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Exam 18: The Federal Gift and Estate Taxes

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Question 31

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At the time of his death, Trent owned some common stock. The Aqua Corporation stock is sold by the executor of the estate seven months after Trent's death for $1,300,000. If the alternate valuation date is properly elected, the value of Trent's estate as to these stocks is:

A) $2,300,000.
B) $2,400,000.
C) $2,500,000.
D) $2,700,000.
E) None of the above.

F) A) and E)
G) B) and D)

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Question 32

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?

A) Will has not made a gift to Dean of the interest element.
B) Will has an interest expense deduction as to the interest element.
C) Dean has interest income as to the interest element.
D) Dean may be allowed an income tax deduction as to the interest element.
E) None of the above.

F) B) and E)
G) A) and E)

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Question 33

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A few states impose both an estate tax and an inheritance tax.

In 2000, Irv creates a revocable trust, income payable to his children for life, remainder to his grandchildren. In 2007, Irv relinquishes the power to revoke the trust. If Irv dies in 2011, the trust is not included in his gross estate.

Joint tenancies and tenancies by the entirety avoid probate, while tenancies in common and community property do not. Why?

Burt and Eve are husband and wife and have always lived in New York, a common law state. In 1990 and using separate funds, they bought an annuity from an insurance company-the purchase price was furnished 1/3 by Burt and 2/3 by Eve. Under the terms of the contract, Burt is to receive $50,000 per month for life when he reaches age 65. If Eve survives Burt, she is to receive $30,000 per month for her life. Burt dies first in 2011, at which time the value of Eve's survivorship annuity is $2,400,000. As to this annuity, how much (if any) is included in Burt's gross estate?

In most cases, the gross estate of a decedent is larger than the probate estate.

In 2000, Katelyn inherited considerable property when her father died. When Katelyn dies in 2011, 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.

In 2011, grandparents contribute jointly owned funds to a § 529 qualified tuition plan on behalf of their granddaughter. The maximum annual exclusion allowed to them is $130,000 ($26,000 ´ 5 years).

Peggy gives $200,000 to her grandson. This is an example of a direct skip for purposes of the GSTT (generation-skipping transfer tax).

For Federal estate tax purposes, the gross estate does not include property that will pass to a surviving spouse.

Prior to his death in 2011, Gordon made the following taxable gifts. The policy of Gordon's life was given to the designated beneficiary. The gift of the stock and the land generated gift taxes of $28,750 and $64,250, respectively. As to these transfers, how much is included in Gordon's gross estate?

Pauline sells antique furniture to her daughter, Nicole, for $10,000. If the furniture is really worth $100,000, Pauline has made a gift to Nicole of $100,000.

The purpose of the marital deduction is to place married decedents in common law states on par with those in community property jurisdictions.

Kim, a resident and citizen of Korea, dies during an operation at the Mayo Clinic in Rochester (MN). Because Kim died in the U.S., he will be subject to the Federal estate tax.

At the time of his death on August 7, 2011, Michael owned the following assets. How much, as to these transactions, is included in Michael's gross estate?

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

For gift tax purposes, a property settlement in consideration of marriage (i.e., prenuptial agreement) is not treated the same as a property settlement incident to a divorce.

Homer and Laura are husband and wife. At the time of Homer's prior death in 2011, they owned the following: land as tenants by the entirety worth $2,000,000 (purchased by Homer) and stock as equal tenants in common worth $3,000,000 (purchased by Laura) . Laura also owns an insurance policy on Homer's life (maturity value of $1,000,000) with herself as the designated beneficiary. Homer's will passes all his property to Laura. How much marital deduction is allowed Homer's estate?

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 be included in his gross estate?