Exam 19: Family Tax Planning

When the annual exclusion was $14,000, Pam makes a gift of land (basis of $314,000; fair market value of $914,000) to her granddaughter, Tracy. As a result of the transfer, Pam paid a gift tax of $45,000. Tracy's income tax basis in the land is:

Walt owns an insurance policy on his life with Doris as the designated beneficiary. On Walt's prior death, the proceeds of the policy are not part of his probate estate.

Match each statement with the correct choice. Some choices may be used more than once or not used at all -Election by estate will reduce the amount of the gross estate.

Edgar creates a trust, life estate to Connie (age 46), remainder to Gene (age 18). In determining the value of the life estate, use the multiple given in the IRS valuation table for a person age 18.

Doug inherited his mother's bedroom furniture worth $3,000. For sentimental reasons, Martha, the daughter, pays Doug $3,500 for the furniture. The furniture should be included in the mother's gross estate at $3,500.

In 2014, Sophia sold real estate (adjusted basis of $500,000) for $1,500,000. Under the terms of the sale, she received two notes of $750,000 each, with 9% interest provided. One note is due in 2015 and the other in 2016. She did not elect out of the installment method of recognizing gain. In 2015 and before the first note matures, Sophia gives both notes to her adult children. At this time, the notes are worth a total of $1,400,000. Disregarding the interest element, a tax result of these transactions is:

A farm has a best use valuation of $3 million and a current use valuation of $1.2 million. If death occurs in 2015 and § 2032A is elected, the farm can be valued in the deceased owner's gross estate at $1.2 million.

Derrick dies, and under the terms of his will, all of his property passes outright to Dion (Derrick's surviving wife). Under these circumstances, there is no need for Derrick's executor to make a QTIP election.

By maximizing the marital deduction, any estate tax is postponed until the death of the surviving spouse.

Application of the blockage rule has not been limited to just the valuation of stocks and securities but has been applied to other assets.

In arriving at the valuation of assets for estate tax purposes, the location of the property is irrelevant.

In valuing a life insurance policy that has not matured (i.e., the insured is still alive), it makes no difference whether the policy is paid up.

At the time of Addison's death, he owned 70% of the stock in Robin Corporation, a closely held family business. Over the past five years, Robin has averaged annual profits of $400,000 in an industry where the usual rate of return is 9%. If the book value of the corporation's assets is $1,000,000 and goodwill exists, what might be a realistic value of the stock in Addison's gross estate?

Which, if any, of the following factors should reduce the value of a note receivable included in the gross estate of the holder?

Match each statement with the correct choice. Some choices may be used more than once or not used at all -Can postpone the payment of any estate tax for 5 years from due date of the return.

Chloe makes a gift of stock in Snipe Corporation, which is not closely held but is traded in an over-the-counter market. The transactions involving this stock that occurred closest to the date of gift took place five trading days before (mean selling price of $130) and seven days after (mean selling price of $140). Determine the fair market value of the Snipe stock on the date of the gift.

The quantity of stock that a decedent owns in a closely held corporation can have an effect on its valuation. Explain this statement.

In 1990, Mia, a resident of New Jersey, purchases realty for $600,000 listing title as "Mia and Ella, joint tenants with right of survivorship." In 2015, Mia predeceases Ella when the realty is worth $3,000,000. Ella's income tax basis in the property is:

Paul dies and leaves his traditional IRA to Evelyn. Which statement is correct?

Because of the estate tax deduction, a testamentary bequest to charity is preferable to a lifetime transfer.