Jamie Is Terminally Ill and Does Not Expect to Live

question 108

Essay

Jamie is terminally ill and does not expect to live much longer. Pondering the consequences of her estate, she decides how to allocate her property to her nephews. She makes a gift of depreciated property (i.e., adjusted basis exceeds fair market value) to Will, a gift of appreciated property (i.e., fair market value exceeds adjusted basis) to Jim, and leaves appreciated property to Sam in her will. Each of the properties has the same fair market value. From an income tax perspective, which nephew is her favorite?

---

Definitions:

Underlying Asset

The financial asset upon which a derivative's price is based, including stocks, bonds, commodities, currencies, interest rates, and market indexes.

European Put Option

A financial contract that gives the holder the right, but not the obligation, to sell a specified amount of an underlying asset at a predetermined price before or at a specified expiration date.

Underlying Asset

An asset over which options or other derivative instruments are based, which can include stocks, bonds, commodities, or currencies.

Exercise Price

The price at which the holder of an option can buy or sell the underlying security, as specified in the option contract.