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The Dion case: an estate planning mini case.

Marcel and Clio Dion are taking steps to begin evaluating their estate planning situation. Marcel is 60 years old. Clio is 53 years old. They have two children, ages 13 and 18. Marcel is a successful executive with a Fortune 500 company, while Clio has achieved success as a cosmetics home sales trainer.

Currently, their wills state that if either Marcel or Clio were to pass away, the surviving spouse would inherit everything. Both Marcel and Clio value their privacy, but they have not established a trust at this time. Table 1 summarizes their asset, liability, and estate expense situation.

Use this information to answer the questions that follow: (1)

Case Questions

1. Identify the statement(s) below that correctly characterize(s) property interests held by Marcel that, at death, pass by operation of law.

I. If the property passed according to the operation of law, the property avoids probate.

II. If the property passes according to the operation of law, it will not be included in the decedent's gross estate.

III. Property that passes by operation of law cannot qualify for the marital deduction.

IV. The titling on the instrument determines who shall receive the property.

a. I only

b. I, II, and III only

c. I and IV only

d. I, II, and IV only

e. II and III only

2. As Marcel and Clio think about the value of their adjusted gross estate, they are unsure what assets and expenses may be deductible. Which of the following is a deduction from the gross estate used to calculate the adjusted gross estate?

a. Costs associated with maintaining estate assets.

b. Nontaxable gifts made within three years.

c. Federal estate tax marital deduction.

d. Property inherited from others.

3. Currently, the Dions own their personal residence as JTWROS. If, instead, they owned the property as a tenancy by the entirety, how could this form of ownership be terminated?

I. Death, whereby the survivor takes the property.

II. Mutual agreement.

III. Divorce, which converts the estate into a tenancy in common or a joint tenancy.

IV. Severance, whereby one spouse transfers his or her interest to a third party without the consent of the other spouse.

a. IV only

b. I and III only

c. II and IV only

d. I, II, and III only

e. I, II, III, and IV

4. One of Marcel's primary financial planning goals includes making lifetime gifts to his children. He would like to do this to help his children and to reduce his potential estate tax liability. If he moves forward with his plan in order to maximize the value of the strategy, he should make gifts of property that

I. are expected to depreciate in the future.

II. are expected to appreciate in the future.

III. have already depreciated significantly.

a. I only

b. II only

c. III only

d. I and III only

e. I, II, and III

5. What is the value of Marcel's adjusted gross estate if he were to pass away today and before Clio?

a. $2,475,000

b. $3,225,000

c. $3,851,000

d. $3,975,000

6. There are several weaknesses associated with the Dions' current estate plan. Which of the following are the significant weaknesses within their plan?

I. Failure to utilize the marital deduction.

II. Failure to maximize the unified credit.

III. Failure to utilize charitable gift strategies to reduce the taxable estate.

IV. Failure to avoid probate.

a. I and III only

b. II and IV only

c. I, II, and III only

d. II, III, and IV only

e. I, II, III, and IV

7. In view of the combined estate values for Marcel and Clio, and knowing that one of their planning objectives is the reduction of estate taxes, which of the following estate planning techniques may be appropriate?

I. Placing the life insurance policies in an irrevocable trust.

II. Establishing a revocable living trust and funding it by using the unlimited marital deduction and the full unified credit.

III. Making use of the gift tax annual exclusion.

IV. Establishing a QTIP trust to pass property to their children.

a. II and III only

b. I and III only

c. II and IV only

d. II, III, and IV only

e. I, II, III, and IV

8. Calculate Clio's taxable estate assuming that Marcel passes away first.

a. $6,029,000

b. $6,484,000

c. $7,860,000

d. $7,736,000

e. $7,984,000

9. The Dions are considering making a sizable charitable gift to their local university using assets held in their mutual fund accounts. The primary purpose of their gift strategy is to reduce their taxable estate while providing a benefit for the university. Which of the following strategies will maximize the effectiveness of this estate planning strategy?

a. Give the mutual funds first to their oldest child who can then sell them with a stepped-up basis and use the proceeds as a donation to the university.

b. Donate the mutual funds directly to the university and allow the university to sell the funds.

c. Sell the mutual funds first and then donate the cash proceeds to the university.

d. Transfer the mutual funds to a noncharitable irrevocable trust and then donate the trust income to the university.

10. The local university has approached the Dions about making a charitable contribution. After discussing the possibility of making a donation, Marcel and Clio have decided that they would be willing to make the donation if they can receive an immediate tax deduction and income based on a fixed percentage of the amount donated (valued annually). They would also like to have the ability to add to their donation amount in future years. Which of the following charitable giving alternatives best serves the Dions' desires?

a. Charitable Remainder Unitrust

b. Charitable Remainder Annuity Trust

c. Pooled Income Fund

d. Grantor Retained Annuity Trust

Dion Case Endnote

(1.) Questions 1, 2, and 3 are from: "Released CFP[R] Certification Examination Questions" / "1994 & 1996 Certification Exam Questions" / "1999 Case Scenario and Questions." Copyright [c] 2008, Certified Financial Planner Board of Standards, Inc. All rights reserved. Used with permission.
Table 1

Asset, Liability, and Expense Situation for the Dion Family

Assets                                     Value   Ownership

Checking Account                         $26,000   JTWROS
Savings Account                          $20,000   JTWROS
Money Market Account                     $90,000   JTWROS
Other Monetary Assets                         $0   JTWROS
EE/I Bonds                              $100,000   JTWROS
Mutual Funds                          $1,720,000   JTWROS
Other Investment Assets                 $250,000   JTWROS
Primary Residence                       $700,000   JTWROS
Other Housing Assets (Vacation          $240,000   JTWROS
Vehicles                                 $86,000   JTWROS
Personal Property                       $134,000   JTWROS
Retirement Assets                       $768,000   Marcel
Retirement Assets                       $345,000   Clio
Other Assets                             $48,000   Jointly Held but
                                                     Not Titled
Life Insurance (Variable              $1,500,000   Marcel
  Universal Life)
Life Insurance (Universal Life)         $250,000   Clio

Liabilities                                Value   Ownership

Mortgage on Vacation Home               $112,000   Joint
Debts                                    $86,000   Joint
Expenses                                        Costs
Funeral and Final Expenses--Assumed      $25,000
  the Same for Both
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Copyright 2008 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Chapter 15: Other Case Studies
Publication:The Case Approach to Financial Planning
Date:Jan 1, 2008
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