Lily Dies Early in the Current Year

question 8

Essay

Lily dies early in the current year.All her property passes subject to her will,which provides that her surviving husband,Rick,is to receive all the property outright.Her will further states that any property Rick disclaims will pass instead to their children in equal shares.Lily's gross estate is about $5 million,and her Sec.2053 deductions are very small.Rick,who is in poor health,already owns about $3 million of property.What tax issues should Rick consider with respect to the property bequeathed to him by his wife?

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Definitions:

Discount Rate

The interest rate used to discount future cash flows to their present value, often reflective of the cost of capital or rate of return required.

Beta

A measure of a stock's volatility in relation to the overall market. A beta greater than 1 indicates a stock is more volatile than the market, while a beta less than 1 suggests it is less volatile.

Risk-Free Rate

The anticipated financial gain from an investment devoid of any risk, frequently indicated by the yields of government bonds.

After-Tax Cost of Debt

The net cost of debt after accounting for the tax deductions available on interest payments.