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Question;2238. CHAPTER;18?THE FEDERAL GIFT AND ESTATE TAXES Question MA #1-12;Match each statement with the correct;choice. Some choices may be used more than once or not at all.;Payable-on-death;transfersExclusion amountFederal gift tax Inheritance taxQTIP electionTenancy;by the entiretyJoint tenancyTenancy in common Community property Credit for tax;on prior transfers (under ? 2013)Must decrease the estate tax liabilityFuture;interestA certificate of deposit listed as ?B. Brown, payable on proof of death;to my daughter, Evelyn.? Exemption equivalent. Cumulative in effect. A type of;state tax on transfers by death. Avoids the terminable interest rule of the;marital deduction. Exists only if owners are husband and wife. Right of;survivorship present as to type of ownership. No correct match provided. Exists;only if owners are husband and wife. In the current year, Debby, a widow, dies.;Two years ago she inherited a large amount of wealth from her brother.;Alternate valuation date. Annual exclusion not allowed. Scheduled to be;eliminated by 2010.;[a] 1. Payable-on-death transfers;[b] 2. Exclusion amount;[c] 3. Federal gift tax;[d] 4. Inheritance tax;[e] 5. QTIP election;[f] 6. Tenancy by the entirety;[g] 7. Joint tenancy;[h] 8. Tenancy in common;[i] 9. Community property;[j] 10. Credit for tax on;prior transfers (under ? 2013);[k] 11. Must decrease the;estate tax liability;[l] 12. Future interest;2239. CHAPTER;18?THE FEDERAL GIFT AND ESTATE TAXES Question MA #13-24 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.Under a prenuptial;agreement, Herbert transfers stock to Norma. One month later, Herbert and Norma;are married.In full settlement of her marital rights, Henry transfers property;to his wife, Nancy. Three months later, Henry and Nancy are divorced.Harry pays;for the tuition for his niece to attend Drake University. The niece does not;qualify as Harry?s dependent.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.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. Hugh dies two years later and, in his will;cancels the note. Nadia?s business proved to be successful.Under her father?s;will, Faith is to receive 10,000 shares of GE common stock. Eight months after;her father?s death, Faith disclaims 5,000 shares.Under her father?s will, Faith;is to receive 10,000 shares of GE common stock. Ten months after her father?s;death, Faith disclaims the 10,000 shares.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.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.Van takes out an;insurance policy on his life and designates Van as the beneficiary. Van dies;first.Van takes out an insurance policy on Myrna?s life and designates himself;as the beneficiary. Myrna is Van?s wife. Two years later, Myrna dies, and Van;collects the insurance proceeds.Gift tax applies Gift tax applies No taxable;transfer occurs No taxable transfer occurs Gift tax applies Estate tax applies;No taxable transfer occurs Gift tax applies No taxable transfer occurs Estate;tax applies Estate tax applies No taxable transfer occurs;[a] 1. 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.;[b] 2. Under a prenuptial;agreement, Herbert transfers stock to Norma. One month later, Herbert and Norma;are married.;[c] 3. In full settlement of;her marital rights, Henry transfers property to his wife, Nancy. Three months;later, Henry and Nancy are divorced.;[d] 4. Harry pays for the;tuition for his niece to attend Drake University. The niece does not qualify as;Harry?s dependent.;[e] 5. 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.;[f] 6. 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. Hugh dies;two years later and, in his will, cancels the note. Nadia?s business proved to;be successful.;[g] 7. Under her father?s;will, Faith is to receive 10,000 shares of GE common stock. Eight months after;her father?s death, Faith disclaims 5,000 shares.;[h] 8. Under her father?s;will, Faith is to receive 10,000 shares of GE common stock. Ten months after;her father?s death, Faith disclaims the 10,000 shares.;[i] 9. 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.;[j] 10. 