Deck 13: The Estate Tax

Question 1

Appraisal methods used to value real estate for estate tax purposes may include

A)comparable sales.
B)reproduction cost.
C)capitalization of earnings.
D)all of the above

Answer 1

D

Question 2

Listed stocks are valued at their closing price on the date of death.

Answer 2

False

Question 3

Identify which of the following statements is true.

A)The tax base for the federal estate tax is the total of the decedent's taxable estate and post-1976 taxable gifts.
B)Property included in a decedent's gross estate consists of only that property to which the decedent held title.
C)Funeral expenses are not deductible from the gross estate.
D)All of the above are false.

Answer 3

A

Question 4

In 2002,Gert made a $5,000,000 taxable gift.The 2002 gift tax on $5,000,000 was $2,275.800.Gert was entitled to a unified credit of $345,800,resulting in a gift tax of $1,193,000.The marginal tax rate in 2002 is 50%.Assume Gert dies in 2013 when the credit is $2,045.800 and the marginal rate is 40%,the tax on $5,000,000 would equal $1,945,800 before subtracting any credit.In arriving at Gert's estate tax liability,what is the amount subtracted for 1992 gift taxes paid?

Question 5

Brent,who died on January 10,owned 10 shares of Potts Corporation stock.The closest trading dates to January 10 are January 8 (two working days before the date of death)and January 11 (one working day after the date of death).On January 8,the stock traded at a high of 101 and a low of 97,while on January 11,the high was 90 and the low was 86.The date-of-death per-share value is

A)$99.00.
B)$95.33.
C)$93.50.
D)$91.67.

Question 6

Outline and briefly describe the estate tax computation,beginning with the gross estate.

Question 7

Identify which of the following statements is true.

A)The unified credit is the only credit common to both the gift and estate tax computation.
B)For estate tax purposes,publicly traded stocks are valued at their closing price on the date of death.
C)Stocks traded on a stock exchange are valued at the closing price for the date of death unless the alternate valuation date is elected.
D)All of the above are false.

Question 8

Identify which of the following statements is false.

A)The "blockage" regulations allow the IRS to prevent the estate's executor from electing the alternate valuation date.
B)If the alternate valuation date is elected,changes in value that occur solely because of a "mere lapse of time" usually are to be ignored.
C)The alternate valuation date can be elected for estate tax purposes only if the election decreases the value of the gross estate and estate tax liability (after reduction for credits).
D)If property is sold within 6 months of the date of death,the alternative valuation date is the date of sale.

Question 9

For 2014,the unified credit is equivalent to a statutory exemption of

A)$1,000,000.
B)$1,500,000.
C)$780,800.
D)$5,340,000.

Question 10

Which of the following is deductible in arriving at the amount of the taxable estate?

A)expenses incurred in administering the estate
B)casualty losses that occurred while administering the estate
C)charitable contributions
D)All of the above are deductible.

Question 11

The tax base for the federal estate tax is the total of the decedent's taxable estate and post-1986 taxable gifts if the decedent made gifts in 1981.

Question 12

In 2014,the unified credit enables an estate valued at $5.34 million or less to not be subject to the estate tax.

Question 13

An executor can value each asset in an estate at the lower of its FMV at death or the alternate valuation date.

Question 14

The estate tax is a wealth transfer tax.

Question 15

The value of stock that is not publicly traded may be determined by considering

A)the nature and history of the business.
B)earning capacity.
C)dividend-paying capacity.
D)all of the above

Question 16

The alternate valuation date is generally

A)3 months after the date of death.
B)6 months after the date of death.
C)9 months after the date of death.
D)12 months after the date of death.

Question 17

The FMV of an asset for gift or estate tax purposes is the same except for

A)marketable securities.
B)land.
C)life insurance policies.
D)patents.

Question 18

In 2001,Clara made taxable gifts of $2 million.This year,Clara dies with a taxable estate of $4 million.At the time of her death,the FMV of the property Clara gifted in 2001 is $8 million.What is the amount of the estate tax base?

