Emily does not have a will. Pete has written two wills in his lifetime. The first will was a statutory will executed during his marriage to Diana, and dated September 1, 1990. The second will is a handwritten will he wrote right after his divorce. For the second will, Pete did not want to seek advice from an attorney so he basically copied the first will in his own handwriting and replaced the names. The second will is only signed and dated by him and was not witnessed. Diana still has an executed copy of the first will and the second will is in the bottom of Pete's sock drawer. No one, other than Pete, knows the second will exists. Pete's Last Will and Testament drafted and executed during his marriage to Diana. I, Pete, 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. 1. I have been married but once, and only to Diana with whom I am presently living. Out of my marriage to Diana, two children were born, Kate and Pippa. I have adopted no one nor has anyone adopted me. 2. I leave all assets to my wife Diana. 3. In the event that Diana predeceases me or fails to survive me for more than six (6) months from the date of my death, disclaims, or otherwise fails to accept any property bequeathed to her, I give my estate to my children. 4. In the event that any of my children should predecease me, die within six months from the date of my death, disclaim, or otherwise fail to accept any property bequeathed to him or her, then such interest will pass to the said legatee's descendants, otherwise his or her share of all of my property of which I die possessed shall be paid equally among my surviving children. 5. I name my wife, Diana, to serve as the executor of my estate with full seizin and without bond. 6. I direct that the expenses of my last illness, funeral, and the administration of my estate shall be paid by my executor as soon as practicable after my death and allocated against the residual estate. PETE'S LAST WILL AND TESTAMENT HANDWRITTEN AFTER HIS DIVORCE: I, Pete, 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. 1. I have two children, Kate and Pippa. I have adopted no one nor has anyone adopted me. 2. I leave all assets to my children. 3. In the event that any of my children should predecease me, die within six months from the date of my death, disclaim, or otherwise fail to accept any property bequeathed to him or her, then such interest will pass to the said legatee's descendants, otherwise his or her share of all of my property of which I die possessed shall be paid equally among my surviving children. 4. I name my daughter Kate, to serve as the executor of my estate with full seizin and without bond. 5. I direct that the expenses of my last illness, funeral, and the administration of my estate shall be paid by my executor as soon as practicable after my death and allocated against the residual estate. PETE AND EMILY BACKGROUND Pete, age 58 , and Emily, age 31 , have been dating for about a year and a half. Pete and Emily met when Pete was on a vacation in the London. Emily was a beautiful British model by photographed at the market by Pete's hotel. After a month-long romance, Pete asked Emily to return to the United States with him. Although not a United States citizen, she has maintained residence in the United States for 15 months. While they have no current plans to marry, they recently found out that Emily is expecting her first child. Although no paternity tests have been conducted, both Pete and Emily are confident the child is Pete's. When they found out Emily was pregnant, Emily moved into the 4 bedroom home Pete owns so they could prepare for the baby, whom they plan to name Sylvester. To prove to Emily that he was serious about them being a family, Pete gave Emily $10,000,000 in a money market account in January 2019 . The money market account is the only asset Emily owns. Pete also purchased a $15,000,000 life insurance policy on his life and named Emily as the beneficiary. Pete was previously married and has two children from that marriage, Kate, age 38 , and Pippa, age 33 . Both girls are happily married and have children of their own. Kate has two children, Charlotte, age 3 , and Louis, age 13. Pippa was unable to have children of her own; therefore, she adopted a little girl, Lilly, age 2 , from Russia last year. Pete and his first wife, Diana, have been divorced for ten years and are not on speaking terms. After their marriage, Pete was required to pay Diana alimony in the amount of $18,000 per month. When the court order expired at the end of 2015 , Pete felt bad so he continues to give Diana $18,000 per month on the first of each month. Although Pete has high blood pressure, he is otherwise healthy. Emily has never been married. She is in excellent health, and leamed just a few days ago that they are having a baby boy, who is expected to be healthy. Pete is retired and owns Pebble Bar, a NYC bar, while Emily is currently unemployed. Pete and Emily live in a community property state. Pete's mother, Amy, also lives with him. Amy is 82 and in failing health. She was recently diagnosed with Parkinson's disease. While she is unable to feed or bathe herself, she is expected to live for several more years. Amy has already spent all of her retirement assets and relies exclusively on Social Security. The only substantial asset she owns is a life insurance policy covering her life. The policy has a $100,000 death benefit. The policy does not have a named beneficiary. For estate planning purposes, Pete estimates the following expenses at his death: 1. The last illness and funeral expenses are expected to be $100,000. 2. Estate administration expenses are estimated at $180,000. 3. Funeral expenses are expected to be $120,000. Notes to Financial Statements: 1. Assets are stated at fair market value (rounded to even dollars). 2. Liabilities are stated at principal only (rounded to even dollars). 3. Pebble Bar was valued last week for insurance purposes. The valuation includes $10,000,000 for the land and $13,785,000 for the business. 4. The qualified plan has Diana listed as the designated beneficiary. The Investment Portfolio is a Transfer on Death (TOD) account with Kate and Pippa as the listed beneficiaries. 5. The adjusted basis of the personal residence is $4,000,000. 6. Pete received the vacation property as an inter vivos gift from his grandfather, Otto. Otto purchased the vacation property for $1,000 and the FMV of the property at the date of transfer to Pete was $75,000. The FMV when Otto died was $90,000. The annual exclusion did not apply to the transfer and the gift tax paid was $18,400. 7. The yacht is owned joint tenancy with rights of survivorship with Diana. They each contributed 50% of the purchase price. The Statement of Financial Position only reflects Pete's interest. 8. Pete's state does not have any statutes that invalidate bequests or beneficiary designations to prior spouses. 9. This statement is prepared after all the gifts were made, including the one to Emily, and the gift tax has been paid for the 2015 gifts. GIFTS TO CHILDREN in 2017 Pete made the following gifts to his children during 2017: - Pete gave $350,000 of separate property to Kate. - Pete paid $308,000 to Stanford for Pippa's undergraduate tuition. - Pete gave Pippa a Range Rover valued at $104,500 to celebrate her success at Stanford. - Pete also gave each grandchild $10,000 each. GIFTS TO GRANDCHILDREN in 2018 Pete made the following gifts to his grandchildren during 2018: - Seeing how Pete's mom outlived her assets, Pete is afraid his grandchildren may have the same fate. To assist them with their retirement income, Pete decided to establish a trust for the grandchildren. The trust is an irrevocable trust and he funded it in the current year with $950,000. The trust will accumulate income until each grandchild reaches age 50 . When a grandchild reaches age 50 , he/she will begin receiving an annuity for their life. When all of the grandchildren die, if there is any remaining assets then the trustee may distribute those assets to a charitable organization of his choosing. - Pete sent a check in the amount of $18,000 directly to Louis's private school to pay her tuition. - Pete also gave each grandchild $10,000 each. Assume Pete paid gift tax of $3,828,000 in 2016 for taxable gifts in the amount of $15,000,000 made in 2015. These were his first taxable gifts. 4. Assuming Pete died December 31,2020 , calculate the Marital Deduction available for estate transfers to Emily. (Value 10 points) 5. Assume Pete died December 31, 2020. For this question only, assume that the estate tax liability due is $22,605,811, and Kate is appointed executor. Unfortunately, Kate forgot to file an Estate Tax Return (Form 706) and pay the estate tax due until 118 days after the return's due date. How much is the total penalty for failure-to-file and failure-to-pay? (Note this is not the actual estate tax liability due.) (Value - 10 points) 6. What is the amount of Pete's total taxable gifts for 2017 and 2018 (less the annual exclusion and qualified transfers)? (Value - 10 points) Emily