Question 1

A transfer of a terminable interest will not generally qualify for a marital deduction.

Accepted Answer

A terminable interest is an interest in property that ends upon the occurrence of a certain event, such as the death of the recipient or the expiration of a certain period of time. Because the interest is not permanent, it does not qualify for the unlimited marital deduction, which allows spouses to transfer unlimited amounts of property between each other without incurring gift or estate taxes. However, there are some exceptions and limitations to this rule, such as the qualified terminable interest property (QTIP) election, which allows spouses to transfer terminable interests into a trust that will provide income to the surviving spouse for life while also preserving capital for other beneficiaries after the surviving spouse's death.

Question 2

Property is included in the gross estate at the value a willing buyer would pay a willing seller, neither being under any compulsion to buy or to sell, and both having reasonable knowledge of the relevant facts.

Accepted Answer

This statement accurately reflects the definition of fair market value, which is used to determine the inclusion of property in the gross estate for estate tax purposes. Fair market value assumes a hypothetical transaction between a willing buyer and willing seller, each with reasonable knowledge of relevant facts and without any compulsion to buy or sell the property.

Question 3

The gross estate includes the value of half of real property owned by a decedent and spouse in joint tenancy with the right of survivorship.

Accepted Answer

In joint tenancy with the right of survivorship, the property passes automatically to the surviving joint tenant(s) upon the death of one tenant. Therefore, the value of the decedent's share in such property is included in the gross estate for estate tax purposes.

Question 4

The debts of the decedent at the time of death are deducted in calculating the taxable estate.

Accepted Answer

Debts of the decedent are deductible expenses in calculating the taxable estate.

Question 5

Proceeds of life insurance paid due to the death of the decedent are included in the decedent's gross estate if the decedent had the right to designate the beneficiary of the policy.

Accepted Answer

The proceeds of a life insurance policy paid due to the death of the decedent will be included in their gross estate if the decedent had the right to designate the beneficiary of the policy. This means that if the decedent had the ability to change the beneficiary or revoke the policy, the proceeds will be subject to estate tax.

Question 6

Including adjusted taxable gifts in the taxable estate causes these gifts to be taxed twice, once under the gift tax and again under the estate tax.

Accepted Answer

Including adjusted taxable gifts in the taxable estate does not result in double taxation because the estate tax calculation includes a credit for any gift tax previously paid on those gifts. This ensures that the value transferred by the decedent, either during life or at death, is taxed only once.

Question 7

The gift-splitting election only applies to gifts made by taxpayers who reside in community-property states.

Accepted Answer

The gift-splitting election applies to married couples, allowing them to treat gifts made by either spouse as though each spouse contributed half of the gift, regardless of the donor's state of residence. This is not limited to community-property states.

Question 8

No deductions are allowed when calculating the taxable estate.

Accepted Answer

Deductions are allowed when calculating the taxable estate, including debts, administration expenses, and charitable contributions, which can reduce the size of the estate subject to taxation.

Question 9

The theft of property included in the gross estate is only deductible in calculating the taxable estate if the loss exceeds 10 percent of the decedent's adjusted gross estate.

Accepted Answer

Theft losses of property included in the gross estate are deductible without regard to the 10 percent limitation. This rule applies specifically to theft losses and does not impose the 10 percent threshold that applies to some other types of deductions.

Question 10

A terminable interest in property is any interest that terminates during the current year.

Accepted Answer

A terminable interest in property is one that ends upon the occurrence of a specified event or after a set period of time, not necessarily within the current year.

Question 11

A gift tax return does not need to be filed unless the taxpayer has made current gifts in excess of the applicable credit.

Accepted Answer

A gift tax return must be filed if the taxpayer has made current gifts in excess of the annual exclusion ($15,000 per person in 2021) or if they have claimed the applicable credit, which is currently $11.7 million for 2021. Therefore, if the taxpayer has made gifts that exceed the annual exclusion or the applicable credit, a gift tax return must be filed.

Question 12

The gross estate will not include the value of clothes and other personal items owned by the decedent at the time of death.

Accepted Answer

The gross estate includes the total value of all assets owned by the decedent at the time of death, including clothes and other personal items.

Question 13

Both spouses must consent to any gift-splitting election.

Accepted Answer

Gift-splitting is an election that allows a married couple to split the gift's value equally between them for tax purposes, regardless of who actually made the gift. Both spouses must agree to this election and consent to it by both signing the appropriate federal gift tax return (Form 709) for the year in which they want to split gifts.

Question 14

The probate estate will include the total value of all real property owned by the decedent at the time of death regardless of whether the decedent co-owned the property as a tenant in common or as a joint tenant with the right of survivorship.

Accepted Answer

In the case of joint tenancy with the right of survivorship, the property automatically passes to the surviving co-owner(s) and does not become part of the decedent's probate estate. However, property owned as tenants in common would be included in the probate estate.

Question 15

A present interest is the right to currently enjoy property or receive income payments from property.

Accepted Answer

A present interest is a legal right to enjoy property or receive income payments from property in the present moment.

Question 16

The probate estate consists of all property owned by the decedent that is excluded from the gross estate.

Accepted Answer

The probate estate consists of all property owned by the decedent that is subject to probate, while the gross estate includes all of the decedent's property, both probate and non-probate.

Question 17

The gross estate always includes the value of half of any real property owned by a decedent and another person in joint tenancy with the right of survivorship.

Accepted Answer

The gross estate includes the entire value of real property owned in joint tenancy with the right of survivorship, not just half, unless it can be proven that the other joint tenant(s) contributed to the purchase.

Question 18

The gross estate may contain property transfers that are not included in the probate estate.

Accepted Answer

The gross estate includes all of the decedent's assets, both probate and non-probate. Non-probate assets typically include assets that pass outside of probate, such as joint property with rights of survivorship, life insurance policies, and retirement accounts with designated beneficiaries.

Question 19

The tax on cumulative taxable gifts is reduced by the applicable credit regardless of whether any applicable credit was used in prior years.

Accepted Answer

The answer of The tax on cumulative taxable gifts is...

Question 20

Proceeds of life insurance paid to the decedent's estate due to the death of the decedent are included in the decedent's gross estate even if the decedent had no ownership rights in the policy at the time of death.

Accepted Answer

This is known as the "incidents of ownership" rule which includes the proceeds of a life insurance policy in the decedent's estate if they possessed any incidents of ownership over the policy at any point in time.

Quiz 14: Transfer Taxes and Wealth Planning