Question 1

Which of the following is a true statement about the federal gift tax return (Form 709)?

Accepted Answer

Form 709 must be filed if a taxpayer wishes to elect gift-splitting, allowing a married couple to split the gift's value as if each contributed half, potentially reducing the gift tax liability.

Question 2

The estate and gift taxes share several common features.Which of the following characteristics is common to both the estate and gift taxes?

Accepted Answer

Both the estate and gift taxes have an applicable credit (also known as a unified credit) which can be used to offset the tax liability, and a marital deduction which allows for unlimited tax-free transfers between spouses.

Question 3

When creating an estate tax planning strategy,the income tax benefit derived from a step-up in tax basis on assets should be measured against the estate tax cost of including the assets in the decedent's gross estate.

Accepted Answer

This statement is true. When planning for estate tax, it is important to consider both the benefit of a step-up in tax basis on assets as well as the potential estate tax cost of including those assets in the decedent's gross estate.

Question 4

Life insurance is an asset that can be used to fund a trust to support a surviving spouse and yet may not be included in the decedent's gross estate.

Accepted Answer

Life insurance proceeds are generally not included in the decedent's gross estate for tax purposes, which means they can be used to fund a trust to provide for a surviving spouse without adding to the estate tax burden.

Question 5

A bypass provision in a will requires a decedent to have a taxable estate in order to use an applicable credit to reduce total estate taxes on a married couple.

Accepted Answer

A bypass provision, also known as a credit shelter trust or bypass trust, is often included in a married couple's estate plan to take advantage of both spouses' estate tax exemptions. However, in order to use the applicable credit to reduce estate taxes, the decedent must have a taxable estate. This means that their assets must exceed the current estate tax exemption amount.

Question 6

A trust is a legal entity whose purpose is to hold and administer property for the benefit of beneficiaries.

Accepted Answer

A trust is a legal structure that is created to hold property on behalf of beneficiaries. The trustee is responsible for managing the trust and ensuring that the property is used for the benefit of those specified in the trust document. Trusts can be established for various purposes, including estate planning, tax planning, and charitable giving, among others. Trusts are governed by state law and can be either revocable or irrevocable.

Question 7

The testamentary transfer of property to a qualified charity is deductible in calculating the taxable estate without any ceiling limitation.

Accepted Answer

The testamentary transfer of property to a qualified charity is fully deductible in calculating the taxable estate without any limitation.

Question 8

A gratuitous transfer of property made during the lifetime of the donor is called:

Accepted Answer

An inter vivos transfer is a gratuitous transfer of property made during the lifetime of the donor. Option A, incomplete gift, refers to a gift that is not yet complete and requires further action to transfer ownership. Option B, testamentary transfer, refers to gifts made through a will after the donor's death. Option C, taxable gift, refers to a gift that exceeds the annual exclusion limit and may be subject to gift tax. Thus, the best answer is D.

Question 9

Which of the following statements is (are)true for both gratuitous and testamentary transfers?

Accepted Answer

Both gratuitous and testamentary transfers allow for a charitable and a marital deduction in computing the taxable transfer. The other options apply only to gratuitous transfers.

Question 10

Which of the following transactions would not utilize the "Section 7520 rate" to calculate the value of the transfer?

Accepted Answer

A transfer to a spouse is not subject to gift tax and therefore does not require the use of the Section 7520 rate. The other choices involve transfers that are subject to gift tax and would require the use of the Section 7520 rate to calculate the value of the transfer.

Question 11

Adjusted taxable gifts are included when calculating the taxable estate but are not subject to double taxation because a tax credit is provided for taxes payable on adjusted taxable gifts.

Accepted Answer

Adjusted taxable gifts are included in the calculation of the taxable estate but are not subject to double taxation because a tax credit is provided for the taxes payable on those gifts. This helps ensure that gifts made during a person's lifetime are not taxed twice - once when the gift is given and again when the person passes away.

