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Exam 18: The Federal Gift and Estate Taxes

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Question 1

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Classify each statement appearing below. a. No taxable transfer occurs b. Gift tax applies c. Estate tax applies -Van takes out an insurance policy on his life and designates his estate as the beneficiary. Van dies four years later.

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Question 2

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Jacob and Emma are husband and wife and have always lived in New Jersey, a common law state. Using separate funds, they bought an annuity from an insurance company-the purchase price was furnished 1/4 by Jacob and 3/4 by Emma. Under the terms of the contract, Jacob is to receive $50,000 per month for life when he reaches age 65. If Emma survives Jacob, she is to receive $30,000 per month for her life. Jacob dies first, when the value of Emma's survivorship annuity is $1,400,000. As to this annuity, how much (if any) is included in Jacob's gross estate?

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$350,000 (...

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Classify each statement appearing below. a. No taxable transfer occurs b. Gift tax applies c. Estate tax applies -Hugh loans his adult daughter, Nadia, $800,000 to start her own business. Market rate interest is provided for, and Nadia signs a note that is payable in four years.

Classify each statement appearing below. a. No taxable transfer occurs b. Gift tax applies c. Estate tax applies -Hugh loans his adult daughter, Nadia, $800,000 to start her own business. No interest is provided for, and Nadia signs a note that is payable in four years.

Classify each statement appropriately. a. Deductible from the gross estate in arriving at the taxable estate. b. Not deductible from the gross estate in arriving at the taxable estate. -Post-death property taxes paid to county on realty included in the gross estate.

The § 2513 election to split gifts is less useful in community property states than in common law states. Explain.

Tom and Jean are husband and wife and live in California. In 2008, they used $400,000 of community funds to purchase an annuity from an insurance company. Under the terms of the contract, Tom is to receive $40,000 per year for life once he reaches age 65. If Jean outlives Tom, she is to receive $30,000 per year for life. Tom dies first, before reaching age 65. At this time, the value of Jean's interest is $500,000. As to this contract, Tom's gross estate includes:

Classify each statement appearing below. a. No taxable transfer occurs b. Gift tax applies c. Estate tax applies -In full settlement of her marital rights, Henry transfers property to his wife, Nancy. Three months later, Henry and Nancy are divorced.

Death does not defeat a deceased spouse's interest in a tenancy by the entirety.

Classify each of the independent statements appearing below. a. Some or all of the interest included in the decedent's gross estate. b. None of the interest included in the decedent's gross estate. -Decedent holds a life estate in a trust created by her spouse who died five years ago. The executor of the spouse's estate made a QTIP election as to the trust. Decedent's son is the remainderman of the trust.

Classify each statement appearing below. a. No taxable transfer occurs b. Gift tax applies c. Estate tax applies -Darlene holds a special power of appointment over the income from a trust created by her brother. During the year, Darlene exercises the power in favor of one of the beneficiaries designated in the trust instrument.

Classify each statement appropriately. a. Deductible from the gross estate in arriving at the taxable estate. b. Not deductible from the gross estate in arriving at the taxable estate. -Administration expenses attributable to handling the surviving spouse's share of the community property.

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

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

Although qualified tuition plans under § 529 are treated favorably for gift tax purposes, such plans are subject to estate tax consequences upon the grantor's death.

At the time of his death, Hal owned 10 cemetery lots worth $40,000 ($4,000 each) for use by himself and his family. These lots are not included in Hal's gross estate and no deduction is allowed the estate.

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

Match each statement with the correct choice. Some choices may be used more than once or not at all. a. In the current year, Debby, a widow, dies. Two years ago she inherited a large amount of wealth from her brother. b. Death does not defeat an owner's interest in property. c. Exists only if husband and wife are involved. d. A type of state tax on transfers by death. e. Must decrease the amount of the gross estate. f. Annual exclusion not allowed. g. Cumulative in effect. h. Right of survivorship present as to type of ownership. i. Avoids the terminable interest rule of the marital deduction. j. Exemption equivalent. k. Bypass amount. l. No correct match provided. -Tenancy by the entirety

At the time of her death in 2013, 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 it later pays.

Concerning the formula for the Federal estate tax, which, if any, of the following statements is correct?