Accounting – Richard Richardson, 60, known to his friends as Bob, is very wealthy

| January 30, 2017


Richard Richardson, 60, known to his friends as Bob, is very wealthy. Bob has had a handful of pitiful marriages and a number of children with each wife. In all cases, Bob, because of his poor selection of wives, was awarded custody of each child. The children are now between the ages of six and thirty-eight. Bob is about to re-marry to a woman thirty-seven years old (Richelle). This marriage is in concert with a classic Newport Beach formula where the next wife’s age can be calculated by taking the husband’s age, dividing by two and adding seven.

Bob’s daughter by marriage number one, Ruth, is currently divorced and has remarried several times. (Like father, like daughter.) She has named all three of her sons after her father: Richard, Richardson and Bob. (One might conclude that Ruth has named her children to honor her father and position them to receive very large inheritances.) The boys’ father and grandfathers are thermo-nuclear physicists. Under the laws of the State in which Ruth lives, she was not entitled to alimony from any of the marriages, but she does receive significant child support. (This is a long sordid story, which finds no appropriate place in a tax memorandum.)

Mr. Richardson wants to help his daughter and his grandchildren, but he is concerned that any money received directly from him will be spent on the issues that caused Ruth to be not be entitled to alimony. His plan consists of the following:

Bob has decided to place four apartment buildings into a trust that provides for the net proceeds to be paid to a trustee who will pay bills approved by Bob relating to his daughter’s expenses. The trust, which is revocable, provides that upon his death, the four apartment buildings will be given to his new wife, Richelle.Bob has decided to place another four apartment buildings into three separate trusts for his grandsons. The income from these trusts will be used to pay for the grandchildrens’ college costs and upon Bob’s death, these apartment buildings will be given to the grandsons. This trust is irrevocable.Bob is allowing Ruth and the grandchildren to reside full time in one of his vacation homes on Newport Coast.Bob has decided to have the dividends from his stock paid directly to Richardson because he came to Thanksgiving dinner last year while his brothers attended an event at their Dad’s home.
What are the income tax results of Bob’s actions? What are alternatives that you can present to Bob that will satisfy his apparent goals and objectives?

See Helvering v Horst, 40-2 USTC ¶9787, 311 U.S. 112, 61 S.Ct. 144 (1940)

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