InitYou have just been informed that Robert $($Bob$)$ Canue, an extremely wealthy client, has recently passed away. Upon hearing this you remember a meeting with him during which he discussed an interesting proposition which drastically affected his estate and personal planning. Bob, tired of the day to day monotony of corporate life, decided to enter the $2024$ Olympic games in the kayak competition. Unfortunately, Bob, although an all$-$american kayaker in college, did not possess the skill$-$level necessary to compete for the United States. Realizing that the only way he can make the Olympics is by racing for another country, he contacted the president of the "Banana Republic" and pledged $$10,000,000$ to be personally paid to that country's president if he allowed Bob citizenship in that country and allowed him to develop and captain a kayak team which would be competitive for the $2024$ summer Olympic games. The Banana Republic president, never one to turn his back on a quick $$10,000,000$ agreed. The terms of the payment were $$6,000,000$ down with the remaining $$4,000,000$ due and payable at the conclusion of the $2024$ Summer Olympic games.Bob also discovered he did not have to renounce his United States citizenship to become a "Banana Republic" citizen. Due to a special treaty arrangement with the "Banana Republic", a country extremely rich in natural resources, a dual citizenship is provided to anyone who moves to the "Banana Republic" to culturally enrich that country. Bob convinced the United States government that developing a "Banana Republic" kayak team would enhances that country's culture and consequently, is awarded dual citizenship status. In order to carry out his plans, it was necessary that Bob take a leave of absence from the hectic day to day responsibilities of corporate life. He also believed that the timing was right for him to implement some overdue estate planning. The following estate planning issues have arisen which you must address.$[$Each issue appears as a specific question on the exam$].$Question $1$Question One$-$Part OneSale of Aqua Cure Stock.One of Bob's assets was a $50$ percent stock interest in a closely held corporation, Aqua Cure Inc.. The corporation had recently developed a miracle water publicly recognized by the medical community as a powerful health tonic. His brother, Jonas, was the other $50$ percent shareholder of Aqua Cure stock. During a subsequent lunch, he and Jonas had agreed to the following deal. Bob sold all of his "Aqua Cure" stock to Jonas, for $$15,000,000.$ The sales contract provided that Jonas will pay Bob $5$ percent of annual corporate earnings until the purchase price is paid in full. The fair market value of Bob's stock on the date of sale was $ $20,000,000.$The installment agreement did not provide for interest payments. What are the transfer tax consequences of the sale?Question $2$Question One Part TwoBob drowned kayaking during a wild pre$-$Olympic party early on the morning of JULY $1,2024,$ at the Banana Republic president's ocean front estate. Upon review of his assets you note their were two trusts he had established. One trust is described as follows.On October $31,2023,$ he transferred other stock and liquid assets to the Robert Canue Olympic Trust. He initially named his wife Roberta as the trustee. The beneficiaries of the trust are his children and grandchildren. The pertinent terms of the trust and facts are stated as follows.$[$IN ANSWERING THIS QUESTION, ADDRESS THE SECTION $2036$ AND SECTION $2038$ TAX IMPLICATIONS FOR EACH TRUST TERM$/$ FACT SEPARATELY I$]$:$1.$ Pursuant to his $$10$ million pledge obligation Bob still owes the Banana Republic $$4,000,000.$ It is estimated that the trust will earn $ $8$ million per year. The trust terms require that trust income be used to satisfy the remaining $$4$million pledge obligation$\mathrm{.}2.$ The trustee has the discretion to distribute $10\%$ of trust income to Bob. The trustee has never missed a discretionary payment to Bob$\mathrm{.}3.$ The trust provides that if Bob should suffer an injury severe enough to prevent him from competing in the next Olympic games,Bob can revoke the trust and all assets will be returned to Bob$\mathrm{.}4.$ For this part of the question assume that on December $10,2023,$ Roberta's yacht was lost at sea and she was presumed drowned. Pursuant to a court order dated May $1$st$,2024,$ Bob was named the replacement trustee and served in that capacity until his death. The trust terms require that the trustee will distribute as much income as is necessary for the support, maintenance, health, education of Bob's adult children, Betty and Bill$\mathrm{.}5.$ Making the same assumption as the previous part of the question $($part $4),$ would your answer change if the trust provision provided that the trustee will distribute as much income as is necessary for the support, maintenance, health, education and enjoyment of Bob's adult children, Betty and Bill.Question $3$Question One Part ThreeThe Stephen Canue TrustBob was also a $100$ percent owner of a closely held corporation, Cane, Inc. This corporation was special to him since he it was his first business venture and he had built it into a moderately successful corporation. On October $31,2023$ he transferred all of the stock of Canue, Inc. to the Stephen Cane Trust for the benefit of his younger brother, Stephen with remainder to Stephen's children. Stephen has only one aspiration in life and that was to become a professional student. Unfortunately, Stephen achieved this goal and had failed to pursue any others. The pertinent terms of the trust are as follows, He named his uncle Fred as trustee.Bob possessed the power to replace Fred as trustee with anyone he chooses. On the date of Bob's death, uncle Fred was still the trustee of the Stephen Canue Trust.