Exam 12: The Gift Tax

Terry is considering transferring assets valued at $400,000 to an irrevocable trust for the benefit of her son,Cliff,age 15,with First National Bank as trustee.Her attorney has drafted a trust agreement that provides that Cliff is to receive income at the trustee's discretion for the next 20 years and that at age 35,the trust assets will be distributed equally between Cliff and his sister Joanna.Terry anticipates that her husband will consent to gift splitting.What tax issues should Terry and her husband consider with respect to the trust she is creating?

Describe the penalties for undervaluing gifts on a gift tax return.

Donna transfers $200,000 of property to an irrevocable trust with a bank as trustee.Donna names Toby (age 60)to receive all of the trust income for the rest of his life.At Toby's death,the property is to pass to Al or Al's estate.What kind of interest do Toby and Al possess?

The computation of the gift tax liability for a current year

Identify which of the following statements is true.

Discuss at least two reasons for making inter vivos (lifetime)gifts.

A "Crummey demand power" in a trust document allows the donor to demand a distribution from the trust in years in which earnings exist within the trust.

In the current year,Melanie makes two transfers to Peter,her husband.In June,she gives him land valued at $50,000.In December,she transfers $500,000 to a trust with a bank named as trustee.All income must be paid to Peter monthly for life.At Peter's death,the property passes to their children.Compute the maximum marital deduction assuming Melanie makes the appropriate elections.

Identify which of the following statements is false.

On April 1,Martha opens a joint bank account with Ned and deposits $1,000.Ned deposits $500 into the account on April 2.On May 2,Martha withdraws $750.Two days later,Ned withdraws $600.

Damitria transfers her rights in a $100,000 insurance policy on June 1 to Tremayne.The policy has a cash value of $9,000 and an interpolated terminal reserve of $8,500.The annual policy premium of $12,000 had been paid on January 1.Damitria's gift (before the annual gift tax exclusion)to Tremayne is

In October 1976,Marian made a large taxable gift.It was her first gift.Marian used her $30,000 specific exemption to reduce her taxable gift amount.What impact does this gift have on her unified credit and death tax base?

Discuss the negative aspects of gifts.

Vincent makes the following property transfers in the current year: • $5,000 tuition for a grandson paid directly to the school • $1,000 medical expense for a child paid directly to a hospital • $500 donation to the Democratic party • $10,000 property settlement in conjunction with a divorce • $3,000 room and board at college for a grandson paid directly to the school Vincent's gifts for the year before considering the annual gift tax exclusion total

Gloria makes the following gifts during the year: $15,000 cash to her son,Andy Stock with a basis of $10,000 and a $30,000 fair market value to her sister,Helen $100,000 to a revocable trust benefiting her nephew,George Land with a basis of $60,000 and a fair market value of $50,000 to the American Cancer Society Before considering the unified credit,what are Gloria's taxable gifts?

Kenny is thinking of making a substantial gift of stock to his fiancée,Maria.The wedding is scheduled for October 1 of the current year.Kenny already has exhausted his unified credit.He also is considering giving $26,000 cash this year to each of his three children by a previous marriage.What tax issues should Kenny consider with respect to the gifts he plans to make to Maria and his three children?

Identify which of the following statements is false.

George transfers property to an irrevocable trust for the benefit of his adult children and names himself as trustee.The trust document requires the trustee to distribute trust property to the beneficiaries at the trustee's discretion with the possibility of no distribution to certain beneficiaries as the trustee deems appropriate.The trust will terminate at the end of nine years,and the property will pass to George's children.Which of the following statements is correct?

A split-interest gift transfer

Identify which of the following statements is true.