Deck 27: The Federal Gift and Estate Taxes

Question 1

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

Answer 1

True

Question 2

A father wants to give a parcel of land to his two children. If he wants the survivor to have sole ownership, he should list ownership of the property as joint tenants.

Answer 2

True

Question 3

Sandy pays a local college for her boyfriend's tuition. The payment is subject to the Federal gift tax.

Answer 3

False

Question 4

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

Question 5

If the value of the gross estate is lower on the alternate valuation date than on the date of death, the date of death valuation cannot be used.

Question 6

For both the Federal gift and estate taxes, a deduction is allowed for certain transfers to a spouse.

Question 7

Paul, a U.S. citizen, will avoid the Federal estate tax if he becomes a Canadian resident and owns no property located in the United States at the time of his death.

Question 8

For Federal estate tax purposes, the gross estate does not include property that will pass to a surviving spouse.

Question 9

Pauline sells antique furniture to her daughter, Nicole, for $10,000. If the furniture is really worth $100,000, Pauline has made a gift to Nicole of $100,000.

Question 10

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

Question 11

An individual generally tries to reduce the present value of any Federal transfer tax liability.

Question 12

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

Question 13

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 14

Kim, a resident and citizen of Korea, dies during an operation at the Mayo Clinic in Rochester (MN). Because Kim died in the United States, she will be subject to the Federal estate tax.

Question 15

Barry pays State University for his daughter's room and board. Barry has made a transfer that is subject to the
Federal gift tax.

Question 16

The Federal transfer tax system includes three separate taxes.

Question 17

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.

Question 18

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

Question 19

The amount of the exemption equivalent is the same for both transfers by gift and transfers by death.

Question 20

Mitch pays the surgeon and the hospital for his aunt's heart bypass operation. The transfer is not subject to the gift tax.

Question 21

Although qualified tuition plans under § 529 are treated favorably for gift tax purposes, such plans are included in the gross estate upon the grantor's death.

Question 22

A surviving spouse's share of the community property is not included in the deceased spouse's gross estate.

Question 23

Iris dies intestate (i.e., without a will). All of her property passes to her heirs in accordance with the order of distribution prescribed under the Internal Revenue Code.

Question 24

In year 1 and with $100,000, Ronald establishes a joint savings account with his cousin, Allison. In year 2, Allison withdraws the $100,000 and leaves the country. Ronald made a gift to Allison in year 2.

Question 25

Lyle and Kelly are brother and sister. Using his funds, Lyle purchases land, listing title as: "Lyle and Kelly, joint tenants with right of survivorship." If Kelly dies first, none of the land is included in her gross estate.

Question 26

Under certain circumstances, the gift-splitting election can be made even though the electing spouses no longer are married to each other.

Question 27

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

Question 28

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

Question 29

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

Question 30

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.

Question 31

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.

Question 32

In 2019, grandparents contribute jointly owned funds to a § 529 qualified tuition plan on behalf of their granddaughter.
The maximum annual exclusion allowed to them is $150,000 ($30,000 × 5 years).

Question 33

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

Question 34

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

Question 35

Ray purchases U.S. savings bonds that he lists as "Ray and Donna" as co-owners. Donna is Ray's daughter. Donna predeceases Ray. No gift or estate tax consequences result from this situation.

Question 36

A tenancy by the entirety is restricted in most states to having more than two joint owners.

Question 37

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 38

Accrued interest on state and local bonds is not subject to the Federal estate tax.

Question 39

A husband and wife make a gift of their jointly owned vacation home to their adult children. The gift-splitting election must be made.

Question 40

Harry and Brenda are husband and wife. Using her funds, Brenda purchases real estate that she lists as: "Harry and Brenda, joint tenants with right of survivorship." If Brenda dies first, all of the value of the real estate is included in her gross estate.

Question 41

Lila is the owner and beneficiary of a policy on the life of her husband, Austin. Upon Austin's death, the insurance proceeds paid to Lila do not qualify for the marital deduction.

Question 42

Sidney dies and leaves property to his sister Giselle. Thirteen months later, Giselle dies. Giselle's estate can claim a full credit for any Federal estate taxes paid by Sidney's estate as to amounts passing to Giselle.

Question 43

Which, if any, of the following is not a characteristic of the Federal gift tax?

A) A charitable deduction is available.
B) The alternate valuation date of § 2032 can be elected.
C) A disclaimer procedure may avoid the tax.
D) A marital deduction is available.

Question 44

At the time of Dylan's death, he was a resident of the United States. He owns land located in a foreign country, which is subject to that country's estate tax. This same land also can be subject to the Federal estate tax.

Question 45

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

A) The election to split gifts under § 2513.
B) The limitation placed on the amount allowed as a charitable contribution for estate tax purposes (§ 2055).
C) Annual gift tax exclusion.
D) Unified transfer tax rates.

