Exam 18: Family Tax Planning

Match each statement with the correct choice. Some choices may be used more than once or not used at all. a.Increases the probate estate b.Decreases the probate estate c.Has no effect on the probate estate -Created during life an irrevocable trust naming others as beneficiaries.

If a stock redemption is to be carried out,a cross-purchase type of buy and sell agreement must be involved.

The deferral approach to the estate tax marital deduction (as opposed to the equalization approach)is advisable if the surviving spouse is in good health and has few assets.

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 -Prior to death filed for a refund of overpaid income taxes.

What are the advantages of § 6166 (extension of time when the estate consists largely of an interest in a closely held business)?

Match each statement with the correct choice. Some choices may be used more than once or not used at all. a.Increases the probate estate b.Decreases the probate estate c.Has no effect on the probate estate -Purchase out-of-state realty.

The election by an estate of § 2032A (special use valuation as to real estate)or § 2032 (the alternate valuation date)will have no effect on the income tax basis of the property received by the heirs.

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 insurance policy that pays all funeral expenses.

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 -Surviving owners agree to purchase withdrawing owner's interest.

In 2008,Valerie made a gift of stock (basis of $112,000; fair market value of $412,000)to her grandson,Ryan.As a result of the transfer,Valerie paid a gift tax of $20,000.Ryan's income tax basis in the stock is:

Application of the blockage rule has not been limited to just the valuation of stocks and bonds.

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 -Donee's basis for gain.

At the time of her death,Lila owns 50% of the stock in Kingfisher Corporation,with the balance of the stock held by family members.Kingfisher Corporation's total profits for the past five years are $3,000,000,and the book value of its stock is $2,000,000.If 8% is an appropriate rate of return and goodwill exists,what is a possible value for the stock to be included in Lila's gross estate?

Corey owns all of the stock of Blond Corporation which includes both common and preferred shares.The preferred stock is noncumulative,has no redemption date,and possesses no liquidation preference.In 1995,Corey makes a gift to his adult children of all of the common stock.He dies in 2008 still owning the preferred stock.The value of the Blond stock on the relevant dates is: One of the tax consequences of this estate freeze is:

Match each statement with the correct choice. Some choices may be used more than once or not used at all. a.Living trusts b.Income in respect of a decedent (IRD) c.Conservation easement d.Discretionary extension of time to pay estate tax (§ 6161) e.Estate freeze-corporations f.Extension of time involving interest in closely held business (§ 6166) g.Special use valuation as to certain realty (§ 2032A) h.Recapture potential under §§ 1245 and 1250 eliminated i.Alternate valuation date (§ 2032) j.Election to split gifts (§ 2513) k.No correct choice is given -Election by estate can affect income tax basis of surviving spouse's share of community property.

How can a disclaimer by an heir increase the charitable deduction allowed a decedent? Is such a disclaimer always wise? Explain.

Herbert leaves one-half of his estate to his wife,Ramona,and the remainder to a qualified charity.Herbert's estate taxes would not be reduced if Ramona disclaims her interest in favor of the charity.

Match each statement with the correct choice. Some choices may be used more than once or not used at all. a.Increases the probate estate b.Decreases the probate estate c.Has no effect on the probate estate -Made lifetime gifts.

Which,if any,of the following statements correctly reflects the operational rules under § 2032A ("special use" valuation)?

Harvey owns a certificate of deposit listed as: "Harvey,payable on proof of death to April." On Harvey's prior death,the CD is subject to probate.