Question 1

Vincent makes the following property transfers in the current year: • $5,000 tuition for a grandson paid directly to the school
• $1,000 medical expense for a child paid directly to a hospital
• $500 donation to the Democratic party
• $10,000 property settlement in conjunction with a divorce
• $3,000 room and board at college for a grandson paid directly to the school
Vincent's gifts for the year before considering the annual gift tax exclusion total

Accepted Answer

C

Question 2

Greg transfers property on August 8 of the current year with an adjusted basis of $40,000 and an FMV of $90,000 to his ex-wife as a property settlement that is part of their divorce agreement.The property settlement agreement and the divorce were both finalized on June 3 of the current year.Greg has made a gift of

Accepted Answer

Transfers of property between spouses or incident to divorce are generally not considered gifts for federal tax purposes. Instead, the recipient assumes the donor's basis in the property. Since Greg's transfer of property to his ex-wife is part of a divorce settlement, it is not treated as a gift.

Question 3

Molly sells her car,valued at $30,000,to her nephew Todd for $18,000.Molly has made a taxable gift.

Accepted Answer

Molly has sold her car for less than its fair market value, so the difference between the value and the sales price ($12,000) is considered a gift. This gift is subject to gift tax and is therefore taxable.

Question 4

Phil transfers $50,000 to a revocable trust benefiting his son,Josh.The transfer is a taxable gift.

Accepted Answer

Since Phil can revoke the trust and take back the assets, for tax purposes, he has not made a completed gift. Therefore, it is not considered a taxable gift.

Question 5

Identify which of the following statements is true.

Accepted Answer

The statement that "under the unified transfer tax system, taxable gifts made after 1976 are included in the donor's death tax base" is true. The gift tax is a part of the unified transfer tax system, and it only applies to transfers made during a person's lifetime. Therefore, options A and B are false.

Question 6

In 1998,Delores made taxable gifts to her son of property with an FMV of $200,000.In the current year when Delores dies,the property is worth $800,000.The amount included in Delores's estate tax base because of the 1998 gift is

Accepted Answer

The taxable gifts made by Delores during her lifetime are added to determine her estate tax base. Therefore, the amount included in Delores's estate tax base because of the 1998 gift is the full FMV of the property at the time of the gift, which is $200,000. The current FMV of the property at the time of Delores's death is not relevant for determining the estate tax base for this gift.

Question 7

Identify which of the following statements is true.

Accepted Answer

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

Question 8

The changing of a life insurance policy beneficiary from a spouse to an adult daughter constitutes a gift for transfer tax purposes.

Accepted Answer

Changing a beneficiary on a life insurance policy does not constitute a gift for transfer tax purposes because the change in beneficiary does not transfer any present interest or economic benefit to the new beneficiary until the death of the insured.

Question 9

The annual exclusion permits donors to make gifts of $15,000 each to multiple donees.

Accepted Answer

The annual exclusion for gifts in 2021 is $15,000 per donor, per recipient. This means that a donor can give up to $15,000 to as many individuals or entities as they wish without triggering any gift tax or using up any of their lifetime gift tax exemption.

Question 10

In November 1976,Grant uses $30,000 of the specific exemption available at that time.The unified credit available to Grant for post-1976 transfers is reduced by

Accepted Answer

The unified credit for post-1976 transfers was $192,800 in 2020. The specific exemption in 1976 was $30,000. Therefore, the reduction in the unified credit available to Grant would be equal to the amount of the specific exemption used ($30,000). Therefore, the unified credit available to Grant would be reduced by $30,000, leaving $162,800.

Question 11

A qualified disclaimer must be made within nine months after (a)the day the property is transferred,or (b)the day the person receiving the property becomes age 21,whichever is later.

Accepted Answer

A qualified disclaimer must be made within nine months after the day the property is transferred or the day the person receiving the property becomes age 21, whichever is later.

Question 12

The gift tax is a wealth transfer tax that applies to transfers during a person's lifetime and transfers at death.

Accepted Answer

The gift tax applies only to transfers made during a person's lifetime. The estate tax applies to transfers at death.

Question 13

A net gift occurs when a donor makes a gift subject to the agreement that the recipient agrees to pay the gift tax.

Accepted Answer

A net gift is a type of gift where the donor agrees to pay the gift tax to the IRS, and the recipient receives the gift net of the tax. This arrangement is often used when the donor wishes to transfer a large amount of money or property to the recipient without reducing the donor's lifetime gift tax exemption. However, it is important to note that a net gift may not be appropriate for everyone, as it requires careful planning and consideration of the tax implications.

Question 14

Barbara sells a house with an FMV of $170,000 to her daughter for $120,000.From this transaction,Barbara is deemed to have made a gift (before the annual exclusion)of

Accepted Answer

The difference between the FMV and the sale price is considered a gift. Therefore, Barbara is deemed to have made a gift of $50,000 ($170,000 - $120,000).

