Florence and her husband started a highly successful family business more than 40 years ago.  Florence originally owned 50% of the stock in this family business.  Her stock has a basis of $200,000.  The remaining 50% interest was owned by Florence's husband who died in 1999.  His 50% interest also had an original basis of $200,000, but had a fair market value (of the 50% interest) as of the date of his death of One Million Dollars. Florence's husband left his entire Tax and Business Strategies 50% interest to Florence.  Since her husband's death, Florence has devoted all of her time and energy toward making the business successful.   As of December 31, 2020, the fair market value of the family business (the "Company")  was Six Million Dollars ($6,000,000).  The track record of growth has been 20% per year for each of the last three years.  Assume that Florence's work efforts will allow the business to continue to grow in value at a rate of 20% per year for the in definite future.  Florence has three sons, Jonathan, Cole, and Todd.  Her oldest son Jonathan has played a key role in the growth and stability of the business both before and subsequent to his father's death.  To reward him for his effort, Florence gave Jonathan a one-third interest in the business as of December 31, 2020, and filed all appropriate gift tax returns.   Florence's middle son Cole always wanted to start his own business like his father had done.  Cole carefully avoided any involvement in Florence's business activities for many years.  However, on December 31, 2024, after over indulging at a New Year's Eve party, Cole confessed that he really would like to become a part of the family business.  In an effort to reward Cole for his wonderful decision, but to protect herself in case he changed his mind, Florence entered into an extended gifting program, giving Cole a 10% interest on December 31, 2024, another 10% on December 31, 2025, and sufficient additional stock to bring Cole's total ownership position to one-third as of December 31, 2026.  All appropriate gift tax returns were filed. Florence's youngest son Todd is a free spirit, who can't imagine working from 9 to 5 for the rest of his life.  Todd's attitude infuriates Florence, causing her to make the initial decision that Todd should not inherit any ownership interest in the Company.  However, when Florence sat down with her attorney to write her Will, in early 2027, she decided that she did not want to be remembered as a vindictive mother.  Florence, therefore, decided to leave the final one-third  ownership interest in the Company to Todd, by a provision in the Will which states that Todd would become the owner only  upon the death of Florence.  Because Florence at that time had very few assets over and above her investment in the family business, the clause in the Will stated that Todd would be responsible for the payment of any and all estate taxes (in other words Todd would be required to reimburse Florence's estate for all estate taxes incurred by Florence's estate) as a condition of receiving his one-third interest.   At her New Year's Eve party on December 31, 2028, Florence died.  Her funeral was held January 2, 2029.   Hopefully you remember that when the value of the estate is computed, all prior taxable gifts are added back to the total estate, and all prior gift taxes paid are a credit available to the estate to reduce any estate tax liabilities owed.  All calculations are to be made under the federal tax rules with no other applicable taxes.   To make the necessary calculations

You should assume the following: 

1.Florence's and her husband did not write an A/B Trust and Florence did not want to incur the expense of filing a Form 706 in order to make the portability election at the time of her husband's death. 

2.Congress amended the applicable law to provide a fixed $11.7 Million Dollar exemption for every year from 2020 through 2028. 

3.Congress amended the applicable laws to prevent discounting in any form. 

4.All gift taxes were computed correctly and the returns were filed on a timely basis. 

5.Florence resides during the entire 2020 to 2030 decade in Utah where no state level gift or estate taxes are imposed. 

6.Florence has no ownership interest in any assets other than stock in the family business at the time of her death. 

7.Florence never remarried, and definitely does not want her in-laws to own any portion of the family business 

Based on these assumptions, please compute the following: 

a)What is the value of the company as of December 31 each year from 2020 through 2028?  You are welcome to round to the nearest $1,000 increment.  

b)Compute the total value of Florence's taxable estate as of the date of her death? 

c)Compute the total federal estate tax owed by Florence's estate after credits for prior gift taxes paid. 

d)Compute the fair market value of the inheritance of each of Florence's three sons as of the date of Florence's death. 

e)What basis does each of Florence's three sons have in the stock they hold or inherit at the time of their mother's death? 

f)Did Florence achieve her objective of treating Todd equally compared to his two brothers? 

Answer rating: 100% (QA)

To compute the requested values well go step by step based on the provided information a Company Value as of December 31 each year from 2020 through 2028 December 31 2020 The fair market value of the ... View the full answer