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Exam 27: The Federal Gift and Estate Taxes

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Question 31

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Some states impose inheritance taxes, but the Federal tax system does not.

A) True
B) False

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Question 32

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Reba purchases U.S. savings bonds which she lists in the name of Rod, Reba's son. The purchase of the bonds does not constitute a gift.

A) True
B) False

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Question 33

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Sandy pays a local college for her non­dependent boyfriend's tuition. The payment is subject to the Federal gift tax.

Waldo is his mother's sole heir and is the designated executor of her estate. Although the alternate valuation date would yield a smaller gross estate and less estate tax liability, the § 2032 election is not made. Instead, Waldo files a Form 706 for his mother's estate using higher date of death values. Why?

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 appropriately. -Mortgage on land included in gross estate and willed to decedent's children.

Walt dies intestate (i.e., without a will) in the current year with a gross estate valued at $4,000,000. Under applicable state law, Walt's property passes to Kelly or to Belle, in that order. Kelly has an estimated net worth of $3,000,000 while Belle has none. From a tax planning standpoint, what course of action might be advisable.

Classify each statement appearing below. -Hector transfers funds to his aunt so she can obtain a much needed heart bypass operation. The aunt does not qualify as Hector's dependent.

Joint tenancies and tenancies by the entirety avoid probate, while tenancies in common and community property do not. Why?

In most cases, the gross estate of a decedent is larger than the probate estate.

Interest on state and local bonds is not subject to the Federal estate tax.

At one point, the tax rates applicable to transfers by gift were lower than those applying to transfers by death.

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

At the time of her death, Sophia was a participant in her employer's qualified pension plan. Her accrued balance in plan is: $\begin{array}{lr}\text { Employer's contribution } & \$ 1,300,000 \\\text { Sophia's contribution } & 800,000 \\\text { Income earned by plan } & 900,000\end{array}$ Sophia also was covered by her employer's group term life insurance program. Her policy (maturity value of $100,000 made payable to Aiden (Sophia's husband). Aiden is also the designated beneficiary of the pension plan. a. Regarding these assets, how much is included in Sophia's gross estate? b. In Sophia's taxable estate? c. How much gross income must Aiden recognize, when collecting on these items?

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

Classify each of the independent statements appearing below. -Surviving spouse's share of the community property.

Classify each statement appearing below. -Darlene holds a general power of appointment over the income from a trust created by her brother. Darlene dies during the year without having exercised the power. The income is distributed to children of the brother in accordance with the terms of the trust instrument.

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

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

At the time of her death on October 4, 2013, Kaitlyn was involved in the following transactions. -Was the sole life beneficiary of a trust (assets worth $2 million) created 10 years ago by Paul (Kaitlyn's husband) . The transfer was by gift of securities then worth $500,000 (Paul did not make a QTIP election) . Paul and Kaitlyn's children are the remainder persons. -Owned stock in Mauve Corporation (basis of $800,000 and fair market value of $1 million) . On September 7, 2013, a dividend of $48,000 was declared on the stock payable to all shareholders on record as of October 3, 2013. The $48,000 was received by Kaitlyn's executor on October 19, 2013. -Kaitlyn made a taxable gift of $400,000 in 2002. As to these transactions, Kaitlyn's gross estate includes: