Question 1

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

Accepted Answer

The gift tax is levied on a calendar year basis and individual taxpayers who make a gift in excess of the annual exclusion or wish to elect gift splitting must file a gift tax return (Form 709) by April 15 of the year following the gift(s).

Question 2

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 not typically included in the decedent's gross estate, meaning they can be used to fund a trust for a surviving spouse without increasing the estate tax liability.

Question 3

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 a tax credit is provided to prevent double taxation. Therefore, they are not subject to double taxation.

Question 4

Which of the following transfers is a completed gift?

Accepted Answer

If the grantor releases the powers, then the gift will generally be complete at that time, because the property is no longer subject to the donor's control. For example, a distribution of property from a revocable trust is a completed gift because the grantor no longer has the ability to revoke the distribution.

Question 5

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

Accepted Answer

The life of a trust is not necessarily limited to a specific period.

Question 6

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

Accepted Answer

According to the IRS, property inherited from a decedent generally receives a step-up in basis to its fair market value at the time of the decedent's death, which becomes the new adjusted basis for the inheritor. This is true regardless of whether the property is sold immediately or held onto for a longer period of time.

Question 7

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

Accepted Answer

The value of property consists of the present interest (the right to income) and the future interest (the remainder). The value of the remainder interest depends upon the time the property is held by the present interest and the interest rate. The value of the income interest is the difference between the value of the remainder and the total value of the property.

Question 8

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

Accepted Answer

Generally, the value of a present interest, such as a life estate, does not depend on how the trustee invests the corpus (in growth stock or high-yield money market) because the fiduciary (the trustee or executor) has a duty to invest the property for the benefit of both the income beneficiary and the remainderman.

Question 9

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

Accepted Answer

A serial gift strategy maximizes the value of the annual exclusion.

Question 10

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

Accepted Answer

Intervivos comes from Latin meaning "during the life of."

Question 11

The applicable credit is designed to:

Accepted Answer

The applicable credit was designed to prevent taxation of all but the largest cumulative transfers called the exemption equivalent.

Question 12

Which of the following statements is (are) True?

Accepted Answer

In 2018, the applicable credit automatically offsets $11.18 million of transfer taxes representing the lower tax rates in the transfer tax rate schedule. The exemption equivalent represents an equivalent amount of taxable transfers necessary to generate transfer taxes equal to the applicable credit.

Question 13

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 over time that are each below the annual exclusion amount in order to maximize the total value that can be given tax-free. This strategy is particularly useful for high net worth individuals who may want to transfer a significant amount of assets to their beneficiaries without incurring gift tax.

Question 14

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

Accepted Answer

This is the definition of a trust.

Question 15

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 allows a decedent's assets to pass to their spouse tax-free, up to the value of the applicable exclusion amount. In order to use this provision, the decedent must have a taxable estate, which is the value of their assets exceeding the applicable exclusion amount. This allows the decedent's estate to take advantage of the applicable credit against estate taxes, reducing the total amount of estate taxes owed.

Question 16

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 applicable credit and deductions for marital and charitable transfers are features common to both the estate tax and the gift tax. The annual exclusion and gift-splitting election are unique to the gift tax, and the amount of the exemption equivalent for 2018 is $11.18 million for both the gift and the estate tax. The deceased spouse's unused exclusion amount only applies to the estate tax.

Question 17

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 determining whether to include assets in an estate tax planning strategy, it is important to consider both the income tax benefit of the step-up in tax basis and the potential estate tax cost of including the assets in the decedent's gross estate. It is important to weigh these factors against each other to create the most effective plan for achieving the client's goals.

Question 18

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 applicable credit and deductions for marital and charitable transfers are features common to both the estate tax and the gift tax. Terminable transfers do not qualify for the marital deduction and an annual exclusion is only available for gratuitous transfers.

Question 19

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

Accepted Answer

Both gratuitous and testamentary transfers are reduced by marital and charitable deductions. The annual exclusion and gift-splitting election are unique to gratuitous transfers, and the applicable credit is based on the tax on $11.18 million in 2018.

Question 20

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 limit on the deduction amount.

Quiz 14: Transfer Taxes and Wealth Planning

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