Accounting Basics Assignment You are an associate in a boutique tax consulting firm that specializes in the real estate industry. You have been assigned to work with a client who needs advice on the tax implications of his business holdings, which include Skyscrapers, a commercial real estate firm organized as a sole proprietorship with a fair market value of $1 billion. He is considering transferring partial ownership of the Skyscrapers to both of his children and selling a 10% interest to an unrelated third party. Your manager has asked that you prepare a memorandum informing management of the estate and gift tax consequences of these potential transactions in addition to a cost-benefit analysis. Be sure to cite appropriate case law, statutes, and regulations in your memorandum. You will submit a memo describing how you will incorporate trusts into the estate plan you started in Milestone One. Include a quantitative model (in Excel) explaining how the use of the trusts and the family limited partnership can reduce the family's estate tax over time. Show how the transfer of ownership in the present via gifts or the formation of trusts will ensure a greater appreciation in value of the younger generation's ownership interests in the family enterprise over time. Conclude whether or not the strategy is worthwhile and is ethically sound. Cite appropriate statutory authority, case law, and/or AICPA Code of Conduct or ABA Model Rules of Professional Conduct to support your conclusions. Specifically, the following critical elements must be addressed: I. Utilize intentionally defective grantor trusts to accomplish long-term minimization of the client's tax liability. Consider the mechanics of these estate planning vehicles and the appropriate authority to cite. II. Tables and Calculations: Excel Documentation A. Consider how the strategy maximizes the amount of transferred wealth to the client's children over time and explain the amount in an Excel spreadsheet. B. Given the income tax consequences, conclude whether or not the strategy is worthwhile and is ethically sound. Consider justifying the strategy in comparison to an alternative transaction. Introduction: Estate Estate planning is a series of tasks aimed at managing a person's asset base in case of his demise. The planning includes the transfer of assets to dependents and clearance of estate taxes. An effective strategy ensures that the resultant tax liability is not significant (Polisher, 1949). Estate planning involves planning for incapacity and a process of eliminating or reducing uncertainties over a probate. The aim of the estate planning is to minimize the value of a property by reducing taxes and various expenses. There are a number of estate planning strategies that Jay can implement that will minimize estate and gift tax liability over the course of the client's life span, potentially another 30 years. These strategies include annual gift exclusion, Conversion of traditional retirement accounts to Roth Accounts, Charitable donations, Remove Assets from Your Estate and Tax-Free Gifts. Annual gift exclusion Mr. Jay should start by issuing out his assets in the form of gifts to his heirs who include his children and their spouses together with all of his grandchildren. A number of assets to be offered should be advised by the maximum acceptable amounts of gifts in a year. The transfer of property as gifts when the owner is alive is always tax-free. A constant transfer of property to the heirs each year reduces the amount of asset that is subject to estate tax. The tax liability of the resultant estate will be minimal as compared to in a situation where no gifts were given out (Battista, 2015). Conversion of traditional retirement accounts to Roth Accounts Mr. Jay has two options as regards to Ira. He has the option of naming his spouse as the beneficiary of the traditional IRA so as to avoid the payment of income tax. He can also decide to make a series of conversions of the IRA to Roth accounts so as to avoid leaving the beneficiaries with tax liability. The yearly conversions should be limited so as not push one to a higher tax bracket (Polisher, 1949). Charitable donations Mr. Jay can decide to set up a donor-advised fund. The strategy gives rise to tax deductions for deposits in the fund which allow for the issuance of charitable grants. Mr. Jay should name one of his dependents as successors of the funds (Polisher, 1949). Remove Assets from Your Estate One method to minimize estate taxes is to reduce the size of your estate before you die. So, you actually spend some and enjoy it. Further, you probably understand whom you want to have your assets after your death. If you can afford it can be very satisfying to see the results of your gifts, something you may not do if you wait for your death. For instance, appreciating assets are best to realize this since any future appreciation will also be out of your estate. Gifted assets keep your cost basis, so recipients may pay capital gains tax when they sell. But at 15% on assets held longer than a year which would be lower than estate taxes which lies between 35-55%. Tax-Free Gifts Federal law lets you give up to $14,000 (up to $28,000 if married) to as many people as you wish annually. So if you give out $14,000 to your 2 children and 5grandchildren, you will reduce your estate by $98,000 a year (7 x $14,000), $196,000 if your spouse joins you. If you give more than this, the excess will be considered a taxable gift and will be applied to your $5.45 million ($10.9 million if married) "unified" gift and estate tax exemption. (If you use it while you are living, it's considered a gift tax exemption; if you use it after you die, it is an estate tax exemption.). The charitable gifts are still unlimited. So are gifts for tuition and medical expenses if you give directly to the institution. Introduction: Family Family limited partnerships is a partnership that pools family assets in one place. Mr. Jay has the option of distributing assets that are not helpful to him or the ones he is not using for now to his beneficiaries in a bid to reduce the amount estate assets subject to tax. A beneficiary should be named on the life insurance and registered plans so that there is a direct transfer of the property to the beneficiary upon the death of the Mr. Jay. He can transfer some of the assets to his children now. It is a strategy used to minimize estate tax and ensure that property is transferred to successive generations at low tax rates. One can decide to be either a general or limited partner. Mr. Jay can also reduce his estate taxes by if not married, use both estate tax exemptions and eliminate assets from your estate before you die or even purchase life insurance to replace the assets advanced to charity. A general partner is desirable as one can participate in both decision making and management activities. However, a limited partner enjoys an annual tax exclusion when transferring assets. The strategy saves one individual to bare the whole tax liability of an asset as the partnership income is shared in accordance to the interest held by each member. The partnership gives ownership interest to the children at a discounted price which has an effect of reducing the value of assets (Lewis &Chomakos, 2007).