Question 1

On June 1, Sherri deposits $60,000 into a new joint bank account in the names of Sherri and John. Her friend John makes no deposits. On December 15th, John withdraws $25,000 from the joint account. What are the gift tax consequences, if any?

Accepted Answer

The answer of On June 1, Sherri deposits $60,000 into...

Question 2

Discuss the statutory exemptions from the gift tax.

Accepted Answer

The answer of Discuss the statutory exemptions from the gift...

Question 3

Abby transfers $10,000 to a political organization to promote her favorite candidate for president. Does Abby's transfer qualify as a gift?

Accepted Answer

The answer of Abby transfers $10,000 to a political organization...

Question 4

Ida sells some stock to Mae for $20,000 at a time when the stock is valued at $50,000. Later in the year, she gives Mae $16,000 in cash.
a) What is the amount of Ida's taxable gifts?
b) How would your answer to Part (a) change if Ida gave the cash to Jonathan instead of to Mae?

Accepted Answer

The answer of Ida sells some stock to Mae for...

Question 5

Identify which of the following statements is false.

Accepted Answer

This statement is false. A trust for a minor (Sec. 2503(c) trust) can accumulate income and still qualify for the annual exclusion as long as the trust meets certain requirements, such as distributing all trust property to the child when they reach a specified age.

Question 6

On September 1, George transfers his entire ownership rights in a $250,000 life insurance policy on his own life to his sister, Sally. The policy's interpolated terminal reserve is $30,000 as of September 1. On July 1, George had paid the policy's $6,000 annual premium. What are the gift tax consequences, if any?

Accepted Answer

The answer of On September 1, George transfers his entire...

Question 7

Tia funds an irrevocable trust with $100,000, naming Vonda to receive income for life. Tia also grants Vonda a general power of appointment during her life. During the next year, Vonda directs the trustee to give $100,000 to Rick. Which of the following statements is not correct?

Accepted Answer

Tia did not make a $100,000 gift to Rick. Only Vonda, as the holder of the general power of appointment, has the power to direct the trustee to make distributions from the trust. However, Tia did make a gift of $100,000 to Vonda by transferring the assets to the trust. Exercising a general power of appointment does constitute a gift by the holder of the power (in this case, Vonda), but not by the person who funded the trust (Tia).

Question 8

Identify which of the following statements is true.

Accepted Answer

A) A purpose of the annual exclusion is to eliminate the necessity of accounting for and reporting small gifts such as those made for weddings and Christmas - this is true. The annual exclusion allows for gifts up to a certain amount (currently $15,000) to be given to an individual each year without triggering the gift tax. This eliminates the need for individuals to report small gifts and helps to simplify the gift-giving process.

B) The gift tax exclusion is available only for a gift of a present interest - this is also true. In order to qualify for the annual exclusion, the gift must be a present interest gift - meaning the recipient has an immediate right to use, possess or enjoy the property or income from the property.

C) A present interest is an unrestricted right to the immediate use, possession or enjoyment of property or the income from property - this is also true and is the definition of a present interest.

Therefore, all of the statements are true.

Question 9

On March 1, Bruce transfers $300,000 to a revocable trust with Sprint Bank as trustee. The trustee must pay out all the income to Sam during Sam's lifetime. At Sam's death, the property is to be paid to Sam Jr. On December 31, the trustee distributes $40,000 of income to Sam. What date did a gift occur? What was the amount of the gift?

Accepted Answer

The answer of On March 1, Bruce transfers $300,000 to...

Question 10

Ward and June decide to divorce after 30 years of marriage. Ward transfers $500,000 to June in settlement of her property rights. What are the gift tax consequences of this transfer?

Accepted Answer

The answer of Ward and June decide to divorce after...

Question 11

Karen purchased a beach house for $300,000 and immediately titled it in the names of Karen and Kenny, as joint tenants with right of survivorship. Karen and Kenny are not married. Did a gift occur? If so, for what amount?

Accepted Answer

The answer of Karen purchased a beach house for $300,000...

Question 12

What is a "net gift" and what is the potential income tax problem associated with making a net gift?

Accepted Answer

The answer of What is a "net gift" and what...

Question 13

Bryce pays $40,000 for his adult grandson's tuition at medical school and $18,000 for the grandson's room and board in the medical school's dormitory. All payments are made directly to the medical school. Do these payments by Bryce qualify as gifts?

Accepted Answer

The answer of Bryce pays $40,000 for his adult grandson's...

Question 14

George transfers property to an irrevocable trust for the benefit of his adult children and names himself as trustee. The trust document requires the trustee to distribute trust property to the beneficiaries at the trustee's discretion with the possibility of no distribution to certain beneficiaries as the trustee deems appropriate. The trust will terminate at the end of nine years, and the property will pass to George's children. Which of the following statements is correct?

