Deck 12: Estates, Gifts, and Trusts

Question 1

If two properties are currently of equal value, giving away the property least likely to appreciate would reduce potential estate value.

Answer 1

False

Question 2

Only gift taxes of a present interest in property are eligible for the unified credit.

Answer 2

False

Question 3

A Section 529 education savings plan can only be used for the education of the specific child it was set up to benefit.

Answer 3

False

Question 4

Probate determines the property included in a decedent's taxable estate.

Question 5

Gifts to most charities are not subject to gift taxes.

Question 6

No estate tax is due if a husband leaves his entire estate to his wife.

Question 7

Painting a house for your mother is not a taxable gift.

Question 8

The gift tax and estate taxes were imposed in 1932 and 1916, respectively.

Question 9

Gift splitting allows a married couple to use both their annual exclusions in determining taxable gifts.

Question 10

With a revocable trust, the grantor can change the terms of a trust at will.

Question 11

The executor can elect the alternative valuation date only if both the value of the estate and the estate tax are reduced.

Question 12

A taxpayer must not retain any incidents of ownership in a life insurance policy on his or her life to have it excluded from his or her taxable estate.

Question 13

The widow of a decedent may add the decedent's remaining lifetime exclusion to her lifetime exclusion only if the estate executor makes an irrevocable election.

Question 14

The kiddie tax applies to all unearned income of a child under 19.

Question 15

Payment to a college for a grandchild's tuition is not a taxable gift.

Question 16

Putting cash into a joint bank account is a gift to the joint tenant when deposited.

Question 17

The tax on generation skipping transfers has been repealed.

Question 18

Gifts are valued at their fair market value on the date of the gift and the donee takes this fair market value as basis.

Question 19

A taxpayer can elect to pay a gift tax rather than use part of his or her unified credit.

Question 20

A trust always involves at least three different individuals.

Question 21

Bill set up two trusts in 2017. The first was for his son, John, to which he contributed $200,000 during that year. (The income interest was valued at $100,000 and the remainder interest's value was $100,000.) Bill plans to continue contributing money to the trust each year but John can withdraw only the lesser of $15,000 or the amount transferred to the trust each year. The trustee can pay the amount annually until John receives the trust assets at age 40. The second trust was for his 10-year old son, Tim. Bill contributed $50,000 in 2018. (The income interest was equal to $10,000 and the remainder interest was equal to $40,000.) The trustee may distribute the income or principal to Tim until he reaches age 21, at which time the assets will be transferred to Tim. In 2018, Bill contributes $10,000 to John's trust and $16,000 to Tim's trust. What types of trusts are these and what are Bill's gift tax consequences in 2017 and 2018?

Question 22

How does the probate estate differ from the gross estate?

Question 23

What is the alternative valuation date? What limit is placed on its use?

Question 24

An income tax return for a fiduciary uses the same income tax rate schedule as an individual filing a separate return.

Question 25

Shoshone sold her home to her son and his wife as joint tenants for $100,000. The home had been appraised at $150,000. She sold her daughter an auto valued at $10,900 for $500 and she took her sister on a vacation and paid all of her sister's expenses that amounted to $7,000. What is the total of Shoshone's taxable gifts? Explain.

Question 26

What is a remainderman?

Question 27

What is the purpose of the kiddie tax? What is different in 2018, as compared to 2017?

Question 28

Explain the difference between a simple trust and a complex trust?

Question 29

What values are used for determining the taxes on taxable estates and taxable gifts?

Question 30

Why do we call the gift and estate rate schedule a unified schedule?

Question 31

Jose set up a trust for his two married daughters with $500,000 of stocks and bonds at the end of 2017. Jose can change the trust beneficiaries at any time, however. In 2018, each of the daughters receives $16,000 from the trust. What are Jose's gift tax consequences as a result of these events? Explain.

Question 32

What is an income beneficiary?

Question 33

Sam and Judy married last year. Sam is very wealthy and had Judy sign a prenuptial agreement. Judy did not want a family, but Sam promised to put $1,000,000 in a bank account solely in her name if she has a child. Judy agrees and gives birth to a child one-year later. Sam puts the $1,000,000 in Judy's bank account. Is this a taxable gift? Explain.

