Exam 27: Family Tax Planning

Walt dies intestate (i.e. ,without a will) in the current year with a gross estate valued at $4,000,000.Under applicable state law,Walt's property passes to Kelly or to Belle,in that order.Kelly has an estimated net worth of $3,000,000 while Belle has none.From a tax planning standpoint,what course of action might be advisable.

Pauline sells antique furniture to her daughter,Nicole,for $10,000.If the furniture is really worth $100,000,Pauline has made a gift to Nicole of $100,000.

At the time of her death in an automobile accident,Laura left a modest probate estate,most of which she had inherited from her mother several years ago.Comment on Laura's Federal estate tax position in connection with each of the following points. a.Probate estate versus gross estate. b.Credit for the tax on prior transfers.

Match each statement with the correct choice. Some choices may be used more than once or not at all. a.In the current year, Debby, a widow, dies. Two years ago she inherited a large amount of wealth from her brother.b.Death does not defeat an owner's interest in property.c.Exists only if husband and wife are involved.d.A type of state tax on transfers by death.e.Must decrease the amount of the gross estate.f.Annual exclusion not allowed.g.Cumulative in effect.h.Right of survivorship present as to type of ownership.i.Avoids the terminable interest rule of the marital deduction.j.Exemption equivalent.k.Bypass amount.l.No correct match provided. -Joint tenancy

The IRS does not consider property settlements in consideration of marriage as being transfers for valuable consideration.Consequently,such prenuptial settlements are subject to the Federal gift tax.Why,then,are property settlements incident to divorce exempt from the gift tax?

Joint tenancies and tenancies by the entirety avoid probate,while tenancies in common and community property do not.Why?

At the time of Clint's death,part of his estate consists of the following. ∙ Roth IRA (value of $1,000,000) with Jennifer as the designated beneficiary. ∙ Land (worth $3,000,000) held in joint tenancy with Jennifer.Jennifer is Clint's wife and originally furnished the purchase price. ∙ Building (worth $3,000,000) held as equal tenants in common with Jennifer and Dana.Dana is Clint's mother,and she originally purchased the property. Under Clint's will,all of his property passes to his wife,Jennifer.How much marital deduction is Clint's estate allowed? Clint and Jennifer live in Tennessee.

In most cases,the gross estate of a decedent is larger than the probate estate.

A timely issued disclaimer by an heir transfers the property to someone else without a Federal gift tax result.

A majority of states currently do not impose any tax on transfers by death.

At the time of her death,Chloe was involved in three trust arrangements.Details regarding these trusts are summarized below. ∙ Trust D (FMV of $3,200,000) was created by Chloe.Under its terms,Chloe holds a life estate,with her children designated as the remainder beneficiaries. ∙ Trust E (FMV of $800,000) was created by Chloe's father.Chloe holds a life estate,with her children designated as the remainder beneficiaries. ∙ Trust F (FMV of $1,300,000) was created by Chloe's mother.Chloe's children hold a life estate,and the remainder interest is to pass to their children (i.e. ,Chloe's grandchildren). As to these trusts,how much will be included in Chloe's gross estate?

Classify each statement appearing below. a.No taxable transfer occurs b.Gift tax applies c.Estate tax applies -Hector transfers funds to his aunt so she can obtain a much needed hip operation.The aunt does not qualify as Hector's dependent.

At the time of her death on October 4,2015,Kaitlyn was involved in the following transactions. ∙ Was the sole life beneficiary of a trust (assets worth $2 million) created 10 years ago by Paul (Kaitlyn's husband).The transfer was by gift of securities then worth $500,000 (Paul did not make a QTIP election).Paul and Kaitlyn's children are the remainder persons. ∙ Owned stock in Mauve Corporation (basis of $800,000 and fair market value of $1 million).On September 7,2015,a dividend of $48,000 was declared on the stock payable to all shareholders on record as of October 3,2015.The $48,000 was received by Kaitlyn's executor on October 19,2015. ∙ Kaitlyn made a taxable gift of $400,000 in 2004. As to these transactions,Kaitlyn's gross estate includes:

At the time of her death,Audrey was (or had been) involved in the following trust arrangements.As to these trusts,how much is included in Audrey's gross estate? ∙ Trust A.Created by Audrey ten years ago as a revocable trust with $1 million in assets.The trust provides for a life estate to Audrey,remainder to her children.Two years ago and when the trust was worth $5 million,Audrey released her power to revoke.When Audrey died,Trust A's assets are valued at $5.1 million. ∙ Trust B.Created by David's will (Audrey's late husband) and provides for a life estate to Audrey,remainder to her children.David's estate made a QTIP election.Trust B was worth $2 million when created and $3 million when Audrey died. ∙ Trust C.Created by Audrey five years ago,provides for a life estate to Audrey's children,remainder to their children (i.e. ,Audrey's grandchildren).Trust C was worth $1.5 million when created and $2.4 million when Audrey died.

Doyle died in 2000 and by will created a trust with the following provisions: "life estate to my wife,Grace,remainder upon her death to our children." Grace dies this year.Is the trust Doyle created included in Grace's gross estate? Explain.

Which,if any,of the following is not a characteristic of the Federal estate tax?

Pursuant to Corey's will,Emma (Corey's sister) inherits his property.Emma dies later.The estate tax attributable to the inclusion of the property in Corey's gross estate was $300,000.The estate tax attributable to the inclusion of the property in Emma's gross estate is $400,000.Emma's credit for the tax on prior transfers (under § 2013) is:

Under the alternate valuation date election,each asset in the gross estate is valued at the lesser of the date of death value or six months thereafter.

Cary and Bo are husband and wife.Using their community funds,they create a trust,life estate to Bo,remainder to their children.Four years later,Cary predeceases Bo.Nothing as to this trust is included in Cary's gross estate.

At the time of her death,Amber owns property worth $5,000,000.Other information regarding her affairs is as follows. Unpaid pledge to the building fund of her church $50,000 College graduation gift she had promised her grandson 20,000 Local property taxes owed (accrued prior to death) 100,000 Casualty loss to uninsured vacation home (fire occurred one month before death) 500,000 Mortgage owed on personal residence 800,000 All of these items (except the casualty loss) were paid by her estate,and none were deducted on Form 1041 (income tax return of the estate).What is Amber's taxable estate?