Accepted Answer

The trust document allows the trustee (who is also the grantor) to make distributions at their discretion, meaning the beneficiaries do not have a right to the assets until distributions are actually made. Therefore, the transfer by George is a gift of a future interest, which is not eligible for the annual gift tax exclusion and may be subject to gift tax.

Question 15

Connie has some acreage that is valued at $1,500,000. Her daughter would like to build a home on it, but can only afford $500,000. Connie agrees to sell it to her daughter for $500,000. Is there any gift tax consequence as a result of this transaction?

Accepted Answer

The answer of Connie has some acreage that is valued...

Question 16

Identify which of the following statements is true.

Accepted Answer

The answer of Identify which of the following statements is...

Question 17

On September 1, George transfers his entire ownership rights in a $250,000 life insurance policy on his own life to his sister, Sally. The policy's interpolated terminal reserve is $30,000 as of September 1. On July 1, George had paid the policy's $6,000 annual premium. On July 1 of the subsequent year, George again paid the premium on the policy. What are the gift tax consequences in the subsequent year, if any?

Accepted Answer

The answer of On September 1, George transfers his entire...

Question 18

Yuli wants to help his adult grandson, Jerry, become a CPA. He pays all of Jerry's tuition this year, which totals $20,000. He also pays $9,000 for Jerry's room and board at school. Yuli makes the payments directly to the school. What are the gift tax consequences?

Accepted Answer

The answer of Yuli wants to help his adult grandson,...

Question 19

Jason funds an irrevocable trust with Liberty Bank as trustee and reserves the right to receive the income for seven years. He provides that at the end of the seventh year, the trust assets will pass outright to his adult daughter, Paula, or to Paula's estate should Paula not be alive. Jason transfers assets valued at $1.5 million to the trust; the assets at present are producing income of about 7.5% per year. Assume that the Sec. 7520 rate per the actuarial tables for the month of the transfer is 10%. What tax issues should Jason consider regarding the trust?

Accepted Answer

The answer of Jason funds an irrevocable trust with Liberty...

Question 20

A "Crummey demand power" in a trust document allows the donor to demand a distribution from the trust in years in which earnings exist within the trust.

Accepted Answer

A "Crummey demand power" actually gives the beneficiaries, not the donor, the right to withdraw contributions made to the trust for a limited period of time, typically 30 or 60 days after the contribution is made. This feature is used to qualify gifts for the annual gift tax exclusion.

Quiz 12: The Gift Tax

On June 1, Sherri deposits $60,000 into a new joint bank account in the names of Sherri and John. Her friend John makes no deposits. On December 15th, John withdraws $25,000 from the joint account. What are the gift tax consequences, if any?

Discuss the statutory exemptions from the gift tax.

Abby transfers $10,000 to a political organization to promote her favorite candidate for president. Does Abby's transfer qualify as a gift?

Ida sells some stock to Mae for $20,000 at a time when the stock is valued at $50,000. Later in the year, she gives Mae $16,000 in cash. a) What is the amount of Ida's taxable gifts? b) How would your answer to Part (a) change if Ida gave the cash to Jonathan instead of to Mae?

Identify which of the following statements is false.

Tia funds an irrevocable trust with $100,000, naming Vonda to receive income for life. Tia also grants Vonda a general power of appointment during her life. During the next year, Vonda directs the trustee to give $100,000 to Rick. Which of the following statements is not correct?

Identify which of the following statements is true.

Ward and June decide to divorce after 30 years of marriage. Ward transfers $500,000 to June in settlement of her property rights. What are the gift tax consequences of this transfer?

Karen purchased a beach house for $300,000 and immediately titled it in the names of Karen and Kenny, as joint tenants with right of survivorship. Karen and Kenny are not married. Did a gift occur? If so, for what amount?

What is a "net gift" and what is the potential income tax problem associated with making a net gift?

Bryce pays $40,000 for his adult grandson's tuition at medical school and $18,000 for the grandson's room and board in the medical school's dormitory. All payments are made directly to the medical school. Do these payments by Bryce qualify as gifts?

Connie has some acreage that is valued at $1,500,000. Her daughter would like to build a home on it, but can only afford $500,000. Connie agrees to sell it to her daughter for $500,000. Is there any gift tax consequence as a result of this transaction?

Identify which of the following statements is true.

Yuli wants to help his adult grandson, Jerry, become a CPA. He pays all of Jerry's tuition this year, which totals $20,000. He also pays $9,000 for Jerry's room and board at school. Yuli makes the payments directly to the school. What are the gift tax consequences?

A "Crummey demand power" in a trust document allows the donor to demand a distribution from the trust in years in which earnings exist within the trust.