Question 1

Which of the following transfers is a completed gift?

Accepted Answer

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

Question 2

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

Accepted Answer

A fiduciary is not a legal entity, but rather a person or institution that holds a position of trust and is legally obligated to act in the best interest of another party. Fiduciaries can exist indefinitely as long as their duties and obligations to their beneficiaries continue.

Question 3

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

Accepted Answer

An intervivos transfer is a gift made during the lifetime of the donor. It is also known as a gift inter vivos or a living gift.

Question 4

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

Accepted Answer

A charitable and a marital deduction are allowed in computing the taxable transfer for both gratuitous and testamentary transfers.

Question 5

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 6

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 manner in which the trust corpus is invested does not affect the calculation of the value of a life estate in a trust. The other factors listed (the age of the life tenant, the value of the property at the time of the transfer, and the Section 7520 interest rate) can all affect the calculation of the value of a life estate in a trust.

Question 7

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 or estate tax and therefore would not utilize the Section 7520 rate to calculate the value of the transfer. The other options involve transfers subject to gift or estate tax and would require the use of the Section 7520 rate.

Question 8

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

Accepted Answer

A serial gift strategy involves giving multiple gifts to the same person over a period of time to maximize the annual exclusion limit for gift tax purposes. By giving gifts under the annual exclusion limit each year, the giver can gradually transfer a significant amount of wealth to the recipient without triggering gift tax.

Question 9

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 is often used in a will to allow a decedent to take advantage of the applicable credit for reducing estate taxes. However, to use the credit, the decedent's estate must be taxable. This provision is commonly included in wills for married couples where the first spouse's estate is below the taxable threshold, but the second spouse's estate is expected to be above the threshold.

Question 10

The applicable credit is designed to:

Accepted Answer

The applicable credit, also known as the unified credit, is designed to prevent taxation of cumulative transfers that do not exceed a certain minimum amount. This minimum amount is known as the exemption equivalent and is currently set at $11.7 million for 2021. This means that individuals can transfer up to $11.7 million in cumulative transfers throughout their lifetime without being subject to federal estate and gift taxes. The applicable credit applies to taxable transfers included in the gross estate but is used to offset taxes owed on both lifetime gifts and transfers at death. Therefore, choice A and C are incorrect. Choice D is partially correct but does not provide the full explanation of how the applicable credit works. Choice E is incorrect because B is a correct answer.

Question 11

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 policies are often owned by revocable trusts which means that the proceeds of the policy are paid directly to the trust and not to the decedent’s estate. Therefore, it is not included in the decedent's gross estate.

Question 12

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 entity created to hold and manage assets for the benefit of its beneficiaries. Trustees are responsible for managing the trust and distributing its assets according to the terms of the trust agreement.

Question 13

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

Accepted Answer

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

Question 14

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 known as the step-up in basis rule, which states that the basis of property inherited from a decedent is adjusted to its fair market value at the date of the decedent's death.

Question 15

When creating an estate tax planning strategy, the income tax benefit derived from astep-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 16

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 estate and gift taxes use a unified tax rate schedule to calculate the gross transfer taxes.

Question 17

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 indeed included in the calculation of the taxable estate, but they are not subject to double taxation due to the tax credit provided for taxes payable on such gifts.

Question 18

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, with no limit on the amount of the deduction. This applies to transfers made by will, trust, or other estate planning documents.

Question 19

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. This allows a married couple to split a gift's value as if each contributed half, which can result in significant savings for the couple. Options A, B, and C are all incorrect statements about Form 709.

Question 20

Which of the following statements is (are) true?

Accepted Answer

The same transfer tax rate schedule is used for both the estate tax and the gift tax, making statement A true. The other statements are not accurate descriptions of how transfer taxes work.

Quiz 25: Transfer Taxes and Wealth Planning