Question 19

Reversionary interests in publicly traded stocks included in a gross estate must be valued

A)by an independent actuary.
B)by an appraiser.
C)by considering the fact that the transferor has died.
D)using actuarial tables.

Question 20

Martin transfers stock to an irrevocable trust and names himself to receive the trust income for life with the remainder interest gifted to his son.When Martin dies,

A)none of the stock will be included in Martin's estate.
B)the stock's value at the time of transfer to the trust will be included in Martin's estate.
C)the value of the stock less the present value of the income receivable by Martin will be included in Martin's estate.
D)the value of the stock at death will be included in Martin's estate.

Question 21

Denise died April 1 and owned several bonds that paid interest March 31 and September 30.Also,she owned stock that paid dividends quarterly on March 31,June 30,September 30,and December 31.Denise's estate received the interest and dividends on the payment dates.What should be included in Denise's gross estate?

A)all interest and dividends received in the year of death
B)only interest and dividends received prior to the date of death
C)only interest and dividends received after the date of death
D)none of the interest and dividends received

Question 22

Ray died on March 4.His estate includes some stock and a parcel of land.The stock is still owned by the estate on September 4,but the land is sold on August 30.If Ray's executor elects the alternate valuation date,what values would be used for estate tax purposes for the stock and the land?

Question 23

In 2000,Mike transfers $100,000 of leased land to a trust.The trust income is payable to Mike's son for 13 years,after which time the land is to revert to Mike.This year,Mike dies when the land is valued at $210,000.The applicable federal rate is 10%,and the reversionary actuarial factor is 0.30.How much of the trust value must be included in Mike's estate?

Question 24

In 2012,Paul transfers $1,000,000 to a trust benefiting his three children.As trustee,he has the power to determine the amount of distributions each year.Paul dies in the current year when the trust has a value of $1,200,000.How much of the trust's value is included in Paul's estate?

A)$0
B)$400,000
C)$1,000,000
D)$1,200,000

Question 25

On March 1,Bart transfers ownership of a $700,000 life insurance policy on his life that he purchased in 2011.How long must Bart live to avoid inclusion of the $700,000 death benefit in his estate?

A)six months
B)one year
C)three years
D)No minimum time period exists.

Question 26

Identify which of the following statements is true.

A)A courtesy interest is a widower's interest in his deceased wife's property.
B)All gifts made within three years of the date of death must be included in the gross estate.
C)Dower rights are not the same as courtesy rights.
D)All of the above are false.

Question 27

Identify which of the following statements is true.

A)Reversionary interests of less than 5% are includible in the gross estate.
B)A reversionary interest means a chance exists that the property may pass back to the transferor under the terms of the transfer.
C)If a reversionary interest exceeds 3% of the property's value,the amount that is included in the estate is not the value of the reversionary interest,but rather the date-of-death value of the gifted property less the value of intervening life estates.
D)All of the above are false.

Question 28

In February of the current year,Tom dies.Two years and nine months before the date of death,Tom made a gift of stock valued at $2 million.Gift taxes paid on the transfer by Tom were $435,000 after reduction for a $345,800 unified credit ($780,800 - $345,800).At the time of his death,the gifted stock was valued at $2.3 million.The amount included in Tom's gross estate from this transfer is

A)$2,000,000.
B)$2,300,000.
C)$435,000.
D)none of the above

Question 29

Four years ago,Roper transferred to his son ownership of a $100,000 life insurance policy that Roper purchased on his own life in 2000.The cash value of the policy on the transfer date was $25,000.Roper died on March 1st of this year.The amount included in Roper's gross estate due to the life insurance policy is

A)$0.
B)$25,000.
C)$35,000.
D)$100,000.

Question 30

Identify which of the following statements is true.

A)The alternate valuation date can be used for estate tax purposes only if the election increases the value of the gross estate.
B)If the alternative valuation date is elected,changes in value that occur solely because of "mere lapse of time" usually are to be ignored.
C)The gross estate,a federal law concept,is generally smaller than the probate estate,a state law concept.
D)All of the above are false.

Question 31

Taxpayers can avoid the estate tax by making gifts at least a year prior to death.

