Exam 25: Transfer Taxes and Wealth Planning

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.

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

Angel and Abigail are married and live in a common law state. Angel and Abigail own a parcel of realty as joint tenants with the right of survivorship. In addition, Abigail owns another parcel of realty in her name alone. If Abigail should die when the jointly-owned realty is worth $1 million and her own parcel of realty is worth $1.5 million, what is the total value of realty that would be included in Abigail's gross estate?

This year, Brent by himself purchased season baseball tickets in the exclusive sky club. The price of the tickets was $60,000, and Brent divided the tickets equally with his two brothers (Brent gave one-third of the tickets to each brother). Has Brent made a taxable gift and, if so, in what amount?

Christian transferred $60,000 to an irrevocable trust for the benefit of his three daughters. The three daughters share income equally for five years and then the corpus of the trust is to be divided equally between them. What is the amount of the taxable gifts, if any, made by Christian?

At her death Tricia had an adjusted gross estate consisting of $8 million of property. Which of the following is a true statement about Tricia's estate or estate tax?

Isaac is married and Isaac and his spouse agree that they want to transfer the maximum amount of cash to each of their four children and six grandchildren. How much cash in total can Isaac and his spouse transfer to his children and grandchildren each year without triggering any taxable gifts?

Life insurance is an asset that can be used to fund a trust to support a surviving spouse and, yet, may not be included in the decedent's gross estate.

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

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.

This year Don and his son purchased real estate for an investment. The price of the property was $500,000, and the title named Don and his son as joint tenants with the right of survivorship. Don provided $320,000 of the purchase price and his son provided the remaining $180,000. Has Don made a taxable gift and, if so, in what amount?

At her death Emily owned real estate worth $2.5 million and other property worth $1 million. Property taxes of $200,000 were accrued on the real estate at the time of Emily's death. Which of the following is a true statement?

Caleb transferred $115,000 to an irrevocable trust for Avery. The trustee has the discretion to distribute income or corpus for Avery's benefit but is required to distribute all assets to Avery (or his estate) not later than Avery's 21^st birthday. What is the amount, if any, of the taxable gift?

The tax on cumulative taxable gifts is reduced by the unified credit regardless of whether any unified credit was used in prior years.

The income tax benefit derived from a step-up in tax basis should be measured against the estate tax cost of including the property in the decedent's gross estate.

The tax rate schedule on taxable transfers has a maximum tax rate of 40% for 2016.

A bypass provision in a will requires a decedent to have a taxable estate in order to use a unified credit to reduce total estate taxes on a married couple.

A serial gift strategy consists of arranging a trust to maximize the value of the unified credit.

Sophia is single and owns the following property: Sophia owns the real property in joint tenancy with Daniel. They purchased the property several years ago for $1 million. Sophia was only able to provide $200,000 of the purchase price. If Sophia dies, what is the amount of her gross estate?

Madison was married at the time of her death and her gross estate consisted of $22 million in stock and bonds. Madison left all of her property to her spouse. What is the result?