Exam 19: Family Tax Planning

In satisfying the more­than­35% 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.

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 2013, Tony predeceases Jude when the realty is worth $2,000,000. Tony's heirs have an income tax basis in the property of:

Match each statement with a correct choice. Choices may be used more than once. a. Increases the probate estate b. Decreases the probate estate c. Has no effect on the probate estate -Purchased real estate designating herself and her children as equal tenants in common.

Match each statement with the correct choice. Some choices may be used more than once or not used at all. a. Use IRS valuation tables b. Blockage rule c. Special use value d. Best or most suitable use value e. Cost of going public f. Replacement cost of a comparable contract g. Portion of a deceased spouse's share of community property that passes to a surviving spouse h. Cross-purchase buy and sell agreement i. Entity buy and sell agreement j. Bypass amount k. No correct choice is given -Marital deduction allowed.

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?

Abigail makes a gift of stock (basis of $600,000; fair market value of $1,200,000) to her son, Spencer. As a result of the transfer, Abigail paid a gift tax of $120,000. What is Spencer's income tax basis in the stock if the gift occurred in 2013?

In February 2012, Taylor sold real estate (adjusted basis of $200,000) for $600,000. Under the terms of the sale, the purchaser issued two notes of $300,000 each, payable annually. In January 2013 and when the notes are worth $560,000, Taylor gives the notes to her son. What, if any, are Taylor's tax consequences?

Match each statement with a correct choice. Choices may be used more than once. a. Increases the probate estate b. Decreases the probate estate c. Has no effect on the probate estate -Prior to death filed for a refund of overpaid income taxes.

Bob and Paige are married and live in a common law state. Bob owns some real estate (fair market value of $560,000) which they would like to give to their five 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 an annual exclusion in the amount of $14,000, suggest a viable way to structure the transfer.

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.

Natalie creates a trust, income payable to Ava (age 12) for 10 years, remainder to Samantha (age 32). In determining the value of these two gifts (i.e., income interest for a term certain and a remainder interest), use of more than one IRS valuation table will be necessary.

In terms of future estate tax (and death tax) savings, there are numerous advantages to making lifetime transfers. In this connection, comment on each of the following. a. Avoiding the tax on future appreciation. b. Preparing for the special use valuation method § 2032A. c. The annual exclusions utilized as to gifts. d. Payment of expenses prior to death.

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 gross estate or her probate estate.

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

Match each statement with a correct choice. Choices may be used more than once. a. Increases the probate estate b. Decreases the probate estate c. Has no effect on the probate estate -Paid medical expenses prior to death.

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 installment notes receivable d. Gift of property that has § 1245 or § 1250 potential for recapture of depreciation e. Donor's basis on date of gift (appreciated property given, no gift tax due) f. The amount of the deceased spouse's taxable estate does not change g. Fair market value on date of gift h. Expected surviving spouse is in good health and 10 years younger i. No income tax consequences to the beneficiary j. Income in respect of a decedent (IRD) k. No correct choice is given -Decedent owned Roth IRA that has appreciated.

Harvey owns a certificate of deposit listed as: "Harvey, payable on proof of death to April." On Harvey's prior death, the CD is not subject to probate.

For purposes of § 6166 (i.e., extension of estate tax payments relative to an interest in a closely held business), an interest in a closely held business does not include:

Edgar creates a trust, life estate to Connie (age 46), remainder to Gene (age 18). In determining the value of the life estate, use the multiple given in the IRS valuation table for a person age 18.

In January 2013 and when the annual exclusion was $14,000, Clint makes a gift of his beach house (basis of $114,000; fair market value of $414,000) to his aunt. As a result of the transfer, Clint pays a gift tax of $20,000. The aunt dies in December 2013, when the property is worth $420,000. Under the terms of the aunt's will, the property passes to Clint. Clint's income tax basis in the beach house is: