Exam 25: Transfer Taxes and Wealth Planning

Matthew and Addison are married and live in Michigan, a common-law state. For the holidays Addison gave cash gifts of $40,000 to each of her two sons, and Matthew gave $40,000 to his daughter. What is the amount of Addison's taxable gifts if Matthew and Addison opt to gift-split?

Natalie transferred $500,000 of bonds to a revocable trust with directions to the trustee to pay income to her aunt for five years, after which the corpus is to be distributed to Natalie's niece. At year-end, the trustee paid $16,000 of income to the aunt. Which of the following is a true statement?

Which of the following statements is (are)true for both gratuitous and testamentary transfers?

The estate tax is imposed on testamentary transfers.

A present interest is the right to currently enjoy property or receive income payments from property.

A couple who is married at the time of completing a gift can elect to file a joint gift tax return.

When creating an estate tax planning strategy, the income tax benefit derived from a step-up in tax basis on assets should be measured against the estate tax cost of including the assets in the decedent's gross estate.

A gratuitous transfer of cash made directly to an individual who uses the entire amount of the cash to pay medical expenses is not subject to a gift tax.

This year Evelyn created an irrevocable trust to provide for Ed, her 32-year-old nephew, and Ed's family. Evelyn transferred $150,000 to the trust and named a bank as the trustee. The trust was directed to pay income to Ed until he reaches age 35 (three years from now), and at that time the trust is to be terminated and the corpus is to be distributed to Ed's two children (or their estates). Determine the amount, if any, of the taxable gift. The relevant interest rate is 6 percent. (Round your intermediate calculation to three decimal places.)

Tracey is unmarried and owns $17 million in stock and bonds. What is the result if Tracey dies this year and leaves all of her property to a qualified charity?

This year, Brent by himself purchased season baseball tickets in the exclusive sky club. The price of the tickets was $60,000, and Brent divided the tickets equally with his two brothers (Brent gave one-third of the tickets to each brother). Has Brent made a taxable gift and, if so, in what amount?

Alexis transferred $400,000 to a trust with directions to pay income to her spouse, William, for his life. After William's death the corpus of the trust will pass to William's son. If the life estate is valued at $72,000, what is the total amount of the taxable gifts?

The estate and gift taxes share several common features. Which of the following characteristics is common to both the estate and gift taxes?

Eric has $5.3 million of property that he wants to leave to his four children. He is considering making a current gift of the property (rather than leaving the property to pass through his will). Eric has made many prior taxable gifts, and additional taxable transfers will be subject to the highest transfer tax rate. Determine how much estate tax Eric will save if he gifts the property now and survives at least three years, during which time the property appreciates to $5.83 million. Ignore the time value of money in your calculation.

This year Evelyn created an irrevocable trust to provide for Ed, her 32-year-old nephew, and Ed's family. Evelyn transferred $210,000 to the trust and named a bank as the trustee. The trust was directed to pay income to Ed until he reaches age 35 (three years from now), and at that time the trust is to be terminated and the corpus is to be distributed to Ed's two children (or their estates). Determine the amount, if any, of the taxable gift. The relevant interest rate is 6 percent. (Round your intermediate calculation to three decimal places.)

Which of the following is a complete taxable gift?

Last year Diego transferred a life insurance policy worth $75,000 to an irrevocable trust with directions to distribute the corpus of the trust to his grandson, Juan, upon his graduation from college, or to Juan's estate upon his death. Diego paid $5,000 of gift tax on the transfer of the policy. Early this year, Diego died and the insurance company paid $600,000 to the trust. What amount, if any, is included in Diego's gross estate?

Property is included in the gross estate at the value a willing buyer would pay a willing seller, neither being under any compulsion to buy or to sell, and both having reasonable knowledge of the relevant facts.

The gross estate may contain property transfers that are not included in the probate estate.

The testamentary transfer of property to a qualified charity is deductible in calculating the taxable estate without any ceiling limitation.