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You Only Live Once An Estate Planning & Estate & Gift Tax Returns Ronald M

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You Only Live Once

An Estate Planning & Estate & Gift Tax Returns

Ronald M. Martin died on March 4, 2020. Ronald was married to Sally B. Martin. Title to the various estate assets is indicated below. Ronald’s separate property assets were subject to probate proceedings and his Will named Sally B. Martin as his personal representative. Sally will receive Ronald’s entire estate. Assume the life insurance is held in an irrevocable life insurance trust (ILIT), and therefore, not included in the taxable estate. Ronald doesn’t have a taxable estate, but his personal representative (Sally) would like to elect portability and transfer his applicable exclusion amount to Sally. Sally has not remarried since Ronald’s death.

 

A list of Ronald’s assets valued on the date of death is shown below.

 

Decedent’s Assets
Asset	Title to Asset*	Estimated FMV	706 Amount	Probate Amount
House	JT	$   4,000,000	$ 2,000,000	$                0
Cabin	JT	950,000	475,000	0
Stock	S	3,000,000	3,000,000	3,000,000
Life Insurance	ILIT	1,500,000	0	0
Cash	S	1,000	1,000	1,000
Bank Accounts & CDs	S	1,250,000	1,250,000	1,250,000
Vehicles & Misc. Property	S	157,400	157,400	157,400
IRA	S/B	1,345,000	1,345,000	0
Accrued Dividends	S	1,400	1,400	0
Accrued Interest	S	700	700	0
Total		$ 12,205,500	$ 8,230,500	$ 4,410,500
*Notes – JT   = Joint tenancy with right of survivorship S     = Separate Property S/B = Separate with designated beneficiary ILIT= Irrevocable Life Insurance Trust

 

Income earned on probate assets after Ronald’s death as well as Income with Respect to a Decedent (IRD) are listed as follows:

Probate Estate Income
Source of Income	Amount
Interest Income from Savings & CD Acct.	$   6,800
Interest from Estate Bank Account	200
Dividend Income	1,400
Capital Gain Distributions	800
Total	$   9,200

No distributions were made from Ronald’s Estate during the taxable year (2020).

 

Estate Expenses
Expense Item	Amount
Funeral Expenses	$     7,800
Administration Expenses1	6,100
Credit Card Balances & other debt	9,500
Total	$   23,400
1Administration expenses can be deducted on Form 1041 or 706 but not both. They consisted of the following items: Attorney Fees                                    $ 4,800 Tax Preparation Fees                           1,000 Court Costs                                             300     Total                                              $ 6,100

 

Ronald & Sally Martins’ Income Summary for 2020
Income	Total	Ronald’s Final 1040 or Joint Return	Estate’s 1041	Sally’s 1040 or Joint Return
Dividends	$      2,600	$      1,200	$    1,400	$            0
Capital Gain Distributions	800	0	800	0
Savings Account & CD Interest	12,800	6,000	6,800	0
IRA Distributions	10,000	0	0	10,000
Pension	37,000	37,000	0	0
Estate Bank Account Interest	200	0	200	0
Totals	$   63,400	$   44,200	$   9,200	$   10,000

 

 

Additional information which may be helpful in this project:

 

