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Exam 18: The Federal Gift and Estate Taxes

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Question 61

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Pursuant to Corey's will,Emma (Corey's sister) inherits his property.Emma dies later.The estate tax attributable to the inclusion of the property in Corey's gross estate was $300,000.The estate tax attributable to the inclusion of the property in Emma's gross estate is $400,000.Emma's credit for the tax on prior transfers (under§ 2013) is:

A) $0 if Emma died 9 1/2 years after Corey.
B) $32,000 if Emma died 3 years after Corey.
C) $40,000 if Emma died 1 year after Corey.
D) $24,000 if Emma died 5 1/2 years after Corey.
E) None of the above amounts is correct.

F) A) and B)
G) A) and C)

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Question 62

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Harry and Brenda are husband and wife.Using his funds,Harry purchases real estate which he lists as: "Harry and Brenda,tenants by the entirety with right of survivorship." If Brenda dies first,none of the real estate will be included in her gross estate.

A) True
B) False

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Question 63

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A Federal gift tax only can be imposed on the donor.

The IRS does not consider property settlements in consideration of marriage as being transfers for valuable consideration.Consequently,such prenuptial settlements are subject to the Federal gift tax.Why,then,are property settlements incident to divorce exempt from the gift tax?

Sidney dies and leaves property to his sister Giselle.Three years later,Giselle dies.Under § 2013 (credit for tax on prior transfers),Giselle's estate can claim a full credit for any Federal estate taxes paid by Sidney's estate as to amounts passing to Giselle.

Dustin and Penny are husband and wife and always have lived in Washington.At the time of Dustin's prior death in 2009,he was insured in the amount of $600,000 with Penny as the designated beneficiary.The policy was taken out by Dustin before marriage and the premiums thereon were paid as follows: 30% prior to marriage from Dustin's separate property and 70% after marriage from community funds.As to this policy,Dustin's gross estate includes:

In which,if any,of the following independent situations can the alternate valuation date be elected?

A Federal gift tax return need not be filed if no gift tax is payable.

Transfers to political organizations are not exempt from the application of the Federal gift tax.

In community property states,all property acquired after marriage by either spouse is community property.

What is the justification for the terminable interest rule that is applicable to the marital deduction?

Lila is the owner and beneficiary of a policy on the life of her husband,Austin.Upon Austin's prior death,the insurance proceeds paid to Lila qualify for the marital deduction.

Under Terry's will,Tyrone has the power to determine how the income from a trust is to be divided between her children.The power that Tyrone holds also permits him to appoint to himself as much of the trust income as is necessary to maintain his health.The power Tyrone holds is general (and not special).

Tom and Jean are husband and wife and live in California.In 1991,they use $400,000 of community funds to purchase an annuity from an insurance company.Under the terms of the contract,Tom is to receive $40,000 per year for life once he reaches age 65.If Jean outlives Tom,she is to receive $30,000 per year for life.Tom dies first in 2009 (and before reaching age 65) .At this time,the value of Jean's interest is $500,000.As to this contract,Tom's gross estate includes:

Frank owns an insurance policy on the life of Cynthia,with Leon as the designated beneficiary.Upon Cynthia's prior death,Frank is treated as making a gift of the insurance proceeds to Leon.

Lyle and Beatrice are brother and sister.Using his funds,Lyle purchases land,listing title as: "Lyle and Beatrice,joint tenants with right of survivorship." If Lyle dies first,all of the land is included in his gross estate.

Some states impose inheritance taxes,but the Federal tax system does not.

Concerning the formula for the Federal estate tax:

Gerald and Patricia are husband and wife and live in Oregon.In 1980 and using her funds,Patricia purchases a residence for $400,000,listing title to the property as "Gerald and Patricia,joint tenants with right of survivorship." In 2009,Gerald dies first when the residence is worth $2 million.A correct statement as to these transactions is:

Interest on state and local bonds is subject to neither the Federal income tax nor the Federal estate tax.