Onslo Graham is 67 years of age and his wife, Daisy, is 62. Onslo is a founder and part owner of WACO, Inc., which designs, installs, and monitors security systems for residential and commercial users in several states. The company has been in operation for about 20 years and is valued at $33.6 million. Onslo and two other employees of the company each own one-third of all of the WACO stock. The Grahams reside in a Common Law jurisdiction. They have not made any Adjusted Taxable Gifts during their respective lifetimes.

Onslo and Daisy have an annual income of $485,000 and their adjusted gross income is $419,000. Daisy works three days a week without pay at a local orphanage. She and Onslo have been involved with the orphanage for many years and have been frequent contributors to its fundraising programs. They have one child, Rose, who is 30 years old and unmarried. Onslo and Daisy feel that Rose is not able to handle large sums of money and cannot manage financial matters responsibly.

Onslo and Daisy are joint owners of a personal residence valued at $1,350,000. Onslo owns a sports car valued at $75,000, and Onslo and Daisy together own two cars valued at $90,000. The Grahams are joint owners of a portfolio of municipal bonds valued at $1,200,000 and stock (purchased more than one year ago, with an aggregate tax cost of $950,000) valued at $3,100,000. Onslo purchased a joint-and-survivor annuity that pays the Grahams $20,000 per year for life and $10,000 for life to the survivor (the present value of the annuity is $137,650). Onslo also has a 401(k) through his company that is currently valued at $2,250,000. Daisy is the designated beneficiary of the plan.

Onslo is the owner and insured of a whole life insurance policy that will pay Daisy a death benefit of $2,250,000 and has a cash value of $710,000. Rose is also the owner of a universal life insurance policy on Onslo's life that will pay a death benefit of $150,000 to Daisy (cash value of $85,000), and Onslo also has group life insurance (1.5x salary) through his company with a face amount of $600,000. Daisy is the beneficiary of these policies. Onslo also owns a $200,000 universal life insurance policy on his wife. The policy has a cash value of $89,000 (replacement value), and Onslo is the beneficiary.

Daisy is the owner of a farm in Nebraska that was left to her by her parents. She rents the farm out to tenants who pay her a portion of the income from their crop each year. The farm is worth

$500,000.

Onslo's will provides that all assets will be placed in trust, with income payable to Daisy for her life, and at her death the remainder will be paid to the local orphanage. The will names Daisy as the executor and in the event of simultaneous death provides that Daisy will be deemed to have survived him. Daisy's will provides that the farm will be placed in trust and income paid to Rose for life. At her death, the trust income will be payable to Rose's children for their lives, and if there are no children, the income will be paid to the local orphanage in perpetuity.

1. How much may the Grahams deduct on their itemized deductions for income taxes this year if they donate $500,000 in stock to the orphanage (assume the orphanage is a 60% charity)?

Answer rating: 100% (QA)

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