Exam 14: Transfer Taxes and Wealth Planning

Proceeds of life insurance paid due to the death of the decedent are included in the decedent's gross estate if the decedent had the right to designate the beneficiary of the policy.

Andrea transferred $500,000 of stock to a trust, with income to be paid to her niece for 20 years (value $125,000) and the remainder to her nephew (value $375,000). Andrea named a bank as independent trustee but retained the power to determine how much income, if any, will be paid in any particular year. What is the amount of the taxable gift, if any? Explain your answer.

The annual exclusion applies to cumulative gifts made to each donee over the course of the year.

Last year Diego transferred a life insurance policy worth $75,000 to an irrevocable trust with directions to distribute the corpus of the trust to his grandson, Juan, upon his graduation from college, or to Juan's estate upon his death. Diego paid $5,000 of gift tax on the transfer of the policy. Early this year, Diego died and the insurance company paid $600,000 to the trust. What amount, if any, is included in Diego's gross estate?

The estate and gift taxes share several common features. Which of the following characteristics are common to both the estate and gift taxes?

Tracey is unmarried and owns $7 million in stock and bonds. What is the result if Tracey dies this year and leaves all of her property to a qualified charity?

A gratuitous transfer of cash to an individual who uses the cash to pay medical expenses is not subject to a gift tax. The payment must be made directly to the health care provider to not be subject to a gift tax.

At his death Stanley owned real estate worth $345,000 with two other individuals as equal tenants in common. Stanley contributed $50,000 to the $100,000 total cost of the property. What amount, if any, is included in Stanley's gross estate?

For 2016, the exemption equivalent for the estate tax is $5.45 million.

This year Samantha gave each of her three nephews birthday gifts of $10,000 in cash. At Christmas, Samantha gave each of her three nephews Christmas gifts of an additional $5,000 in cash. What is the amount of the taxable gifts, if any, made by Samantha this year?

The gross estate includes the value of half of real property owned by a decedent and spouse in joint tenancy with the right of survivorship.

The generation-skipping tax is designed to accomplish which of the following?

Eric has $5 million of property that he wants to leave to his four children. He is considering making a current gift of the property (rather than leaving the property to pass through his will). Eric has made many prior taxable gifts and additional taxable transfers will be subject to the highest transfer tax rate. Determine how much estate tax Eric will save if he gifts the property now and survives at least three years, during which time the property appreciates to $5.5 million? Ignore the time value of money in your calculation.

At his death Jose owned real estate worth $22 million but subject to a mortgage of $7 million. Which of the following is a true statement?

Which of the following is a true statement?

The annual exclusion eliminates relatively small transfers of present interests in property.

Aiden transferred $2 million to an irrevocable trust with income to Valeria for her life and the remainder to Jocelyn (or her estate). Calculate the value of the remainder and the life estate if Valeria's age and the prevailing interest rate result in a Table S discount factor for the remainder of 0.47.

This year Evelyn created an irrevocable trust to provide for Ed, her 32-year-old nephew, and Ed's family. Evelyn transferred $150,000 to the trust and named a bank as the trustee. The trust was directed to pay income to Ed until he reaches age 35 (three years from now), and at that time the trust is to be terminated and the corpus is to be distributed to Ed's two children (or their estates). Determine the amount, if any, of the taxable gift. The relevant interest rate is 6 percent.

Grace transferred $800,000 into trust with the income to be paid annually to her spouse, Isaiah, for life and the remainder to Taylor. Calculate the amount of the taxable gifts from the transfers.

The probate estate consists of all property owned by the decedent that is excluded from the gross estate. The gross estate consists of the probate estate plus the value of certain automatic property transfers that take effect at death.