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Question;2383. CHAPTER;19?FAMILY TAX PLANNING Question MA #1-10 Match each statement with the correct;choice. Some choices may be used more than once or not used at all.Valuation;of a commercial annuity contract.Valuation of a life insurance policy that is;not paid up.Martial deduction allowed.Discount for lack of marketability as to;stock.Special use valuation as to certain realty (? 2032A).Discount;attributable to a large number of shares.Valuation of life estate interest;created by transfer in trust.Exemption equivalent.Surviving owners agree to;purchase withdrawing owner?s interest.Corporation agrees to redeem withdrawing;shareholder?s stock.Replacement cost of a comparable contact No correct choice;is given Portion of a deceased spouse?s share of community property that passes;to a surviving spouse Cost of going public Current use value Blockage rule Use;IRS valuation tables Bypass amount Cross-purchase buy and sell agreement Entity;buy and sell agreement Best or most suitable use value;[a] 1. Valuation of a commercial;annuity contract.;[b] 2. Valuation of a life;insurance policy that is not paid up.;[c] 3. Martial deduction;allowed.;[d] 4. Discount for lack of;marketability as to stock.;[e] 5. Special use valuation;as to certain realty (? 2032A).;[f] 6. Discount attributable;to a large number of shares.;[g] 7. Valuation of life;estate interest created by transfer in trust.;[h] 8. Exemption equivalent.;[i] 9. Surviving owners agree;to purchase withdrawing owner?s interest.;[j] 10. Corporation agrees to;redeem withdrawing shareholder?s stock.;2384. CHAPTER;19?FAMILY TAX PLANNING Question MA #11-20 Match each statement with the correct;choice. Some choices may be used more than once or not used at all.Deferral;approach.Equalization approach.Donee?s basis for gain.Donee?s basis for loss.A;gift will not cause income tax consequences to the donor.Decedent owned stock;that had appreciated in value.Decedent owned traditional IRA that has appreciated.Surviving;spouse disclaims inheritance in favor of bypass amount.A gift causes income tax;consequences to the donor.Measure of income tax deduction on a gift of property;to charity.Expected surviving spouse is in good health Expected surviving spouse;is already wealthy Donor?s basis on date of gift (appreciated property given;no gift tax due) Fair market value on date of gift (depreciated property given);Gift of property that has ? 1245 or ? 1250 potential for recapture of;depreciation Step-up in basis Income in respect of a decedent (IRD) The amount;of the deceased spouse?s taxable estate does not change Gift of installment;notes receivable Fair market value on date of gift (depreciated property given);Step-down in basis No correct choice is given;[a] 1. Deferral approach.;[b] 2. Equalization approach.;[c] 3. Donee?s basis for gain.;[d] 4. Donee?s basis for loss.;[e] 5. A gift will not cause;income tax consequences to the donor.;[f] 6. Decedent owned stock;that had appreciated in value.;[g] 7. Decedent owned;traditional IRA that has appreciated.;[h] 8. Surviving spouse;disclaims inheritance in favor of bypass amount.;[i] 9. A gift causes income;tax consequences to the donor.;[j] 10. Measure of income tax;deduction on a gift of property to charity.;2385. CHAPTER;19?FAMILY TAX PLANNING Question MA #21-30 Match each statement with the correct;choice. Some choices may be used more than once or not used at all.Can;produce income tax, ad valorem property tax, and estate tax savings.Election by;estate can affect income tax basis of surviving spouse?s share of community;property.Living trusts.Eliminates common stock from donor?s gross;estate.Transfer by death of depreciable property.Reasonable cause will justify;election.Doubles the number of annual exclusions available.No step-up in basis;at death.Eliminates preferred stock from donor?s gross estate.Can postpone;payments of the estate tax for up to 10 years from due date of the;return.Conservation easement Special use valuation as to certain realty;2032A) Revocable trusts Estate freeze?corporations Depreciation recapture;potential eliminated Discretionary extension of time to pay estate tax (? 6161);Election to split gifts (? 