Peter Sampras and Michelle Lesniak were married several years ago when they appeared on the show "Who Wants to Marry a Millionaire". Michelle is a long standing client of yours and following your advice refused to sign a Prenuptial Agreement before appearing on the show. However, as expected the marriage did not exactly work out as planned. Michelle comes to you and explains that Peter proposed the following plan in an attempt to resolve their divorce.

(1) Peter will continue to pay the annual premiums of $15,000 per year on a life insurance policy owned by Peter on his own life which Michelle is named as the beneficiary of.

(2) In addition, at the beginning of each month Peter will continue to transfer $50,000 to Michelle for her day-to-day living expenses on a monthly basis, just as he did while they were married and before he was booted out of their Paris apartment for having an affair. Michelle will use the money to pay the costs of maintaining their residence in New York City, and providing their only child with the appropriate medical care and clothing.

(3) Peter will also agree to give Michelle 10% of his annual income for the next 10 years, which varies substantially from year to year. Currently Peter expects his salary to be $400,000 in 2022, $600,000 in 2023, but he is unable to predict what his income will be beyond that period.

(4) Finally, Peter will transfer to Michelle 50,000 shares (50%) of Tennis Balls Inc., the wholly owned publicly traded company Peter bought in 1996 for $5,000,000. Peter has invested $10,000,000 of his separate money into the company since its purchase, and the shares are presently worth approximately $25,000,000.Michelle tells you that she desperately needs the money and will need to immediately sell the shares in order to pay her daily living expenses.

Outline all of the tax consequences of the above to Michelle?

Answer rating: 100% (QA)

The tax consequences for Michelle in the proposed plan can be outlined as follows 1 Life Insurance P... View the full answer