Question 1

Lila is the owner and beneficiary of a policy on the life of her husband, Austin. Upon Austin's death, the insurance proceeds paid to Lila do not qualify for the marital deduction.

Accepted Answer

The marital deduction applies to transfers between spouses, but life insurance proceeds paid to a beneficiary are not considered a transfer of property for tax purposes and thus do not qualify for the marital deduction.

Question 2

Sidney dies and leaves property to his sister Giselle. Thirteen months later, Giselle dies. Giselle's estate can claim a full credit for any Federal estate taxes paid by Sidney's estate as to amounts passing to Giselle.

Accepted Answer

Giselle's estate can claim a credit for any federal estate taxes paid by Sidney's estate on amounts passing to Giselle. This is known as the "credit for tax on prior transfers."

Question 3

Which, if any, of the following is not a characteristic of the Federal gift tax?

Accepted Answer

The alternate valuation date of § 2032 cannot be elected for the Federal gift tax; it is a provision applicable to estate taxes, allowing the estate to be valued at a date other than the date of death under certain conditions. The other options (A, C, D) are characteristics of the Federal gift tax.

Question 4

At the time of Dylan's death, he was a resident of the United States. He owns land located in a foreign country, which is subject to that country's estate tax. This same land also can be subject to the Federal estate tax.

Accepted Answer

The United States imposes estate taxes on the worldwide assets of its residents, including property located in foreign countries. Therefore, the land owned by Dylan in a foreign country could be subject to both the estate tax of that country and the U.S. federal estate tax.

Question 5

Which, if any, of the following items is subject to indexation (adjusted to reflect inflation)?

Accepted Answer

The annual gift tax exclusion is subject to indexation and may be adjusted to reflect inflation, allowing individuals to give larger amounts without incurring a gift tax.

Question 6

In the case of a transfer by gift, a QTIP election causes the property to be subject to the estate tax upon the death of the donee spouse.

Accepted Answer

A QTIP (Qualified Terminable Interest Property) election allows the property to qualify for the marital deduction, deferring estate tax until the death of the donee spouse, at which point it becomes subject to estate tax.

Question 7

Which, if any, of the following is a characteristic of the Federal estate tax?

Accepted Answer

All of the options listed are characteristics of the Federal estate tax. A foreign tax credit can be applied to reduce the double taxation of assets subject to both U.S. estate tax and foreign estate tax. A credit for tax on prior transfers is available to reduce the estate tax when assets have been transferred within a certain period before the decedent's death and were subject to estate tax. A charitable deduction allows for estates to deduct the value of property left to qualifying charities, reducing the taxable estate.

Question 8

In 2008, Katelyn inherited considerable property when her father died. When Katelyn dies in 2020, her estate may be able to claim a credit as to some of the estate taxes paid by her father's estate.

Accepted Answer

The answer of In 2008, Katelyn inherited considerable property when...

Question 9

At the time of her death, Emma still owed $36,000 on her church pledge for the year. Because church pledges are not an enforceable obligation in the state where Emma resided, her estate cannot claim a deduction for the $36,000 that it owes and later pays.

Accepted Answer

The answer of At the time of her death, Emma...

Question 10

The essential purpose of the marital deduction is to defer any estate tax liability until the second spouse dies.

Accepted Answer

The marital deduction allows unlimited transfers of assets between spouses at death without incurring estate tax, effectively deferring the tax until the death of the second spouse.

Question 11

Manfredo makes a donation of $50,000 to the church in Mexico City where he was baptized. The gift does not qualify as a charitable contribution for Federal income tax purposes.

Accepted Answer

For a donation to qualify as a charitable contribution for Federal income tax purposes, it must be made to a qualified organization recognized by the IRS, typically within the United States. A church in Mexico City may not meet this requirement.

Question 12

Which, if any, of the following statements correctly reflects the rules applicable to the alternate valuation date?

Accepted Answer

The answer of Which, if any, of the following statements...

Question 13

Which of the following is not a characteristic of both the Federal gift tax and the Federal estate tax?

Accepted Answer

The Federal gift tax does not allow a deduction for state death taxes, whereas the Federal estate tax does. This is the key difference among the options provided. Options B, C, and D are characteristics common to both taxes.

Question 14

To avoid the terminable interest limitation on the marital deduction, a QTIP election is made.

Accepted Answer

A QTIP (Qualified Terminable Interest Property) election allows an individual to treat certain kinds of trust property as qualifying for the marital deduction, thereby avoiding the terminable interest rule limitation. This means that the property can be passed to the surviving spouse in a way that qualifies for the marital deduction, but also allows the grantor to control the ultimate disposition of the property after the surviving spouse's death.

Question 15

The Federal transfer taxes generally apply a flat rate of:

Accepted Answer

The Federal transfer taxes, which include the estate tax and the gift tax, generally apply a flat rate of 40%.

Question 16

Sally's will passes real estate to Otto (her surviving husband). The real estate is worth $8,000,000 but is subject to a mortgage of $2,000,000. The transfer provides Sally's estate with a marital deduction of $6,000,000.

Accepted Answer

The marital deduction allows the transfer of property to a surviving spouse without incurring estate tax. The deduction is calculated as the value of the property minus any liabilities, such as a mortgage. Here, the real estate is worth $8,000,000, and the mortgage is $2,000,000, resulting in a net value of $6,000,000, which is the amount of the marital deduction.

Question 17

All charitable organizations that qualify for estate tax purposes also qualify for income tax purposes.

Accepted Answer

While many charitable organizations that qualify for estate tax purposes also qualify for income tax purposes, the qualifications for each are determined under different sections of the tax code, and there can be exceptions.

Question 18

In his will, Hernando provides for $50,000 to go to the Madrid, Spain, school system. Because it is a foreign charity, the bequest will not qualify as a charitable deduction for estate tax purposes.

Accepted Answer

In the United States, bequests to foreign charities can qualify for the estate tax charitable deduction, provided the foreign organization meets certain requirements similar to those for domestic charities.

Question 19

At the time of his death, Raul owned a residence with his wife, Manuela, as joint tenants. Manuela purchased the residence 10 years ago at a cost of $300,000; it now has a fair market value of $1.4 million. Raul's estate will be allowed no marital deduction as to the property.

Accepted Answer

Since Raul and Manuela owned the residence as joint tenants, upon Raul's death, the property would automatically pass to Manuela due to the right of survivorship inherent in joint tenancy. Therefore, the property is not considered part of Raul's estate for purposes of the marital deduction, as it passes directly to the surviving spouse outside of the estate process.

Question 20

Peggy gives $200,000 to her grandson. This is an example of a direct skip for purposes of the generation-skipping transfer tax (GSTT).

Accepted Answer

A direct skip occurs when a gift or bequest is made directly to a grandchild or more remote descendant, bypassing the child's generation, which is the case with Peggy giving $200,000 to her grandson, thus subjecting the transfer to the generation-skipping transfer tax (GSTT).

Quiz 27: The Federal Gift and Estate Taxes