Exam 18: Family Tax Planning

In a typical estate freeze involving family limited partnerships established by parents for their children:

A donee's income tax basis in property received as a gift includes any gift tax paid by the donor.

In valuing a life insurance policy that has not matured (i.e.,the insured is still alive),it makes a difference whether the policy is paid up.

Match each statement with the correct choice. Some choices may be used more than once or not used at all. a.Step-up in basis b.Step-down in basis c.Gift of U.S. savings bonds d.Gift of depreciable property that has § 1245 or § 1250 recapture of depreciation potential e.Donor's basis on date of gift (appreciated property given)* f.The amount of the deceased spouse's gross estate does not change g.Fair market value on date of gift (depreciated property given)* h.Expected surviving spouse is already wealthy i.Income in respect of a decedent (IRD) j.Expected surviving spouse is in good health k.No correct choice is given *No gift tax involved -Equalization approach.

Merwyn makes a gift of securities (basis of $700,000; fair market value of $600,000)to his daughter,Marian.As a result of the transfer,Merwyn paid a gift tax of $60,000.What is Marian's income tax basis in the securities if the gift occurred in: a.1976? b.2008?

Match each statement with the correct choice. Some choices may be used more than once or not used at all. a.Step-up in basis b.Step-down in basis c.Gift of U.S. savings bonds d.Gift of depreciable property that has § 1245 or § 1250 recapture of depreciation potential e.Donor's basis on date of gift (appreciated property given)* f.The amount of the deceased spouse's gross estate does not change g.Fair market value on date of gift (depreciated property given)* h.Expected surviving spouse is already wealthy i.Income in respect of a decedent (IRD) j.Expected surviving spouse is in good health k.No correct choice is given *No gift tax involved -Measure of income tax deduction on a gift of property to charity.

Warren sells property that he inherited five years ago from his mother,Candice.Warren believes that the property was significantly undervalued when it was listed on the estate tax return filed for Candice's estate.For income tax purposes,can Warren deviate from this value? Explain.

Match each statement with the correct choice. Some choices may be used more than once or not used at all. a.Use IRS valuation tables b.Exclusion amount (exemption equivalent) c.Current use value d.Best or most suitable use value e.Cost of going public f.Replacement cost of a comparable contact g.Portion of a deceased spouse's estate that passes to a surviving spouse h.Entity buy and sell agreement i.Cross-purchase buy and sell agreement j.Discount for minority interest k.No correct choice is given -Discount attributable to a large number of shares.

In a husband/wife setting,good tax planning dictates that each spouse should pass by will all of his or her assets to the surviving spouse.

Passing installment notes by death will avoid any income tax on the deferred gain.

In planning for the use of § 6166,what are several steps that can be taken to aid the owner of a small business while he or she is alive? In this connection consider the following. a.The number of owners and the amount of ownership in the business. b.The nonqualifying assets held by the owner. c.Aggregation of qualifying interest.

The recapture of special use valuation estate tax savings can have income tax implications.

Match each statement with a correct choice. Choices may be used more than once. a.Increases the probate estate b.Decreases the probate estate c.Has no effect on the probate estate -Paid medical expenses prior to death.

The value of an asset listed on the estate tax return becomes its income tax basis.This valuation is not subject to challenge by an heir who later sells the property.

Match each statement with a correct choice. Choices may be used more than once. a.Increases the probate estate b.Decreases the probate estate c.Has no effect on the probate estate -Purchased real estate designating herself and her children as equal tenants in common.

At the time of his death,Rex owned an RV.For valuation purposes,the RV should be included in his gross estate at the price a dealer in RVs would pay for the property.

The special use valuation method of § 2032A is not available for valuing transfers by gift.

Which,if any,of the following procedures reduces both Ned's gross estate and probate estate?

At the time of Rick'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 Rick's gross estate?

Match each statement with the correct choice. Some choices may be used more than once or not used at all. a.Use IRS valuation tables b.Exclusion amount (exemption equivalent) c.Current use value d.Best or most suitable use value e.Cost of going public f.Replacement cost of a comparable contact g.Portion of a deceased spouse's estate that passes to a surviving spouse h.Entity buy and sell agreement i.Cross-purchase buy and sell agreement j.Discount for minority interest k.No correct choice is given -Valuation of a life insurance policy that is paid up.