Question 12

The calculation of the value of a life estate in a trust generally does not depend upon which of the following factors?

Accepted Answer

The value of a life estate in a trust is generally calculated based on the age of the life tenant and the Section 7520 interest rate at the time of the transfer, as well as the value of the property at that time. The manner in which the trust corpus is invested would not typically affect the calculation of the value of the life estate. Therefore, option D is the correct answer.

Question 13

The estate and gift taxes share several common features.Which of the following characteristics is common to both the estate and gift taxes?

Accepted Answer

The answer of The estate and gift taxes share several...

Question 14

Which of the following statements is (are)true?

Accepted Answer

The same transfer tax rate schedule is used to calculate both the estate tax and the gift tax.

Question 15

The applicable credit is designed to:

Accepted Answer

The applicable credit is primarily designed to prevent the taxation of cumulative transfers that do not exceed a certain minimum amount, ensuring that smaller estates or transfers can be passed on without being subject to tax, up to a specified threshold.

Question 16

A trust is a legal entity that can only exist for a year.

Accepted Answer

A trust does not have a limited lifespan and can continue to exist for many years or even indefinitely.

Question 17

A serial gift strategy uses multiple gifts to maximize the value of the annual exclusion.

Accepted Answer

A serial gift strategy involves using multiple gifts to take advantage of the annual exclusion limit. By giving gifts that are within the annual exclusion limit, each gift is tax-free and does not count towards the lifetime gift tax exemption. This strategy can maximize the value of the annual exclusion and can be beneficial for both the giver and the recipient.

Question 18

Which of the following transfers is a complete gift?

Accepted Answer

The answer of Which of the following transfers is a...

Question 19

A serial gift strategy consists of arranging a trust to maximize the value of the applicable credit.

Accepted Answer

The answer of A serial gift strategy consists of arranging...

Question 20

Property inherited from a decedent has an adjusted basis equal to the value of the property included in the decedent's estate.

Accepted Answer

This is true according to the step-up in basis rule, which provides that the property's basis is adjusted to the fair market value at the date of the decedent's death or alternate valuation date.

Quiz 25: Transfer Taxes and Wealth Planning

Which of the following is a true statement about the federal gift tax return (Form 709) ?

The estate and gift taxes share several common features.Which of the following characteristics is common to both the estate and gift taxes?

When creating an estate tax planning strategy,the income tax benefit derived from a step-up in tax basis on assets should be measured against the estate tax cost of including the assets in the decedent's gross estate.

Life insurance is an asset that can be used to fund a trust to support a surviving spouse and yet may not be included in the decedent's gross estate.

A bypass provision in a will requires a decedent to have a taxable estate in order to use an applicable credit to reduce total estate taxes on a married couple.

A trust is a legal entity whose purpose is to hold and administer property for the benefit of beneficiaries.

The testamentary transfer of property to a qualified charity is deductible in calculating the taxable estate without any ceiling limitation.

A gratuitous transfer of property made during the lifetime of the donor is called:

Which of the following statements is (are) true for both gratuitous and testamentary transfers?

Which of the following transactions would not utilize the "Section 7520 rate" to calculate the value of the transfer?

Adjusted taxable gifts are included when calculating the taxable estate but are not subject to double taxation because a tax credit is provided for taxes payable on adjusted taxable gifts.

The calculation of the value of a life estate in a trust generally does not depend upon which of the following factors?

The estate and gift taxes share several common features.Which of the following characteristics is common to both the estate and gift taxes?

Which of the following statements is (are) true?

The applicable credit is designed to:

A trust is a legal entity that can only exist for a year.

A serial gift strategy uses multiple gifts to maximize the value of the annual exclusion.

Which of the following transfers is a complete gift?

A serial gift strategy consists of arranging a trust to maximize the value of the applicable credit.

Property inherited from a decedent has an adjusted basis equal to the value of the property included in the decedent's estate.