Noah D. Canby died on May 9, 2012, as a result of a boating mishap. He is survived by his adult children: Isabella and Benjamin. At the time of his death, Noah lived at 13410
Memorial Drive, Houston, Texas 77079. Noah was predeceased by his wife, Olivia, who died in 2008. Details regarding Noah’s estate are summarized below.
• At the time of his death, Noah owned two whole life policies issued by Peacock Insurance
Company. Each policy has a maturity value of $200,000 and lists Isabella and
Benjamin as the beneficiaries.
• Noah was a participant in his employer’s contributory qualified pension plan. As of May 9, 2012, the balance in his account is found to be:
Employer’s contribution $800,000
Noah’s contribution 800,000
Income earned by the plan 400,000
Because Noah failed to designate a new beneficiary after his wife died, the plan proceeds of $2,000,000 are paid to his estate on July 23, 2012.
• As an investment, Noah and his wife had purchased a tract of land near Plano (TX) in 2002. They paid $200,000 for the property and listed ownership as “Noah and Olivia
Canby, tenants by the entirety with right of survivorship.” The Plano property is worth $600,000 on May 9, 2012.
• The purchase of the Plano property (see previous item) was partly financed with mortgage funds provided by Plano Trust Company. As of May 9, 2012, the mortgage has a balance due of $101,000 (including accrued interest).
• In 2009, Noah and his daughter purchased grazing land in Bexar County with title being listed as “Noah and Isabella Canby as equal joint tenants with right of survivorship.”
The land is near San Antonio and was considered to have future potential for residential development. Of the $400,000 purchase price, Noah furnished $100,000 and Isabella provided $300,000 (from funds she inherited from her mother). The land has a value of $600,000 on May 9, 2012.
• Ranch in Bandera (TX) with title listed as “Noah, Olivia, Isabella, and Benjamin
Canby, equal tenants in common.” (Olivia’s interest in the ranch passed to Noah under her will.) The property was purchased by Olivia in 2002 for $1,200,000. (Although Olivia used her separate funds, no § 2513 election was made when she filed a Form 709 reporting the gift.) The ranch has a value of $1.5 million on May 9, 2012.
• Noah’s boating mishap, which led to his death, was caused when his sailboat was carelessly swamped by a supply boat owned by Gull Offshore Service Corporation. The captain of the supply boat was clearly negligent and later fired by Gull. To avoid any further adverse publicity of a court proceeding, Gull immediately offered Noah’s estate a settlement of $1.5 million. As executors of Noah’s estate, Isabella and Benjamin accepted the offer and received the settlement on July 25, 2012. Isabella and
Benjamin also wanted to avoid any trial as their father’s sailboat had recently been cited by the Coast Guard and local maritime regulatory authorities for several safety violations.
• Noah inherited his personal residence on Memorial Drive from Olivia. Under
Noah’s will, the property is to pass to Grace Methodist Church to serve as a parsonage for their minister. On May 9, 2012, the property has an appraised value of $1.1 million.
• Other assets belonging to Noah include the following.
Checking account at Metro Bank $ 11,200
CD at Wells Fargo Bank (includes accrued interest to May 9, 2012) 105,000
City of Houston Public Transit bonds (includes accrued interest to May 9, 2012) 209,000
Insurance claim with Flamingo Casualty 141,000
Personal and household effects (furniture, auto, jewelry, etc.) 96,000
Note receivable from Alan Canby 20,000
After a careful reading of the Gull Offshore settlement (see prior note), the executors of Noah’s estate could find no mention that the $1.5 million included the loss of the sailboat. Therefore, they filed a claim with Flamingo Casualty for the recovery allowed under the policy insuring the sailboat.
The note receivable arose from a loan Noah made in 2009 to his nephew, Alan
Canby. Alan was to use the $20,000 to start a driver training school. After almost a year of losses, the operation ceased. Alan never filed for bankruptcy but left town, and his current whereabouts are unknown.
• Noah’s liabilities (besides the mortgage held by Plano Trust Company and paid by the estate) include:
Credit card debt $ 3,400
Unpaid household bills (utilities, security service, pest control, etc.) 2,300
Fines due for safety violations on sailboat 3,100
Amount due on church pledge 8,000
Amount promised to a niece, Natalie Canby, when she graduated from college 5,000
Federal income tax (January 1, 2012 to May 9, 2012) 38,500
• Funeral and administration expenses are listed below.
Funeral expenses $12,000
Attorney’s fees 38,000
Accounting fees 18,000
Appraisal fees and court costs 11,000
Isabella and Benjamin are the sole heirs. Due to their experience in handling their mother’s estate, Noah’s will designates them as the executors of his estate. For obvious reasons, they serve without fee. The administration of Noah’s estate is completed with the Harris County Probate Court on November 29, 2012.
Prepare an estate tax return (Form 706) for Noah. Make the following assumptions.
• No § 2032 election is made, and §§ 2032A and 6166 (see Chapter 19) are not appropriate.
• Disregard any request for information that is not available.
• Some deductions require a choice (Form 706 or Form 1041) and cannot be deducted twice (see Chapters 19 and 20). Resolve all choices in favor of Form 706.
• Noah has made no prior taxable gifts.
• Relevant Social Security numbers:
Name Social Security Number
Noah D. Canby 123-45-6785
Olivia Canby 123-45-6786
Isabella Canby 123-45-6787
Benjamin Canby 123-45-6788