Question 46

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.

Question 47

Which, if any, of the following is a characteristic of the Federal estate tax?

A) A foreign tax credit is available.
B) A credit for tax on prior transfers may be available.
C) A charitable deduction is available.
D) All of these.

Question 48

In 2008, Katelyn inherited considerable property when her father died. When Katelyn dies in 2020, her estate may be able to claim a credit as to some of the estate taxes paid by her father's estate.

Question 49

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.

Question 50

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

Question 51

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

Question 52

Which, if any, of the following statements correctly reflects the rules applicable to the alternate valuation date?

A) The election is made by the executor.
B) It can be elected even though no estate tax return need be filed.
C) It can be elected only if it reduces the amount of the gross estate or reduces the estate tax liability.
D) Its election does not affect the income tax basis of property included in the gross estate.

Question 53

Which of the following is not a characteristic of both the Federal gift tax and the Federal estate tax?

A) A deduction for state death taxes may be available.
B) A charitable deduction is available.
C) A marital deduction is available.
D) An exclusion amount is available in computing the tax.

Question 54

To avoid the terminable interest limitation on the marital deduction, a QTIP election is made.

Question 55

The Federal transfer taxes generally apply a flat rate of:

A) 10%.
B) 40%.
C) 65%.
D) The taxes apply three graduated rates, not a flat rate.

Question 56

Sally's will passes real estate to Otto (her surviving husband). The real estate is worth $8,000,000 but is subject to a mortgage of $2,000,000. The transfer provides Sally's estate with a marital deduction of $6,000,000.

Question 57

All charitable organizations that qualify for estate tax purposes also qualify for income tax purposes.

Question 58

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.

Question 59

At the time of his death, Raul owned a residence with his wife, Manuela, as joint tenants. Manuela purchased the residence 10 years ago at a cost of $300,000; it now has a fair market value of $1.4 million. Raul's estate will be allowed no marital deduction as to the property.

Question 60

Peggy gives $200,000 to her grandson. This is an example of a direct skip for purposes of the generation-skipping transfer tax (GSTT).

Question 61

In 2018, Thalia purchased land for $900,000 and lists title in the names of her daughters as follows: "April and Theresa, joint tenants with right of survivorship." In 2020, April and Theresa purchase an apartment building for $1 million as equal tenants in common; April furnished $400,000 and Theresa furnished $600,000 of the cost. April died before Theresa in 2021 when the land is worth $1.5 million and the apartment building is worth $2 million. One of the results of these transactions is:

A) April made a gift to Theresa of $100,000 in 2020.
B) None of the land is included in April's gross estate.
C) April's gross estate includes $800,000 (40% × $2 million) as to the apartment building.
D) April's gross estate includes $1,750,000 as to these properties.

Question 62

Which of the following is a correct statement regarding the filing of a gift tax return (Form 709)?

A) A donor must file a Form 709 in the same year in which the gift was made.
B) The due date of a Form 709 is the same as the due date of the donor's Form 1040.
C) A Form 709 may have to be filed even though the value of the gift was less than the amount of the annual exclusion.
D) Melody gives her husband a new Mercedes convertible for his birthday. She must file a Form 709 to report the gift even though no gift tax results.

Question 63

In 2010, Drew creates an irrevocable trust with $1,000,000 of securities. Under the terms of the trust, Paula (Drew's wife) is granted a life estate with remainder to their children. Drew makes a QTIP election as to the trust. Drew dies in 2012 when the trust is worth $1,500,000, and Paula dies in 2020 when the trust is worth $2,000,000. Which, if any, of the following is a correct statement?

A) The trust is included in Drew's gross estate when he dies in 2012.
B) None of the trust is included in Paula's gross estate when she dies in 2020.
C) Drew does not get a marital deduction in 2010.
D) All of the value of the trust ($2,000,000) is included in Paula's gross estate when she dies in 2020.

Question 64

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:

A) $250,000.
B) $1,150,000.
C) $1,400,000.
D) $2,150,000.

Question 65

At the time of his death, Tom owned some common stock. $\begin{array}{lcc} &\text {Date of }\\&\text {Death }&\text { Value Six}\\& \text { Value } & \text { Months Later } \\\text { Citron Corporation } & \$ 1,500,000 & \$ 1,100,000 \\\text { Grey Corporation } & 1,300,000 & 1,400,000\end{array}$ If the alternate valuation date is properly elected, the value of Tom's estate as to these stocks is:

A) $2,300,000.
B) $2,400,000.
C) $2,500,000.
D) $2,700,000.