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.;[k] 11. Van takes out an;insurance policy on his life and designates Van as the beneficiary. Van dies;first.;[l] 12. Van takes out an;insurance policy on Myrna?s life and designates himself as the beneficiary.;Myrna is Van?s wife. Two years later, Myrna dies, and Van collects the;insurance proceeds.;2240. CHAPTER;18?THE FEDERAL GIFT AND ESTATE TAXES Question MA #25-36 Classify each statement appearing below.Homer;purchases a U.S. savings bond listing title as: ?Homer, payable to Bernice upon;Homer?s death.? Bernice is Homer?s sister.Homer purchases a U.S. savings bond;listing title as: ?Homer, payable to Bernice upon Homer?s death.? Bernice is;Homer?s sister. Homer dies four years later, and Bernice cashes in the bond and;keeps the proceeds.Howard establishes a trust, life estate to his children;remainder to the grandchildren. Under its terms, the trust is revocable by;Howard.Howard establishes a trust, life estate to his children, remainder to;the grandchildren. Under its terms, the trust is revocable by Howard. Howard;later relinquishes the right to revoke the trust.Meg gives her 18-year-old son;money for his college tuition and living expenses (e.g., room and;board).Clarence pays the medical providers (e.g., physicians, hospital) for his;aunt?s gall bladder operation. The aunt does not qualify as Clarence?s;dependent.Cash donation to the reelection campaign of a member of the U.S.;Congress.Maggie purchased an insurance policy on Jim?s life and designated;Susan as the beneficiary.Maggie purchased an insurance policy on Jim?s life and;designated Susan as the beneficiary. Four years later Jim dies, and Susan;collects the insurance proceeds.Using his own funds, Horace establishes a;savings account designating ownership as follows: ?Horace and Nadine as joint;tenants with right of survivorship.? Horace later withdraws all of the;funds.Using his own funds, Horace establishes a savings account designating;ownership as follows: ?Horace and Nadine as joint tenants with right of survivorship.?;Nadine predeceases Horace.Using his own funds, Horace establishes a savings;account designating ownership as follows: ?Horace and Nadine as joint tenants;with right of survivorship.? Horace predeceases Nadine.No taxable transfer;occurs Estate tax applies No taxable transfer occurs Gift tax applies No;taxable transfer occurs No taxable transfer occurs No taxable transfer occurs;No taxable transfer occurs Gift tax applies No taxable transfer occurs No;taxable transfer occurs Estate tax applies;[a] 1. Homer purchases a U.S.;savings bond listing title as: ?Homer, payable to Bernice upon Homer?s death.?;Bernice is Homer?s sister.;[b] 2. Homer purchases a U.S.;savings bond listing title as: ?Homer, payable to Bernice upon Homer?s death.?;Bernice is Homer?s sister. Homer dies four years later, and Bernice cashes in;the bond and keeps the proceeds.;[c] 3. Howard establishes a;trust, life estate to his children, remainder to the grandchildren. Under its;terms, the trust is revocable by Howard.;[d] 4. Howard establishes a;trust, life estate to his children, remainder to the grandchildren. Under its;terms, the trust is revocable by Howard. Howard later relinquishes the right to;revoke the trust.;[e] 5. Meg gives her;18-year-old son money for his college tuition and living expenses (e.g., room;and board).;[f] 6. Clarence pays the;medical providers (e.g., physicians, hospital) for his aunt?s gall bladder;operation. The aunt does not qualify as Clarence?s dependent.;[g] 7. Cash donation to the;reelection campaign of a member of the U.S. Congress.;[h] 8. Maggie purchased an;insurance policy on Jim?s life and designated Susan as the beneficiary.;[i] 9. Maggie purchased an;insurance policy on Jim?s life and designated Susan as the beneficiary. Four;years later Jim dies, and Susan collects the insurance proceeds.;[j] 10. Using his own funds;Horace establishes a savings account designating ownership as follows: ?Horace;and Nadine as joint tenants with right of survivorship.? Horace later withdraws;all of the funds.;[k] 11. Using his own funds;Horace establishes a savings account designating ownership as follows: ?Horace;and Nadine as joint tenants with right of survivorship.? Nadine predeceases;Horace.;[l] 12. Using his own funds;Horace establishes a savings account designating ownership