ACC 610 Week 5 Assignment

Name

Ashford

ACC 610

December 19, 2022 Week 5 Exercises

Chapter 18 – Problem 43

At the time of her death on September 4, 2015, Alicia held the following assets.

Fair Market Value

Bonds of Emerald Tool Corporation $ 900,000

Stock in Drab Corporation 1,100,000

Insurance policy (face amount of $400,000) on the life of her father, Mitch 80,000*

Traditional IRAs 300,000 *Cash surrender value.

Alicia was also the life tenant of a trust (fair market value of $2 million) created by her late husband Bert. (The executor of Bert’s estate had made a QTIP election.) In October, Alicia’s estate received an interest payment of $11,500 ($6,000 accrued before September 4, 2015) paid by Emerald and a cash dividend of $9,000 from Drab. The Drab dividend was declared on August 19 and was payable to date of record shareholders on September 3, 2015. Although Mitch survives Alicia, she is the designated beneficiary of the policy. The IRAs are distributed to Alicia’s children. What amount is included in Alicia’s gross estate?

Answer

What amount is included in Alicia’s gross estate for these items?

QTIP Trust                                          $ 2,000,000

Stock in Drab Corporation                  1, 100,000

Bonds of Emerald Tool Corporation 900,000

Traditional IRA                                   300,000

Insurance Policy                                  80,000

Cash Dividends from Drab Corporation 9,000

Interest Received from Emerald         6,000

Total                                                               $ 4,395,000

Chapter 18 – Problem 38

In May 2014, Dudley and Eva enter into a property settlement preparatory to the dissolution of their marriage. Under the agreement, Dudley is to pay Eva $6 million in satisfaction of her marital rights. Of this amount, Dudley pays $2.5 million immediately, and the balance is due one year later. The parties are divorced in July. Dudley dies in December, and his estate pays Eva the remaining $3.5 million in May 2015. Discuss the tax ramifications of these transactions to the parties involved.

To avoid gift tax, Section 2516 exempts marital property agreements between couples and former spouses. Within three years of the divorce decree, as stipulated in the written agreement, the obligation must be met. Because of the ruling and the written agreement, no gift tax is due. Chapter 18 – Problem 53

In 2009, Jessica placed $250,000 in a savings account listing ownership as follows: “Jessica, Keri, and Jason, joint tenancy with the right of survivorship.” Keri and Jason are Jessica’s adult children. In 2012, Jason withdrew $50,000 from the account. In 2015, when the account had a balance of $210,000, Jessica predeceases her children.

What are the transfer tax consequences of these transactions in:

a.2009?

As neither Jessica nor Keri nor Jason withdrew any money, there will be no resulting tax liability. b.2012?

Early withdrawal penalties would mean that Jason would have to pay gift tax on the entire $50,000.

c.2015?

There was a gift tax due on the remaining balance of $210,000 after Jessica, the only contributor, passed away.

Chapter 20 – Problem 20

Complete the following chart, indicating the comparative attributes of the typical trust and estate by answering yes/no or explaining the differences between the entities where appropriate.

Chapter 20 – Problem 24

The Allwardt Trust is a simple trust that correctly uses the calendar year for tax purposes. Its income beneficiaries (Lucy and Ethel) are entitled to the trust’s annual accounting income in shares of one­half each.

For the current tax year, Allwardt reports the following.

Use the format of Exhibit 20.5 to address the following items.

a.      How much income is each beneficiary entitled to receive?

Ordinary income $525,000

b.      What is the trust’s DNI?

Trusts DNI is $498,750

b.      What is the trust’s taxable income?

Taxable income is  $498,750

c.       How much gross income is reported by each of the beneficiaries?

Gross Income reported by each (Lucy and Ethel) beneficiary;

­Lucy reports $249,375

­Ethel reports $249,375