Willa Jane and Henry have been married for 50 years and are both in good health. Willa

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Willa Jane and Henry have been married for 50 years and are both in good health. Willa Jane and Henry live in a community property state. They have the following children and grandchildren:

Children		Grandchildren
Olivia	Age 45	3 children
Truman	Age 35	3 children
Tara	Deceased	1 child

Olivia, an estate planning attorney, is married, healthy, and happy. Willa Jane and Henry adore Olivia’s husband, Wade, and their three children.
Truman, a high net worth investment consultant, was recently divorced and his ex-wife, Catherine, has custody of their three children. Willa Jane and Henry, never quite cared for Catherine, as she always seemed to be quite snooty. Since the divorce, the relationship
between Willa Jane and Catherine has been very strained. Since his divorce, Truman has had somewhat of a mid-life crisis. He recently rented a penthouse apartment and bought a new Jaguar. Truman has also been dating Kate, a 21-year-old swimsuit model. While
Willa Jane and Henry are confident that this is only a passing phase, they are concerned about giving any gifts to Truman or his children outright.
Tara, Willa Jane and Henry’s third child, was a bit of a wild child. Tara died in a tragic
motorcycle accident in her senior year of college while she was on her way home to tell her
parents about a big secret she had been keeping. The summer before, Tara had given birth
to a baby girl named Grace. At the time, Tara gave the baby to the baby’s father, an older
married man, although no official adoption was ever transacted. Willa Jane and Henry still
do not know about Grace.
Willa Jane and Henry own The Human Bean, a popular chain of coffee shops. Wade,
Olivia’s husband, has worked at the store since he was a kid. Wade is now the manager
and handles most of the day-to-day functions, with very little input from Willa Jane and
Henry. Willa Jane and Henry would like to reward Wade for all of his hard work by giving
Wade and Olivia 3/4 of the business and giving the remaining 1/4 of the business to
Truman. They do not want Truman to have any control over the business, just to have an
income interest.
Olivia’s youngest child, Andrew, was born with a serious physical disability. To provide
additional support for Andrew, Henry created an irrevocable trust with Andrew as the sole
beneficiary with a $8,014,000 transfer of separate property in 2013. The trust meets the
requirements of Section 2503(c).
Henry and Willa Jane made the following additional lifetime transfers:
 In 2013, Henry gave Olivia, Truman, and their spouses $200,000 each of community
property.
 In 2016, Henry gave Olivia, Truman, and their spouses $200,000 each of his separate
property. Henry paid gift tax of $347,760 on these gifts.
 Henry and Willa Jane paid $162,500 in the years 1992-1996 directly to Texas
Christian University for Olivia to achieve a degree in Management (assume $32,500
per year).
 Henry and Willa Jane paid $72,000 in the years 2000-2004 directly to Texas Tech
University for Truman to achieve a degree in Finance (assume $12,000 per year).
 Henry and Willa Jane paid $150,000 to Children’s Hospital for a lung transplant for
Andrew in 2015.
 In 2006, Willa Jane gave Olivia $100,000 of her separate property as an anniversary
gift.
 In 2014, Willa Jane gave each of the grandchildren of which she was aware (assume
all grandchildren had been born by 2014) $100,000 of her separate property.
Willa Jane and Henry have never elected to split gifts of separate property.
Henry and Willa Jane estimate 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
Willa Jane does not have a will. Henry has an outdated will leaving most of his probate
assets to Willa Jane.
Clauses from Henry’s Statutory Last Will and Testament
I, Henry, 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. I revoke all of my prior
wills and codicils.
1. I have been married but once, and only to Willa Jane with whom I am presently
living. Out of my marriage to Willa Jane, three children were born, namely Olivia,
Truman and Tara. I have adopted no one nor has anyone adopted me.
2. I leave my Vintage Mustang and House Boat to my son, Truman.
3. I leave the life insurance proceeds on my life to my daughter, Olivia.
4. I leave Vacation Home 1 to my daughter, Tara.
5. I leave Auto 1 to the Methodist Church, a qualified charity.
6. I give the residual of my estate to Willa Jane, my wife.
7. In the event that Willa Jane predeceases me or fails to survive me for more than six
(6) months from the date of my death, I leave any interest of my estate determined to
be payable to her to my children, Olivia, Truman and Tara, in equal and 1/3 shares.
8. In the event that any of the named legatees 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
descendents, otherwise his or her share of all of my property of which I die possessed
shall be paid equally among the surviving named legatees.
9. I name my best friend Keith to serve as the executor of my succession with full seizin
and without bond.
10. 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.
11. Since I have made numerous lifetime gifts to my children, all inheritance,
estate, succession, transfer, and other taxes (including interest and penalties
thereon) payable by reason of my death shall be allocated to the children’s share,
regardless of whether my spouse survives me.

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. The adjusted basis of the personal residence is $600,000.
4. Willa Jane received vacation home 2 from her grandmother, Lois. Willa Jane and
Lois were always very close and Lois gave her the home when Olivia was first born
so Willa Jane could enjoy motherhood as much as Lois had. Lois purchased the
vacation home for $30,000 and the FMV of the home at the date of transfer was
$200,000. The FMV when Lois died was $250,000.
5. The life insurance policy has Willa Jane listed as the designated beneficiary. The
inherited stock portfolios are Transfer on Death accounts with Olivia and Truman
as the listed beneficiaries of both Henry and Willa Jane’s shares.
6. The Yacht was purchased by Henry after his House Boat was destroyed by a
Hurricane.
7. Property Ownership:
 CP - Community Property.
 H - Husband separate.
 W - Wife separate.
8. Insurance face value (death benefit) and the cash value of $1,000,000 are the
same.
Answer the following questions. Assume the facts given in the fact pattern and that the
2018 estate and gift tax rates and annual exclusion apply unless otherwise indicated.
(Numbers are rounded for convenience.)
1. Which of the following transfer mechanisms would be appropriate for the transfer of
The Human Bean to Truman and Olivia assuming Willa Jane and Henry did not want
to make an outright gift of the company to them? For full credit, explain for each
transfer option below why it is or is not appropriate.
1. Private Annuity.
2. SCIN.
3. Family Limited Partnership.
4. QPRT.
2. If Henry died today, which of the following statements is true regarding the transfers
made in his will? For full credit, explain why each statement is true or false.
(a) Willa Jane will receive Henry’s interest in the inherited stock portfolio.
(b) Olivia will receive the proceeds of the life insurance policy.
(c) Truman will receive the yacht in place of the house boat.
(d) Grace may potentially receive Vacation Home 1 as Tara’s rightful heir.
3. Assuming Henry died today, calculate his gross estate.
4. Assuming Henry died today, calculate his probate estate.
5. Ignoring the above data, assume that Henry died today and the estate tax due was
$2,355,888 and Keith is appointed executor. Unfortunately, Keith forgot to file an
Estate Tax Return (Form 706) and pay the estate tax due until 45 days after the
return’s due date. How much is the failure-to-file penalty?
6. Identify and value each taxable gift made by Henry during his life. Where appropriate,
explain any exemptions or exclusions that applied.
7. Calculate Henry’s gift tax due in each year he made a taxable gift. Show your work.
Even if the tax due is zero, show your calculation in each year there is a taxable
gift.
8. Identify and value each taxable gift made by Willa Jane during her life. Where
appropriate, explain any exemptions or exclusions that applied.
9. Calculate Willa Jane’s gift tax due in each year she made a taxable gift. Show your
work. Even if the tax due is zero, show your calculation in each year there is a
taxable gift.