Question 32

Explain how shares of stock traded on a stock exchange are valued.What is the blockage rule?

Question 33

Identify which of the following statements is true.

A)The gross-up rule applies to the gift tax triggered by a gift during a three-year look-forward period.
B)All gift taxes paid by the decedent on gifts made within five years of the date of death must be included in the gross estate.
C)If a transferor retains voting rights in stock of a controlled corporation for the transferor's lifetime,the stock is included in the transferor's gross estate.
D)All of the above are false.

Question 34

The alternate valuation date can be elected for estate tax purposes only if the election

A)increases the value of the gross estate.
B)decreases the value of the gross estate.
C)decreases the estate tax liability (after reduction for tax credits).
D)Both B and C are required.

Question 35

A special power of appointment exists if the holder can exercise the power in favor of himself or herself,his or her creditors,or the creditors of his or her estate.

Question 36

Wally died on November 15.His gross estate includes 100 shares of ABC Corporation stock.On November 15,ABC's stock trades at a high of $100,a low of $92,and a close of $94.What is the per-share value of the stock in Wally's estate?

Question 37

The gross-up rule requires

A)all beneficial interests be included in the decedent's estate.
B)post-1976 gifts by the decedent be included in the decedent's estate.
C)certain gifts made by the decedent within three years of the date of death are included in the decedent's gross estate.
D)gift taxes on gifts made by the decedent or the decedent's spouse that are paid by the decedent or his estate during the three-year period ending with the decedent's date of death must be included in the decedent's gross estate.

Question 38

Julian died on November 1 and owned 100 shares of a New York Stock Exchange stock.The stock traded at a high of 100 and a low of 98 on November 1.It opened at 98 and closed at 100.On Julian's estate tax return,what will the per-share and total value of the stock be?

Question 39

On March 1,Sue transfers stock worth $20,000 to Frank.How long must Sue live to avoid inclusion of the $20,000 of stock in her gross estate?

A)six months
B)one year
C)three years
D)No minimum time period exists,but she must be alive at transfer of ownership.

Question 40

The probate estate includes property that passes by will or an intestacy statute and does not include property that passes due to a beneficiary designation.

Question 41

Dan transfers an apartment building to Grace but retains the right to the rental income for 10 years.Dan dies nine years after the transfer when the building is worth $600,000.The applicable federal rate is 10% and the reversionary actuarial factor is 0.30.How much would be included in Dan's estate?

A)$0
B)$150,000
C)$350,000
D)$600,000

Question 42

In 2006,Roger gives stock valued at $100,000 to Martha.Roger and Martha are not related.In 2008,Martha uses the stock then valued at $110,000 as partial consideration to acquire realty costing $220,000.Pat (her brother)furnishes the remaining $110,000 of consideration.The realty is titled in the names of Martha and Pat as joint tenants with right of survivorship.This year,Martha dies and Pat survives.The realty is valued at $300,000 at Martha's death.How much,if any,of the realty's value will be included in Martha's estate?

A)$0
B)$110,000
C)$150,000
D)$300,000

Question 43

Identify which of the following statements is true.

A)If spouses are the only joint owners,only one-half of the value of the jointly owned property is included in the gross estate,regardless of the relative amount of consideration provided by either spouse.
B)Special powers of appointment give the power holder less restricted powers than a general power of appointment.
C)The gross estate does not include the value of life insurance policies on the decedent if the proceeds are receivable by the executor or for the benefit of the estate.
D)All of the above are false.

Question 44

Proceeds of a life insurance policy payable to the estate's executor,as the estate's representative,are

A)includible in the decedent's gross estate only if the premiums had been paid by the insured.
B)includible in the decedent's gross estate only if the policy was taken out within three years of the insured's death.
C)never includible in the decedent's gross estate.
D)always includible in the decedent's gross estate.

Question 45

Two years ago,Nils transfers a $200,000 life insurance policy on his life to his daughter,Gail.The policy is worth $60,000 at the time of transfer and Gail pays Nils $50,000.When Nils dies this year,the $50,000 cash is still in a savings account.The consideration offset when computing Nils's gross estate is

A)$0.
B)$50,000.
C)$150,000.
D)$166,667.

Question 46

Donna died on June 1 of the current year.The executor considers the following information when preparing her estate tax return:
• In 1997,Donna transfers title to her personal residence to her son.The residence is worth $60,000 on the transfer date.Donna continued to live alone in the residence until her death.She did not pay any rent.At her death,the residence is worth $100,000.
• In 1998,Donna created an irrevocable trust and funded it with $300,000 of assets.Donna names a bank as trustee.According to the trust agreement,all the trust income is to be paid out annually for 25 years.The trustee,however,is to decide how much income to pay each year to Donna's son and daughter.Upon termination of the trust,the assets are to be distributed equally among her two children or their estates.The trust's assets are worth $320,000 when Donna dies.
• In 1998,Donna created a revocable trust with a bank named as trustee.She named her grandchild Joe as the beneficiary for life.Upon Joe's death,the property is to be distributed equally among Joe's descendants.The trust assets are worth $300,000 when Donna dies.How much would be included in Donna's gross estate?

Question 47

Identify which of the following statements is false.

A)Annuities not related to employment are valued in the gross estate at the cost of a comparable contract multiplied by a fraction that represents the portion of the purchase price that the decedent has contributed.
B)If an annuity ceases payments with the death of the decedent and nothing is to be received by any other party,the annuity is included in the gross estate.
C)When persons other than spouses own property jointly,the amount included in the joint owner's gross estate is measured in accordance with the consideration the decedent furnished to purchase the property.
D)Statements A and C are true.

Question 48

In 1997,Barry and Fred provide $20,000 and $60,000 of consideration,respectively,to purchase a beach house titled in both their names as joint tenants with right of survivorship.Barry dies in the current year and is survived by Fred.The beach house is valued at $100,000.What amount must be included in Barry's gross estate for the beach house?

Question 49

Following are the fair market values of Wilma's assets at her date of death: $\begin{array} {| l|l| }\hline \text {Personal effects and jewelry }&\$1501,000\\\hline \text {Land which Wilma bought and held as a joint }&\\\text { tenant with right of survivorship with her sister}&800,000\\\hline\end{array}$
The executor of Wilma's estate did not elect the alternate valuation date.The amount includible in Wilma's gross estate is

A)$150,000.
B)$550,000.
C)$800,000.
D)$950,000.

Question 50

Yoyo Corporation maintains a retirement plan for its employees to which it makes 70% of the contributions and the employees make 30%.Gary dies this year and is employed at the time of his death.Gary's spouse will receive an annuity valued at $600,000 from the retirement plan.How much of the annuity will be included in Gary's gross estate?

A)$600,000
B)$420,000
C)$180,000
D)$0

Question 51

Identify which of the following statements is false.

A)Life insurance can help provide liquidity for paying estate taxes.
B)Life insurance has the potential for large appreciation.
C)The insured does not have to be the owner of the policy.
D)Life insurance is always part of the estate of the insured.

Question 52

Mary creates and funds a revocable trust.Mary names her son to receive the income for life and her grandson to receive the property upon the son's death.What are Mary's powers with respect to the trust,and how will the trust be treated in her estate?

Question 53

Melissa transferred $650,000 in trust in 2006: income for life to herself,the remainder to her son.What part,if any,of the value of the trust's assets will be included in Melissa's estate?

Question 54

In 2001,Polly and Fred,brother and sister,purchased a condominium at a golf resort.Polly contributed 60% of the $200,000 cost;Fred contributed 40%.Polly dies in the current year when the condominium has a $300,000 value.How much is included in Polly's estate?

A)$120,000
B)$180,000
C)$200,000
D)$300,000

Question 55

Betty dies on February 20,2013.Her estate consisted of the following assets,all valued as of her date of death: Stock with a basis of $\$ 40,000$ and a fair market value of $\$ 200,000$
Home valued at $\$ 1,500,000$ and a basis of $\$ 490,000$
Cash of $\$ 70,000$
Life insurance on Betty's life owned by her daughter with a $\$ 500,00$ face value What is Betty's gross estate?