$[$IN ANSWERING THIS QUESTION, ADDRESS THE SECTION $2036$ AND SECTION $2038$ TAX IMPLICATIONS FOR EACH TRUST TERM$/$ FACT SEPARATELY $!]$:$1.$The trust provides the trustee the annual discretion to distribute income to Stephen or accumulate the income for the benefit of the remainder beneficiaries$\mathrm{.}2.$ The trustee reserves the power to change the remainder beneficiary$\mathrm{.}3.$ The trustee possesses the right to vote the transferred shares of Canue, Inc.$\mathrm{.}4.$ The trustee had the discretion to distribute income either to Stephen or any of his children.Question $4$Question $4$Question Two Part OneJack Saylor, age $55,$ has recently come into your office for estate planning. He is a widower and the single parent of two lovely children, Larry and Linda. Jack is ready to retire and sail around the world with in his "state of the art" $120$ foot sailboat. As part of his estate plan he sells the family business to his two children. The sales price is $$6,000,000,$ the fair market value of the business on the date of sale. The sale is structured as an installment sale with the interest rate equaling a market rate of interest. After the sale, he continued as director and officer of the corporation. Unfortunately, on the $50$th day of the world voyage his sailboat ran into a hurricane in the South Pacific and Jack was officially declared lost at sea. Jack's official date of death was April $10$th$,2024$ At the time of his death, the unpaid balance of the installment note from his Larry and Linda was was $$5,000,000.$ It is noteworthy that Paragraph $5$ of The Jack Saylor Last Will and Testament reads as follows:...Upon my death, any unpaid balance of the installment note owed to me by my beloved children, Larry and Linda, will be cancelled.As structured what is the federal estate tax impact of the above mentioned note cancellation provision in the will? Instead of cancelling the installment note in the will would there have been a better way to structure the note cancellation,?Question $5$Question Two$-$Part TwoPlease discuss the federal estate tax issues raised by each of the following fact situations$\mathrm{.}1.$ Jack had entered into an employment contract with the family corporation, whereby, in consideration of Jack's agreement to perform of services, the corporation agreed to pay a death benefit of $$100,000$ to Jack's designated beneficiary if Jack was employed by the corporation on the date of death. Pursuant to the terms of the agreement, Jack possessed the power to change the beneficiary of the death benefit arrangement. This power existed at the time of his death. According to corporate records, Jack was employed by the corporation on the date of his death$\mathrm{.}2.$ At the time of his death, Jack was the income beneficiary of a trust created by his father. At Jack's death the trust corpus was valued at $ $10,000,000\mathrm{.}3.$ Jack was a $20\%$ tenant in common owner of commercial real estate. The fair market value of the property at the time of death was $ $500,000\mathrm{.}4.$ Jack had transferred $ $1,000,000$ to his daughter, Linda in exchange for his daughter's promise to provide him with $ $40,000$ a year for the rest of his life. The actuarial value of the daughter's promise to pay Jack the $$40,000$ annual annuity amount was $$800,000\mathrm{.}5.$ Pursuant to the state survival statute, Jack's estate received. $$500,000\mathrm{.}6.$ On July $10,2023,$ Jack had established the Jack Saylor Family Trust. Jack initially had named himself as trustee of a trust which hadnumerous section $2036$ and $2038$ powers. On the advice of his attorney, on October $10,2023.$ Jack had relinquished his role as trustee and names his sister, Jaunita, as trustee of the trust. Discuss the estate tax implication of relinquishing his role as trustee. lack died on April $10,2024.$Part $3$Question $6$Question ThreeDiscuss the federal estate tax consequences presented by the below facts. Include in your answer the basis of the properties to the surviving tenants.Several years ago, Brad, a dealer in real estate gifts the following parcels of real estate to his daughter, Mellissa. The properties gifted along with the values on the date of the gift are as follows:PropertyLong Beach PropertiesBayfront PropertiesBeechtree AcresValue$2\mathrm{.}000,0001,000,000500,000$Melissa held onto the properties and they appreciated in value. On January $10,$ of this year Brad approached Melissa about the possibility of their jointly acquiring the Harbour Bay Resort as joint tenants in the entirety. The Harbor Bay resort is an upscale resort and golf course situated on oceanfront property. The acquisition cost is $ $30,000,000$ dollars. The consideration provided to the owners of the Harbor Bay Resort by Brad and Melissa in exchange for the resort are as follows:Brad's consideration:a$.$ $ $10,000,000$ in cash.Melissa's consideration:b$.$ $$5,000,000$ in cash;c$.$ The Long Beach Properties with a fair market value of $$2,500,000$d$.$ The Bayfront properties worth $ $1,500,000$e$.$ Since the sellers of the Harbor Bay Resort were not interested in Beechtree Acres, she sold that property for $ $1,000,000$ and contributed the $$1,000,000$ proceeds towards the resort's purchase price.Brad and Mellissa financed the remaining $$10,000,000$ of the purchase price with a recourse mortgage.Brad dies on luly $10$ of this ear. At the time of his death, the unpaid mortgage balance was $ $6,000,000.$ Subsequent to the purchase, Brad had paid $ $3,000,000$ and Melissa had paid $$1,000,000.$ At the time of his death, the fair market value of the resort was $ $32,000,000\mathrm{.}2.$ Personal ResidenceBrad had also owned a residence in joint tenancy with his wife, Marla. Brad had paid the entire purchase price of $$4,000,000.$ At the time of his death, the property was valued at $ $5,000,000.$