as follows: ?Horace;and Nadine as joint tenants with right of survivorship.? Horace predeceases;Nadine.;2241. CHAPTER;18?THE FEDERAL GIFT AND ESTATE TAXES Question MA #37-48 Classify each statement appropriately.Mortgage;on land included in gross estate and willed to decedent?s children.State death;tax imposed on the estate.Selling expenses incurred to sell estate assets in;order to pay administration expenses.Post-death property taxes paid to county;on realty included in the gross estate.Casualty loss to property before the;death of the owner.Casualty loss to property after the death of the;owner.Casualty loss to property already distributed to an heir.Administration;expenses attributable to handling the surviving spouse?s share of the community;property.Payment by the estate of church pledge made by decedent prior to;death.Transportation cost for decedent and surviving son to site of burial.State;income taxes accrued prior to death.Payment of unpaid gift taxes.Deductible;from the gross estate in arriving at the taxable estate. Deductible from the;gross estate in arriving at the taxable estate. Deductible from the gross;estate in arriving at the taxable estate. Not deductible from the gross estate;in arriving at the taxable estate. Not deductible from the gross estate in;arriving at the taxable estate. Deductible from the gross estate in arriving at;the taxable estate. Not deductible from the gross estate in arriving at the;taxable estate. Not deductible from the gross estate in arriving at the taxable;estate. Deductible from the gross estate in arriving at the taxable estate.;Deductible from the gross estate in arriving at the taxable estate. Deductible;from the gross estate in arriving at the taxable estate. Deductible from the;gross estate in arriving at the taxable estate.;[a] 1. Mortgage on land included in;gross estate and willed to decedent?s children.;[b] 2. State death tax imposed;on the estate.;[c] 3. Selling expenses;incurred to sell estate assets in order to pay administration expenses.;[d] 4. Post-death property;taxes paid to county on realty included in the gross estate.;[e] 5. Casualty loss to;property before the death of the owner.;[f] 6. Casualty loss to;property after the death of the owner.;[g] 7. Casualty loss to;property already distributed to an heir.;[h] 8. Administration expenses;attributable to handling the surviving spouse?s share of the community;property.;[i] 9. Payment by the estate;of church pledge made by decedent prior to death.;[j] 10. Transportation cost;for decedent and surviving son to site of burial.;[k] 11. State income taxes;accrued prior to death.;[l] 12. Payment of unpaid gift;taxes.;2242. CHAPTER;18?THE FEDERAL GIFT AND ESTATE TAXES Question MA #49-60 Classify each of the independent;statements appearing below.Interest on municipal bonds accrued after;death.Cash dividends on stock owned by the decedent (declaration date preceded;death but record and payment dates were after death).State income tax refund;received after death on a tax return filed before death.Note receivable issued;by a grandson and forgiven by the decedent in her will.Ten cemetery lots;purchased by decedent prior to death for use by himself and his family.Dower;interest claimed by decedent?s surviving spouse.Surviving spouse?s share of the;community property.Bank account held as joint tenant with mother. Mother;provided all of the funds. Mother survives.Bank account held as tenants by the;entirety with surviving spouse. Decedent provided none of the funds.Proceeds of;an insurance policy on decedent?s life. Decedent?s son purchased the policy and;is its owner and beneficiary.Decedent owned a policy on the life of his spouse;with himself as the designated beneficiary. The spouse survives.