Exam 19: Family Tax Planning

In a typical estate freeze involving family limited partnerships established by parents for their children:

In April 2011, Tim makes a gift of real estate (basis of $900,000; fair market value of $800,000) to his aunt. After the gift, the aunt makes $50,000 worth of capital improvements to the property. The aunt dies in March 2012, when the property is worth $840,000. Under the aunt's will, the realty passes to Tim. Tim's income tax basis in the property is:

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.

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

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

Under Cindy's will, her share of their community property passes to Van, her surviving spouse. Cindy's property is not subject to probate.

Two years ago, Ellen created a revocable trust-life estate to her children, remainder to her grandchildren. When Ellen dies in the current year, none of the trust is included in her probate estate.

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

Brooke wants to donate a parcel of land (basis of $50,000; fair market value of $200,000) to her church, which it plans to use for a new parsonage. However, since Brooke wants to recover her capital investment, she plans to sell the property to the church for $50,000. Comment on the tax consequences of this proposed sale.

The Nelsons make gifts of appreciated securities to their dependent daughter (age 20) and son (age 21), both of which are students. If the children sell the securities shortly thereafter, the kiddie tax will not apply to tax the gain at the parents' tax rate.

Jim makes a gift of property (basis of $800,000; fair market value of $600,000) to his wife, Molly. Six months later Molly dies, and under her will, the property (now worth $700,000) returns to Jim. Jim's income tax basis in the property now is $800,000.

Bob and Paige are married and live in a common law state. Bob owns some real estate (fair market value of $624,000) 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. Bob and Paige do not want to use any of their unified transfer tax credit. Assuming a constant annual exclusion in the amount of $13,000, suggest a viable way to structure the transfer.

At the time of his death, Al owned a majority interest in Macaw Corporation, a closely held holding company. Macaw's major asset is stock in ABC Grocers, a regional supermarket chain. The ABC stock has a per share basis to Macaw of $50 and is currently worth $2,000. In what manner, if any, may these facts have a bearing on the value of the Macaw stock included in Al's gross estate?

Walt owns an insurance policy on his life with Doris as the designated beneficiary. On Walt's prior death, the proceeds of the policy are part of his probate estate.

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?

The recapture of special use valuation estate tax savings could have income tax implications.

Which, if any, of the following items characterizes § 6166 (i.e., extension of estate tax payments relative to an interest in a closely held business)?

In making a choice as to which assets to use in carrying out a program of lifetime giving, comment on each of the following assets.

In 2011, Valerie made a gift of stock (basis of $113,000; fair market value of $413,000) to her grandson, Ryan. As a result of the transfer, Valerie paid a gift tax of $20,000. Ryan's income tax basis in the stock is:

A qualifying heir can make the § 2032A special valuation election even if he is not sure that he will keep the property for the full 10 years.