Exam 27: The Federal Gift and Estate Taxes

Classify each statement appearing below. a. No taxable transfer occurs b. Gift tax applies c. Estate tax applies -Harry pays for the tuition for his niece to attend Drake University. The niece does not qualify as Harry's dependent.

At the time of her death on October 4, 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 and Kaitlyn's children are the remainder beneficiaries. ? Owned stock in Mauve Corporation (basis of $800,000 and fair market value of $1 million). On September 7, a dividend of $48,000 was declared on the stock payable to all shareholders of record on October 3. The $48,000 was received by Kaitlyn's executor on October 19. ? Kaitlyn made a taxable gift of $400,000 in a prior tax year. As to these transactions, Kaitlyn's gross estate includes:

Barry pays State University for his dependent daughter's room and board. Barry has made a transfer that is subject to the Federal gift tax.

Classify each of the independent statements appearing below. a. Some or all of the asset is included in the decedent's gross estate. b. None of the asset is included in the decedent's gross estate. -Ten cemetery lots purchased by decedent prior to death for use by himself and his family.

Kim, a resident and citizen of Korea, dies during an operation at the Mayo Clinic in Rochester (MN). Because Kim died in the U.S., she will be subject to the Federal estate tax.

A timely issued disclaimer by an heir transfers the property to someone else without a Federal gift tax result.

The election of the alternate valuation date can affect the amount of a charitable deduction allowed to an estate for a bequest to a qualified charity.

The alternate valuation date:

In Year 1 and with $100,000, Ronald establishes a joint savings account with his cousin, Allison. In Year 2, Allison withdraws the $100,000 and disappears. Ronald made a gift to Allison in Year 2.

At the time of her death in an automobile accident, Laura left a modest probate estate, most of which she had inherited from her mother several years ago. Comment on Laura's Federal estate tax position in connection with each of the following points. a. Probate estate versus gross estate. b. Credit for the tax on prior transfers.

Which, if any, of the following statements correctly reflects the rules applicable to the alternate valuation date?

Paul, a U.S. citizen, will avoid the Federal estate tax if he becomes a Canadian resident and owns no property located in the U.S. at the time of his death.

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:

The purpose of the marital deduction is to defer any estate tax liability until the second spouse dies.

In his will, Hernando provides for $50,000 to go to the Madrid, Spain, school system. Because it is a foreign charity, the bequest will not qualify as a charitable deduction for estate tax purposes.

At the time of her death, Sophia was a participant in her employer's qualified pension plan. Her accrued balance in the plan is as follows. Sophia also was covered by her employer's group term life insurance program. Her policy (maturity value of $100,000) is made payable to Aiden (Sophia's husband). Aiden also is the designated beneficiary of the pension plan. a. Regarding these assets, how much is included in Sophia's gross estate? b. In Sophia's taxable estate? c. How much gross income must Aiden recognize, when collecting on these items?

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

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.

Iris dies intestate (i.e., without a will). All of her property passes to her heirs in accordance with the order of distribution prescribed under applicable state law.

In the case of a transfer by gift, a QTIP election causes the property to be subject to the estate tax upon the death of the donee spouse.