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Exam 27: The Federal Gift and Estate Taxes

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Question 1

True/False

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The essential purpose of the marital deduction is to defer any estate tax liability until the second spouse dies.

A) True
B) False

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Question 2

Multiple Choice

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Mark dies on March 6. Which, if any, of the following items is not included in his gross estate?

A) Interest earned (before death) on City of Cleveland bonds.
B) Cash dividend on stock owned by Mark-declaration date was February 4, and record date was March 4.
C) Federal income tax refund for a prior tax year-received on March 5.
D) Insurance recovery on auto accident that occurred on February 25.
E) Insurance recovery from theft of sailboat on March 7.

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

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Question 3

Multiple Choice

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Classify each of the following statements. -Homer purchases a U.S. savings bond listing title as: "Homer, payable to Bernice upon Homer's death." Bernice is Homer's sister. Homer dies four years later, and Bernice cashes in the bond and keeps the proceeds.

At the time of her death, Emma still owed $36,000 on her church pledge for the year. Because church pledges are not an enforceable obligation in the state where Emma resided, her estate cannot claim a deduction for the $36,000 that it owes and later pays.

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

Which, if any, of the following items is subject to indexation (adjusted to reflect inflation) ?

Daniel and Mia acquired realty for $2 million with Daniel furnishing $1.5 million of the purchase price and Mia providing the balance. Title to the property is listed as: "Daniel and Mia, joint tenants with right of survivorship." This year Mia dies before Daniel when the realty is worth $4 million. How much is included in Mia's gross estate under the following circumstances? a. Daniel and Mia are brother and sister. b. Daniel and Mia are husband and wife.

Stacey inherits unimproved land (fair market value of $6 million) from her father on June 1, 2019. She disclaims her interest in the property as follows: one-third on December 1, 2019; one-third on January 3, 2020; and the remaining one-third on May 31, 2020. In all cases, the disclaimers pass the interest to her son (the next heir under state law) . The Federal gift tax applies to Stacey for:

Classify each of the following independent statements:. -Ten cemetery lots purchased by decedent prior to death for use by himself and his family.

At the time of his death, Norton was involved in the following: ∙ Owned land in joint tenancy with Emily. The land is worth $600,000 and was purchased by Norton 15 years ago for $150,000. ∙ Owned land in a tenancy by the entirety with his wife Amy. The land is worth $800,000 and was purchased by Norton five years ago for $450,000. ∙ Owned land in an equal tenancy in common with Noah. The land is worth $400,000 and was purchased by Norton four years ago for $300,000. ∙ Owned City of Dayton bonds worth $500,000. What amount is included in Norton's gross estate?

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

In his will, Hernando provides for $50,000 to go to the Madrid, Spain, school system. Because it is a foreign charity, the bequest will not qualify as a charitable deduction for estate tax purposes.

Manuel, a citizen and resident of Argentina, makes a gift of a ranch located in Colorado to his children. Manuel is subject to the U.S. gift tax.

In which of the following independent situations has Trent made a gift?

At the time of her death, Megan: ∙ Owned an insurance policy on the life of her father with a replacement cost of $250,000 and maturity value of $800,000. The designated beneficiary of the policy is Megan's estate. ∙ Was an equal tenant in common with her brother in a tract of land worth $800,000. The land was inherited from their grandmother 10 years ago when it had a value of $200,000. ∙ Was a joint tenant with her two sisters in stock worth $1,500,000. The stock was inherited from their grandmother 10 years earlier when it had a value of $500,000. As to these transactions, Megan's gross estate must include:

Classify each statement appropriately. -Selling expenses incurred to sell estate assets in order to pay administration expenses.

Classify each of the following statements. -Maggie purchased an insurance policy on Jim's life and designated Susan as the beneficiary. Four years later, Jim dies, and Susan collects the insurance proceeds.

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

Lily pays for her grandson's college expenses. Under what conditions might such payments not constitute a gift?

Classify each of the following statements. -Howard establishes a trust, life estate to his children, remainder to the grandchildren. Under its terms, the trust is revocable by Howard. Howard later relinquishes the right to revoke the trust.