Exam 18: Family Tax Planning

Any recapture of special use valuation estate tax savings will be imposed on the qualified heir.

What is the rationale for the deferral and the equalization approaches to the marital deduction?

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 -Doubles the number of annual exclusions available.

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 loss.

Lesley and Morgan are husband and wife and have always lived in Idaho,a community property state.At the time of Morgan's prior death,their community property includes: Under Morgan's will,all of her property passes to Lesley.After Morgan's death,Lesley takes an income tax basis of:

Christine makes a gift of stock (basis of $700,000; fair market value of $1,000,000)to her son,Jordan.As a result of the transfer,Christine paid a gift tax of $100,000.What is Jordan's income tax basis in the stock if the gift occurred in: a.1976? b.2008?

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 -Created during lifetime an irrevocable trust in which a life estate is retained with remainder interest passing to the children.

For the IRS to grant a discretionary extension of time to pay estate taxes (under § 6161),the executor must show that the estate would otherwise undergo undue hardship.

One of the advantages of an estate freeze is that the preferred stock is not included in the gross estate of the donor.

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 -Spouse purchased residence listing ownership as tenants by the entirety.

Because of the estate tax deduction,a testamentary bequest to charity is preferable to a lifetime transfer.

Edgar creates a trust,life estate to Connie (age 46),remainder to Gene (age 18).In determining the value of the life estate,use the multiple given in the IRS valuation table for a person age 18.

The Nelsons make gifts of appreciated stock investments to their children (ages 14 to 17).If the children later sell the stock,less tax probably will result than if the parents had not made the gifts and sold the stock themselves.

A disclaimer by a surviving spouse may not generate additional estate tax even though it reduces the amount of marital deduction allowed.

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 for lack of marketability as to stock.

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 -Decedent owned traditional IRA that has appreciated.

Abigail owns an insurance policy on her life payable to her estate.On Abigail's death,the insurance proceeds are included in both her probate estate and gross estate.

Which,if any,are characteristics of the valuation tables issued by the IRS?

Brandi is the founder of Carmine Corporation and owns all of its stock,both common and preferred.The preferred stock is noncumulative and possesses no preferential rights as to liquidation.In 1992 and when the common stock has a value of $1,000,000,Brandi gives it to her adult children.She retains the preferred stock which,at this time,has a value of $200,000.In 2008,Brandi dies.Values on the date of death are: $2,000,000 for the common stock and $300,000 for the preferred. a.What is the amount of the gift Brandi makes in 1992? b.How much as to Carmine Corporation is included in Brandi's gross estate in 2008?

A gift of installment notes causes any deferred gross profit on the notes to be taxed to the donees.