This is 5E in CFAI mock exam. Would anyone help why there is a difference between gifting and bequest? I thought he has no credit for future gift or bequest, so if gifting or bequesting 3M, he would get 50% tax no matter what? so no difference?
The answer states gifting 2M would get 1M tax, and bequesting would have 1.5M tax. Thus giving is 3M is more beneficial with 0.5 increment? I dont understand why they explain giving 2M than concluding that 3M is more beneficial.
Charles Bray is 75 years old, a widower with no offspring, and is in poor health. As part of a
recent estate planning exercise following his retirement from Three Brothers, Charles liquidated
nearly all of his assets, including his home, taxable accounts and retirement accounts. He
purchased a series of inflation-indexed life annuities and a lifetime residency contract at an
assisted living facility. These actions, coupled with a comprehensive health insurance plan, have
resulted in all of Charles’s future living, spending and health care costs being covered.
When he was liquidating his assets, Charles only retained a single balanced fund in the amount
of $3 million in a tax-exempt account. This is his only remaining financial asset. As he no longer
has any future expenses, Charles would like to use this fund to benefit his deceased wife’s
Because of previous gifting, Charles has no tax credits or allowances available to shelter either
future gifts or bequests from taxation. The tax rate that would apply to both gifts and bequests
would be a flat 50% and the tax would be due immediately, payable by Charles or by his estate.
The niece is in the same income tax bracket as Charles and the fund would earn the same rate of
return whether held by Charles or the niece.
Charles asks Cheng whether he should gift the balanced fund to the niece now or leave it to her,
including any interim reinvested appreciation, at his death. He wishes for her to receive the
maximum possible economic benefit.