1. The estate was represented by Will Swindle of Dewey, Cheatem & Howe located at 38 West Temple Avenue, Pomona, CA 91768. Their telephone number is (909) 869-0000. This law firm handled the probate estate which ended on January 3, 2021.
2. The tax preparation for the Martin’s individual return, the Estate Tax Return, Income Tax Return(s) for Probate Estate and any Gift Tax Returns were prepared by Will B. Shifty of Shifty CPAs located at 25 Taxed Road, Pomona, CA 91768. Their telephone number is (800) Tax-4fun but you can use (909) 869-0001. Will’s EIN is P12345678 and CAF No. 1234.
3. Los Angeles County Department of Health issued Ronald Martin’s Certificate of Death which was Number 1234567.
4. The probate was conducted at the Los Angeles Superior Court, Pomona Court House located at 400 Civic Center Plaza, Pomona, California 91766. The case number was P-09001.
5. Ronald’s social security number is 470-00-000, his date of birth is January 20, 1942, and his date of death was March 4, 2020. Ronald has been a resident of Los Angeles County since 1960. Ronald was a Ringmaster for Big Top Circus. Sally’s social security number is 480-00-0000 and her date of birth is January 20, 1960. Their personal residence is 1 Mountain View Drive, La Verne, Los Angeles County, California 91750. They have two adult children – Jack Martin and Jill Martin – neither lives at home and both are over age 24.
6. Stocks and bonds consisted of the following:
   1. 4350 common shares of Big Top, Inc. which is registered on NYSE. A dividend had been paid on April 21, 2020, for shareholders of record dated March 1, 2020, in the amount of $1,400. CUSIP number for this stock is 123456789.
   2. 8000 common shares of Big Rock, Inc. which is registered on NASDAQ. CUSIP number for this stock is 678901234.
   3. 8568 shares of Low Yield Fund, Class A with CUSIP number 234567890.
   4. 10 $5,000 CalPoly 8% 30-year Revenue Bonds due July 1, 2023. Interest is paid on January 1^st and July 7^th each year. Accrued interest income from January 1, 2020 through March 4, 2020 was $700.
   5. $10,000 Series EE, US Savings Bonds which were issued December 2001, and which mature in December 2021.
7. Mortgages, Notes & Cash consisted of the following items:
   1. Cash.
   2. Checking Account No. 4477 at Pomona Valley Federal Credit Union located at 1912 Holt Avenue, Pomona, CA 91768.
   3. Savings Account No. 7777 at Pomona Valley Federal Credit Union located at 1912 Holt Avenue, Pomona, CA 91768. This account contained some accrued interested which is include in the probate amount.
   4. Certificate of Deposit No. 44444 at Bank of America located at 1414 N. Garvey Avenue, Pomona, CA 91768. This account contained some accrued interested which is include in the probate amount.
8. Life Insurance policy information:
   1. A $500,000 life insurance policy with Death Row Life Insurance Company located at 123 N. Garey Avenue, Pomona, CA 91768. This policy is owned by the Ronald M. Martin Irrevocable Life Insurance Trust on the life of Ronald M. Martin. Sally Martin is the beneficiary.
9. Real Property owned by Ronald Martin in joint tenancy with spouse:
   1. House with lot located at 1 Mountain View Drive, La Verne, Los Angeles County, California and described as Lot 4, Block 1, Wheeler Addition No.1.
   2. Mountain Cabin with 15 acres located at The Summit, Big Bear Lake, San Bernardino County, California and described as Lot 1, Block 1 of The Summit.
10. Other assets consisted of the following items:
    1. 2019 Mercedes XYZ Class with license number – The View.
    2. 2018 BMW X-5 with license number – Summit.
    3. Household goods, furnishings, jewelry, clothing, etc.
    4. Miscellaneous Refunds – Auto Insurance premium & magazine subscriptions.
11. Annuities consisted of the following IRA account:
    1. An Individual Retirement Account #777 with Static Retirement Services located at 1215 A Street, Pomona, CA 91768. Beneficiary is Sally Martin.
12. Sally Martin has obtained appraisals for the personal residence in La Verne, California and for the Big Bear Lake properties. The appraisals were prepared by certified appraisal companies. Sally has Excel workpapers prepared by Shifty CPAs to support the values of the bank accounts and stocks & bonds. Copies of the bank statements on March 31, 2020, are also available for attachment to the estate tax return. A copy of the Ronald Martin Irrevocable Life Insurance Trust and a Copy of the Death Row Life Insurance policy are available for attachment to the Estate Tax Return. Static Retirement Services has provided Sally with a detailed statement regarding the value of the lump-sum distribution per IRC Section 2039(f)(2).
13. The La Verne personal residence and the Big Bear Lake cabin were held in joint tenancy and had the following FMVs and tax basis:

 

Property	FMV	Tax Basis
La Verne Residence	$ 4,000,000	$ 2,500,000
Big Bear Lake Cabin	950,000	700,000

 

 

Required Items -

 

1. Assume that Ronald Martin made gifts of $20,000 to each of their children from his separate property bank accounts during 2020. Prepare a Gift Tax Return IRS Form 709 for these gifts. What is the most efficient method to report these gifts i.e. lowest possible gift tax liability? Go to IRS website and fill-in IRS Form 709.

 

2. Finally, was it a smart idea to hold community property as joint tenants rather than as community property? What is Sally’s tax basis in each property after Ronald’s death? What would have been Sally’s tax basis in these properties had title been held as community property? Ronald and Sally didn’t have a community property agreement.