Question 1

For both the Federal gift and estate tax, a deduction is allowed for certain transfers to a spouse.

Accepted Answer

This deduction is commonly referred to as the unlimited marital deduction and allows for the transfer of unlimited amounts of property between spouses without incurring gift or estate tax.

Question 2

For Federal estate tax purposes, the gross estate cannot include property the decedent no longer owns.

Accepted Answer

False

Question 3

In the past, the amount of the unified tax credit always has been the same for both transfers by gift and transfers by death.

Accepted Answer

False

Question 4

At one point, the tax rates applicable to transfers by gift were lower than those applying to transfers by death.

Accepted Answer

This was true in the United States until the Tax Reform Act of 1976, which equalized the rates for gift and estate taxes.

Question 5

A lifetime transfer that is supported by full and adequate consideration is not a gift.

Accepted Answer

A transfer supported by full and adequate consideration is considered a transaction rather than a gift.

Question 6

Manuel, a citizen and resident of Argentina, makes a gift to his children of a ranch located in Colorado. Manuel will be subject to the U.S. gift tax.

Accepted Answer

The U.S. gift tax applies to gifts of property located in the United States, regardless of the donor's citizenship or residency status at the time of the gift. Thus, Manuel's gift of the ranch located in Colorado will be subject to the U.S. gift tax.

Question 7

In some cases, the Federal gift tax can be imposed on someone other than the donor.

Accepted Answer

The gift tax can be imposed on the recipient of the gift if the donor fails to pay the tax. This is known as the "gift tax penalty" or "addition to the tax" and is typically equal to 10% of the gift tax owed. However, this penalty only applies in certain circumstances and is not always imposed.

Question 8

Daniel's will provides that all of his property passes to a trust, life estate to his wife, remainder to charity. If Daniel's executor does not make a QTIP election, the use of the marital deduction date is not possible.

Accepted Answer

A Qualified Terminable Interest Property (QTIP) election allows a marital deduction for property passing to a trust with a life estate for the spouse. Without the election, the marital deduction is not available.

Question 9

For Federal estate and gift tax purposes, the exemption equivalent is the same thing as the exclusion amount.

Accepted Answer

The terms "exemption equivalent" and "exclusion amount" are two different ways of referring to the same amount of money that can be transferred as gifts or inheritance without being subject to federal estate or gift taxes. As of 2021, the exemption equivalent/exclusion amount is $11.7 million per individual.

Question 10

Paul, a U.S. citizen, will avoid the Federal estate tax if he becomes a Canadian resident and owns no property located in the U.S. at the time of his death.

Accepted Answer

Even if Paul becomes a Canadian resident and owns no property located in the U.S. at the time of his death, as a U.S. citizen, his worldwide assets will still be subject to U.S. estate tax.

Question 11

A majority of states currently do not impose any tax on transfers by death.

Accepted Answer

As of 2020, 38 out of 50 states in the United States do not impose any state-level tax on transfers by death. However, certain limitations and exemptions may apply, and there is still a federal estate tax that applies to large estates.

Question 12

Some states impose inheritance taxes, but the Federal tax system does not.

Accepted Answer

Some states, such as Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania, impose inheritance taxes, but the Federal tax system does not have an inheritance tax. However, there is a federal estate tax that applies in certain situations.

Question 13

An estate tax is a tax on the right of an heir to receive property on the death of the owner.

Accepted Answer

The answer of An estate tax is a tax on...

Question 14

Kim, a resident and citizen of Korea, dies during an operation at the Mayo Clinic in Rochester (MN). Because Kim died in the U.S., he will be subject to the Federal estate tax.

Accepted Answer

The answer of Kim, a resident and citizen of Korea,...

Question 15

One of the reasons the estate tax was enacted was to prevent the avoidance of the gift tax by the making of "deathbed gifts."

Accepted Answer

The answer of One of the reasons the estate tax...

Question 16

If the value of the gross estate is lower on the alternate valuation date than on the date of death, the date of death valuation cannot be used.

Accepted Answer

The executor of an estate has the option to use the alternate valuation date if it results in a lower estate tax, but they are not prohibited from using the date of death valuation even if the value of the gross estate is lower on the alternate valuation date.

Question 17

Sometimes also known as transaction taxes, Federal gift and estate taxes are excise taxes.

Accepted Answer

Federal gift and estate taxes are considered excise taxes because they are levied on the transfer of property rather than on income or goods and services.

Question 18

For Federal estate tax purposes, the gross estate does not include property that will pass to a surviving spouse.

Accepted Answer

For Federal estate tax purposes, the gross estate includes all property the decedent owned at the time of death, including property that will pass to a surviving spouse. However, there is an unlimited marital deduction that can apply to property passing to the surviving spouse, effectively reducing the estate tax on that property to zero.

Question 19

Under the alternate valuation date election, each asset in the gross estate is valued at the lesser of the date of death value or six months thereafter.

Accepted Answer

Under the alternate valuation date election, each asset in the gross estate is valued either at its date of death value or its value six months after the date of death, not necessarily the lesser of the two. The entire estate is revalued at the later date, and the election is made to potentially reduce estate taxes if the value of the assets has decreased.

Question 20

Becky made taxable gifts in 2013, 2014, and 2015. In computing the gift tax on the 2015 gift, she must consider all of the prior taxable gifts.

Accepted Answer

The cumulative amount of prior taxable gifts within three years of the current gift must be considered when computing gift tax.

Quiz 18: The Federal Gift and Estate Taxes