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 no QTIP election as to the trust.;Decedent?s son is the remainderman of the trust.None of the interest included;in the decedent?s gross estate. None of the interest included in the decedent?s;gross estate. Some or all of the interest included in the decedent?s gross;estate. Some or all of the interest included in the decedent?s gross estate.;None of the interest included in the decedent?s gross estate. Some or all of;the interest included in the decedent?s gross estate. None of the interest;included in the decedent?s gross estate. None of the interest included in the;decedent?s gross estate. Some or all of the interest included in the decedent?s;gross estate. None of the interest included in the decedent?s gross estate.;Some or all of the interest included in the decedent?s gross estate. None of;the interest included in the decedent?s gross estate.;[a] 1. Interest on municipal bonds;accrued after death.;[b] 2. Cash dividends on stock;owned by the decedent (declaration date preceded death but record and payment;dates were after death).;[c] 3. State income tax refund;received after death on a tax return filed before death.;[d] 4. Note receivable issued;by a grandson and forgiven by the decedent in her will.;[e] 5. Ten cemetery lots;purchased by decedent prior to death for use by himself and his family.;[f] 6. Dower interest claimed;by decedent?s surviving spouse.;[g] 7. Surviving spouse?s;share of the community property.;[h] 8. Bank account held as;joint tenant with mother. Mother provided all of the funds. Mother survives.;[i] 9. Bank account held as;tenants by the entirety with surviving spouse. Decedent provided none of the;funds.;[j] 10. Proceeds of an;insurance policy on decedent?s life. Decedent?s son purchased the policy and is;its owner and beneficiary.;[k] 11. Decedent owned a;policy on the life of his spouse with himself as the designated beneficiary.;The spouse survives.;[l] 12. 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 no QTIP election as to the trust. Decedent?s son is;the remainderman of the trust.;2243. CHAPTER 18?THE FEDERAL GIFT;AND ESTATE TAXES Question PR #1;Among the assets included in Taylor?s gross estate are the following.;Fair Market Value;Date of Death;Six Months AfterDate of Death;Stock in;Grebe Corporation;Stock in Rail Corporation;Office building;$6,000,000;800,000;900,000;$5,800,000;850,000;900,000;Three months after Taylor?s death in 2011, her executor sells the Rail stock;for $840,000.;a.;What is the;amount of Taylor?s gross estate if date of death value is used?;b.;What is the;amount of Taylor?s gross estate if the alternate valuation date is elected?;c.;Suppose the;accrued rents on the office building are as follows: $80,000 (date of death);and $75,000 (six months after death). How does this change the answers in;parts a. and b.?;d.;Suppose all of;Taylor?s assets pass to her surviving spouse. Does this have any impact on;the choice of valuation date? Explain.;2244. CHAPTER;18?THE FEDERAL GIFT AND ESTATE TAXES Question PR #2;Ben and Lynn are married and have two pre-teen grandchildren. They want to;contribute to a ? 529 plan on behalf of their education. For 2011, what is the;maximum amount they can transfer to the plan without making a taxable gift?;2245. CHAPTER;18?THE FEDERAL GIFT AND ESTATE TAXES Question PR #3;At the time of her death on June 4, 2011, Mary owned the following assets.;?;Taupe;Corporation stock (cost $400,000, FMV $800,000). On May 5, 2011, Taupe;declared a cash dividend, payable on June 16, 2011, to shareholders as of the;record date of June 3. Mary?s executor received the $40,000 dividend on the;scheduled payment date.;?;City of;Boise bonds (cost $800,000, FMV $780,000). Interest accrued to June 4 was;$42,000. The executor eventually collected $50,000 (included post-death;accrual of $8,000) on July 21, 2011.;As to these transactions, how much is included in Mary?s gross estate?;2246. CHAPTER;18?THE FEDERAL GIFT AND ESTATE TAXES Question PR #4;At the time of his death on August 7, 2011, Michael owned the following assets.;?;Green;Corporation stock (cost $700,000, FMV $950,000). On July 21, 2011, Green;declared a cash dividend, payable on August 18 to all shareholders as of the;record date of August 8, 2011. Michael?s executor receives the $64,000;dividend on the scheduled payment date.;?;Note;receivable (face amount $600,000) payable on demand. The note was received by;Michael two years previously from his daughter Addison. Addison used the loan;to start a business which currently is very successful. In his will, Michael;forgives the note.;How much, as to these transactions, is included in Michael?s gross estate?;2247. CHAPTER;18?THE FEDERAL GIFT AND ESTATE TAXES Question PR #5;At the time of