Exam 19: Family Tax Planning

In June 2010, Debra makes a gift of securities (basis of $613,000; fair market value of $913,000) to her uncle, upon which a gift tax of $60,000 is paid. The uncle dies in July 2011, when the securities are worth $950,000. Under the terms of the uncle's will, the securities return to Debra. Debra's income tax basis in the securities is:

In a typical "estate freeze" involving stock:

In arriving at the valuation of assets for estate tax purposes, the location of the property must be considered.

When stock in a public corporation is traded, a discount for lack of marketability may be available.

One of the objectives of establishing a program of lifetime giving is to transfer assets that are likely to appreciate in value. Examples include life insurance policies, valuable collections (e.g., art works), vacation homes, and undeveloped real estate. However, such gifts could cause economic problems for certain donees. Explain why.

The quantity of stock that a decedent owns in a closely held corporation can have an effect on its valuation. Explain this statement.

As to property received as a gift, a donee's income tax basis for gain or loss may not be the same.

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

In each of the following independent situations, describe the effect of the disclaimer procedure on Ron's taxable estate. In this regard, advise as to how much should be disclaimed, by whom, and whether a disclaimer should be made. Assume the year involved is 2011.

If depreciable property is transferred by gift, any depreciation recapture potential carries over to the donee.

Fred and Pearl always have lived in a community property state. At the time of Fred's prior death in 2011, they held stock that cost them $600,000 but was valued as follows. Under Fred's will, his half of the stock passes to their daughter, Brandi. What income tax basis will Pearl and Brandi have in the stock, if Fred's estate:

In valuing a life insurance policy that has not matured (i.e., the insured is still alive), it makes no difference whether the policy is paid up.

In 2011, Donna's father dies and leaves her the family farm. The farm has a current use value of $4,000,000 and a best use value of $4,500,000. If the § 2032A election is made, the farm should be included in the father's gross estate at a value of:

A disclaimer by a surviving spouse will generate additional estate tax since it reduces the amount of marital deduction allowed.

In arriving at the value of stock in a closely held business, the IRS frequently imputes goodwill. Comment on how the following independent factors would affect the determination of goodwill.

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

Sam and Lucinda are husband and wife and have always lived in a community property state. At the time of Lucinda's prior death, part of their community property includes: Under Lucinda's will, all of her property passes to Sam. After Lucinda's death, Sam's income tax basis in this property is:

Commercial annuity contracts should not be valued using the tables issued by the IRS.

A farm has a best use valuation of $2.9 million and a current use valuation of $2 million. If § 2032A is elected, the farm can be valued in the deceased owner's gross estate at $2 million.

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.