Section 1 - Introductory Clause
I, Christ Gayle, of Virginia, do, hereby make my last will and revoke all wills and codicils made prior to this will.
Section 2 - Direction of Payments
Article 1: Payment of debts and expenses
I direct payment out of my estate of all just debts and the expenses of my last illness and funeral.
Section 3 - Disposition of Property
Article 2: Disposition of property
I give all my jewelry and photography equipment, as well as all other articles of personal and household use to my wife, Chris Gayle,
I donate the sum of $300,000 to Virginia Hospital.
I give equal shares of all the remainder of my estate, real and personal, wherever located, to my both children, Michael and Nicole, their heirs and assigns forever.
Section 4 - Appointment Clause
Article 3: Nomination of Executor and Guardian
I hereby nominate my beloved wife Chris Gayle, as the Executor of this will, but if she is unable or unwilling to serve then I nominate my brother, William Gayle. In the event both persons fail to act, then I nominate Southern Trust Bank of Atlanta, Georgia as Executor in the place of said persons.
If my wife does not survive me, I appoint my brother, William Gayle, Guardian of the person and property of my son, Michael, during his minority.
Section 5 - Tax Clause
Article 4: Payment of Taxes
I direct that there shall be paid out of my residuary estate all estate, inheritance, and similar taxes imposed by a government in respect to property includable in my estate for tax purposes, whether the property passes under this will or otherwise.
Section 6 - Simultaneous Death clause
Article 5: Simultaneous death
If my wife and I shall die under such circumstances that there is not sufficient evidence to determine the order of our deaths, then it shall be presumed that she survived me. My estate shall be administered and distributed in all respects in accordance with such assumption.
Section 7 - Execution and Attestation Clause
In witness thereof, I have affixed my signature to this, my last will and testament, which I have initialed, this 30 th day of July, 2013.
James Gayle
Section 8 - Witness Clause
Signed, sealed and published by James Gayle, the testator, as his last will, in the presence of us, who, at his request, and in the presence of each other, all being present at the same time, have written our name as witnesses.
Andreas Joachim , Palm Springs, Florida
Edward Thorpe , Reston, Virginia