Deck 17: The Federal Gift and Estate Taxes

Question 1

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.

Answer 1

False
The place of death is not the determinant for the application of the Federal estate tax.Unless he has property located in the U.S.,Kim (a nonresident alien)is not subject to the Federal estate tax.

Question 2

The election of the alternate valuation date affects the income tax basis of property that an heir receives from an estate.

Answer 2

True
Whatever value is used (i.e.,date of death or alternate valuation date)becomes the income tax basis of the property.

Question 3

Leroy made taxable gifts in 1970 and 2004.When Leroy dies in 2008,all of these gifts must be added to his taxable estate to arrive at the tax base for estate tax purposes.

Answer 3

False
Only post-1976 taxable gifts are considered.

Question 4

Sometimes also known as transaction taxes,Federal gift and estate taxes are excise taxes.

Question 5

The Federal estate tax cannot be imposed on a decedent who was neither a citizen nor resident of the U.S.

Question 6

The election of the alternate valuation date can affect the amount of a charitable deduction allowed to an estate for a bequest to a church.

Question 7

A lifetime transfer that is supported by full and adequate consideration is not a gift.

Question 8

The election of the alternate valuation date does include any income earned by the property after the date the deceased owner died.

Question 9

For Federal estate and gift tax purposes,the exclusion amount is the same thing as the bypass amount.

Question 10

An estate tax is a tax on the right of an heir to receive property on the death of the owner.

Question 11

Under the alternate valuation date election,each asset in the gross estate is valued at the lesser of the date of death value or six months thereafter.

Question 12

State law does not always control whether a transfer is subject to the Federal gift tax.

Question 13

Under the Tax Relief Reconciliation Act of 2001,the exclusion amount for Federal estate tax purposes is to remain at $1 million from 2002 onward and not increase.

Question 14

Becky made taxable gifts in 1974,1986,and 2008.In computing the gift tax on the 2008 gift,she must consider all of the prior taxable gifts.

Question 15

At one point,the tax rates applicable to transfers by gift were lower than those applying to transfers by death.

Question 16

Derek and Tanya are husband and wife and live in Arizona,a community property state.If Derek receives a gift of land from his father,the land is their community property.

Question 17

A Federal gift tax might be paid by the donee (rather than the donor).

Question 18

In 2006 and in order to avoid U.S.taxes,John a U.S.citizen,moves to Buenos Aires where he becomes a resident of Argentina.Any gifts John makes in 2008 are not subject to the U.S.gift tax.

Question 19

The Tax Relief Reconciliation Act of 2001 proposes to phase out the Federal gift tax by 2010.

Question 20

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

Question 21

In a § 2503(c)trust for minors,the trustee can be given the power to accumulate income without the gift violating the future interest rule.

Question 22

In 2008,grandparents contribute jointly owned funds to a § 529 qualified tuition plan on behalf of their granddaughter.The maximum annual exclusion allowed to them is $60,000 ($12,000 * 5 years).

Question 23

A mother reimburses her son for the tuition he paid to attend college.A gift has occurred.

Question 24

To make the election to split gifts under § 2513,spouses must file a Form 709 (Federal gift tax return).

Question 25

Charles makes a taxable gift in 2008.In determining the tax liability on this gift,he must add all prior taxable gifts.However,Charles may claim a credit for the taxes actually paid on the prior gifts.

Question 26

It is possible that a gift worth less than the amount of the annual exclusion may have to be reported on a Federal gift tax return (Form 709).

Question 27

In determining whether a dividend issued on stock held by a decedent is included in the gross estate,the record date (rather than the declaration or payment dates)controls.

Question 28

A timely issued disclaimer by an heir transfers the property to someone else without a gift tax result.

Question 29

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

Question 30

The deemed paid credit allowed for past taxable gifts cannot be less than the tax actually paid.

Question 31

A property settlement incident to a divorce will be treated as a gift if such agreement is not mentioned in the final divorce decree.

Question 32

Under his grandfather's will,Tad is entitled to receive shares of Ford Motor Company.For Federal tax purposes,Tad is not allowed to disclaim some of these shares and accept the others.

Question 33

The use of the election to split gifts under § 2513 is not necessary for spouses who live in community property states.

Question 34

Mitch pays the surgeon and the hospital for his aunt's gall bladder operation.If the aunt does not qualify as Mitch's dependent,the transfer is subject to the gift tax.

Question 35

Sam purchases a U.S.savings bond which he registers as follows: "Sam,payable to Don upon Sam's death." A gift occurs when Sam purchases the bond.

Question 36

A transfer in trust in which the trustee has the power to accumulate income is a gift of a future interest even if the trustee never exercises the power.

Question 37

Transfers to political organizations are exempt from the application of the Federal gift tax.

Question 38

If a donor has a fiscal year of July 1-June 30 for income tax purposes,this does not change the normal filing date for Form 709.

Question 39

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

Question 40

If interest is provided for in loans between related parties,there is no imputed interest,as a gift loan does not result.

Question 41

In 1980,Spencer creates a revocable trust,income payable to his children for life,remainder to his grandchildren.Thirty-two months before he dies in 2008,Spencer relinquishes the power to revoke the trust.The trust is included in Spencer's gross estate.

Question 42

At the time of her death,Abigail held a general power of appointment over a trust created by her grandmother in 1980.Since Abigail never exercised the general power,none of the trust is included in her gross estate.

