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BUSI 354 ESTATE PLAN ASSIGNMENT

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BUSI 354 ESTATE PLAN ASSIGNMENT ESTATE PLAN SCENARIO Kathi and Darrin Background Kathi and Darrin have been married for 50 years and are both in good health. Kathi and Darrin live in a community property state. They have the following children and grandchildren: Children Age Grandchildren Elizabeth Age 45 4 children James Age 35 3 children Lynn Deceased 1 child Elizabeth, an estate planning attorney, is married, healthy, and happy. Kathi and Darrin adore Elizabeth’s husband, Scott, and their 4 children. James, a high net worth investment consultant, was recently divorced and his ex-wife, Catherine, has custody of their 3 children. Kathi and Darrin, never quite cared for Catherine, as she always seemed to be quite snooty. Especially since the divorce, the relationship between Kathi and Catherine has been very strained. Since his divorce, James has had somewhat of a mid-life crisis. He recently rented a penthouse apartment and bought a new Jaguar. James has also been dating Natalie, a 21-year-old swimsuit model. While Kathi and Darrin are confident that this is only a phase, they are concerned about giving any gifts to James or his children outright. Lynn, Kathi and Darrin’s third child, was a bit of a wild child. Lynn died in a tragic motorcycle accident in her senior year of college while she was on her way home to tell her parents about a big secret she had been keeping. The summer before, Lynn had given birth to a baby girl named Marie. At the time, Lynn gave the baby to the baby’s father, an older married man, although no official adoption was ever performed. Kathi and Darrin still do not know about Marie. Kathi and Darrin own Fresh Veggies, a popular organic health food store. Scott, Elizabeth’s husband, has worked at the store since he was a kid. Scott is now the store manager and handles most of the day-to-day functions, with very little input from Kathi and Darrin. Kathi and Darrin would like to reward Scott for all of his hard work by giving Scott and Elizabeth 3/4 of the business and giving the remaining 1/4 of the business to James. They do not want James to have any control over the business, just to have an income interest. Elizabeth’s youngest child, Andrew, was born with a serious physical disability. To provide additional support for Andrew, Darrin created an irrevocable trust with an $8,014,000 transfer of separate property 5 years ago. The trust meets the requirements of Section 2503(c). Assume for any calculation of GSTT that the annual exclusion was $14,000 and the lifetime exemption was $5,250,000. Also assume that the GSTT and gift tax rates were 40% for determination of GSTT even though they were paid 5 years prior. Darrin and Kathi made the following additional lifetime transfers: • Four years ago, Darrin gave Elizabeth, James, and their spouses $100,000 each (assume the annual exclusion was $11,000) of community property. • Two years ago, Darrin gave Elizabeth, James, and their spouses $200,000 each of his separate property. Darrin paid gift tax of $347,760. Kathi and Darrin have never elected to split gifts of separate property. Kathi and Darrin estimate the following at each of their deaths: • The last illness and funeral expenses are expected to be $100,000 per person. • Estate administration expenses are estimated at $250,000 per person. The Will Kathi does not have a will. Darrin has an old, outdated will leaving most probate assets to Kathi. Clauses from Darrin’s Statutory Last Will and Testament I, Darrin, being of sound mind and wishing to make proper disposition of my property in the event of my death, do declare this to be my Last Will and Testament. I revoke all of my prior wills and codicils. 1. I have been married but once, and only to Kathi with whom I am presently living. Out of my marriage to Kathi, 3 children were born, namely Elizabeth, James and Lynn. I have adopted no one nor has anyone adopted me. 2. I leave my Vin

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