Question

1. PROBATE AND TITLE PROBLEM:

Dave is a horse trainer with a small farm as his business location. Dave is a sole owner/proprietor of the business and he is in failing health.

There is not thought to be any operation value for the highly personalized business after Dave’s death, other than the $800,000 value of the land and barn.

Dave purchased the property nearly 30 years ago for $175,000.

Sandy, Dave’s wife, is not currently a joint owner of the operation, nor does she have interest in continuing the business when Dave is gone.

Sandy’s preference will be to sell the barn and training site after Dave’s death and move to Florida. Assuming 5% probate cost and 15% capital gains tax, which method of titling this property could prove to be better for Sandy, post mortem?


2. PROBATE ESTATE PROBLEM

Tom and Mary were married years ago and had one child, Amber. Tom and his partner Dave were recently flying in Dave’s new plane. For a brief period, Dave was distracted and lost control of the plane.

Unfortunately, the plane crashed and Dave died instantly and Tom died a few days later as a result of the injuries sustained during the crash.

When Tom died he and Mary owned the following property:

* Home valued at $500,000 held JTWROS with Mary

* Car 1 valued at $10,000 held by Tom’s business

* Car 2 valued at $15,000 held Joint Tenancy with Rights of Survivorship by Tom and Mary

* Rolex watch valued at $50,000 held fee simple by Tom

* Boat valued at $20,000 held tenancy in common by Tom and Dave

* Life insurance Policy 1 on Tom’s life, owned by Mary. The fair market value of the policy was $100,000 and the death benefit was $200,000. The beneficiary is Amber.

* Life insurance policy 2 on Tom’s life, owned by Tom. The fair market value of the policy was $85,000 and the death benefit was $500,000. The only beneficiary is Mary.

* Non-qualified investment account valued at $2,000,000 owned by Tom, and Mary as the T.O.D.

Solution Preview

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1.
Joint Tenants in Common –
400,000 probate (5%), step up basis, no cap gains $20,000 probate plus
400,000 minus basis (1/2 175,000=87,500) * capital gains (15%) $46,875 = $66,875 in taxes
**Sole Ownership – Dave
800,000 probate (5%), step up in basis. $40,000 in taxes...

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