CASE ANALYSIS

Bonnie and Todd McDonald

Bonnie and Todd McDonald have come to you for assistance in developing an estate plan. From your initial meeting with them, you have gathered the following information.

PERSONAL INFORMATION

Bonnie McDonald

• 60 years old
• property appraiser for Valuation Research Associates; gross annual income of $56,000
• her only will (executed in 2015) includes the following provisions:
(a) that her bond portfolio and one-fourth of her common stock portfolio be left to her husband, Todd
(b) that the family woodlot and three-fourths of Bonnie’s common stock portfolio be left in equal shares to her children, Sandy, Seth, and Terri
(c) that ownership of any life insurance not otherwise provided for be left in equal shares to her children, Sandy, Seth and Terri
(d) that her van be left to her church
(e) that the rest and remainder of her estate be left in equal shares to each of her then living children and husband
(f) complete and adequate clauses concerning guardianships, simultaneous death contingent beneficiaries, and payment of debts and administrative expenses

Todd McDonald

• 72 years old
• semiretired landscape gardener; works occasional jobs; gross 2017 income of $18,657
• his only will (executed in 2005) includes the following provisions:
(a) that his antique garden tool collection be left to Ye Olde Toole Museum
(b) that “all of my otherworldly possessions be left to my dear wife, Bonnie”
(c) complete and adequate clauses concerning payment of debts and administrative expenses, guardianships, tax apportionment, executors (or personal representatives ), and simultaneous deaths

Bonnie and Todd McDonald

• married 40 years; three children
• both are in excellent health; both have executed complete and adequate advanced medical directives
• both Bonnie’s and Todd’s parents are deceased
• have adequate health, disability, life, auto, homeowners, and umbrella liability insurance

Sandy Driver (oldest daughter)

• 39 years old; divorced with two minor children
• owner of Foremost Compost, Inc.; last year’s gross annual income was $48,000

Seth McDonald (son )

• 36 years old, married with one minor child
• owner of Xerophytics, Inc.; last year’s gross annual income was $83,000

Terri McDonald (youngest daughter)

• 24 years old, single
• a botanist with a tropical reforestation company; gross annual salary of $56,000

DETAILS OF BONNIE AND TODD’S ASSETS

• property ownership (title) is described on the McDonalds’ Statement of Financial
Position
• the intestate statute in the McDonalds’ state of domicile provides that probate property
which is not distributed through the will goes one-half to the surviving spouse and
one-half to the children of the decedent in equal shares
• Bonnie has a group term life insurance policy paid for by her employer that provides a
the death benefit of $84,000 (Insurance Policy #1); last year, she designated Todd
as the primary beneficiary and her children as the contingent beneficiaries
• five years ago, Todd purchased a $100,000 paid-up whole life policy (Insurance Policy #2)
on his own life and named his grandchildren as the primary beneficiaries; last year, he
irrevocably transferred all incidents of ownership to Bonnie; replacement cost is $78,000
• Bonnie has total vested retirement benefits of $380,900 in her defined benefit plan which
are to be paid as a joint and last survivor annuity to Bonnie and Todd; if Todd predeceases
Bonnie, the children are contingent beneficiaries
• Todd has established and sporadically contributed to his IRAs; he has named Bonnie as
the beneficiary of them
• several years ago, Bonnie inherited the “woodlot” (a forested tract of about five acres in a
neighboring state near her hometown) from her uncle
• subsequent to Bonnie’s inheriting property in 2010, she has made $172,000 in taxable
transfers and gifts to friends and relatives (which included $18,000 to her uncle for medical expenses); although Todd would not consent to gift splitting, she has made judicious use of annual exclusions and offset her tax liability with the unified credit.

THE FEDERAL ESTATE TAX

Bonnie’s current estate as presented in the narrative and financial statement (do not consider possible future estate plan modifications). Assume the following to Question 1 only:

 Bonnie dies today, and the spouse does not remarry
 There is no change in the value of the estate assets as shown
 Bonnie did not amend her existing will
 Bonnie and spouse live in a common-law property state (not a community property state)
 Interests that are eligible for either the marital deduction or the charitable deduction will not be reduced by any death taxes, administrative expenses, or debts due and owed by the estate

For both lists below, place a CHECK MARK () in the blank immediately before any item that is includible in that list. Then, INDICATE the appropriate gross dollar value immediately after all includible items.

a. GROSS ESTATE b. MARITAL DEDUCTION

 Property Interests
Includible Includible
Dollar Value
 Deductible
Property Interests Deductible
Dollar Value

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checking account
savings account
certificates of deposit
common stock portfolio
rental real estate
mutual fund
bond portfolio
life insurance policy #1
life insurance policy #2
retirement benefits
antique tools
family wood lot
personal residence
personal property
automobiles
other (describe):

Total    

$__________________________________________________________________________________________________________________________________________________________________________________________

$__________

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checking account
savings account
certificates of deposit
common stock portfolio
rental real estate
mutual fund
bond portfolio
life insurance policy #1
life insurance policy #2
retirement benefits
antique tools
family wood lot
personal residence
personal property
automobiles
other (describe):

Total    

$__________________________________________________________________________________________________________________________________________________________________________________________

$__________

c. CALCULATE the following

Additional information for this calculation:

 adjusted taxable gifts 172,000
 funeral and administrative expenses 56,000
 debts of decedent, mortgages, and liens 34,000
 charitable deduction 20.000

Gross Estate

less Expenses

less debts

less charitable deductions

less Marital Deduction

Taxable Estate

plus Taxable gifts

TentativeTax Base

 Less Exemption 

 Federal Tax Payable

2019 Exemption $11,400,000
Federal Estate Tax Rate 40%

BONNIE AND TODD McDONALD
Statement of Financial Position
As of January 1, 2019
ASSETS1 LIABILITIES AND NET WORTH

Cash/Cash Equivalents Liabilities4

Checking account (JT) $ 3,600 Credit card balance (JT) 800
Savings account (JT) 44,000 Auto loan (JT) 13,200
Certificates of deposit (H) 100,000 Mortgage note balance (JT) 54,000
Total Cash/Cash Equivalents $ 147,600 Total Liabilities $ 68,000

Invested Assets
Common stock portfolio (W) $ 280,000
Rental real estate (TC/S)2 500,000
Mutual fund (H) 325,000
Bond portfolio (W) 80,000
Life insurance policy #1 (W)3 -0-
Life insurance policy #2 (W) 76,500
Pension benefits (W) 380,900
IRAs (H) 18,100
Antique tools (H) 21,000
Total Invested Assets $1,681,500

Use Assets Net Worth $2,154,100

Family woodlot (W) $ 8,000
Personal residence (JT) 234,000
Personal property (JT) 98,000
Van (W) 20,000
Automobiles (H) 33,000
Total Use Assets $ 393,000
TOTAL LIABILITIES
TOTAL ASSETS $ 2,222,100 & NET WORTH $2,222,100

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1 Presented at fair market value (except life insurance, which is at cash surrender value)
2 Bonnie has a 60% interest, and Todd has a 40% interest
3 Term policy paid for by employer; irrevocable designation of beneficiaries last year
4 Principal only
Note: JT means owned by husband and wife in joint tenancy with rights of survivorship
W means solely owned by wife
H means solely owned by husband
TC/S means owned as tenants in common by husband and wife
TC/N means owned as tenants in common by one spouse and one or more non-spouses