Stanford University Trust and Estate Tax Planning Paper
Mark wants to transfer some of the income from his investment portfolio to his daughter Cary, age 12. Mark wants the trust to be able to accumulate income on Cary's behalf and to meet any excessive expenses associated with her chronic medical conditions. Furthermore, Mark wants the trust to protect Cary against his premature death without increasing his Federal gross estate. Thus, Mark provides the trustee with the powers to purchase insurance on his life and to meet any medical expenses that Cary incurs.The trust is created in 2015. A whole life insurance policy with five annual premium payments is purchased during that year. The trustee spends $30,000 for Cary's medical expenses in 2020 (but in no other year). Mark dies in 2021.Has the trust been tax-effective? Address each goal Mark had for the trust and whether the goal was accomplished. Explain your conclusions, and support with references from the text, and/or other related tax code, regulations, etc.Do the discussion first and response each posted down below.Posted 1Hi, everyone,Mark's decision to create trust according to her daughter’s physical situation is a thoughtful and tax-effective way in this case. By transferring some of his investments into the trust, he reduced his federal gross estate. If he invested the fund in tax-exempt security which will decrease tax as well and grow tax-free. If the interest received from the stock investments through the trust are paid directly to medical expenses and will be tax-free. The life insurance policy that was purchased with the trust but Cary as the beneficiary is a good strategy for tax saving purposes. Cary could get the life insurance payment upon the death of Mark without paying taxes. The proceeds of the life insurance deposited into the trust will be excluded from Mark's gross estate (Raabe et al., 2021). Any money withdrawn from the trust and paid directly for medical expenses can also be excluded from being included in any gift tax. All the money Mark put into the trust will be excluded from Mark's federal gross estate and with the money, it can still provide Cary with the care she needs for her illness and living expenses. Overall, I think that creating the trust was tax-effective.Raabe, W.A., Young J.C., Nellen, A., Hoffman Jr., W.J. (2022). Taxation of estates and trusts.Posted 2 Mark's decisions that he made for the trust were tax-effective in his case. By transferring some of his investments into the trust he reduced his federal gross estate. The life insurance policy that was purchased with the trust as the beneficiary benefited Cary as well. Cary being the beneficiary of the trust allows her the benefits of the life insurance policy upon the death of Mark. The proceeds of the life insurance policy are deposited into the trust that is set up as Cary as the beneficiary. These amounts would also be excluded from Mark's gross estate (Raabe et al., 2021). Any money withdrawn from the trust and paid directly for medical expenses are excluded from being included in any gift tax. If the interest received from the stock investments through the trust are paid directly to medical expenses and will be tax free. All the money that was moved to the trust will be excluded from Mark's federal gross estate and will still provide Cary with the care she needs for her illness and living expenses. Posted 3 The scenario reads that Mark’s daughter Cary is 12 years old in 2015 when the trust is created. Mark wants to transfer some of the income from his investment portfolio to Cary through the trust. This trust will be used to cover any medical expenses incurred due to Cary’s chronic illness and the trust also has the right to purchase life insurance on Mark to ensure that Cary is cared for after his death. Overall, I think that creating the trust was tax-effective. First, transferring investments into the trust (most likely stocks), will reduce Mark’s federal gross estate. Next, the life insurance policy purchased by the trust, according to Raabe et al., names the trust as the owner of the policy. Therefore, when Mark dies, the proceeds of the policy will go to the beneficiary, which is the trust. However, the settlor would have already named Cary as the beneficiary of the trust so, the life insurance proceeds will ultimately pass to Cary while remaining excluded from Mark’s gross estate for estate tax purposes. Finally, according to 26 CFR § 25.2503-6, because the $30,000 was used to pay for medical expenses, it is excluded from gift taxes.