does not have a will. Pete has written two wills in his lifetime. The first will was a statutory will executed during his marriage to Diana, and dated September 1, 1990. The second will is a handwritten will he wrote right after his divorce. For the second will, Pete did not want to seek advice from an attorney so he basically copied the first will in his own handwriting and replaced the names. The second will is only signed and dated by him and was not witnessed. Diana still has an executed copy of the first will and the second will is in the bottom of Pete's sock drawer. No one, other than Pete, knows the second will exists. Pete's Last Will and Testament drafted and executed during his marriage to Diana. I, Pete, 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. 1. I have been married but once, and only to Diana with whom I am presently living. Out of my marriage to Diana, two children were born, Kate and Pippa. I have adopted no one nor has anyone adopted me. 2. I leave all assets to my wife Diana. 3. In the event that Diana predeceases me or fails to survive me for more than six (6) months from the date of my death, disclaims, or otherwise fails to accept any property bequeathed to her, I give my estate to my children. 4. In the event that any of my children should predecease me, die within six months from the date of my death, disclaim, or otherwise fail to accept any property bequeathed to him or her, then such interest will pass to the said legatee's descendants, otherwise his or her share of all of my property of which I die possessed shall be paid equally among my surviving children. 5. I name my wife, Diana, to serve as the executor of my estate with full seizin and without bond. 6. I direct that the expenses of my last illness, funeral, and the administration of my estate shall be paid by my executor as soon as practicable after my death and allocated against the residual estate. PETE'S LAST WILL AND TESTAMENT HANDWRITTEN AFTER HIS DIVORCE: I, Pete, 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. 1. I have two children, Kate and Pippa. I have adopted no one nor has anyone adopted me. 2. I leave all assets to my children. 3. In the event that any of my children should predecease me, die within six months from the date of my death, disclaim, or otherwise fail to accept any property bequeathed to him or her, then such interest will pass to the said legatee's descendants, otherwise his or her share of all of my property of which I die possessed shall be paid equally among my surviving children. 4. I name my daughter Kate, to serve as the executor of my estate with full seizin and without bond. 5. I direct that the expenses of my last illness, funeral, and the administration of my estate shall be paid by my executor as soon as practicable after my death and allocated against the residual estate. PETE AND EMILY BACKGROUND Pete, age 58 , and Emily, age 31 , have been dating for about a year and a half. Pete and Emily met when Pete was on a vacation in the London. Emily was a beautiful British model by photographed at the market by Pete's hotel. After a month-long romance, Pete asked Emily to return to the United States with him. Although not a United States citizen, she has maintained residence in the United States for 15 months. While they have no current plans to marry, they recently found out that Emily is expecting her first child. Although no paternity tests have been conducted, both Pete and Emily are confident the child is Pete's. When they found out Emily was pregnant, Emily moved into the 4 bedroom home Pete owns so they could prepare for the baby, whom they plan to name Sylvester. To prove to Emily that he was serious about them being a family, Pete gave Emily $10,000,000 in a money market account in January 2019 . The money market account is the only asset Emily owns. Pete also purchased a $15,000,000 life insurance policy on his life and named Emily as the beneficiary. Pete was previously married and has two children from that marriage, Kate, age 38 , and Pippa, age 33 . Both girls are happily married and have children of their own. Kate has two children, Charlotte, age 3 , and Louis, age 13. Pippa was unable to have children of her own; therefore, she adopted a little girl, Lilly, age 2 , from Russia last year. Pete and his first wife, Diana, have been divorced for ten years and are not on speaking terms. After their marriage, Pete was required to pay Diana alimony in the amount of $18,000 per month. When the court order expired at the end of 2015 , Pete felt bad so he continues to give Diana $18,000 per month on the first of each month. Although Pete has high blood pressure, he is otherwise healthy. Emily has never been married. She is in excellent health, and leamed just a few days ago that they are having a baby boy, who is expected to be healthy. Pete is retired and owns Pebble Bar, a NYC bar, while Emily is currently unemployed. Pete and Emily live in a community property state. Pete's mother, Amy, also lives with him. Amy is 82 and in failing health. She was recently diagnosed with Parkinson's disease. While she is unable to feed or bathe herself, she is expected to live for several more years. Amy has already spent all of her retirement assets and relies exclusively on Social Security. The only substantial asset she owns is a life insurance policy covering her life. The policy has a $100,000 death benefit. The policy does not have a named beneficiary. For estate planning purposes, Pete estimates the following expenses at his death: 1. The last illness and funeral expenses are expected to be $100,000. 2. Estate administration expenses are estimated at $180,000. 3. Funeral expenses are expected to be $120,000. Notes to Financial Statements: 1. Assets are stated at fair market value (rounded to even dollars). 2. Liabilities are stated at principal only (rounded to even dollars). 3. Pebble Bar was valued last week for insurance purposes. The valuation includes $10,000,000 for the land and $13,785,000 for the business. 4. The qualified plan has Diana listed as the designated beneficiary. The Investment Portfolio is a Transfer on Death (TOD) account with Kate and Pippa as the listed beneficiaries. 5. The adjusted basis of the personal residence is $4,000,000. 6. Pete received the vacation property as an inter vivos gift from his grandfather, Otto. Otto purchased the vacation property for $1,000 and the FMV of the property at the date of transfer to Pete was $75,000. The FMV when Otto died was $90,000. The annual exclusion did not apply to the transfer and the gift tax paid was $18,400. 7. The yacht is owned joint tenancy with rights of survivorship with Diana. They each contributed 50% of the purchase price. The Statement of Financial Position only reflects Pete's interest. 8. Pete's state does not have any statutes that invalidate bequests or beneficiary designations to prior spouses. 9. This statement is prepared after all the gifts were made, including the one to Emily, and the gift tax has been paid for the 2015 gifts. GIFTS TO CHILDREN in 2017 Pete made the following gifts to his children during 2017: - Pete gave $350,000 of separate property to Kate. - Pete paid $308,000 to Stanford for Pippa's undergraduate tuition. - Pete gave Pippa a Range Rover valued at $104,500 to celebrate her success at Stanford. - Pete also gave each grandchild $10,000 each. GIFTS TO GRANDCHILDREN in 2018 Pete made the following gifts to his grandchildren during 2018: - Seeing how Pete's mom outlived her assets, Pete is afraid his grandchildren may have the same fate. To assist them with their retirement income, Pete decided to establish a trust for the grandchildren. The trust is an irrevocable trust and he funded it in the current year with $950,000. The trust will accumulate income until each grandchild reaches age 50 . When a grandchild reaches age 50 , he/she will begin receiving an annuity for their life. When all of the grandchildren die, if there is any remaining assets then the trustee may distribute those assets to a charitable organization of his choosing. - Pete sent a check in the amount of $18,000 directly to Louis's private school to pay her tuition. - Pete also gave each grandchild $10,000 each. Assume Pete paid gift tax of $3,828,000 in 2016 for taxable gifts in the amount of $15,000,000 made in 2015. These were his first taxable gifts. 4. Assuming Pete died December 31,2020 , calculate the Marital Deduction available for estate transfers to Emily. (Value 10 points) 5. Assume Pete died December 31, 2020. For this question only, assume that the estate tax liability due is $22,605,811, and Kate is appointed executor. Unfortunately, Kate forgot to file an Estate Tax Return (Form 706) and pay the estate tax due until 118 days after the return's due date. How much is the total penalty for failure-to-file and failure-to-pay? (Note this is not the actual estate tax liability due.) (Value - 10 points) 6. What is the amount of Pete's total taxable gifts for 2017 and 2018 (less the annual exclusion and qualified transfers)? (Value - 10 points)