2513) Income in respect of a decedent (IRD) No;correct choice is given Discretionary extension of time to pay estate tax;6161) Extension of time involving interest in closely held business (? 6166);Alternate valuation date (? 2032);[a] 1. Can produce income tax, ad;valorem property tax, and estate tax savings.;[b] 2. Election by estate can;affect income tax basis of surviving spouse?s share of community property.;[c] 3. Living trusts.;[d] 4. Eliminates common stock;from donor?s gross estate.;[e] 5. Transfer by death of;depreciable property.;[f] 6. Reasonable cause will;justify election.;[g] 7. Doubles the number of;annual exclusions available.;[h] 8. No step-up in basis at;death.;[i] 9. Eliminates preferred;stock from donor?s gross estate.;[j] 10. Can postpone payments;of the estate tax for up to 10 years from due date of the return.;2386. CHAPTER;19?FAMILY TAX PLANNING Question MA #31-40 Match each statement with the correct;choice. Some choices may be used more than once or not used at all.Created;a living trust.Made life insurance payable to estate.Established a joint;tenancy with right of survivorship.Made lifetime gifts.Sold out-of-state;realty.Made life insurance payable to children.Created during life an;irrevocable trust naming others as beneficiaries.Two years prior to her death;the insured transferred by gift all of the incidents of ownership in an;insurance policy on her life. The gift was to her son, the beneficiary of the;policy.Paid a gift tax on a gift made two years prior to death of the;donor.Purchased a certificate of deposit listing daughter as the beneficiary;under a payable on death designation.Decreases;the probate estate Increases the;probate estate Decreases the probate;estate Decreases the probate estate;Has no effect on the probate estate Decreases the probate estate Decreases the probate estate Decreases the probate estate Decreases the probate estate Decreases the probate estate;[a] 1. Created a living trust.;[b] 2. Made life insurance;payable to estate.;[c] 3. Established a joint;tenancy with right of survivorship.;[d] 4. Made lifetime gifts.;[e] 5. Sold out-of-state;realty.;[f] 6. Made life insurance;payable to children.;[g] 7. Created during life an;irrevocable trust naming others as beneficiaries.;[h] 8. Two years prior to her;death, the insured transferred by gift all of the incidents of ownership in an;insurance policy on her life. The gift was to her son, the beneficiary of the;policy.;[i] 9. Paid a gift tax on a;gift made two years prior to death of the donor.;[j] 10. Purchased a;certificate of deposit listing daughter as the beneficiary under a payable on;death designation.;2387. CHAPTER;19?FAMILY TAX PLANNING Question MA #41-50 Match each statement with a correct;choice. Choices may be used more than once.Purchased a straight life;annuity from an insurance company.Created during lifetime an irrevocable trust;in which a life estate is retained with remainder interest passing to the;children.Purchased real estate designating herself and her children as equal;tenants in common.Spouse purchased residence listing ownership as tenants by;the entirety.Brother purchased land listing ownership with decedent as tenants;in common.Mother purchases land listing ownership with decedent as joint;tenants.Purchased insurance policy that pays all funeral expenses.After death;vacation home is destroyed by fire.Prior to death filed for a refund of;overpaid income taxes.Paid medical expenses prior to death.Decreases the probate estate Decreases;the probate estate Decreases the;probate estate Has no effect on the;probate estate Increases the probate;estate Has no effect on the probate;estate Decreases the probate estate;Has no effect on the probate estate Increases the probate estate Decreases the probate estate;[a] 1. Purchased a straight life;annuity from an insurance company.;[b] 2. Created during lifetime;an irrevocable trust in which a life estate is retained with remainder interest;passing to the children.;[c] 3. Purchased real estate;designating herself and her children as equal tenants in common.;[d] 4. Spouse purchased;residence listing ownership as tenants by the entirety.;[e] 5. Brother purchased land;listing ownership with decedent as tenants in common.;[f] 