Question 66

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

A) She gives her 19-year old son $20,000 to use for his college expenses.
B) She buys her nondependent grandfather a new $120,000 RV for his birthday.
C) She sends $44,000 to Collins University to cover her nephew's tuition. The nephew does not qualify as Jean's dependent.
D) She contributes $10,000 to her U.S. Senator's reelection campaign.

Question 67

Matt and Patricia are husband and wife and live in Oregon. In 2010 and using her funds, Patricia purchased a residence for $400,000, listing title to the property as "Matt and Patricia, joint tenants with right of survivorship." In 2020, Matt dies before Patricia when the residence is worth $2 million. A correct statement as to these transactions is:

A) In 2020, Matt's gross estate includes $1 million and a marital deduction of $1 million is allowed for estate tax purposes.
B) In 2010, Patricia made a gift to Matt but no marital deduction is available for gift tax purposes.
C) In 2010, Patricia did not make a taxable gift to Matt.
D) In 2020, Matt's estate includes nothing as to the property.

Question 68

In which, if any, of the following independent situations can the alternate valuation date be elected?

Question 69

Homer and Laura were husband and wife. At the time of Homer's death, they owned the following: land as tenants by the entirety worth $2,000,000 (purchased by Homer) and stock as equal tenants in common worth $3,000,000 (purchased by Laura). Homer owned an insurance policy on his life (maturity value of $1,000,000) with Laura as the designated beneficiary. Homer's will passes all his property to Laura. How much marital deduction is allowed Homer's estate?

A) $2,000,000
B) $2,500,000
C) $3,500,000
D) $4,500,000

Question 70

Mandy and Hal (mother and son) purchased land for $600,000 as joint tenants with right of survivorship. Of the $600,000 purchase price, Mandy provided $300,000 and Hal $300,000 (of which $200,000 had been received as a gift from Mandy). Hal dies first when the land is worth $3,000,000. As to the land, Hal's gross estate must include:

A) $500,000.
B) $1,500,000.
C) $2,500,000.
D) $3,000,000.

Question 71

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:

A) All of the disclaimers.
B) The disclaimer made in 2019.
C) The May 31, 2020 disclaimer.
D) All of the disclaimers made in 2020.
E) None of the disclaimers.

Question 72

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.

Question 73

The Federal gift-splitting election:

A) Allows the annual exclusion of both spouses to reduce the gift tax due.
B) Allows the exemption equivalent of both spouses to reduce the gift tax due.
C) Is made on both spouses' Forms 709.
D) All of these.

Question 74

Ling and Jiang are unrelated and equal joint tenants in a plot of land. Ling died this year. Ling's share of the land goes to:

A) The party named in Ling's will.
B) Ling's surviving spouse.
C) Jiang under community property principles.
D) Jiang under a right of survivorship.

Question 75

At the time of his death, Jason was a participant in Silver Corporation's qualified pension plan and group term life insurance. The balance of the survivorship feature in his pension plan is that: $\begin{array}{ll}\text { Contributions by Silver } & \$ 800,000 \\\text { After-tax contributions by Jason } & 400,000 \\\text { Plan earnings } & 300,000\end{array}$ The term insurance has a maturity value of $100,000. All amounts are paid to Pam, Jason's daughter. One result of these transactions is:

A) Pam must pay income tax on $300,000.
B) Pam must pay income tax on $1,100,000.
C) Jason's gross estate must include $1,200,000.
D) Jason's gross estate must include $1,500,000.

Question 76

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

A) He established an irrevocable trust, income payable to himself for life and, upon his death, remainder to his children.
B) He dies owning a U.S. savings bond with ownership listed as: "Trent, payable to Sue on Trent's death." Sue redeems the bond.
C) He sends $25,000 to Alice's oral surgeon in payment of her dental implants. Alice is Trent's sister and does not qualify as his dependent.
D) He pays Eva $800,000 in a property settlement of her marital rights. One month later, Trent and Eva are divorced.

Question 77

Andrea dies on April 30. Which, if any, of the following items is included in her gross estate?

A) Rents for the month of May (received on May 2) on an apartment building she owned.
B) Rents for the month of March (received on May 2) on an apartment building she owned.
C) Insurance recovery from a fire that occurred on November 1 and destroyed Andrea's residence.
D) A loan made by Andrea to her daughter and forgiven by Andrea in a prior tax year.

Question 78

The Federal unified transfer tax exclusion amount:

A) Is indexed for inflation.
B) Applies only to the estate tax.
C) Is a different amount for the estate and gift taxes.
D) Is doubled on a joint gift tax return.

Question 79

The Federal gift tax does not include a:

A) Deduction for state gift taxes paid.
B) Charitable deduction.
C) Gift-splitting election.
D) Marital deduction.

Question 80

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?

A) $900,000
B) $1,100,000
C) $1,700,000
D) $2,100,000