Question 43

Death does not defeat a deceased spouse's interest in community property.

Question 44

At the time of his death,Ethan held a traditional IRA account with his wife as the designated beneficiary.As to the IRA,none of it is included in Ethan's gross estate.

Question 45

Jason and Emma are brother and sister.Using his funds,Jason purchases land,listing title as: "Jason and Emma,joint tenants with right of survivorship." If Jason dies first,one-half is included in his gross estate as to the land.

Question 46

At the time of her death,Stefanie held a promissory note from a loan she had made to her son.If Stefanie's will forgives the loan,nothing regarding the note is included in her gross estate.

Question 47

Two brothers,Sam and Bob,acquire real estate as equal tenants in common.Of the purchase price of $100,000,Sam furnished $40,000 while Bob provided the balance.If Bob dies five years later when the real estate is worth $300,000,his estate includes $180,000 as to the property.

Question 48

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.

Question 49

Using his separate funds,Wilbur purchases an annuity which pays him a specified amount until death.Upon Wilbur's prior death,a reduced amount is to be paid to Marcia for her life.Wilbur predeceases Marcia.Nothing concerning the annuity contract is included in Wilbur's gross estate.

Question 50

Under the terms of a trust created by Billie,Jody (Billie's brother)has the right to determine how its income is to be divided among Billie's children.Jody holds a general power of appointment.

Question 51

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 Harry dies first,only one-half of the value of the real estate will be included in his gross estate.

Question 52

Georgia owns an insurance policy on the life of Jake,with Scarlet as the designated beneficiary.Upon Scarlet's prior death,no transfer tax consequences result.

Question 53

A surviving spouse's dower interest is included in the deceased spouse's gross estate.

Question 54

Cary and Bo are husband and wife.Using their community funds,they create a trust,life estate to Bo,remainder to their children.Four years later,Bo predeceases Cary.Nothing as to this trust is included in Bo's gross estate.

Question 55

Rachel owns an insurance policy on the life of Albert with Belle as the designated beneficiary.Upon Rachel's prior death,nothing regarding this policy is included in her gross estate.

Question 56

Reba purchases U.S.savings bonds which she lists in the name of Rod,Reba's son.The purchase of the bonds constitutes a gift.

Question 57

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 "special" (and not "general").

Question 58

In 2006 and with $100,000,Ronald establishes a joint savings account with his cousin,Allison. In 2008,Allison withdraws the $100,000 and disappears. Ronald made a gift to Allison in 2008.

Question 59

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.

Question 60

In 2004,Marcie made some taxable gifts upon which she paid a Federal gift tax of $42,000.If Marcie dies in 2008,the $42,000 is included in her gross estate under the "gross up" rule.

Question 61

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.

Question 62

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

Question 63

For year 2008,the unified transfer tax credit for estate tax purposes is lower than that applicable for gift tax purposes.

Question 64

At the time of his death in 2008,Murray owed Federal gift tax on a gift he had made in 2003.Murray's estate cannot claim an estate tax deduction for the gift tax it pays.

Question 65

Sally's will passes real estate to Otto (her surviving spouse).The real estate is worth $800,000 but is subject to a mortgage of $200,000.The transfer provides Sally's estate with a marital deduction of $600,000.

Question 66

After 2004,the credit for state death taxes paid was replaced with a deduction.

Question 67

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

Question 68

At the time of her death in 2008,Pam still owed $24,000 on her church pledge for the year.Even though a church pledges are not an enforceable obligation in the state where Pam resided,her estate can claim a deduction for the $40,000 it later pays.

Question 69

A marital deduction can be allowed even if the surviving spouse is a nonresident alien.

Question 70

In arriving at the taxable estate,expenses incurred in administering community property are deductible only in proportion to the deceased spouse's interest in the community.

Question 71

The same charitable organizations that qualify for income tax purposes qualify for estate tax purposes.

Question 72

George leaves his share of the community property to Eva,his wife.Since the bequest involves community property,it does not qualify George's estate for a marital deduction.

Question 73

Since the credit for state death taxes paid (under § 2011)has been eliminated,no double tax relief is available to an estate that is subject to both Federal and state death taxes.

Question 74

As a result of an auto accident which killed him,Mel totaled a Hummer worth $45,000.If the insurance company covers $30,000 of the loss,Mel's estate can claim a deduction of $15,000 in arriving at the taxable estate.

Question 75

The current top Federal transfer tax rate of 45% is the highest that the rate ever has been.

Question 76

At the time of his death,Hal owned 10 cemetery lots worth $40,000 ($4,000 each)for use by himself and his family.These lots are included in Hal's gross estate and a deduction of $4,000 is allowed the estate.

Question 77

By his will,all of Rusty's property passes outright to his wife,Patsy.As Patsy was not given a general power of appointment or Rusty's executor did not make a QTIP election,Rusty's estate is not allowed a marital deduction.

Question 78

Manfredo makes a donation of $50,000 to the church where he was baptized in Mexico City.The gift does not qualify as a charitable contribution for Federal income tax purposes.

Question 79

To avoid the terminable interest limitation on the marital deduction,the surviving spouse must be granted a general power of appointment over the trust property,and a QTIP election must be made.

Question 80

In the case of a transfer by gift,a QTIP election causes the property to be subject to the estate tax upon the death of the donee spouse.