6. Mother purchases land;listing ownership with decedent as joint tenants.;[g] 7. Purchased insurance;policy that pays all funeral expenses.;[h] 8. After death, vacation;home is destroyed by fire.;[i] 9. Prior to death filed;for a refund of overpaid income taxes.;[j] 10. Paid medical expenses;prior to death.;j.;Decreases the probate estate;2388. CHAPTER;19?FAMILY TAX PLANNING Question PR #1;Art makes a gift of stock in Drab Corporation, which is not closely held but is;traded in an over-the-counter market. The transactions involving this stock;that occurred closest to the date of gift took place five trading days before;(mean selling price of $120) and six days after (mean selling price of $100).;Determine the fair market value of the Drab stock on the date of the gift.;Correct;Answer;$101.91, determined as follows.;pr001-1.jpg;2389. CHAPTER;19?FAMILY TAX PLANNING Question PR #2;Presuming the ? 2032A election is properly made in 2011, what value is included;in the gross estate in each of the following independent situations?;Special Use;Best Use;Value;Value;Situation A;$3,000,000;$3,900,000;Situation B;1,200,000;3,000,000;2390. CHAPTER;19?FAMILY TAX PLANNING Question PR #3;Carol inherits her father?s farm, and the executor of the estate properly makes;a ? 2032A election. Five years later, Carol sells the farm. It is determined;that the election, which allowed $800,000 in value to be excluded, saved;$160,000 in estate taxes. What are Carol?s tax options? Tax consequences?;2391. CHAPTER;19?FAMILY TAX PLANNING Question PR #4;At the time of her death in 2011, Lila owns 50% of the stock in Kingfisher;Corporation, with the balance of the stock held by family members. Kingfisher;Corporation?s total profits for the;past five years are $3,000,000, and the book value of its stock is $2,000,000.;If 8% is an appropriate rate of return and goodwill exists, what is a possible;value for the stock to be included in Lila?s gross estate?;2392. CHAPTER;19?FAMILY TAX PLANNING Question PR #5;Jane is the founder of Citron Corporation and owns all of its stock, both;common and preferred. The preferred stock is noncumulative and possesses no;preferential rights as to liquidation. In 1996 and when the common stock has a;value of $1,200,000, Jane gives it to her adult children. She retains the;preferred stock which, at this time, has a value of $300,000. In 2011, Jane;dies. Values on the date of death are: $3,000,000 for the common stock and;$500,000 for the preferred.;a.;What is the;amount of the gift Jane makes in 1996?;b.;How much as;to Citron Corporation is included in Jane?s gross estate in 2011?;2393. CHAPTER;19?FAMILY TAX PLANNING Question PR #6;Abigail makes a gift of stock (basis of $600,000, fair market value of;$1,200,000) to her son, Spencer. As a result of the transfer, Abigail paid a;gift tax of $120,000. What is Spencer?s income tax basis in the stock if the;gift occurred in 2011?;2394. CHAPTER;19?FAMILY TAX PLANNING Question PR #7;Joseph makes a gift of securities (basis of $900,000, fair market value of;$600,000) to his son, Earl. As a result of the transfer, Joseph paid a gift tax;of $90,000. What is Earl?s income tax basis in the securities if the gift;occurred in 2011?;2395. CHAPTER;19?FAMILY TAX PLANNING Question PR #8;In April 2010, Ed gives his mother, Grace, real estate (basis of $400,000, fair;market value of $800,000). Ed paid no Federal gift tax on the transfer. Before;Grace?s death in March 2011, she makes $40,000 in capital improvements to the;property. The real estate is worth $840,000 when Grace dies. What is the income;tax basis of the property to Grace?s heir under each of the following;assumptions?;a.;The heir is;Ed?s wife.;b.;The heir is;Grace?s brother (i.e., Ed?s uncle).;2396. CHAPTER;19?FAMILY TAX PLANNING Question PR #9;Fred and Pearl always have lived in a community property state. At the time of;Fred?s prior death in 2011, they held stock that cost them $600,000 but was;valued as follows.;Date of Death;Six Months Later;$5,400,000;$5,000,000;Under Fred?s will, his half of the stock passes to their daughter, Brandi. What;income tax basis will Pearl and Brandi have in the stock, if Fred?s estate;a.;Elects the;alternate valuation date of ? 