Question 34

Sybil gave her son Todd 1,000 shares of XYZ stock on January 16, 2018. The stock's high and low selling prices that day were $55 and $53. Sybil had purchased the stock in 2015 for $70 per share. At the end of 2018, Todd sold the shares for $62,000. Provide the details of both income and gift tax effects for these events.

Question 35

What is the difference between the estate tax and the estate income tax?

Question 36

Giving appreciating property away reduces the potential lifetime transfer tax for an estate.

Question 37

What exclusion removes small gifts from the taxable gift base?

Question 38

What is the gross estate of a decedent?

Question 39

Who are the principal parties to a trust? Briefly define each.

Question 40

What is the benefit of the gift-splitting election?

Question 41

Carl gave his six children gifts of $16,000 each in the current year.

A) Carl has made $90,000 of taxable gifts.
B) Carl has made $6,000 of taxable gifts.
C) Carl has made no taxable gifts if he and his wife elect gift splitting.
D) (b) and (c) are both true.

Question 42

The annual gift tax exclusion

A) cannot increase beyond $15,000 per donor.
B) does not apply to a bargain purchase between related persons.
C) applies to future interests.
D) removes small gifts from taxation.

Question 43

John made $3,400,000 in taxable gifts prior to his death at the beginning of 2018. His wife, Lola, is the executor of John's estate, and made taxable gifts of $800,000 prior to 2018. What is the maximum amount of taxable lifetime gifts that Lola can make in 2018 before she will have to begin paying a gift tax?

A) $22,360,000
B) $18,160,000
C) $6,780,000
D) $4,630,000

Question 44

Sarah and Clem are very wealthy and have a program of charitable and family giving. In 2018, they give $20,000 to each of their 4 grandchildren, $30,000 to Clem's brother, stock valued at $40,000 (basis = $20,000) to the Cancer society, and they buy a home valued at $525,000 for Sarah's mother. In addition, Clem puts $500,000 of his stock in the family's business into Sarah's name and sets up a revocable trust for Sarah's sister with $100,000 in bonds. If Clem made $1,900,000 and Sarah $1,300,000 in taxable gifts in 2016, their only prior-year taxable gifts, what are Clem's and Sarah's taxable gifts in 2018 if they elect gift splitting?

Question 45

Indicate by a T if the following results in a taxable gift and an N if it does not result in a taxable gift.
Converting a $500,000 revocable trust into an irrevocable trust

Question 46

The estate tax

A) applies to the person inheriting property.
B) was first imposed in 1932
C) facilitates wealth distribution.
D) was enacted at the same time as the gift tax.

Question 47

In 2018, Boris put $12,690,000 in an irrevocable trust for his great grandson. What amount of tax will Boris have to pay because of this transfer?

Question 48

Indicate by a T if the following results in a taxable gift and an N if it does not result in a taxable gift.
John put $50,000 of his money into a joint bank account with his son

Question 49

Indicate by a T if the following results in a taxable gift and an N if it does not result in a taxable gift.
$30,000 transferred into a minor's trust

Question 50

Weilin's gross estate was valued at $12,175,000 when he died in 2018. His estate paid administration expenses of $100,000 and funeral expenses of $25,000. Weilin left $50,000 to Georgia State University and $500,000 in a qualifying terminable interest property trust for his second wife. If Weilin had made $1,500,000 of prior taxable gifts in 2014, paying a gift tax of $175,000 on these gifts, how much estate tax would the estate have had to pay in 2018?

Question 51

Indicate by a T if the following results in a taxable gift and an N if it does not result in a taxable gift.
$600,000 placed in an irrevocable trust

Question 52

Bobbie, age 10, has $6,000 in interest from a trust established by her grandmother. Bobbie has no itemized deductions and no other income. What is the total tax on this income?

