Question 1

Kenny is thinking of making a substantial gift of stock to his fiancée, Maria. The wedding is scheduled for October 1 of the current year. Kenny already has exhausted his unified credit. He also is considering giving
$26,000 cash this year to each of his three children by a previous marriage. What tax issues should Kenny consider with respect to the gifts he plans to make to Maria and his three children?

Accepted Answer

The answer of Kenny is thinking of making a substantial...

Question 2

Contrast the Crummey trust with the Sec. 2503(c) trust.

Accepted Answer

The answer of Contrast the Crummey trust with the Sec....

Question 3

Which of the following transfers is subject to the gift tax?

Accepted Answer

A)  Julia establishes a trust benefiting her nieces and nephews. Julia will determine the amount of any distributions made. 
B)  Frank gives $30,000 to a lobbying group promoting stricter environmental regulations. 
C)  Matilda contributes $5,000 to a Senate candidate's political organization. 
D)  Lance purchases land, titling it in the names of Lance and Sheryl, joint owners.

Question 4

Identify which of the following statements is true.

Accepted Answer

A)  An individual can inadvertently make a gift by underestimating a property's fair market value and selling it to a relative for a price below its fair market value. 
B)  The statutory exemption from the gift tax for payments for medical care requires that the payment be made for a relative. 
C)  A taxable gift may occur when property is sold in an arm's length transaction for less than its FMV. 
D)  All of the above are false.

Question 5

In the current year, Donna gives $50,000 cash and $30,000 of stock to Mike. She also gives $40,000 of tax- exempt bonds to Angela. Her husband, Andy, gives $200,000 of land to Angela. Assume the couple elects gift splitting for the current year. Donna's taxable gifts total

Accepted Answer

A)  $110,000. 
B)  $60,000. 
C)  $130,000. 
D)  $148,000.

Question 6

A "Crummey demand power" in a trust document allows the donor to demand a distribution from the trust in years in which earnings exist within the trust.

Accepted Answer

A) True 
 B)False

Question 7

On January 1, Jeff loans his friend Patrick $7,000 to buy a used car. Patrick signs a noninterest- bearing demand note. The applicable interest rate is 5%. Which of the following statements is correct?

Accepted Answer

A)  Jeff must report interest income of $3,500 from Patrick. 
B)  Interest does not have to be imputed on the gift since the loan amount is less than $10,000 and does not have a tax avoidance motive. 
C)  Jeff has made a taxable gift to Patrick of $3,500. 
D)  Jeff has made a gift to Patrick that is not taxable since it is less than $11,000.

Question 8

Connie has some acreage that is valued at $1,500,000. Her daughter would like to build a home on it, but can only afford $500,000. Connie agrees to sell it to her daughter for $500,000. Is there any gift tax consequence as a result of this transaction?

Accepted Answer

The answer of Connie has some acreage that is valued...

Question 9

George transfers property to an irrevocable trust for the benefit of his adult children and names himself as trustee. The trust document requires the trustee to distribute trust property to the beneficiaries at the trustee's discretion with the possibility of no distribution to certain beneficiaries as the trustee deems appropriate. The trust will terminate at the end of nine years, and the property will pass to George's children. Which of the following statements is correct?

Accepted Answer

A)  George's transfer of property to the trust is a gift of a future interest. 
B)  The beneficiaries receive a present interest in the trust property when George transfers the assets to the trust. 
C)  The transfer by George is eligible for the annual gift tax exclusion. 
D)  George's transfer of property to the trust is not taxed under gift tax rules at the date of transfer.

Question 10

What is a "net gift" and what is the potential income tax problem associated with making a net gift?

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Question 11

Bryce pays $40,000 for his adult grandson's tuition at medical school and $18,000 for the grandson's room and board in the medical school's dormitory. All payments are made directly to the medical school. Do these payments by Bryce qualify as gifts?

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The answer of Bryce pays $40,000 for his adult grandson's...

