Exam 19: Family Tax Planning

At the time of his death, Fred held some notes receivable for loans he made to his two daughters and the payment of which he forgives in his will. The amount to be included in Fred's gross estate as to these notes is affected by his forgiveness.

Wesley has created an irrevocable trust: life estate to Eve, remainder to Ernest upon Eve's death. In using the IRS valuation tables, what information is needed to determine the value of Eve's life estate?

The election of § 2032 (alternate valuation date) for estate tax purposes:

In 2009, Sophia sold real estate (adjusted basis of $500,000) for $1,500,000. Under the terms of the sale, she received two notes of $750,000 each, with 9% interest provided. One note is due in 2010 and the other in 2011. She did not elect out of the installment method of recognizing gain. In 2010 and before the first note matures, Sophia gives both notes to her adult children. At this time, the notes are worth a total of $1,400,000. Disregarding the interest element, a tax result of these transactions is:

Eric, age 80, has accumulated about $6 million in net assets. Among his assets are the following marketable securities held as investments. Eric would like to donate (either by lifetime or testamentary transfer) $250,000 in value to his church. In addition, to consummate a land deal, he needs $250,000 in cash. Looking solely to tax: considerations and using only the assets described above, Eric's best choice is to:

Using investments worth $1 million, Roland establishes a trust, life estate to Melinda, remainder to Kim.

Giselle, a widow, has an extensive investment portfolio that has appreciated in value. Starting in 2009, she initiates a policy of making annual gifts of securities to her grandchildren who are attending college. Evaluate Giselle's policy in terms of the:

At the time of his death, Harvey was a shareholder in Grebe Corporation. In valuing the Grebe stock included in Harvey's gross estate, the IRS contends that the corporation possessed considerable goodwill. In disputing this contention, which of the following point(s) is/are relevant?

One of the objectives of family tax planning is to minimize income taxes on transfers of property within the family unit.

At the time of Rick's death, he owned 70% of the stock in Robin Corporation, a closely held family business. Over the past five years, Robin has averaged annual profits of $400,000 in an industry where the usual rate of return is 9%. If the book value of the corporation's assets is $1,000,000 and goodwill exists, what might be a realistic value of the stock in Rick's gross estate?

Which, if any, of the following statements properly characterize features involving buy-sell agreements?

In 2011, Arlene makes a gift of stock (basis of $813,000; fair market value of $413,000) to her mother, Elizabeth. As a result of the transfer, Arlene paid a gift tax of $60,000. Elizabeth's income tax basis in the stock is:

In satisfying the more-than-35% test for qualification under § 6166, interests in multiple closely held businesses are aggregated when the decedent's gross estate includes 20% or more of the value of each such business.

Under proper circumstances, a disclaimer by an heir may increase the charitable deduction allowed a decedent.

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

Which statement is correct concerning the rules governing the application of § 2032A ("special use" valuation)?

Regarding the effects of § 1014(e) (i.e., step-up in basis and the one-year rule), comment on the following variables.

Rick and Gail are equal tenants in common in real estate. Upon Gail's prior death, Rick's basis in the real estate does not change.

In 1990, Jude, a resident of New York, purchases realty for $500,000 listing title as "Jude and Tony, joint tenants with right of survivorship." In 2011, Tony predeceases Jude when the realty is worth $2,000,000. Tony's income tax basis in the property is:

In connection with a traditional IRA that is transferred at death, comment on the tax implications of each of the following.