Question

Marlene Warren was a successful business woman. She also was a talented singer.

She owned three major categories of assets individually:

1) Daytime Blues, a Jazz and supper club in Manhattan. It was, of course, income-producing realestate with a fair market value of $1,000,000.00;

2) Cash and cash equivalents (bonds, brokerage accounts, etc.), which together have a face amount and fair market value of $3,200,000.00; and

3) Eighty (80) percent of the outstanding common stock of Jazzapaluza, Inc., a family owned

corporation that operated a music management, recording and publishing business. The other twenty (20) percent of the common stock is held by Marlene’s daughter, Marybeth, who is thirty (30) years old.   Jazzapaluza, Inc. has only a single class of shares. If sold together, all of the outstanding shares of Jazzapaluza, Inc. would have a fair market value of $10,000,000.

She owned two additional assets:

1) A house in Morristown, New York, valued at $ 2,500,000.00. This asset was owned by Marlene and her husband Willy. Marlene and Willy hold the property as tenants by the entirety; and

2) A Villa Trust bank account, “Marlene in trust for Marybeth” in the amount of $30,000.00

Marlene died on December 10, 2019 survived by Marybeth and by her spouse, Willy. In her will, Marlene leaves forty-nine (49) percent of the outstanding Jazzapaluza stock to Willy, and the rest of the stock that she holds (thirty-one [31] percent of the outstanding stock) to Marybeth.

The will also calls for a specific bequest of $1,000,000.00 cash to Marybeth, with the rest of the cash and cash equivalents to pass to Willy. Sometime in April of 2020, Marybeth signs and files a document releasing all rights to the $1,000,000.00 over to her father, Willy. This document is called a “qualified disclaimer” and a renunciation under New York’s Estates Powers and Trusts Law. Assume that by virtue of this disclaimer, the $1,000,000.00 passes to and belongs to Willy under state law, and the personal representative of Marlene’s estate distributes it to Willy along with the rest of the cash and cash equivalents.

Willy owned a policy of term life insurance on Marlene’s life. On Marlene’s death, the

insurance company pays $750,000 to the policy beneficiary, Marybeth.

QUESTION:

What are the federal estate tax consequences to: 1) Marlene’s estate, 2) Willy, and 3)

Marybeth on each of the transactions and events just discussed, with and without all available tax elections? There are no generation-skipping-transfer tax consequences in this fact pattern, so you can safely ignore that aspect. Be sure to discuss the amount and timing of each item.

Answer 1

Marlene Estate was in the name of Marlene and Willy. As Willy is still alive so there may not be any federal estate tax consequences as Marlene Estate's personal representative distributes it to Willy. However post distribution Willy would be involved in Tax Consequences of Marlene Estate.

Willy has cash and cash equivalents of total $32,00,000 (including $10,00,000 transferred by his Daughter Marybeth ) hence would be account for Tax Consequences for it .

Also Willy will be accountable for Tax Consequences of 49% ( out of 80% stock originally in name of Marlene) of Outstanding Jazzapaluza, Inc Stock .

Marybeth will face tax consequences for 31% ( out of 80% Stock originally in name of Marlene) of Outstanding Jazzapaluza, Inc Stock ..

Marybeth will also face tax consequences of 20 % of common stock held of Jazzapaluza, Inc.

Marybeth will be taxable for $30000 in her name in Villa Trust Bank Account .

Marybeth will be taxable for amount she receives from Insurance Company as beneficiary, that is, she will taxable on $750000.