Assumptions: Financial Status: Current Taxable Income: Your current taxable income is $150,000 per year. Federal Income Tax
Question:
Assumptions:
Financial Status:
Current Taxable Income: Your current taxable income is $150,000 per year.
Federal Income Tax Rate: The federal income tax rate applicable to your income is 22%.
State Income Tax Rate (if applicable): The state income tax rate is 5%.
Life Insurance Policy: You have a life insurance policy with a death benefit of $1,000,000.
Real Estate Business: You own a real estate business with an estimated value of $2,000,000.
Estate Planning Strategy:
Charitable Remainder Annuity Trust (CRAT):
You plan to contribute $500,000 worth of appreciated assets (e.g., stocks or real estate) to a CRAT.
The CRAT will have an annuity rate of 5%.
The CRAT term is set at 10 years.
The designated charitable organization is the XYZ Foundation.
You'll claim an immediate income tax deduction for the present value of the charitable remainder interest.
Irrevocable Life Insurance Trust (ILIT):
The ILIT is funded with a life insurance policy with a death benefit of $1,000,000.
Premium payments for the life insurance policy are $5,000 annually.
The ILIT is structured to remove the life insurance proceeds from your taxable estate.
The beneficiaries of the ILIT are your heirs.
Income and Tax Projections:
Expected Income Growth: You anticipate a 3% annual increase in your income.
Investment Growth: The assets within the CRAT are expected to grow at an annual rate of 7%.
A) Analyze the personal income tax consequences and value over the next 10 years due to the proposed tax strategy of using a CRAT and an ILIT for estate planning using the assumption provided.
B) Provide a quantitative Excel model analyzing the personal income tax consequences and value over the next 10 years as a result of adding a GRAT and an ILIT to the estate planning using the assumption provided before.
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill