Question 1

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 2

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.

Question 3

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 4

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 5

Identify which of the following statements is true.

Accepted Answer

A) This is true. 
B) This is also true. The gift tax exclusion is only available for gifts of present interests, not future interests. 
C) This is also true. The annual exclusion eliminates the need to report small gifts, which is intended to reduce administrative burden on both the donor and the IRS.

Question 6

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
$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 7

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 8

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 9

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 10

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 11

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 answer of George transfers property to an irrevocable trust...

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

Discuss the statutory exemptions from the gift tax.

Accepted Answer

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

Question 14

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 15

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 16

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 17

Identify which of the following statements is false.

Accepted Answer

A trust for a minor (Sec. 2503(c) trust) does not have to distribute all of its income currently to qualify for the annual exclusion. It must distribute the income for the benefit of the minor, but it can accumulate the income if it meets certain requirements.

Question 18

Identify which of the following statements is true.

Accepted Answer

A gift tax exclusion is only available for a gift of a present interest, not a future interest (statement A is false). The trustee of a Sec. 2503(c) trust must distribute income, but not necessarily corpus, to the beneficiary each year, and can continue the trust beyond the age of 25 (statement B is false). Statement C is true, as a Crummey power allows the donor to make gifts to the trust while still retaining some control over the trust assets. Therefore, the correct answer is C.

Question 19

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 gift to Rick. She funded the irrevocable trust with $100,000 and named Vonda to receive income for life. The gift was made to the trust, not to Rick directly. Vonda's exercise of her general power of appointment is what results in a gift to Rick.

Question 20

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...

Quiz 12: The Gift Tax

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.

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?

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?

Identify which of the following statements is true.

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 $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?

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?

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?

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?

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

Discuss the statutory exemptions from the gift tax.

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?

Identify which of the following statements is false.

Identify which of the following statements is true.

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?

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