Question 15

Mike transfers securities to an irrevocable trust and gives Rachel the power to determine who will receive the trust's income and assets.Rachel,her estate,and her creditors cannot be beneficiaries or receive the trust assets.Rachel has a general power of appointment.

Accepted Answer

Rachel does not have a general power of appointment because she, her estate, and her creditors cannot benefit from the trust's assets. A general power of appointment allows the holder to appoint the property to themselves, their estate, their creditors, or any other person.

Question 16

In the current year,Cesar,who is single,gives $26,000 to each of his 20 nieces and nephews for a total property transfer of $520,000.Cesar's taxable gifts total

Accepted Answer

Cesar's taxable gifts total $220,000 after applying the annual exclusion. For the current year, the annual gift tax exclusion allows an individual to give up to $16,000 to any number of people without incurring any gift tax or using any of the lifetime gift tax exemption. Since Cesar gave $26,000 to each of his 20 nieces and nephews, the first $16,000 of each gift is excluded from the taxable amount. This means $10,000 per gift is taxable, resulting in a total of $200,000 ($10,000 x 20) in taxable gifts. However, the correct calculation should consider the total amount given ($520,000) minus the excluded amount ($320,000; $16,000 x 20), which actually results in $200,000 in taxable gifts. The correct answer should reflect the calculation based on the annual exclusion, but it seems there was a mistake in the explanation regarding the final taxable amount. The principle of applying the annual exclusion is correct, but the final taxable amount provided does not match the calculation described.

Question 17

Identify which of the following statements is true.

Accepted Answer

A taxable gift occurs when property is transferred without adequate consideration, but an arm's length transaction involves a fair price for the item being sold. Choice A is false. A gift is intentionally made, whereas an individual would not inadvertently make a gift by selling property below its fair market value. Thus, choice B is true. The statutory exemption for the gift tax for payments for medical care does not require that the payment be made for a relative, making choice C false. Thus, the correct answer is choice B.

Question 18

In the current year,Bonnie,who is single,sells stock valued at $60,000 to Linda for $15,000.Later that year,Bonnie gives Linda $25,000 in cash.Bonnie's taxable gifts from these transfers total

Accepted Answer

Bonnie's taxable gifts will be the total of the value of the stock sold and the amount of cash given, minus the consideration received in return (i.e. the $15,000 paid by Linda for the stock).

Taxable gifts = ($60,000 + $25,000) - $15,000 = $70,000 - $15,000 = $55,000

Therefore, the correct answer is choice (C) $55,000.

Question 19

Mia makes a taxable gift when she makes her mother a joint owner on Mia's bank account.Mia has $25,000 in the account.

Accepted Answer

The answer of Mia makes a taxable gift when she...

Question 20

Identify which of the following statements is true.

Accepted Answer

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

Quiz 12: The Gift Tax

Molly sells her car,valued at $30,000,to her nephew Todd for $18,000.Molly has made a taxable gift.

Phil transfers $50,000 to a revocable trust benefiting his son,Josh.The transfer is a taxable gift.

Identify which of the following statements is true.

In 1998,Delores made taxable gifts to her son of property with an FMV of $200,000.In the current year when Delores dies,the property is worth $800,000.The amount included in Delores's estate tax base because of the 1998 gift is

Identify which of the following statements is true.

The changing of a life insurance policy beneficiary from a spouse to an adult daughter constitutes a gift for transfer tax purposes.

The annual exclusion permits donors to make gifts of $15,000 each to multiple donees.

In November 1976,Grant uses $30,000 of the specific exemption available at that time.The unified credit available to Grant for post-1976 transfers is reduced by

A qualified disclaimer must be made within nine months after (a)the day the property is transferred,or (b)the day the person receiving the property becomes age 21,whichever is later.

The gift tax is a wealth transfer tax that applies to transfers during a person's lifetime and transfers at death.

A net gift occurs when a donor makes a gift subject to the agreement that the recipient agrees to pay the gift tax.

Barbara sells a house with an FMV of $170,000 to her daughter for $120,000.From this transaction,Barbara is deemed to have made a gift (before the annual exclusion) of

Mike transfers securities to an irrevocable trust and gives Rachel the power to determine who will receive the trust's income and assets.Rachel,her estate,and her creditors cannot be beneficiaries or receive the trust assets.Rachel has a general power of appointment.

In the current year,Cesar,who is single,gives $26,000 to each of his 20 nieces and nephews for a total property transfer of $520,000.Cesar's taxable gifts total

Identify which of the following statements is true.

In the current year,Bonnie,who is single,sells stock valued at $60,000 to Linda for $15,000.Later that year,Bonnie gives Linda $25,000 in cash.Bonnie's taxable gifts from these transfers total

Mia makes a taxable gift when she makes her mother a joint owner on Mia's bank account.Mia has $25,000 in the account.

Identify which of the following statements is true.