Reducing a taxable estate, accounting for trust principal. On November 1, 20X0, Alice Nolan, a married woman, was diagnosed with a terminal illness and has approximately six months to live. Her husband is signi?cantly older and has been in poor health for some time. Alice has net assets with a fair value of approximately $4,000,000. Included in the marital estate are investments in stock, life insurance policies on Alice's life naming her husband as bene?ciary, corporate bonds that were purchased at a premium, and a modest timber plantation in southern Georgia. In contemplation of her death, Alice has several questions regarding how to best manage her estate and minimize estate taxes. Assume that the uni?ed credit is $780,800, associated with an exclusion amount of $2,000,000 for estate tax purposes. The annual exclusion amount for gift tax purposes is $12,000, and the lifetime exclusion amount is $1,000,000.
1. What advice would you give Alice with respect to whether or not she should dispose of certain securities that have and are expected to continue to have a fair value that is less than their original cost?
2. What actions might Alice take in order to exclude the life insurance proceeds from being included in her estate?
3. Assuming that Alice has previously given $450,000 in post-1976 taxable gifts, what is the maximum annual gift that she can make to her three sisters, in total, and avoid gift taxes, assuming that her husband does not consent to the gifts?
4. Assume that the corporate bonds are to be placed in a charitable remainder trust, with her son receiving the income from the bonds for 10 years and the Sierra Club receiving the remainder after that point. Why might including the amortization of the premium on the bonds as a component of determining income be advantageous to the interests of the Sierra Club?
5. If Alice's will bequests the tree plantation to her husband and the income from the plantation to her stepson, in fairness to her husband, should the income from the plantation include the effect of depletion on the timberland?