Exam 17: The Federal Gift and Estate Taxes

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.

In which,if any,of the following independent situations has Ted made a gift?

Georgia owns an insurance policy on the life of Jake,with Scarlet as the designated beneficiary.Upon Scarlet's prior death,no transfer tax consequences result.

At the time of his death,Jacque was a participant in Ivory Corporation's qualified pension plan and group term life insurance.The balance in his pension plan is: The term insurance has a maturity value of $100,000.All amounts are paid to Penny,Jacque's daughter.One result of these transactions is:

At the time of his death,Hal owned 10 cemetery lots worth $40,000 ($4,000 each)for use by himself and his family.These lots are included in Hal's gross estate and a deduction of $4,000 is allowed the estate.

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 (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:

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.Scheduled to be eliminated by 2010. c.Exists only if owners are husband and wife. d.A type of state death tax. e.A certificate of deposit listed as "B. Brown, payable on proof of death to my daughter, Evelyn." 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.Exclusion amount k.Replaced by a deduction. l.No correct match provided. -Community property

The current top Federal transfer tax rate of 45% is the highest that the rate ever has been.

The election of the alternate valuation date does include any income earned by the property after the date the deceased owner died.

Under the Tax Relief Reconciliation Act of 2001,the exclusion amount for Federal estate tax purposes is to remain at $1 million from 2002 onward and not increase.

Milton and Andrea are husband and wife and always have lived in California.At the time of Milton's prior death,he was insured in the amount of $500,000 with Andrea as the designated beneficiary.The policy was taken out by Milton before marriage and the premiums thereon were paid as follows: 20% prior to marriage from Milton's separate property and 80% after marriage from community funds.As to this policy,Milton's gross estate includes:

Classify each statement appearing below. a.No taxable transfer occurs b.Gift tax applies c.Estate tax applies -Using his own funds,Horace establishes a savings account designating ownership as follows: "Horace and Nadine as joint tenants with right of survivorship." Nadine later withdraws the funds.

To make the election to split gifts under § 2513,spouses must file a Form 709 (Federal gift tax return).

Classify each statement appearing below. a.No taxable transfer occurs b.Gift tax applies c.Estate tax applies -Howard establishes a trust,life estate to his children,remainder to the grandchildren.Under its terms,the trust is revocable by Howard.Howard later relinquishes the right to revoke the trust.

In a § 2503(c)trust for minors,the trustee can be given the power to accumulate income without the gift violating the future interest rule.

The Federal gift and estate taxes were restructured in 1976 into the unified transfer tax.The objective of the change was to eliminate the tax difference between transfers during life (gift tax)and at death (estate tax).Does this uniformity of treatment currently exist? In this regard,comment on the following differences between the two taxes. a.Applicable unified transfer tax credit. b.Applicable unified transfer tax rates. c.Availability of the charitable and marital deductions. d.Availability of the annual exclusion.

At the time of her death,Jennifer owns property worth $4,500,000.Other information regarding her affairs is as follows. 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 Jennifer's taxable estate?

Which of the following statements relating to the Federal gift tax is incorrect?

It is possible that a gift worth less than the amount of the annual exclusion may have to be reported on a Federal gift tax return (Form 709).

As reflected by the tax law,Congressional policy relative to the Federal gift and estate taxes has been very inconsistent.Comment on this policy regarding the following time periods. a.From original enactment of these taxes up to the Tax Reform Act of 1976. b.From the Tax Reform Act of 1976 to the Tax Relief Reconciliation Act of 2001. c.From the Tax Relief Reconciliation Act of 2001 onward.