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Exam 14: Transfer Taxes and Wealth Planning

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Question 51

Multiple Choice

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Which of the following is a true statement?

A) A remainder interest held by the decedent at the time of death is not included in the decedent's gross estate.
B) The value of a remainder interest depends in part on the Section 7520 interest rate at the time of death.
C) The value of a remainder interest in a life estate is independent of the age of the life tenant.
D) The value of a life estate does not depend upon the age of the life tenant.
E) None of the choices are true.

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

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Question 52

Multiple Choice

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Which of the following transactions would not utilize the "Section 7520 rate" to calculate the value of the transfer?

A) A transfer of property with a retained life estate.
B) A transfer of property to a spouse.
C) A transfer of a remainder interest in real property.
D) A transfer of a 10-year term certain in real property.
E) None of these choices utilizes the "Section 7520 rate" in the calculation of the value of the property.

F) A) and B)
G) All of the above

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Question 53

True/False

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A present interest is the right to currently enjoy property or receive income payments from property.

Matthew and Addison are married and live in Michigan, a common-law state. For the holidays Addison gave cash gifts of $40,000 to each of her two sons, and Matthew gave $40,000 to his daughter. What is the amount of Addison's taxable gifts if Matthew and Addison opt to gift-split?

An applicable credit is subtracted in calculating both the gift tax and the estate tax. Why doesn't this calculation have the effect of increasing the total applicable credit amount?

At her death Tricia owned a life insurance policy on her life that paid her daughter $500,000 upon her death. The policy was only valued at $25,000 prior to Tricia's death. What amount, if any, is included in Tricia's gross estate?

The theft of property included in the gross estate is only deductible in calculating the taxable estate if the loss exceeds 10 percent of the decedent's adjusted gross estate.

A couple who is married at the time of completing a gift can elect to file a joint gift tax return.

A transfer of cash to a bank account held in joint tenancy with the right of survivorship is not a complete gift.

This year Carlos and Hailey purchased realty for $480,000 and took title as equal tenants in common. However, Hailey was able to provide only $200,000 of the purchase price and Carlos paid the remaining $280,000. Has Carlos made a taxable gift to Hailey, and if so, in what amount?

Andrea transferred $500,000 of stock to a trust, with income to be paid to her niece for 20 years (value $125,000) and the remainder to be paid to her nephew (value $375,000). Andrea named a bank as independent trustee but retained the power to determine how much income, if any, will be paid in any particular year. What is the amount of the taxable gift, if any? Explain your answer.

Joshua and David purchased real property for $500,000 as equal tenants in common. Although they are listed as equal co-owners, Joshua was only able to provide $200,000 of the purchase price. David treated the additional $100,000 of his contribution to the purchase price as a gift to Joshua. If the property is worth $2.5 million at Joshua's death, what amount would be included in Joshua's estate?

Last year Diego transferred a life insurance policy worth $75,000 to an irrevocable trust with directions to distribute the corpus of the trust to his grandson, Juan, upon his graduation from college, or to Juan's estate upon his death. Diego paid $5,000 of gift tax on the transfer of the policy. Early this year, Diego died and the insurance company paid $600,000 to the trust. What amount, if any, is included in Diego's gross estate?

For the holidays, Samuel gave a necklace worth $35,000 to Jennifer and jewelry worth $44,000 to Savannah. Samuel is married to Wendy and they live in a community-property state. Has Samuel made any taxable gifts and, if so, in what amounts?

Natalie transferred $500,000 of bonds to a revocable trust with directions to the trustee to pay income to her aunt for five years, after which the corpus is to be distributed to Natalie's niece. At year-end, the trustee paid $16,000 of income to the aunt. Which of the following is a true statement?

At his death in 2019, Nathan owned the following property: The real estate is subject to a $1,700,000 mortgage and Nathan made taxable gifts in 2009 totaling $2 million, at which time he offset the gift tax with an applicable credit (exemption equivalent of $2 million). Nathan has never been married. What is the amount of his estate tax due? (Use Exhibit 25-1.)

Caleb transferred $115,000 to an irrevocable trust for Avery. The trustee has the discretion to distribute income or corpus for Avery's benefit but is required to distribute all assets to Avery (or his estate) not later than Avery's 21^st birthday. What is the amount, if any, of the taxable gift?

Ethan owned a vacation home at the time of his death. Which of the following is a true statement if Ethan was married to Emma and resided in a common-law state at the time of his death?

This year, Brent by himself purchased season baseball tickets in the exclusive sky club. The price of the tickets was $60,000, and Brent divided the tickets equally with his two brothers (Brent gave one-third of the tickets to each brother) . Has Brent made a taxable gift and, if so, in what amount?

The estate tax is imposed on testamentary transfers.