her death in 2011, Karla was a participant in her employer?s;qualified pension plan. Her accrued balance in the plan is;Employer?s;contribution;$1,200,000;Karla?s;contribution;700,000;Income;earned by plan;900,000;Karla also was covered by her employer?s group term life insurance program. Her;policy (maturity value of $200,000) is made payable to Scott (Karla?s husband).;Scott is also the designated beneficiary of the pension plan.;a.;Regarding;these assets, how much is included in Karla?s gross estate?;b.;In Karla?s;taxable estate?;c.;How much;income must Scott recognize?;2248. CHAPTER;18?THE FEDERAL GIFT AND ESTATE TAXES Question PR #6;Prior to his death in 2011, Gordon made the following taxable gifts.;Year of;Gift;Amount of;Gift;Stock in Tan;Corporation;Term life insurance policy (maturity value of $100,000);Unimproved land;2000;2009;2010;$800,000;?0?;700,000;The policy of Gordon?s life was given to the designated beneficiary. The gift;of the stock and the land generated gift taxes of $28,750 and $64,250;respectively.;As to these transfers, how much is included in Gordon?s gross estate?;2249. CHAPTER;18?THE FEDERAL GIFT AND ESTATE TAXES Question PR #7;At the time of her death in 2011, Ruby was involved in three trust;arrangements. Details regarding these trusts are summarized below.;?;Trust A (FMV;of $3,000,000) was created by Ruby. Under its terms, Ruby holds a life;estate, with her children designated as the remainder beneficiaries.;?;Trust B (FMV;of $900,000) was created by Ruby?s father. Ruby holds a life estate, with her;children designated as the remainder beneficiaries.;?;Trust C (FMV;of $1,200,000) was created by Ruby?s mother. Ruby?s children hold a life;estate, and the remainder interest is to pass to their children (i.e., Ruby?s;grandchildren). Ruby possesses the right to determine yearly how the income;is to be distributed among her children.;As to these trusts, how much will be included in Ruby?s gross estate?;2250. CHAPTER;18?THE FEDERAL GIFT AND ESTATE TAXES Question PR #8;Burt and Eve are husband and wife and have always lived in New York, a common;law state. In 1990 and using separate funds, they bought an annuity from an;insurance company?the purchase price was furnished 1/3 by Burt and 2/3 by Eve.;Under the terms of the contract, Burt is to receive $50,000 per month for life;when he reaches age 65. If Eve survives Burt, she is to receive $30,000 per;month for her life. Burt dies first in 2011, at which time the value of Eve?s;survivorship annuity is $2,400,000. As to this annuity, how much (if any) is;included in Burt?s gross estate?;2251. CHAPTER;18?THE FEDERAL GIFT AND ESTATE TAXES Question PR #9;In 1990, Bret and Olivia acquire realty for $1 million, with Bret furnishing;$400,000 of the purchase price and Olivia providing the balance. Title to the;property is listed as: ?Bret and Olivia, joint tenants with right of survivorship.?;In 2011, Olivia dies first when the realty is worth $4 million. How much is;included in her gross estate under the following circumstances?;a.;Bret and;Olivia are brother and sister.;b.;Bret and;Olivia are husband and wife.;2252. CHAPTER;18?THE FEDERAL GIFT AND ESTATE TAXES Question PR #10;In 2000, Dale and Andrea acquire real estate for $1,000,000, with Dale;furnishing $400,000 of the purchase price and Andrea providing the balance.;Title to the property is listed as: ?Dale and Andrea, equal tenants in common.?;Dale dies first in 2011, when the real estate is worth $2,000,000.;a.;Were there;any tax consequences in 2000? Explain.;b.;How much, as;to the real estate, is included in Dale?s gross estate?;c.;As to parts;a. and b., would it make any difference whether Dale and Andrea are brother;and sister or husband and wife?;2253. CHAPTER;18?THE FEDERAL GIFT AND ESTATE TAXES Question PR #11;Murray owns an insurance policy on the life of his father, Ethan. Upon Ethan?s;death, the policy proceeds of $2,000,000 are paid to the designated;beneficiary, Grace. What are the tax consequences resulting from Ethan?s death;based on the following assumptions?;a.;Grace is;Murray?s daughter.;b.;Grace is;Murray?s wife.;c.;What are the;tax consequences if Murray dies first (i.e., predeceases both Grace and;Ethan)?

 

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