Exam 19: Family Tax Planning

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 -Valuation of life estate interest created by transfer in trust.

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 stock that had depreciated in value.

Because of the estate tax deduction, a testamentary bequest to charity is preferable to a lifetime transfer.

In 2013, Valerie made a gift of stock (basis of $114,000; fair market value of $414,000) 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:

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 insurance policy that pays all funeral expenses.

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 -Discount attributable to a large number of shares.

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?

Clancy and Maureen are husband and wife and have always lived in a community property state. When Clancy learns that he is terminally ill, he gives to Maureen all of his share of the community investments that have declined in value. Why?

In satisfying the more­than­35% test of § 6166 (i.e., extended estate tax payment schedule relative to an interest in a closely held business), prior gifts the decedent has made may have to be considered.

In 2005, Gloria purchased as an investment unimproved land for $50,000. In 2013, Gloria sells the land, now worth $200,000, to her church for $50,000. As a result of this transaction, Gloria reports:

Match each statement with the correct choice. Some choices may be used more than once or not used at all. a. Revocable trusts b. Income in respect of a decedent (IRD) c. Conservation easement d. Discretionary extension of time to pay estate tax (§ 6161) e. Estate freeze-corporations f. Extension of time involving interest in closely held business (§ 6166) g. Special use valuation as to certain realty (§ 2032A) h. Depreciation recapture potential eliminated i. Alternate valuation date (§ 2032) j. Election to split gifts (§ 2513) k. No correct choice is given -Eliminates common stock from donor's gross estate.

If depreciable property is passed by death, any depreciation recapture potential carries over to the heir.

Under Cindy's will, her share of their community property passes to Van, her surviving spouse. Cindy's property is subject to probate.

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 2013. a. Ron's will leaves $5,400,000 to his adult son and the remainder ($900,000) to Rita (Ron's surviving wife). b. Ron's will leaves $8,000,000 to Rita (Ron's surviving wife) and the remainder ($2,000,000) to his adult daughter. c. Ron's will leaves $5,450,000 to Rita (Ron's surviving wife) and the remainder ($500,000) to a qualified charity.

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

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 not part of his probate estate.

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 -Measure of income tax deduction on a gift of depreciated property to charity.

Giselle, a widow, has an extensive investment portfolio that has appreciated in value. Starting this year, 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: a. Federal gift and estate taxes. b. Federal income tax.

Match each statement with the correct choice. Some choices may be used more than once or not used at all. a. Revocable trusts b. Income in respect of a decedent (IRD) c. Conservation easement d. Discretionary extension of time to pay estate tax (§ 6161) e. Estate freeze-corporations f. Extension of time involving interest in closely held business (§ 6166) g. Special use valuation as to certain realty (§ 2032A) h. Depreciation recapture potential eliminated i. Alternate valuation date (§ 2032) j. Election to split gifts (§ 2513) k. No correct choice is given -Reasonable cause will justify election.

Doug inherited his mother's bedroom furniture worth $3,000. For sentimental reasons, Martha, the daughter, pays Doug $3,500 for the furniture. The furniture should be included in the mother's gross estate at $3,500.