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 -Paid a gift tax on a gift made two years prior to death of the donor.

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 -No step-up in basis at death.

Which,if any,of the following statements reflects the correct tax valuation rules?

Richard and Marie are tenants in common in a tract of land.Upon Richard's prior death,Marie's income tax basis in the land will not change.

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 -Surviving spouse disclaims inheritance in favor of bypass amount.

In a typical "estate freeze" involving stock:

Harry and Dolores are married and live in a common law state.Harry owns some real estate (fair market value of $576,000)which they would like to give to their six adult married children.The spouses of their children (e.g.,son-in-law,daughter-in-law)are to be included in the gifts.Harry and Dolores do not want to use any of their unified transfer tax credit.Assuming a constant annual exclusion in the amount of $12,000,suggest a viable way to structure the transfer.

Art and Melinda have always lived in a community property state.At the time of Art's prior death,they held land that cost them $500,000 but was valued as follows. Under Art's will,his half of the land passes to their daughter,Matilda.What income tax basis will Melinda and Matilda have in the land,if Art's estate: a.Elects the alternate valuation date of § 2032? b.Does not elect the alternate valuation date of § 2032?

Regarding the "bypass amount," comment on the following. a.What it is. b.The gift tax bypass amount is "frozen." c.The current estate tax bypass amount.

Several years ago,Sid purchased land listing ownership as "Sid,Hope,and Faith,equal joint tenants." In the current year,Faith dies first.One-third of the value of the land is included in Faith's probate estate.

In an estate freeze,the preferred stock is taxed twice-first upon the gift,and second when the donor dies.

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 -Deferral approach.

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 -Revocable trusts.

Brad and Heather are husband and wife and live in New Mexico.Under Brad's will,his share of the community property passes to the children.Upon Brad's prior death,there will be a change in Heather's income tax basis in her half of the community property.

In each of the following independent situations,describe the effect of the disclaimer procedure on Jacob's taxable estate.In this regard,advise as to how much should be disclaimed,by whom,and whether a disclaimer should be made,for the death in 2008. a.Jacob's will leaves $2,500,000 to his adult son and the remainder ($500,000) to Susan (Jacob's surviving wife). b.Jacob's will leaves $2,500,000 to Susan (Jacob's surviving wife) and the remainder ($1,000,000) to his adult son. c.Jacob's will leaves $2,500,000 to Susan (Jacob's surviving spouse) and the remainder ($500,000) to a qualified charity. d.Jacob's will leaves $2,000,000 to Susan (Jacob's surviving spouse) and the remainder ($500,000) to a qualified charity. Included in the $2,000,000 scheduled to pass to Susan is an antique gun collection valued at $300,000. Susan abhors firearms.

Buy and sell agreements can be used to help solve the estate tax valuation problems involved in the transfer by death of an interest in a small business.

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 -A gift causes income tax consequences to the donor.

As to property received as a gift,a donee's basis for loss can be different than her basis for gain.

Pam makes a gift of land (basis of $312,000; fair market value of $912,000)to her granddaughter,Tracy.As a result of the transfer,Pam paid a gift tax of $45,000.Tracy's income tax basis in the land is:

With respect to a stock interest in a closely held corporation,which,if any,of the following factors work to increase the gross estate value of the interest?