2032?;b.;Does not;elect the alternate valuation date of ? 2032?;2397. CHAPTER;19?FAMILY TAX PLANNING Question PR #10;In 1985, Scott and Dana acquire land for $600,000 with Scott furnishing;$200,000 and Dana $400,000 of the purchase price. Title to the property is;listed as equal joint tenancy with right of survivorship. Scott dies first in;2011, when the land is worth $3,000,000. What is Dana?s income tax basis in the;property under each of the following assumptions?;a.;Scott and;Dana are brothers.;b.;Scott and;Dana are husband and wife.;c.;Scott and;Dana are husband and wife and the land is community property.;2398. CHAPTER;19?FAMILY TAX PLANNING Question PR #11;Bob and Paige are married and live in a common law state. Bob owns some real;estate (fair market value of $624,000) which they would like to give to their;six adult married children. The spouses of their children (e.g., son-in-law;daughter-in-law) are to be included in the gifts. Bob and Paige do not want to;use any of their unified transfer tax credit. Assuming a constant annual;exclusion in the amount of $13,000, suggest a viable way to structure the transfer.;2399. CHAPTER;19?FAMILY TAX PLANNING Question PR #12;Ingrid?s projected adjusted gross estate is as follows.;Farm;operated by Ingrid, current use value of $2,100,000;$3,000,000;Municipal;bonds;900,000;CDs;500,000;Marketable;securities;1,700,000;Total;$6,100,000;a.;Presuming;that Ingrid expects her estate to elect the special use valuation of ? 2032A;what do you suggest?;b.;What could;go wrong?;2400. CHAPTER;19?FAMILY TAX PLANNING Question PR #13;In February 2010, Taylor sold real estate (adjusted basis of $200,000) for;$600,000. Under the terms of the sale, the purchaser issued two notes of;$300,000 each, payable annually. In January 2011 and when the notes are worth;$560,000, Taylor gives the notes to her son. What, if any, are Taylor?s tax;consequences?;2401. CHAPTER;19?FAMILY TAX PLANNING Question PR #14;In each of the following independent;situations, describe the effect of the disclaimer procedure on Ron?s taxable estate. In this regard, advise;as to how much should be disclaimed, by whom, and whether a disclaimer should;be made. Assume the year involved is 2011.;a.;Ron?s will;leaves $5,200,000 to his adult son and the remainder ($900,000) to Rita;(Ron?s surviving wife).;b.;Ron?s will;leaves $8,000,000 to Rita (Ron?s surviving wife) and the remainder;($2,000,000) to his adult daughter.;c.;Ron?s will;leaves $5,250,000 to Rita (Ron?s surviving wife) and the remainder ($500,000);to a qualified charity.;2402. CHAPTER;19?FAMILY TAX PLANNING Question ES #1;Mel?s estate includes a number of notes receivable signed by his daughter;Tammy. These notes were issued by Tammy on different occasions when she;obtained funds from Mel. The total face amount of these notes is $150,000. The;notes are forgiven by Mel?s will. How much, if any, regarding these notes;should be included in Mel?s gross estate?;2403. CHAPTER;19?FAMILY TAX PLANNING Question ES #2;Wesley has created an irrevocable trust: life estate to Eve, remainder to;Ernest upon Eve?s death. In using the IRS valuation tables, what information is;needed to determine the value of Eve?s life estate?;2404. CHAPTER;19?FAMILY TAX PLANNING Question ES #3;Barney creates a trust, income payable to Chloe for five years, remainder to;Emma. Emma is Barney?s daughter (and a single parent), and Chloe is his 19-year;old granddaughter. What might be the justification for this type of trust?;2405. CHAPTER;19?FAMILY TAX PLANNING Question ES #4;Using investments worth $1 million, Roland establishes a trust, life estate to;Melinda, remainder to Kim.;a.;Has Roland;made one gift or two gifts?;b.;What;difference does it make?;2406. CHAPTER;19?FAMILY TAX PLANNING Question ES #5;If the special use valuation method of ? 2032A is elected and certain;continuing requirements are not satisfied, recapture occurs.;a.;What is the;amount of recapture and upon whom is it imposed?;b.;In terms of;basis for income tax purposes, what effect does recapture under ? 2032A have?;2407. CHAPTER;19?FAMILY TAX PLANNING Question ES #6;What are some of the pitfalls in the use of ? 2032A (special use valuation;method)?

 

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