Exam 18: The Federal Gift and Estate Taxes

A majority of states currently do not impose any tax on transfers by death.

Classify each statement appearing below. a. No taxable transfer occurs b. Gift tax applies c. Estate tax applies -Maggie purchased an insurance policy on Jim's life and designated Susan as the beneficiary. Four years later Jim dies, and Susan collects the insurance proceeds.

An estate tax is a tax on the right of an heir to receive property on the death of the owner.

Sidney dies and leaves property to his sister Giselle. Thirteen months later, Giselle dies. Under § 2013 (credit for tax on prior transfers), Giselle's estate can claim a full credit for any Federal estate taxes paid by Sidney's estate as to amounts passing to Giselle.

At the time of her death on October 4, 2013, Kaitlyn was involved in the following transactions. -Was the sole life beneficiary of a trust (assets worth $2 million) created 10 years ago by Paul (Kaitlyn's husband). The transfer was by gift of securities then worth $500,000 (Paul did not make a QTIP election). Paul and Kaitlyn's children are the remainder persons. -Owned stock in Mauve Corporation (basis of $800,000 and fair market value of $1 million). On September 7, 2013, a dividend of $48,000 was declared on the stock payable to all shareholders on record as of October 3, 2013. The $48,000 was received by Kaitlyn's executor on October 19, 2013. -Kaitlyn made a taxable gift of $400,000 in 2002. As to these transactions, Kaitlyn's gross estate includes:

Classify each of the independent statements appearing below. a. Some or all of the interest included in the decedent's gross estate. b. None of the interest included in the decedent's gross estate. -State income tax refund received after death on a tax return filed before death.

Classify each statement appearing below. a. No taxable transfer occurs b. Gift tax applies c. Estate tax applies -Maggie purchased an insurance policy on Jim's life and designated Susan as the beneficiary.

Classify each of the independent statements appearing below. a. Some or all of the interest included in the decedent's gross estate. b. None of the interest included in the decedent's gross estate. -Proceeds of an insurance policy on decedent's life. Decedent's son purchased the policy and is its owner and beneficiary.

Gerald and Pat are husband and wife and live in New York. In 2005, they purchase an insurance policy (joint ownership) on Gerald's life and designate their daughter, Marie, as the beneficiary. The policy has a maturity value of $4,000,000 and lists ownership as tenants in common. Gerald dies first in 2013 and the insurance proceeds are paid to Marie. As to the proceeds:

Which, if any, of the following is not a characteristic of the Federal estate tax?

If interest is provided for in loans between related parties, there is no imputed interest, as a gift loan does not result.

Among the assets included in Taylor's gross estate are the following. Three months after Taylor's death in 2013, her executor sells the Rail stock for $830,000. a. What is the amount of Taylor's gross estate if date of death value is used? b. What is the amount of Taylor's gross estate if the alternate valuation date is elected? c. Suppose all of Taylor's assets pass to her surviving spouse. Does this have any impact on the choice of valuation date? Explain.

Some states impose inheritance taxes, but the Federal tax system does not.

Rachel owns an insurance policy on the life of Albert with Belle as the designated beneficiary. Upon Rachel's prior death, nothing regarding this policy is included in her gross estate.

Classify each statement appropriately. a. Deductible from the gross estate in arriving at the taxable estate. b. Not deductible from the gross estate in arriving at the taxable estate. -Casualty loss to property already distributed to an heir.

If a donor has a fiscal year of July 1-June 30 for income tax purposes, this does not change the normal filing date for Form 709.

In determining whether a dividend issued on stock held by a decedent is included in the gross estate, the record date (rather than the declaration or payment dates) controls.

When Travis learns he is seriously ill, he transfers an insurance policy on his life (maturity value of $2,000,000) to his wife Alexis. The couple's adult children are the designated beneficiaries of the policy. Has Travis acted wisely?

After being diagnosed with a terminal illness, Jude (a widower) makes gifts of all of his assets (over $6 million in value) to family members and dies shortly thereafter. Based on these facts, comment on the following assumptions. a. Because the Federal gift tax is imposed on the donor and Jude has no assets, any gift tax that is due is avoided. b. Because Jude died without any assets, the Federal estate tax is avoided.

For gift tax purposes, a property settlement in consideration of marriage (i.e., prenuptial agreement) is treated the same as a property settlement incident to a divorce.