Tom and Jean are husband and wife and live in California.In 1991,they use $400,000 of community funds to purchase an annuity from an insurance company.Under the terms of the contract,Tom is to receive $40,000 per year for life once he reaches age 65.If Jean outlives Tom,she is to receive $30,000 per year for life.Tom dies first in 2009 (and before reaching age 65).At this time,the value of Jean's interest is $500,000.As to this contract,Tom's gross estate includes:

Question

Quizplus · Accepted Answer

Tom's gross estate includes the value of any property in which he had an interest at the time of his death, including his interest in the annuity. Since Tom died before reaching age 65, he never received any payments from the annuity. Therefore, the value of his interest in the annuity is included in his gross estate.

To calculate the value of Tom's interest in the annuity, we need to determine what the annuity would be worth as of his date of death. This requires an actuarial calculation based on various factors such as Tom and Jean's ages and life expectancies, the terms of the annuity contract, and prevailing interest rates.

Assuming an actuarial value of $500,000 for the annuity at the time of Tom's death, and given that Tom used $400,000 of community funds to purchase the annuity, his interest in the annuity would be $250,000. Therefore, the correct answer is choice C.

Tom and Jean Are Husband and Wife and Live in California.In