Question 53

Indicate by a T if the following results in a taxable gift and an N if it does not result in a taxable gift.
Transfer of a house valued at $500,000 held in joint tenancy to the wife according to the divorce decree

Question 54

Rachel owned four assets when she died in 2018.
Asset Date of Death Value Alternate Date Valuation
A $11,160,000 $11,180,000
B 2,200,000 2,390,000
C 3,250,000 3,310,000
D 825,000 700,000
Which value should the executor or personal representative use for valuing the gross estate? Explain.

Question 55

Farouk transfers bonds with a face value of $10,000 into his dependent son's name on January 1, 2018 as his son will turn 24 this year. The bonds pay 8 percent interest annually and Farouk bought the bonds in 2009 for $9,500 (the discount was not required to be amortized). His son sells the bonds for $10,500 at the end of 2018 after receiving the 2018 interest. If Farouk is in the 37 percent marginal tax bracket, how much did he save in 2018 in taxes by transferring the bonds into his son's name. His son had no other income in 2018.

Question 56

Indicate by a T if the following results in a taxable gift and an N if it does not result in a taxable gift.
Corky transferred ownership of a $50,000 life insurance policy with a $5,000 cash surrender value to his wife.

Question 57

Indicate by a T if the following results in a taxable gift and an N if it does not result in a taxable gift.
$20,000 transferred into Crummy trust with gift splitting elected.

Question 58

Indicate by a T if the following results in a taxable gift and an N if it does not result in a taxable gift.
$100,000 diamond ring given to a fiancé

Question 59

Indicate by a T if the following results in a taxable gift and an N if it does not result in a taxable gift.
$60,000 value of a remainder interest in a trust created this year

Question 60

Indicate by a T if the following results in a taxable gift and an N if it does not result in a taxable gift.
$14,000 paid to the University of Oklahoma for a foster child's tuition

Question 61

In 2018, Bill and his wife, Helen, made the following gifts: Bill's gifts: $50,000 to each of his five children; $30,000 to each of his six grandchildren; $100,000 to Central Hospital for his nephew's hospital bill. Helen's gifts: $100,000 to each of her two children; $50,000 to each of her three grandchildren; $200,000 a state senator's reelection campaign.
What are Bill's and Helen's respective taxable gifts (before their unified credit) if they do not elect gift splitting.

A) $530,000; $550,000
B) $430,000; $350,000
C) $265,000; $275,000
D) $80,000; $150,000

Question 62

Which of the following statements does not apply to a revocable trust?

A) The grantor of the trust is taxed on trust income.
B) The trust property is included in the grantor's gross estate.
C) Revocable trusts are all simple trusts.
D) The grantor makes a gift when the trust distributes trust income to a beneficiary.

Question 63

The gift tax

A) can apply to tuition paid directly to a school by an unrelated party.
B) is not levied when setting up a revocable trust.
C) applies to property transfers between divorcing parties.
D) Both (a) and (c).

Question 64

Which of the following is a taxable gift?

A) $25,000 given to the Democratic party.
B) $24,000 paid to Stanford University by Joel for the tuition for his best friend's son.
C) $100,000 given to the Red Cross.
D) None are taxable gifts.

Question 65

The donor of a trust is the same as

A) the beneficiary.
B) the trustee.
C) the grantor.
D) the fiduciary.

Question 66

The following transfer(s) is excluded from gift taxes:

A) John makes a $15,000 payment to Shands Hospital on behalf of Martha.
B) Cal transferred his half of their house to Colleen as part of their divorce settlement.
C) Jonathon gave his grandson a Jaguar automobile when he graduated from College.
D) Both (a) and (b).

Question 67

Chloe gave $16,000 to her son, $21,000 to her daughter, and paid $18,000 to the University of Delaware for her niece's tuition. She gave $12,000 to the United Way campaign, and $18,000 to her church. What is the amount of Chloe's taxable gifts?

A) $ 7,000
B) $15,000
C) $35,000
D) $53,000

Question 68

The federal gift tax is:

A) imposed upon the recipient of gifts
B) imposed upon property in the estate of a deceased person
C) imposed upon the donor on lifetime gift transfers
D) imposed upon the donee only if a gift is not subject to income taxes

Question 69

A trust that features a demand provision by a beneficiary equal to the annual exclusion is

A) an irrevocable trust.
B) a revocable trust.
C) a Crummy trust.
D) a trust established under the UTMA.

