Exam 18: The Federal Gift and Estate Taxes

Mitch pays the surgeon and the hospital for his nondependent aunt's gall bladder operation. The transfer is not subject to the gift tax.

Brad holds a life estate in a trust created by his father, while Scott holds a life estate in a trust created by himself. Upon their deaths, Scott must include the trust in his gross estate, while Brad need not include his trust. Why?

At the time of Clint's death, part of his estate consists of the following. -Roth IRA (value of $1,000,000) with Jennifer as the designated beneficiary. -Land (worth $3,000,000) held in joint tenancy with Jennifer. Jennifer is Clint's wife and originally furnished the purchase price. -Building (worth $3,000,000) held as equal tenants in common with Jennifer and Dana. Dana is Clint's mother, and she originally purchased the property. Under Clint's will, all of his property passes to his wife, Jennifer. How much marital deduction is Clint's estate allowed? Clint and Jennifer live in Tennessee.

Classify each statement appearing below. a. No taxable transfer occurs b. Gift tax applies c. Estate tax applies -Meg gives her 18-year-old son money for his college tuition and living expenses (e.g., room and board).

Match each statement with the correct choice. Some choices may be used more than once or not at all. a. In the current year, Debby, a widow, dies. Two years ago she inherited a large amount of wealth from her brother. b. Death does not defeat an owner's interest in property. c. Exists only if husband and wife are involved. d. A type of state tax on transfers by death. e. Must decrease the amount of the gross estate. f. Annual exclusion not allowed. g. Cumulative in effect. h. Right of survivorship present as to type of ownership. i. Avoids the terminable interest rule of the marital deduction. j. Exemption equivalent. k. Bypass amount. l. No correct match provided. -Credit for tax on prior transfers (under § 2013)

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. -Selling expenses incurred to sell estate assets in order to pay administration expenses.

Distributions from retirement plans and proceeds from life insurance plans usually are not subject to probate. a. Why are they not part of the probate estate? b. When might they be included in the probate estate?

Lila is the owner and beneficiary of a policy on the life of her husband, Austin. Upon Austin's prior death, the insurance proceeds paid to Lila do not qualify for the marital deduction.

The U.S. has death tax conventions (i.e., treaties) with most of the countries of the world.

Classify each statement appearing below. a. No taxable transfer occurs b. Gift tax applies c. Estate tax applies -Homer purchases a U.S. savings bond listing title as: "Homer, payable to Bernice upon Homer's death." Bernice is Homer's sister. Homer dies four years later, and Bernice cashes in the bond and keeps the proceeds.

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. -Payment by the estate of church pledge made by decedent prior to death.

June made taxable gifts as follows: $200,000 in 1977, $600,000 in 1985, and $700,000 in 2001. In 2013, June dies leaving a taxable estate of $4,000,000. June's tax base for applying the unified tax rate schedules (for estate tax purposes) is:

A lifetime transfer that is supported by full and adequate consideration is not a gift.

Classify each statement appearing below. a. No taxable transfer occurs b. Gift tax applies c. Estate tax applies -Under a prenuptial agreement, Herbert transfers stock to Norma. One month later, Herbert and Norma are married.

Daniel's will provides that all of his property passes to a trust, life estate to his wife, remainder to charity. If Daniel's executor makes a QTIP election, the use of the alternate valuation date is not possible.

In 2012, Katherine made some taxable gifts upon which she paid a Federal gift tax of $96,000. If Katherine dies in 2014, the $96,000 is included in her gross estate under the "gross up" rule.

Classify each statement appearing below. a. No taxable transfer occurs b. Gift tax applies c. Estate tax applies -Using his own funds, Horace establishes a savings account designating ownership as follows: "Horace and Nadine as joint tenants with right of survivorship." Horace predeceases Nadine.

In community property states, not all property acquired after marriage by either spouse is community property.

When one spouse predeceases the other, the credit for prior transfers does not apply. a. Why? b. Under what circumstances might the credit apply?

At the time of her death, Megan was involved in the following. -Owned an insurance policy on the life of her father with a replacement cost of $250,000 and maturity value of $800,000. The designated beneficiary of the policy is Megan's estate. -Was an equal tenant in common with her brother in a tract of land worth $800,000. The land was inherited from their grandmother 10 years ago when it had a value of $200,000. -Was a joint tenant with her two sisters in stock worth $1,500,000. The stock was inherited from their grandmother 10 years ago when it had a value of $500,000. As to these transactions, Megan's gross estate must include: