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QUESTION

Harry and Helen Hopnoodle, both aged 68, have 4 children, aged 10 (Bubba), 15 (Miles), 20 (Dantzler), and 25 (Waldo). They had children late in life,...

I need help with this corporate tax accounting problem on estate and gift tax. Expertise in Corporate Taxation is necessary for a complete answer. The problem and necessary information is attached and also pasted below:

Harry and Helen Hopnoodle, both aged 68, have 4 children, aged 10 (Bubba), 15 (Miles), 20 (Dantzler), and 25 (Waldo). They had children late in life, after both of their careers had settled. The couple is quite wealthy, with combined net worth of about $5,000,000. This property includes real estate (FMV of approximately 1,000,000 and basis of $750,000) that is in a stable but low appreciation geographical area. They also own a property: they recently purchased a foreclosed home for $500,000, in a suburb of Atlanta. It is expected to appreciate rapidly. Harry and Helen have about $1,000,000 in cash and $1,500,000 in stock (basis $250,000). Their 25-year old son Waldo has a wife and family (2 small children). The Hopnoodles’ also have approximately 1.5 million in value in their own primary residence.

Their main goals are:

  • Distribute their assets as equitably as possible to their children, in terms of market value. They are not concerned about timing or form of assets, only that everyone is treated fairly in terms of value.
  • Pay as little gift tax and/or estate tax as possible.
  • Make sure they provide for their children’s medical expenses that might arise ($5,000 per year is reasonable), college tuition when the time is right (assume $40,000 per year, no scholarships!), and a fund whereby money could be withdrawn as needed for emergencies or unexpected needs, such as weddings and funerals.
  • They want to give something of value to their grandchildren (say $20,000 each), but aren’t sure what that entails.
  • The Hopnoodles’ are concerned about Dantzler. They feel like he would be irresponsible with finances. He has not begun college yet but will start this coming fall. Waldo is out of college, and went on a Rhodes Scholarship.
  • The Hopnoodles’ love Wofford College and want to give the college about $100,000, which is enough to ultimately establish an endowed fund. They want the gift to go to needy accounting students who suffered through Tax II.

Required:

In a report, not to exceed 7 pages, in proper memo form, respond to the family’s needs and develop a written plan for their goals. There may be multiple acceptable ways to respond, including estate, gift, and trust considerations. Assume the Hopnoodles’ will have normal life expectancy—around 80 years.

Your response MUST include

  • A written plan, outlining the approach you will take and any major actions you recommend. Be specific as to the method by which wealth transfers. (not to exceed 5 pages)
  • A spreadsheet or chart detailing, on an annual basis, by category, what should happen to the assets as they are transferred, moved, given away, etc. (not to exceed one page)
  • An analysis of their gift/estate tax consequences—that is, will they owe any tax, and if so, how much. Note that Harry has prior gift activity- $200,000 in 1975 and $300,000 in 1999. (not to exceed one page)
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