Question 70

Which of the following statements is true regarding the filing of a gift tax return?

A) Spouses using the gift-splitting provision do not have to file a return unless the gifts exceed $30,000.
B) A gift tax return must be filed when a gift to a church exceeds the annual exclusion.
C) A gift tax return is due within five months of making the gift.
D) No gift tax return is required to be filed for gifts between spouses.

Question 71

Which of the following gifts is not eligible for the annual exclusion?

A) $20,000 given to a spouse
B) The remainder interest in a trust
C) $100,000 given to North Carolina State University.
D) All are eligible for the annual exclusion.

Question 72

What is the limit on the amount of property that can be transferred to a spouse free of any transfer taxes?

A) $15,000 per year
B) $1,000,000
C) An unlimited amount
D) All transfers to a spouse are subject to transfer taxes

Question 73

Charles gave his three grandsons $20,000 each, his friend, Joe, $15,000, and his daughter $32,000. His second wife, Marla, gave her three children $52,000 each and $50,000 to her church. What are Charles and Marla's taxable gifts if they elect gift splitting?

A) $68,000
B) $90,000
C) $145,000
D) $193,000

Question 74

At the time Karen left for college, her grandfather loaned her $100,000 to be used to pay for her college expenses. She signed a note stating that she would begin repaying the loan over 10 years beginning 6 months after graduation. There is no interest specified for the loan. Which of the following is true?

A) The grandfather has interest income on the loan.
B) The grandfather has made a gift of $100,000 to Karen at the time of the loan.
C) Karen can deduct interest expense on the loan
D) Karen owes gift taxes in the year of the loan

Question 75

Jessica is doing her year-end tax planning and is concerned about gift taxes. If she comes to you for advice, which of the following would you tell her is a taxable gift?

A) Payment to the doctor for her gardener's medical expenses
B) Tuition paid to Norden University for her hairdresser's daughter, Trisha.
C) A donation to her favorite political organization
D) Buying a $20,000 car for Trisha when she goes away to Norden University

Question 76

In 2018, Bill and his wife, Helen, made the following gifts: Bill's gifts: $50,000 to each of his five children; $30,000 to each of his six grandchildren; $100,000 to Central Hospital for his nephew's hospital bill. Helen's gifts: $100,000 to each of her two children; $50,000 to each of her three grandchildren; $200,000 a state senator's reelection campaign.
What are Bill's and Helen's respective taxable gifts (before their unified credit) if they elect gift splitting.

A) $150,000; $150,000
B) $276,000; $280,000
C) $430,000; $350,000
D) $530,,000; $550,000

Question 77

An income interest in a trust

A) must be established for a fixed term in years.
B) is not eligible for the annual exclusion.
C) must be irrevocable to be eligible for the annual exclusion.
D) is irrevocable if the donor only controls who may receive trust income.

Question 78

Charles gave his three grandsons $21,000 each, his friend, Joe, $16,000, and his daughter $31,000. His second wife, Marla, gave her three children $51,000 each and $50,000 to her church. What are their combined taxable gifts if they do not elect gift splitting?

A) $305,000
B) $255,000
C) $143,000
D) $ 71,000

Question 79

George made a gift of stock valued at $450,000 (basis = $300,000) to his daughter Sally and was required to pay a gift tax of $30,000 on this gift. Which of the following is true regarding this gift?

A) Sally has a basis of $300,000 for gain in the stock
B) Sally has a basis of $310,000 for gain in the stock
C) Sally has a basis of $330,000 for gain in the stock
D) Sally has a basis of $450,000 for gain in the stock

Question 80

Cheryl bought some stock for $110,000. Two years later, she gave the stock to her brother, Harold, when its value was $100,000. Three years later, Harold sold the stock for $105,000. What is the value of the gift to Harold, and his gain or loss on the sale, respectively?

A) $100,000; 0 gain/loss
B) $100,000; $5,000 gain
C) $110,000; 0 gain/loss
D) $110,000; $5,000 loss