Name Relationship Age Occupation Health Comments Louie Husband 78 Retired Terminally Ill Kathleen Wife 75 Retired Excellent Jerry Son 50 CEO, Borellis Casinos Excellent Sal Son 47 Casino Floor Manager Excellent Married, one child Emily Granddaughter (Sal's Child) 22 Just graduated from college Excellent Getting married this summer Ava Non - marital child (Louie's child with another woman) 20 Cocktail waitress Excellent Relies on Louie for suppoINVESTMENT ACCOUNT INFORMATION Louie and Kathleen have one large brokerage account in which they accumulated assets during Louie's career in the casino business. While Louie was working, he deferred $500,000 of his salary into his 401(k) plan. After his retirement, he rolled the assets into an IRA account that has since grown to be worth $1,100,000. Louie and Kathleen allocate the portfolios in both accounts 50% to equities and 50% to bonds. INSURANCE INFORMATION Insured Owner Beneficiary Face Amount Type Cash Value Annual Premium Notes Louie Louie Kathleen $2,000,000 whole life $750,000 $20,000 Purchased 25 years ago ANNUITY INFORMATION Louie inherited a condo in downtown Las Vegas 10 years ago, worth $1,500,000, which he subsequently sold to Sal, in exchange for a single - life $55,000 annual annuity payment made at the beginning of each year. Sal has made 10 payments to date. Louie and Kathleen Borelli Projected Cash Flow for the Current Year Cash Inflows Portfolio income $100,000 Social Security income $ 32,000 Private annuity income $ 55,000 Cash Outflows Taxes (income and real estate) $25,000 Lifestyle expenses $120, 000 Insurance premiums $ 20,000 Louie and Kathleen save any remaining income into their brokerage account.All assets are considered community property unless otherwise noted. 1 The basis in the stock is $1,230,000. This amount represents 20% of all outstanding shares. 2 XYZ is a publicly traded company. The basis in the stock is $56,000. 3 Kathleen is the named primary beneficiary. Jerry and Sal are the named contingent beneficiaries. 4 The basis in the brokerage account is $1,900,000. 5 See the Annuity Information section for details. 6 The land is worth $300,000. The basis in the property is $440,000. The mortgage is paid off. Question If Louie dies today, how much of the annuity will be included in his gross estate? SO $800,000 $950,000 $1,500,000