Tax and Estate Planning

Richard and Monica estimated they would have adjusted gross income of $108,000 in the current year and would have exemptions of $7,900 and deductions of $25,000. Their average combined federal and state tax bracket was 33 percent.

Richard and Monica maintained their contrasting views when it came to estate planning. Even though their assets were well under the threshold for exposure to federal estate tax, he wanted to set up a bypass trust. Monica wanted the personal assets, now mostly in Richard’s name, placed in their joint names. She wanted their daughter, who might be divorced fairly soon, to receive the majority of their estate. Richard said that fact did not persuade him and that their son (who had an average career potential) should not be penalized due to their daughter’s situation. Somehow it did not surprise me that they didn’t have wills currently.

Case Application Questions:

Compute their projected taxes for the year.

Richard wanted to know if he should take a $10,000 tax deduction this year or wait until next year to do so. He was inclined to do so now even though his average tax bracket would likely be 28 percent next year. What do you think he should do?

Monica wanted to know if they should place their savings into a qualified pension or save it personally. She said that Richard often had modest losses, not gains, each year. What is your recommendation?

Monica asked what tax-planning strategies you would recommend for them. What will you suggest?

Do you believe they should establish bypass trusts?

What estate planning recommendations do you have?

Complete the tax planning and estate planning sections of the Comprehensive Financial Plan using your answers to the above questions. Web Appendix D Comprehensive Financial Plan.