Overview
The final project for this course is broken into two parts. The first part is the creation of a memorandum, which is outlined below. The second part is a PowerPoint presentation, which is outlined in Final Project Part II.
Everyday economic events can have significant estate and gift tax consequences. Being able to spot estate and gift tax issues and communicate effectively with clients is essential for any high-level financial professional working in a privately held enterprise or advising high-net-worth individuals. Professional accountants working in a bank, consulting firm, or financial services firm are often responsible for advising clients on tax implications of their financial investment decisions, including estate and gift taxation as it is currently applied in the United States and around the world.
In this course, you will model the role of an associate in a boutique tax consulting firm that specializes in the real estate industry. You will demonstrate your ability to advise clients on estate and gift taxation, life insurance, annuity, and charitable giving strategies, and make ethically sound and socially responsible decisions by creating a memorandum to your manager.
The project is divided into four milestones, which will be submitted at various points throughout the course to scaffold learning and ensure quality final submissions. These milestones will be submitted in Module Three, Module Five, and Module Seven. The comprehensive memorandum will be submitted in Module Nine.
In this assignment you will demonstrate your mastery of the following course outcomes:
- Assess the potential gift or estate tax liability in relation to the annual exclusion, gift tax deductions, marital deduction, and unified credit, as provided for by the Internal Revenue Code, while meeting the client's desired economic outcomes
- Analyze various forms of property for potential estate and gift tax consequences of these forms of ownership, as provided for by the Internal Revenue Code, Treasury Regulations, and case law, and their impact on the client's economic outcomes
- Evaluate the risk of noncompliance with AICPA, IRS Circular 230, and the penalty provisions of the Internal Revenue Code in light of possible stakeholder misconduct, using moral reasoning to advise the client
- Recommend strategies that reflect versatility of thought, for achieving favorable estate and gift tax consequences of wealth transfers, by reducing tax liability in order to meet the client's desired economic outcomes
- Evaluate the influence of an estate and gift tax planning strategy on the effectiveness of the overall tax strategy, including income tax, and its potential to result in ethically sound outcomes and optimum desired results for the client
Prompt
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.
Specifically, the following critical elements must be addressed:
I. Introduction
A. Create an estate planning strategy, showing versatility of thought, that will minimize estate and gift tax liability over the course of the client's life span, potentially another 30 years. Assure that as little future tax liability as possible accrues to his children.
B. Utilize family limited partnerships and 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. Life Insurance, Annuity, and Charitable Giving Strategies
A. Evaluate life insurance products, annuities, and charitable giving for possible estate tax advantages in the taxable estate or in the children's estate, while finding use of the cash flow from the sale and the real estate business. Consider charitable remainder annuities or other advanced estate planning vehicles involving life insurance, annuities, and charitable giving.
B. Recommend an ethical compliance strategy based on the client's comments about a valuation discount on the family limited partnership that is consistent with Internal Revenue Service (IRS) Circular 230 and the American Institute of Certified Public Accountants (AICPA) Code of Conduct. Consider the client's cash constraints, economic impact over time, IRS Circular 230, and the AICPA Code of Conduct.
C. Develop an additional ethical compliance strategy that addresses the client's estate tax and the interest and penalty that will accrue if he does not make timely payments of tax. Acknowledge appropriate tax case law and statutes. Consider quantifying penalties and interest.
III. Tables and Calculations: Excel Documentation
A. Assess the amount of the client's cash that will be consumed by the proposed strategy over the next 24 months in order to the pay gift tax. Consider how the strategy maximizes the amount of transferred wealth to the client's children.
B. Analyze the personal income tax consequences and value over the next 24 months as a result of the overall proposed tax strategy. 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.
Milestone One: The Basic Estate Plan
Milestones
In Module Three, you will submit a three-page memorandum. Propose basic estate planning strategy (without considering trusts) applying the final project fact pattern. Consider valuation, family limited partnerships, unified credit, and annual exclusion. Cite relevant legal authority for your answer. This milestone covers Section I Parts A and B (excluding trusts). This milestone is graded with the Final Project Part I Milestone One Rubric.
Milestone Two: Using Trusts in an Estate Plan
In Module Five, 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. This milestone is graded with the Final Project Part I Milestone Two Rubric.
Milestone Three: Incorporating Life Insurance and Charitable Giving Into an Estate Plan
In Module Seven, you will submit a memo describing your client's life insurance and charitable giving impact on an estate plan. How might charitable giving impact the income, gift, or estate tax outcome for your client? Is there an optimal strategy? Recommend a charitable donation for income, gift, or estate tax planning purposes. Which deduction (income, gift, or estate) do you recommend, and why? How does life insurance impact your estate planning strategy for the client? Consider who must pay the premiums and where the cash will come from to pay premiums. Recommend an ethical compliance strategy based on the client's comments about a valuation discount on the family limited partnership that is consistent with Internal Revenue Service (IRS) Circular 230 and the American Institute of Certified Public Accountants (AICPA) Code of Conduct. Also submit a table summarizing the estate, gift, and income tax consequences of your overall proposed estate plan over the next 24 months and how much of your client's cash the strategy will consume. This milestone is graded with the Final Project Part I Milestone Three Rubric.
Final Project Part I: Final Submission: Memorandum
In Module Nine, you will submit a memorandum with Excel appendices. It should be a complete, polished artifact containing all of the critical elements of the final product. It should reflect the incorporation of feedback gained throughout the course.