Question 1

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

Accepted Answer

All of the options are characteristics of the Federal estate tax. 
-A foreign tax credit is available for the estate, which can be claimed against taxes paid to a foreign country on the same assets.
-A credit for tax on prior transfers may be available that allows an estate to avoid paying taxes on a transfer that's already been taxed. 
-A charitable deduction is available, which allows an estate to reduce their tax liability by donating a portion of the estate to a qualified charity.

Question 2

Ray purchases U.S. savings bonds which he lists as "Ray and Donna" as co-owners. Donna is Ray's daughter.
Donna predeceases Ray. No gift or estate tax consequences result from this situation.

Accepted Answer

When Donna predeceases Ray, the savings bonds will become the sole property of Ray as the surviving co-owner. Since there was no transfer of ownership or taxable events, there are no gift or estate tax consequences.

Question 3

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

Emma's estate can claim a deduction for the $36,000 that it owes and later pays, even though church pledges are not enforceable obligations in her state. Charitable pledges are still deductible under federal tax law, as long as they meet certain requirements.

Question 4

In 2004, Katelyn inherited considerable property when her father died. When Katelyn dies in 2018, 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 2004, Katelyn inherited considerable property when...

Question 5

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

Accepted Answer

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

Question 6

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

Accepted Answer

A QTIP election (Qualified Terminable Interest Property) is required to avoid the terminable interest limitation and make use of the marital deduction. It allows the creator of the trust to provide income for their surviving spouse, while still maintaining control over who will inherit the principal when the surviving spouse passes away.

Question 7

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

Accepted Answer

The purpose of the marital deduction is to allow the unlimited transfer of assets between spouses without incurring any estate or gift tax liability. The estate tax liability is deferred until the second spouse passes away and the assets are transferred to someone else, such as children or other heirs.

Question 8

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

Accepted Answer

In a joint tenancy, the surviving spouse automatically inherits the deceased spouse's share of the property, and the value of the property is typically included in the marital deduction for estate tax purposes.

Question 9

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

As a US resident, Dylan's worldwide assets, including the land in the foreign country, may be subject to the Federal estate tax. In addition, the foreign country may also have its own estate tax laws that apply to the land.

Question 10

Georgia owns an insurance policy on the life of Jake, with Scarlet as the designated beneficiary. Upon Scarlet's death, no transfer tax consequences result.

Accepted Answer

There are no transfer tax consequences upon Scarlet's death because she is the designated beneficiary, not the owner of the policy.

Question 11

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

This is known as the "credit for prior transfers" provision, which allows for the credit of any federal estate taxes paid on property passed down from a previous generation. In this case, Giselle's estate can claim a credit for any federal estate taxes paid by Sidney's estate.

Question 12

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 13

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

Accepted Answer

Not all charitable organizations that qualify for estate tax purposes automatically qualify for income tax purposes, as the qualifications and requirements can differ between the two tax categories.

Question 14

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

Accepted Answer

The statement indicates that the donation does not qualify as a charitable contribution for Federal income tax purposes, which means that it cannot be deducted from Manfredo's taxable income.

Question 15

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 insurance proceeds are not part of the estate and therefore do not qualify for the marital deduction.

Question 16

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

The answer of In the case of a transfer by...

Question 17

Rachel owns an insurance policy on the life of Albert with Belle as the designated beneficiary. Upon Rachel's death, nothing regarding this policy is included in her gross estate.

Accepted Answer

The ownership of an insurance policy on someone else's life (in this case, Albert's life) by Rachel means that upon Rachel's death, the value of the policy is included in her gross estate, not the fact of who the beneficiary is (Belle in this case).

Question 18

At the time of his death, Leroy owed Federal income taxes on income earned in a prior year. Leroy's estate can claim an estate tax deduction for the income tax it pays.

Accepted Answer

This statement is true. The estate tax deduction for income taxes paid by the estate is allowed under the Internal Revenue Code.

Question 19

Sally's will passes real estate to Otto (her surviving husband). The real estate is worth $800,000 but is subject to a mortgage of $200,000. The transfer provides Sally's estate with a marital deduction of $600,000.

Accepted Answer

The marital deduction is the value of the property passing to the surviving spouse and is equal to $800,000 (the value of the real estate) minus the mortgage of $200,000, which equals $600,000. This means that the $600,000 is deducted from the gross estate when calculating the estate tax.

Question 20

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.

Quiz 27: The Federal Gift and Estate Taxes