Patti and John Loving, both age 65, have been married for 40 years, are both in good health, and they are citizens and residents of Pennsylvania. They owned Fur Friends Corp., a successful luxury dog and cat boarding kennel organized as an S-Corp. Their basis in Fur Friends is $750,000. They have the following children and grandchildren:

Children	Age	Grandchildren
Belinda	42	1 child
William	43	3 children (ages 5, 3 & 1)

William is an attorney and he is married to Sonia. Patti and John have a good relationship with William and Sonia and spend a lot of time with their 3 children as they live 15 minutes away in a nearby town.

Belinda lives in California and is a member of the paparazzi. She recently divorced from her ex-husband Mark. Due to Belinda’s varying income and frequent travel for her job, Mark has primary custody of their child. Mark is a tabloid reporter, and he has a history of being sued by celebrities asserting that his stories are false. Patti and John make every effort to see Belinda’s child as much as they can, but they are not on good terms with Mark as they blame his poor treatment of Belinda for the divorce. In addition, they are concerned about Belinda’s behavior since the divorce. She has had dramatic plastic surgery and bought a luxury car, and she started seeing a much younger man who is hoping to become an “Instagram influencer”. The man is living with Belinda, and she is supporting him until he “makes it big.”

John and Patti have retired from actively managing Fur Friends, but they still retain 100% ownership of the S Corp. Sonia has worked at Fur Friends for years and she now manages the kennel’s day to day operations. John and Patti would like to transfer their interests in the S Corp. to their children and Sonia, but they are concerned about giving any management authority to Belinda due to her concerning spending behaviors.

Patty and John are concerned about financial stability for Belinda’s child, so they set up a revocable trust funded with $500,000 to be used exclusively for education expenses or critical expenses in the event that Belinda or Mark are unable to pay rent or medical costs for the child, or purchase food other necessities.

Patti and John own two homes. They purchased their primary home 7 years ago for $730,000 in a highly desirable area of the state with appreciating home values. They also own a condo at the Jersey Shore that they purchased 3 years ago for $620,000. John’s rental property is owned in his name, purchased 2 years ago for $703,000. His sister acts as the property manager for the building and he promised to leave her the building when he dies.

They transferred their joint investment portfolio into a revocable trust 6 years ago, with the grandchildren named as equal beneficiaries. The trust will begin making distributions to the grandchildren when they turn 25 years old.

They each own life insurance policies on their own lives and have a trust as the named beneficiary, with the grandchildren named as beneficiaries of the trust. The grandchildren will begin to receive distributions from the trust when they reach age 25.

Assume the following at each of their deaths:

The last illness and funeral expenses are expected to be $100,000 per person.

Estate administration expenses are estimated at $250,000 per person.

Wills

Patti and John created wills ten years ago. The wills contain the following provisions:

John listed the following specific bequests, to be paid from his probate estate: $10,000 donation to Veterans Voices, a Veteran’s advocacy group; and his rental property is to be distributed to his sister.

Patti listed the following specific bequests, to be paid from her probate estate: $25,000 donation to Justice for All, a criminal justice reform organization; and her savings account is to be distributed to her cousin.

The remaining probate estate and any residue of the estate is left to the surviving spouse. In the event that the spouse predeceases the decedent or fails to survive the decedent by more than six (6) months from the date of death, the interest is to be distributed to Belinda and William in equal shares.

All of ownership interest Fur Friends, Corp. will be distributed to William, Sonia, and Belinda.

In the event that any of the named legatees should disclaim or otherwise fail to accept the property bequeathed to him or her, then such interest will pass to the said legatee’s lineal descendants.

Last expenses, including medical, funeral, and the administration costs shall be paid from the probate estate.

All taxes and other estate expenses are to be paid from the probate estate.

Statement of Financial Position

Assets are stated at fair market value (FMV).

Liabilities are stated at outstanding balance.

Assets				Liabilities and Net Worth
Cash and Cash Equivalents	Owner	FMV		Liabilities
Cash	Joint	$150,000			Owner
Savings Account	Patti	$180,000		Credit Card 1	John	$16,000
Total Cash/Cash Equivalents		$330,000		Credit Card 2	Patti	$25,000
				Mortgage Primary Residence	Joint	$650,000
Invested Assets				Mortgage Vacation Home	Joint	$430,000
Fur Friends, Corp.	Joint	$4,000,000		Auto 1	John	$23,000
Investment Portfolio	Joint	$5,600,000		Auto 2	Patti	$20,000
Life Insurance on John	John	$1,000,000		Rental Property	John	$590,000
Life Insurance on Patti	Patti	$1,000,000		Total Liabilities		$1,754,000
Revocable Trust	Joint	$500,000		Net Worth		$14, 229,000
Rental Property	John	$720,000
Total Investments		$12,820,000
Personal Use Assets
Primary Residence	Joint	$1,200,000
Vacation Home	Joint	$800,000
Personal Property	John	$330,000
Personal Property	Patti	$400,000
Auto 1	John	$50,000
Auto 2	Patti	$53,000
Total Personal Use		$2,833,000
Total Assets		$15,983,000

Answer the following questions. Assume the facts given in the fact pattern and that the 2021 estate and gift tax rates and annual exclusion apply to all transfers in both the current and previous years. (Numbers are rounded for convenience.)

Calculate John’s gross estate, assuming he dies first.

Calculate John’s probate estate, assuming he dies first.

Calculate John’s marital deduction, assuming he dies first. Assume his state estate taxes are $105,000.

Answer rating: 100% (QA)

Johns gross estate is 14229000 Johns probate estate is 3579000 Johns mari... View the full answer