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tax problems - questin and answer,.,. ch 27

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Question;34. LO.1, 3, 6, 7 Natalie?s estate includes the following assets.Fair Market ValueDate of Death Six Months LaterApartment building $4,400,000 $4,380,000Stock in Blue Corporation 1,200,000 1,300,000Stock in Green Corporation 900,000 700,000Accrued rents on the apartment building are as follows: $60,000 (date of death) and $70,000 (six months later). To pay expenses, the executor of Natalie?s estate sells theGreen stock for $650,000 five months after her death.a. If the ? 2032 election is made, how much is included in Natalie?s gross estate?b. As to part (a), assume that the Green stock is sold for $650,000 seven months (rather than five months) after Natalie?s death. How does this change your answer, if at all?c. How much is included in the gross estate if the ? 2032 election is not made?35. LO.3 In each of the following independent situations, indicate whether the alternate valuation date can be elected. Explain why or why not. Assume that all deaths occur in 2012.36. LO.4 Carl made the following transfers during the current year.? Transferred $900,000 in cash and securities to a revocable trust, life estate to himself and remainder interest to his three adult children by a former wife.? In consideration of their upcoming marriage, gave Lindsey (age 21) a $90,000 convertible.? Purchased a $100,000 certificate of deposit listing title as ?Carl, payable on proof of death to Lindsey.?? Established a joint checking account with his wife, Catherine, in December of the current year with $30,000 of funds he inherited from his parents. In January of the following year, Catherine withdrew $15,000 of the funds and filed for divorce.? Purchased for $80,000 a paid-up insurance policy on his life (maturity value of $500,000). Carl designated Lindsey as the beneficiary.? Paid $13,400 to a college for his niece?s tuition and $6,000 for her room and board.The niece is not Carl?s dependent.? Gave his aunt $22,000 for her gallbladder operation. The aunt is not Carl?s dependent.What are Carl?s taxable gifts for the current year?37. LO.4, 7 In May 2011, Dudley and Eva enter into a property settlement preparatory to the dissolution of their marriage. Under the agreement, Dudley is to pay Eva $6 million in satisfaction of her marital rights. Of this amount, Dudley pays $2.5 million immediately, and the balance is due one year later. The parties are divorced in July. Dudley dies in December, and his estate pays Eva the remaining $3.5 million in May 2012. Discuss the tax ramifications of these transactions to the parties involved.38. LO.4 Jesse dies intestate (i.e., without a will) in May 2012. Jesse?s major asset is a tract of land. Under applicable state law, Jesse?s property will pass to Lorena, who is his only child. In December 2012, Lorena disclaims one-half of the property. In June 2013, Lorena disclaims the other half interest. Under state law, Lorena?s disclaimer results in the property passing to Arnold (Lorena?s only child). The value of the land (in its entirety) is as follows: $2 million in May 2012, $2.1 million in December 2012, and $2.2 million in June 2013. Discuss the transfer tax ramifications of these transactions.39. LO.5 Using property she inherited, Myrna makes a gift of $6.2 million to her adult daughter, Doris. The gift takes place in 2012. Neither Myrna nor her husband, Greg, has made any prior taxable gifts. Determine the gift tax liability if:a. The ? 2513 election to split gifts is not made.b. The ? 2513 election to split gifts is made.c. What are the tax savings from making the election?Value of Gross Estate Estate Tax LiabilityDecedentDate ofDeathSix MonthsLaterDate ofDeathSix MonthsLaterJayden $6,000,000 $5,900,000 $240,000 $239,000Isabella 6,100,000 6,000,000 265,000 260,000Liam 6,100,000 6,000,000 200,000 210,000Lily 6,500,000 6,400,000 205,000 204,00040. LO.6, 7 At the time of his death this year on September 4, Kenneth owned the following assets.Fair Market ValueCity of Boston bonds $2,500,000Stock in Brown Corporation 900,000Promissory note issued by Brad (Kenneth?s son) 600,000In October, the executor of Kenneth?s estate received the following: $120,000 interest on the City of Boston bonds ($10,000 accrued since September 4) and a $7,000 cash dividend on the Brown stock (date of record was September 5). The declaration date on the dividend was August 12.The $600,000 loan was made to Brad in late 2007, and he used the money to create a very successful business. The note was forgiven by Kenneth in his will.What are the estate tax consequences of these transactions?41. LO.6 At the time of her death on September 4, 2012, Alicia held the following assets.Fair Market ValueBonds of Emerald Tool Corporation $ 900,000Stock in Drab Corporation 1,100,000Insurance policy (face amount of $400,000) on the life of her father,Mitch 80,000*Traditional IRAs 300,000 * Cash surrender value.Alicia was also the life tenant of a trust (fair market value of $2 million) created by her late husband Bert. (The executor of Bert?s estate had made a QTIP election.) In October,Alicia?s estate received an interest payment of $11,500 ($6,000 accrued before September4, 2012) paid by Emerald and a cash dividend of $9,000 from Drab. The Drab dividend was declared on August 19 and was payable to date of record shareholders onSeptember 3, 2012. Although Mitch survives Alicia, she is the designated beneficiary of the policy. The IRAs are distributed to Alicia?s children. What amount is included inAlicia?s gross estate?42. LO.6 Assume the same facts as in Problem 41 with the following modifications.? Mitch is killed in a rock slide while mountain climbing in November 2012, and the insurer pays Alicia?s estate $400,000.? Bert?s executor did not make a QTIP election.? Alicia?s IRAs were the Roth type (not traditional).? The record date for the Drab Corporation dividend is September 5 (not September 3).? On November 7, 2012, Alicia?s estate receives from the IRS an $8,000 income tax refund on the taxes she paid for the preceding calendar year.What amount is included in Alicia?s gross estate?43. LO.6, 7 At the time of Matthew?s death, he was involved in the following transactions.? Matthew was a participant in his employer?s contributory qualified pension plan. The plan balance of $2 million is paid to Olivia, Matthew?s daughter and beneficiary. The distribution consists of the following.Employer contributions $900,000Matthew?s after-tax contributions 600,000Income earned by the plan 500,000? Matthew was covered by his employer?s group term life insurance plan for employees.The $200,000 proceeds are paid to Olivia, the designated beneficiary.a. What are the estate tax consequences?b. The income tax consequences?c. Would the answer to part (a) change if Olivia was Matthew?s surviving spouse (not his daughter)? Explain.

 

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