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Exam 27: The Federal Gift and Estate Taxes

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Question 101

Multiple Choice

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Match each statement with the correct choice. Some choices may be used more than once or not at all. -Inheritance tax

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.

M) D) and J)
N) A) and F)

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Question 102

Multiple Choice

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Classify each statement appearing below. -Using his own funds, Horace establishes a savings account designating ownership as follows: "Horace and Nadine as joint tenants with right of survivorship." Horace later withdraws all of the funds.

A) No taxable transfer occurs
B) Gift tax applies
C) Estate tax applies

D) B) and C)
E) None of the above

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Question 103

Multiple Choice

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Before his nephew (Dean) leaves for college, Will loans him $400,000. Dean signs a note promising to repay the loan in five years. No interest element is provided. Which, if any, of the following is a tax consequence of this arrangement?

In 2002, Katelyn inherited considerable property when her father died. When Katelyn dies in 2013, her estate may be able to use § 2013 (credit for tax on prior transfers) as to some of the estate taxes paid by her father's estate.

Prior to her death in 2013, Alma made the following gifts. Fair Market Value $\begin{array}{cccc}\text { Year } & \text { Asset } & \text { Date of Gift } & \text { Date of Death } \\2007 & \text { Marketable securities } & \$ 400,000 & \$ 900,000 \\2011 & \text { Term life insurance policy } & -0- & 100,000 \\2011 & \text { Unimproved land } & 900,000 & 950,000\end{array}$ As a result of the 2011 transfer, Alma paid a gift tax of $70,000. As to these transactions, Alma's gross estate Includes:

In community property states, not all property acquired after marriage by either spouse is community property.

A majority of states currently do not impose any tax on transfers by death.

Classify each statement appearing below. -Under a prenuptial agreement, Herbert transfers stock to Norma. One month later, Herbert and Norma are married.

For Federal estate and gift tax purposes, the exemption equivalent is the same thing as the exclusion amount.

At the time of his death, Lance held a life estate in the LM Trust. Under which of the following circumstances will the LM Trust not be included in his gross estate?

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?

In 1985, Drew creates a trust with $1,000,000 of securities. Under the terms of the trust, Paula (Drew's wife) is granted a life estate with remainder to their children. Drew makes a QTIP election as to the trust. Drew dies in 1992 when the trust is worth $1,500,000, and Paula dies in 2013 when the trust is worth $2,000,000. Which, if any, of the following is a correct statement?

At the time of his death in 2013, Leroy owed Federal income taxes on income earned in 2011. Leroy's estate can claim an estate tax deduction for the income tax it pays.

Two brothers, Sam and Bob, acquire real estate as equal tenants in common. Of the purchase price of $200,000, Sam furnished $80,000 while Bob provided the balance. If Sam dies first ten years later when the real estate is worth $600,000, his estate includes $240,000 as to the property.

Classify each statement appropriately. -Casualty loss to property already distributed to an heir.

Which of the following statements relating to the Federal gift tax is incorrect?

Cole purchases land for $500,000 and transfers it by gift to his two daughters, Madison and Paige, as equal joint tenants with the right of survivorship. Ten years later, when the land is worth $2,000,000, Madison predeceases Paige. Madison's executor includes none of the value of the land in her gross estate, as she contributed nothing toward its cost. Do you agree?

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.

Prior to his death in 2012, Ethan made the following taxable gifts. $\begin{array}{lcr} & \text { Year of } & \text { Amount of } \\& \text { Gift } & \text { Gift } \\\text { Stock in Crimson Corporation } & 2000 & \$ 800,000 \\\text { Term life insurance policy (maturity value of } \$ 200,000) & 2010 & -0- \\\text { Unimproved land } & 2010 & 800,000\end{array}$ The policy on Ethan's life was given to the designated beneficiary. The gift of the stock and the land generated gift taxes of $28,750 and $65,250, respectively. As to these transfers, how much is included in Ethan's gross estate?

Match each statement with the correct choice. Some choices may be used more than once or not at all. -Federal gift tax