A)$600,000
B)$1,100,000
C)$1,770,000
D)$2,270,000

Question 56

In 2001,Alejandro buys an annuity for $100,000 that will pay Alejandro an annual amount for life with survivor benefits to his wife.When Alejandro dies in the current year,a comparable contract would have cost $81,000.What amount is included in Alejandro's gross estate?

A)$0
B)$81,000
C)$100,000
D)$181,000

Question 57

Ernie died this year.His will creates a $2,000,000 QTIP trust for his widow.Ernie's executor elects to claim the marital deduction for the QTIP transfer.At the time of the surviving spouse's death,the value of the QTIP trust is $3.6 million.The amount of the QTIP trust included in the surviving spouse's gross estate is

A)$3,600,000.
B)$2,000,000.
C)$1,800,000.
D)$0.

Question 58

Four years ago,David gave land to Mike that he purchased for $70,000,which is presently worth $100,000.Three years ago,Mike exchanged the land (then worth $150,000)along with a $100,000 cash contribution made by David for a new piece of land worth $250,000.The new land is titled with David and Mike as joint tenants with the right of survivorship.When Mike dies this year,the land is worth $300,000.Mike's estate will include

A)$0.
B)$150,000.
C)$180,000.
D)$300,000.

Question 59

Which of the following circumstances would cause the gifted property to be included in the donor's gross estate? I.Donor retains a life estate in the gift property.
II. Donor retains the power to revoke or amend the gift.
III. Doncr gives more than $\$ 14,000$ to one donee in cone year
IV. Donor dies within three years of gifting band.

A)I,II and III
B)I,II
C)II,IV
D)III,IV

Question 60

Five years ago,George and Jerry (his brother)provide $40,000 and $60,000,respectively,to purchase realty titled in the names of George and Jerry as joint tenants with right of survivorship.George dies in the current year and is survived by Jerry.At the time of George's death,the realty is valued at $300,000.What is the value of the realty in George's gross estate?

Question 61

Identify which of the following statements is true.

A)Administrative expenses are not deductible on the estate's income tax return.
B)Casualty or theft losses incurred during the administration of the estate are not deductible on the estate tax return.
C)There is a limitation of $100,000 on the charitable contribution deduction for estate tax purposes.
D)All of the above are false.

Question 62

Administrative expenses are not deductible on the estate's income tax return.

Question 63

Explain why living trusts are popular tax-planning vehicles.

Question 64

Identify which of the following statements is false.

A)To qualify for the marital deduction,property must be includible in the decedent's gross estate.
B)Property is not eligible for the marital deduction if it passes to the spouse under the individual's dower rights.
C)A terminable interest is one that ceases upon the passage of time or the occurrence of some event.
D)Some,but not all,terminal interests qualify for the marital deduction.

Question 65

Ted died on May 3.At the time of his death,he owned a beach house valued at $250,000.On June 10,the beach house was completely destroyed by a hurricane and there was no insurance coverage.If the executor elects to use the alternate valuation date,the executor will

A)include the beach house in the gross estate at $250,000.
B)take a casualty loss of $250,000 on the estate tax return.
C)take a casualty loss of $250,000 on the estate's income tax return.
D)include the beach house in the gross estate at $0.

Question 66

Karen died on May 5 of the current year.Her executor elects date-of-death valuation.Karen's gross estate possibly includes the following items:
• Joint checking account (with her husband),which has a balance of $10,000.Her husband did not contribute to the account.
• Joint savings account (with her daughter),which has a balance of $50,000.Her daughter did not contribute to the account.
• Life insurance policy on the life of Karen,having a face value of $400,000.The cost of a comparable policy immediately before Karen's death is $150,000.Karen's estate is the beneficiary.
• Life insurance policy on the life of Karen's daughter,having a face value of $100,000 with an interpolated terminal reserve immediately before Karen's death of $30,000.
Unexpired premiums are $5,000.Karen is the beneficiary.How much,if any,of these items are included in Karen's estate?

