Exam 18: The Federal Gift and Estate Taxes

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." Nadine predeceases Horace.

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. -Community property

At the time of her death, Amber owns property worth $5,000,000. Other information regarding her affairs is as follows. All of these items (except the casualty loss) were paid by her estate, and none were deducted on Form 1041 (income tax return of the estate). What is Amber's taxable estate?

For both the Federal gift and estate tax, a deduction is allowed for certain transfers to a spouse.

At the time of his death, Gene held a Roth IRA account with his wife as the designated beneficiary. The IRA is included in Gene's gross estate.

What is the justification for the terminable interest rule that is applicable to the marital deduction?

Harry and Brenda are husband and wife. Using his funds, Harry purchases real estate which he lists as: "Harry and Brenda, tenants by the entirety with right of survivorship." If Brenda dies first, none of the real estate will be included in her gross estate.

At the time of her death, Chloe was involved in three trust arrangements. Details regarding these trusts are summarized below. -Trust D (FMV of $3,200,000) was created by Chloe. Under its terms, Chloe holds a life estate, with her children designated as the remainder beneficiaries. -Trust E (FMV of $800,000) was created by Chloe's father. Chloe holds a life estate, with her children designated as the remainder beneficiaries. -Trust F (FMV of $1,300,000) was created by Chloe's mother. Chloe's children hold a life estate, and the remainder interest is to pass to their children (i.e., Chloe's grandchildren). As to these trusts, how much will be included in Chloe's gross estate?

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. -Decedent owned a policy on the life of his spouse with himself as the designated beneficiary. The spouse survives.

If the value of the gross estate is lower on the alternate valuation date than on the date of death, the date of death valuation cannot be used.

One of the reasons the estate tax was enacted was to prevent the avoidance of the gift tax by the making of "deathbed gifts."

Classify each statement appearing below. a. No taxable transfer occurs b. Gift tax applies c. Estate tax applies -Van takes out an insurance policy on Myrna's life and designates himself as the beneficiary. Myrna is Van's wife. Two years later, Myrna dies, and Van collects the insurance proceeds.

In which of the following situations has a taxable gift occurred?

In 2005, Mandy and Hal (mother and son) purchased land for $600,000 as joint tenants with right of survivorship. Of the $600,000 purchase price, Mandy provided $300,000 and Hal $300,000 (of which $200,000 had been received as a gift from Mandy). In 2013, Hal dies first when the land is worth $3,000,000. As to the land, Hal's gross estate must include:

In most cases, the gross estate of a decedent is larger than the probate 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. -State death tax imposed on the estate.

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. -Alternate valuation date (§ 2032)

On the date of her death, Ava owned the following. -An insurance policy (face amount of $500,000) on the life of Benjamin (Ava's current husband) with herself as the designated beneficiary. The policy has a cash surrender value of $50,000. -A life estate in a trust created by Alexander (Ava's deceased prior husband). The trust (current value of $2,900,000) was worth $1,000,000 when created ten years ago. A QTIP election was made by the executor of Alexander's estate. -Federal income tax refund of $80,000 on a prior year's tax return and paid to the executor of Ava's estate. As to these items, how much is included in Ava's gross estate?

Homer and Laura are husband and wife. At the time of Homer's prior death in 2013, they owned the following: land as tenants by the entirety worth $2,000,000 (purchased by Homer) and stock as equal tenants in common worth $3,000,000 (purchased by Laura). Homer owns an insurance policy on his life (maturity value of $1,000,000) with Laura as the designated beneficiary. Homer's will passes all his property to Laura. How much marital deduction is allowed Homer's estate?

Mark dies on March 6, 2013. Which, if any, of the following items is not included in his gross estate?