Exam 14: Transfer Taxes and Wealth Planning

Andrea transferred $677,500 of stock to a trust, with income to be paid to her niece for 20 years (value $128,000) and the remainder to be paid to her nephew (value $549,500). Andrea named a bank as independent trustee but retained the power to determine how much income, if any, will be paid in any particular year. What is the amount of the taxable gift, if any? Explain your answer.

Ashley owns a whole-life insurance policy worth $25,000 that directs the insurance company to pay the beneficiary $500,000 on her death. Ashley pays the annual policy premiums and has the power to designate the beneficiary of the policy. What value of the policy, if any, would be included in Ashley's estate upon her death?

At her death Tricia had an adjusted gross estate consisting of $8 million of property. Which of the following is a true statement about Tricia's estate or estate tax?

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

Andrew and Brianna are married and live in Texas, a community-property state. For their birthdays this year Andrew gave cash gifts of $23,300 to each of his two daughters, and Brianna gave $38,400 to her niece. What is the amount of Andrew's taxable gifts?

The marital and charitable deductions are common to both the estate tax and the gift tax formulas.

Gabriel had a taxable estate of $16 million when he died in 2020. Calculate the amount of estate tax due (if any) if Gabriel made prior taxable gifts in 2005 totaling $1 million, at which time he claimed an applicable credit of $1 million and paid no tax. Gabriel was unmarried at his death. (Use Exhibit 14-1.)

This year Nathan transferred $7 million to an irrevocable trust established for the benefit of his nephew. The trustee is directed to accumulate income for the next five years before distributing the trust corpus to Nathan's nephew. In past years Nathan has made taxable gifts of $6 million and used an applicable credit on an exemption equivalent of $5 million. What amount of gift tax, if any, must Nathan remit?

A gift tax return does not need to be filed unless the taxpayer has made current gifts in excess of the applicable credit.

A serial gift strategy consists of arranging a trust to maximize the value of the applicable credit.

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

A withdrawal of money from a bank account held in joint tenancy with the right of survivorship may constitute a complete gift.

Life insurance is an asset that can be used to fund a trust to support a surviving spouse and yet may not be included in the decedent's gross estate.

Which of the following is a true statement about the federal gift tax return (Form 709)?

Grace transferred $800,000 into trust with the income to be paid annually to her spouse, Isaiah, for life and the remainder to Taylor. Calculate the amount of the taxable gifts from the transfers.

The estate tax is imposed on testamentary transfers.

Aiden transferred $2 million to an irrevocable trust with income to Valeria for her life and the remainder to Jocelyn (or her estate). Calculate the value of the remainder and the life estate if Valeria's age and the prevailing interest rate result in a Table S discount factor for the remainder of 0.47.

The federal transfer taxes are calculated using cumulative lifetime transfers.

Ryan placed $280,000 in trust with income to Stephen for his life and the remainder to Kayla (or her estate). At the time of the gift, given the prevailing interest rate, Stephen's life estate was valued at $165,000 and the remainder at $115,000. What is the amount, if any, of Ryan's taxable gifts?

Which of the following transactions would not utilize the "Section 7520 rate" to calculate the value of the transfer?