You have been the Financial Adviser for Ken and Joan Hill for the last 3-years.

Question

You have been the Financial Adviser for Ken and Joan Hill for the last 3-years. You have asked them to stop by for an annual review. During the annual review you discover the following information:

Ken and Joan Hill gave $35,000 to their son for a down payment on a house in 2009.

Questions:

How much gift will be owed by Ken and Joan for giving the gift to their son?

How much income tax will be owed by their son?

List three advantages of making this gift.

You are the Financial Adviser for the Hill’s. They did not ask you for advice before making this gift to their son. If Ken and Joan Hill had asked you for your expert advice, what would you have recommended?

To your surprise, Joan Hill is now deceased. Joan Hill had a $2,500,000 net worth at the time of her death in 2009. In addition, she had a $350,000 whole life policy with a $40,000 of accumulated cash value; her niece was designated as the beneficiary. She also had a $50,000 pension plan benefit.

Questions:

What was the value of Joan’s gross estate?

How much of her estate is taxable?

How much estate tax will need to be paid?

How much of her estate must pass through probate?

What are the four different taxes that may be imposed on an estate?

Explanation / Answer

1. The gift value of $35,000 would be owed by the ken and joan by gifting to their son. The total gift value is owed because they had gifted unocassionally.

2. The son has no income taxable for the gift value he has recieved from ken and joan. This is because any gift or kind received from relatives is tax exempted.

3. 1. The wealth is transferred to son without any tax implication for the same to son.

   2. Only it is taxable in their hands for certain period.

   3. The income from house is not taxed in hands of ken and joan.

If ken and joan before making the gift had consulted a financial advisor, the financial advisor would suggest to gift the same on an ocassion such as birthday or marriage so that it is tax free for both the gift giver and receipent.

4. The value of joan's gross estate is sum of networth and policies of insurance. That is $2,500,000+350,000+50,000 which sums up to $2,900,000

5. The value of estate taxable is nil here because joan died in 2009 where the applicable gross estate value exclusion is 3,500,000.

6.The estate tax to be paid is nil

7. The value of insurance policies must only need to be passed through probate.

8. The four taxes that are imposed on estate are surcharges, federal taxes, inhertiable tax,sale or transfer tax.

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