CFP Estate Planning 2
In 2020, Michael incurs substantial medical bills at the local clinic and Esteban pays $50,000 directly to the hospital in payment of Michael's medical expenses. What is the amount of Esteban's taxable gift as a result of this transaction? A) $30,000 B) $85,000 C) $0 D) $100,000
$0
Which of the following statements regarding types of gifts is CORRECT? A) A gift of a future interest is not eligible for the gift tax annual exclusion. B) A gift of a future interest is not subject to gift tax. C) Indirect gifts, such as the payment of another's expenses, are not subject to the gift tax. D) The gift tax applies to incomplete gifts.
A) A gift of a future interest is not eligible for the gift tax annual exclusion. Indirect gifts, such as the payment of another's expenses, may be subject to the gift tax. The gift tax does not apply to incomplete gifts. The gift tax applies to gifts of future interests as well as to gifts of present interests.
The Bells have decided to establish a charitable trust. Their goal is to receive an annual income from the trust during their lives, with the trust assets passing to charity when they die. Because they both expect to live a long time, they want the income from the trust to provide them with a potential hedge against inflation. Which of the following charitable trusts will best meet the Bells' objectives? A) Charitable remainder unitrust (CRUT) B) Charitable lead unitrust (CLUT) C) Charitable remainder annuity trust (CRAT) D) Charitable lead annuity trust (CLAT)
A) Charitable remainder unitrust (CRUT) A charitable remainder unitrust (CRUT) will best meet the Bells' needs because it provides an annual income payment based on the market value of the trust assets as revalued each year and will provide a potential hedge against inflation. A CRAT provides a fixed annual income payment. A CLAT or CLUT will not meet the Bells' needs because charitable lead trusts provide an income interest to a charity and a remainder interest to noncharitable beneficiaries. This is the opposite of what the Bells want.
All of the following are considered qualified transfers for gift tax purposes EXCEPT A) Charles owns a residence with his sister as JTWROS. He transfers his ownership share of the residence to his sister, making her the sole property owner. B) Lester paid $75,000 to Dr. Bonner for surgery he performed on his friend, David, last year. David is not Lester's dependent. C) Lucy transferred ownership of all of her shares in a mutual fund to her ex-spouse, Annie, because the written divorce decree in their divorce directed her to do so. D) Janet wrote a check for $30,000 to Boston College University to pay Ronnie's college tuition for the current school year.
A) Charles owns a residence with his sister as JTWROS. He transfers his ownership share of the residence to his sister, making her the sole property owner. The answer is Charles owns a residence with his sister as JTWROS. He transfers his ownership share of the residence to his sister, making her the sole property owner. Charles's transfer of his ownership share of the residence to his sister was a gift, not a qualified transfer. The other transfers are all qualified transfers and not gifts.
Which of the following statements regarding the federal gift tax return IRS Form 709 is(are) CORRECT? For a calendar-year taxpayer, an extension of time for filing IRS Form 1040 also extends the time for filing IRS Form 709. George gives $5,000 of separate property to his son. If Mary, George's spouse, elects to split the gift with George, they must file a gift tax return. George and Mary give $20,000 of community property to their son. No gift tax return need be filed. An extension of time for filing the gift tax return does not extend the time for payment of the gift tax. A) I, II, III, and IV B) III and IV C) I and II D) I, II, and III
A) I, II, III, and IV
Lionel Trane has made the following lifetime transfers: Gave his spouse a remainder interest worth $56,000 in a parcel of real estate after his death Funded a Section 2503(c) trust for the benefit of his daughter with $60,000 of common stock; his spouse did not split this gift. Paid his mother's medical bill to the community hospital in the amount of $15,000 Established a revocable trust for his only grandchild with $8,000 in cash Which of the following statements describe the tax impact of Lionel's lifetime transfers on subsequent lifetime transfers that Lionel may wish to make? The gift to his spouse will reduce the amount of future lifetime taxable transfers that he can make without having to pay the gift tax out of pocket. Establishing and funding the trust for his daughter will reduce the amount of future lifetime taxable transfers that he can make by the value of the gift, minus one annual exclusion, without having to pay the transfer tax out of pocket. Paying his mother's hospital bill will have no effect on subsequent lifetime transfers. Establishing the revocable trust will have no effect on subsequent lifetime transfers. A) II, III, and IV only B) I and III only C) I, II, and IV only D) II only
A) II, III, and IV only The gift to his spouse will have no effect because no part of it will be taxable. The entire amount will be covered by the unlimited marital deduction because the gift of a vested remainder is not a terminable interest. Also, since it is a future interest gift, the remainder interest is not entitled to an annual exclusion. The gift to the daughter's trust is entitled to an annual exclusion by the terms of Section 2503(c) even though it technically is not a present interest gift. Direct payment of medical expenses to the provider is exempt from gift tax. A revocable trust is revocable and therefore is not a completed gift.