Question 67

List the various categories of estate tax deductions,and compare them with the categories of gift tax deductions.What differences exist?

Question 68

The following items were discovered in reviewing materials for John's estate tax return:
(1)Two years ago,John sold stock to his son,Patrick,for $30,000.At the date of sale,the stock had a value of $65,000.The value of the stocks at John's death was $90,000.
(2)John owned a beach house,worth $500,000,with his sister,Amber,who paid for it.
(3)John's home was held in a tenancy by the entirety with his wife,Julia.Julia paid for the house,which had a value of $300,000 on the date of his death.
(4)John's clothing and other personal belongings are worth $3,700 on the date of his death.
What amount is included in John's estate?

Question 69

When computing the federal estate tax liability in 2014,the maximum amount for a taxable estate (not tentative tax)that the unified credit for the current year will eliminate all of the tax is

A)$555,800.
B)$780,800.
C)$5,340,000.
D)$2,000,000.

Question 70

Which of the following credits is available for estate tax purposes?

A)investment tax credit
B)credit for income taxes paid on decedent's final return
C)credit for estate taxes paid on certain prior transfers
D)All of the above are available.

Question 71

Which of the following is not a test for an interest to qualify for the marital deduction?

A)The property must be included in the decedent's gross estate.
B)If a QTIP transfer is made,the spouse must be entitled to all of the income at least annually for life.
C)The interest conveyed must not be a nondeductible terminable interest.
D)All of the above are required.

Question 72

A terminable interest is one that ceases upon the passage of time or the occurrence of some event.

Question 73

Michael Moriarty,a widower,is quite elderly and is beginning to do some estate planning.His goal is to reduce his transfer taxes.He is considering purchasing land with a high potential for appreciation and owning it with his grandson as joint tenants with rights of survivorship.Michael would provide all of the consideration,estimated to be about 11.5 million.What tax issues should Michael Moriarty consider with respect to the purchase of the land?

Question 74

Identify which of the following statements is true.

A)Regardless of how large the gross estate is,the estate tax liability can be completely eliminated if the estate is willed to a charitable organization.
B)There is a ceiling on the marital deduction.
C)All transfers to the surviving spouse are eligible for the marital deduction.
D)All of the above are false.

Question 75

Mr.Howell died this year.He willed a copyright with a 10-year remaining life to Mrs.Howell.His will also sets up a trust for the benefit of Mrs.Howell whom he entitles to receive all of the income semiannually until the earlier of her remarriage or her death.Upon her remarriage or death,the trust property is to be distributed to their children.Do the copyright and trust transfers qualify for the marital deduction? Explain.

Question 76

Identify which of the following statements is true.

A)If a marital deduction is elected on a QTIP trust transfer,property remaining in the QTIP trust is not included in the estate of the surviving spouse.
B)The credit for state death taxes has been replaced with a deduction for state estate taxes.
C)The unified credit is the only credit allowed against the estate tax.
D)All of the above are false.

Question 77

Discuss the transferor provisions relating to the estate tax,and provide three examples of transactions governed by the transferor provisions.

Question 78

At Mark's death,Mark owed a debt of $40,000 plus $2,000 of accrued interest.Mark's funeral expenses were $5,000,and Mark's charge card had a balance due of $400.The expected administration costs for the estate are $2,000.Assume the estate will owe no income taxes in the next few years and that the taxable estate is expected to be in excess of $1 million.What amount should the estate deduct?

Question 79

Which of the following is not a credit for purposes of computing the federal estate tax liability?

A)credit for gift tax paid on pre-1977 gifts
B)credit for estate taxes paid on certain prior transfers
C)a credit for foreign death taxes
D)All of the above are credits for the federal estate tax.

Question 80

Identify which of the following statements is true.

A)The credit for taxes paid on prior transfers does not reduce the impact of property being taxed in more than one estate in quick succession.
B)The deduction for state death taxes is not limited.
C)An estate is not entitled to a credit for foreign death taxes paid on property located in a foreign country and included in the gross estate.
D)All of the above are false.