Question 12

Sandra, who is married, creates an irrevocable trust in the amount of $200,000 for her 18- year- old daughter, Kelly. She names the bank as trustee. Before Kelly reaches age 21, the trustee may pay the income to Kelly. Kelly will receive any undistributed assets when she reaches age 21. If Kelly dies before age 21, the assets will be paid to her estate. In addition, Sandra creates an irrevocable trust for her son, Kevin, age 21. He is entitled to withdraw up to $30,000 per year. Sandra contributes $30,000 in the current year. Sandra elects gift splitting with her husband. Her husband makes no gifts in the current year. Sandra's annual exclusions to be claimed on her gift tax return total

Accepted Answer

A)  $30,000. 
B)  $12,000. 
C)  $15,500. 
D)  $0.

Question 13

On September 1, George transfers his entire ownership rights in a $250,000 life insurance policy on his own life to his sister, Sally. The policy's interpolated terminal reserve is $30,000 as of September 1. On July 1, George had paid the policy's $6,000 annual premium. What are the gift tax consequences, if any?

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The answer of On September 1, George transfers his entire...

Question 14

Donna transfers $200,000 of property to an irrevocable trust with a bank as trustee. Donna names Toby (age 60) to receive all of the trust income for the rest of his life. At Toby's death, the property is to pass to Al or Al's estate. What kind of interest do Toby and Al possess?

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The answer of Donna transfers $200,000 of property to an...

Question 15

Jason funds an irrevocable trust with Liberty Bank as trustee and reserves the right to receive the income for seven years. He provides that at the end of the seventh year, the trust assets will pass outright to his adult daughter, Paula, or to Paula's estate should Paula not be alive. Jason transfers assets valued at $1.5 million to the trust; the assets at present are producing income of about 7.5% per year. Assume that the Sec. 7520 rate per the actuarial tables for the month of the transfer is 10%. What tax issues should Jason consider regarding the trust?

Accepted Answer

The answer of Jason funds an irrevocable trust with Liberty...

Question 16

In the current year, Melanie makes two transfers to Peter, her husband. In June, she gives him land valued at $50,000. In December, she transfers $500,000 to a trust with a bank named as trustee. All income must be paid to Peter monthly for life. At Peter's death, the property passes to their children. Compute the maximum marital deduction assuming Melanie makes the appropriate elections.

Accepted Answer

A)  $50,000 
B)  $535,000 
C)  $550,000 
D)  $500,000

Question 17

A gift- splitting election

Accepted Answer

A)  is binding on future years. 
B)  results in a $7,500 per donee annual exclusion for each spouse. 
C)  may reduce the amount of the taxable gifts of the donor- decedent. 
D)  requires each spouse to give property.

Question 18

Jennifer and Terry, a married couple, live in Illinois; which is a common law state. In the current year, Terry gives his sister $200,000 cash. Jennifer and Terry agree to gift splitting. Neither Jennifer nor Terry has made any taxable gifts in prior years. What are Jennifer and Terry's taxable gifts?

Accepted Answer

The answer of Jennifer and Terry, a married couple, live...

Question 19

Vincent makes the following property transfers in the current year: • $5,000 tuition for a grandson paid directly to the school
• $1,000 medical expense for a child paid directly to a hospital
• $500 donation to the Democratic party
• $10,000 property settlement in conjunction with a divorce
• $3,000 room and board at college for a grandson paid directly to the school
Vincent's gifts for the year before considering the annual gift tax exclusion total

Accepted Answer

A)  $3,000. 
B)  $19,500. 
C)  $0. 
D)  $19,000.

Question 20

Hu makes a gift of his home to a local homeless shelter (a 501(c)(3) charity). Hu will retain his home for 10 years, after which the homeless shelter will take possession. The value of Hu's 10- year interest is $30,000 and the remainder interest is valued at $120,000. Which of the following statements is correct?

Accepted Answer

A)  Hu has a charitable contribution deduction of $120,000 on his current gift tax return. 
B)  Hu is not allowed to deduct the contribution until the charity takes possession in 10 years. 
C)  Hu is allowed a charitable deduction on his gift tax return for $150,000 in the current year. 
D)  Hu is allowed an exclusion of $15,000 on his gift of $120,000 to the charity.

Exam 12: The Gift Tax