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Exam 14: Transfer Taxes and Wealth Planning

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Question 41

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The gift-splitting election only applies to gifts made by taxpayers who reside in community-property states.

A) True
B) False

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Question 42

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

A) True
B) False

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Question 43

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Alexis transferred $400,000 to a trust with directions to pay income to her spouse, William, for his life. After William's death the corpus of the trust will pass to William's son. If the life estate is valued at $72,000, what is the total amount of the taxable gifts?

Including adjusted taxable gifts in the taxable estate causes these gifts to be taxed twice, once under the gift tax and again under the estate tax.

Gabriel had a taxable estate of $16 million when he died in 2019. Calculate the amount of estate tax due (if any) if Gabriel made prior taxable gifts in 2005 totaling $1 million, at which time he claimed an applicable credit of $1 million and paid no tax. Gabriel was unmarried at his death. (Use Exhibit 25-1.)

Christopher's residence was damaged by a storm during the administration of his estate. Christopher's executor paid $120,000 to repair the residence after the storm. Which of the following is a true statement?

This year Nathan transferred $7 million to an irrevocable trust established for the benefit of his nephew. The trustee is directed to accumulate income for the next five years before distributing the trust corpus to Nathan's nephew. In past years Nathan has made taxable gifts of $6 million and used an applicable credit on an exemption equivalent of $5 million. What amount of gift tax, if any, must Nathan remit?

A trust is a legal entity whose purpose is to hold and administer property for the benefit of beneficiaries.

Jayden gave Olivia a ring when she agreed to marry him. The ring is a family heirloom valued at $68,000. What is the amount of the taxable gift?

A gratuitous transfer of property made during the lifetime of the donor is called:

Jonathan transferred $90,000 of cash to a trust this year for the benefit of Hannah, age 10. The trustee has the discretion to distribute income or corpus (principal) for Hannah's benefit and is required to distribute all assets to Hannah (or her estate) not later than Hannah's 21^st birthday. What is the amount of the taxable gift?

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. (Round your intermediate calculation to three decimal places.)

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 creating any taxable gifts?

Chloe's gross estate consists of the following property valued at the date of death: Chloe's real estate is encumbered by a mortgage of $450,000, and Chloe's executor paid her funeral costs of $6,000 and charged fees for $24,000. Which of the following is a true statement?

The gross estate will not include the value of clothes and other personal items owned by the decedent at the time of death.

The amount of the estate tax is directly related to the amount of taxable gifts made in prior years.

At his death Stanley owned real estate worth $345,000 with two other individuals as equal tenants in common. Stanley contributed $50,000 to the $100,000 total cost of the property. What amount, if any, is included in Stanley's gross estate?

Adrian owns two parcels of real estate. Parcel #1 is worth $400,000 and Parcel #2 is worth $660,000. Adrian plans to bequeath Parcel #1 directly to his spouse, Sofia, and leave her a life estate in Parcel #2. What amounts will be included in Adrian's taxable estate for these two parcels?

A terminable interest in property is any interest that terminates during the current year.

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?