Using the information provided in questions one and two consider the following additional information. In conjunction with the succession plan that is being created in question 2, John and Jennifer Petosa face the difficult question of planning for their demise. Despite John’s vast knowledge in the field of Estate planning, he has come to you as the families most trusted advisor to create an estate plan that would express their wishes. John and Jennifer have been incredibly successful and they wish to be fair to all of their children and grandchildren. They also have an affinity for certain charities and wish that charitable giving be a big part of their overall estate plan. The couple has the following joint assets:
Petosa
Estate Plan
Personal Financial Statement 12/31/2030
Cash $350,000
Stocks, Bonds other Securities 3,500,000
Retirement Funds 1,650,000
Florida Home 750,000
New York Home 450,000
Napa Valley Home 825,000
Stock in Closely Held Businesses
Petosa Vineyards Inc. 75% 15,000,000
Petosa Wine Lands Inc. 100% 7,500,000
Total Assets $30,025,000
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Liabilities
Mortgage on Napa Home $600,000
Equity 29,425,000
Total Liabilities and Equity $30,025,000
You should note that John intentionally put the vineyard land in separate corporations under the parent Petosa Wine lands Inc., in the event that he wanted to sell off a piece of the property to an interested party. Each of the Petosa Vineyards Corporations and subsidiaries pays rent to the Petosa Wine Lands Corporation as a way to reduce taxes, further insulate the owners from liability and balance out the earnings. None of the corporations pays excessive rent compared to the marketplace.
In addition, John and Jennifer set up a life insurance trust for $5,000,000 with a second to die term life insurance policy. Their 5 children are the beneficiaries of the insurance trust and have executed their crummy notices each year so that the trust is valid and the gifts made were present interests for tax purposes. The trust has a “pour over” provision which allows it to purchase assets from the estate of the last to die to provide liquidity to pay some or all of the estate tax that may be due. Any assets of the trust after this purchase from the estate are to be distributed to their children in equal shares per stripes.
Further, John and Jennifer have been big proponents of ice sports. They wish to foster the men’s club hockey program and the woman’s synchronized skating programs at Syracuse University. They wish to leave a legacy to help future hockey players and synchronized skaters enjoy the riches that a Syracuse University education provides coupled with maturation that participation in an athletics can afford a young person. As such they wish to provide $5,000,000 to build a new ice hockey arena called the Petosa Pavilion on South Campus.
Lastly, the couple wants to provide for their retirement. For being so successful, John and Jennifer live fairly modestly. They anticipate that they need a net of $350,000 per year to pay their bills and maintain their lifestyle. They do anticipate a bit more travel between their 3 homes. Presently, John has collected a salary of $200,000 as the CEO and Jennifer has collected a salary of $250,000 as the President and Chief Marketing officer. They have paid their children who are involved in the business well but not above the market rate for the work that they perform. For any of their children or grandchildren not involved in the business they have made gifts of $28,000 per year as allowed by the gift tax laws without having to file a gift tax return. This amount seems to have kept the playing field level and equal.
Please provide an Estate plan that would accomplish the goals of John and Jennifer’s retirement, charitable bequest, and lower their overall estate cost while passing their total estate equally to their children while being fair to those who are involved in the business.