Which of the following statements regarding qualified transfers for tuition or medical expenses for gift tax purposes are CORRECT? The transfer is limited to the amount of the annual exclusion. The transfer reduces the annual exclusion dollar-for-dollar. The transfer must be paid directly to the medical provider or educational institution. The transfer can be made on behalf of anyone, without regard to the relationship of the donor, to the person benefitting from the gift. A) III and IV B) I and II C) II and III D) I, III, and IV
A) III and IV Statements I and II are incorrect. A qualified transfer for tuition or medical expenses is unlimited in amount and is independent of the annual exclusion or the person's relationship to the donor. Statements III and IV are correct.
Which of the following is CORRECT regarding gift splitting between spouses for federal gift tax purposes? A) If the gift is of a present interest, more of the total gift value can be shielded from gift tax because each spouse may use their annual exclusion to reduce the taxable gift amount for their one-half of the gift. B) When spouses split gifts, one spouse "loans" the other spouse their annual exclusion amount. C) If one spouse consents to gifts made by the second spouse in a particular calendar year, but the second spouse does not reciprocate, gift splitting is allowed as long as the second spouse has consented in one or more prior calendar years. D) Only one spouse must be a U.S. citizen or resident before gift splitting is allowed.
A) If the gift is of a present interest, more of the total gift value can be shielded from gift tax because each spouse may use their annual exclusion to reduce the taxable gift amount for their one-half of the gift. This is the correct answer. It correctly states that if the gift is of a present interest, more of the total gift value can be shielded from gift tax because each spouse may use an annual exclusion to reduce the taxable gift amount for their one-half of the gift. Thus, up to twice the maximum annual exclusion amount can be sheltered with gift splitting, whereas only the amount up to the maximum annual exclusion amount may be sheltered without gift splitting.
George is concerned that he will owe estate tax upon his death, and would like to make a transfer to reduce his gross estate. Which of the following transfer techniques would achieve his goal? A) Making annual gifts of an amount equal to, or in excess of, the annual exclusion. B) Designating his children as payable on death beneficiaries of his bank accounts. C) Creating and funding a revocable trust for the benefit of his children. D) Retitling his residence with his children as JTWROS.
A) Making annual gifts of an amount equal to, or in excess of, the annual exclusion. The answer is making annual gifts of an amount equal to, or in excess of, the annual exclusion will reduce the value of the gross estate.
Last year, Nate established an irrevocable trust and funded it with his portfolio of income-producing stock valued at $440,000. The trust provides that the trustee is to pay Nate 6.5% of the initial value of the trust annually for a period of 15 years. After the 15-year term, the trustee is to pay the remaining assets in the trust to Nate's daughter, Karen. Which of the following is CORRECT regarding the gift tax implications of this trust arrangement? A) Nate will have to pay gift tax only on the present value of the remainder interest. B) Nate must file a federal gift tax return indicating that he has made a taxable gift of $440,000 to his daughter, Karen. C) Nate's retained interest is not a qualified interest for IRC Chapter 14 purposes. D) IRC Chapter 14 does not apply because this is an intrafamily transfer.
A) Nate will have to pay gift tax only on the present value of the remainder interest. This is the correct answer because Nate will report a taxable gift of only the present value of the remainder interest, not the entire fair market value of the trust assets. Even though this is an intrafamily transfer, the usual valuation rules apply because the annuity interest retained by Nate is deemed to be a qualified interest. It is qualified because he will receive a fixed amount that will not fluctuate with the amount earned by the trust annually and cannot be manipulated—the trust is a grantor retained annuity trust (GRAT).
Which of the following statements about the gift tax charitable deduction is NOT correct? A) The charitable gift tax deduction is limited by the type of property gifted, the type of charitable donee, and the donor's adjusted gross income (AGI). B) To qualify for a charitable deduction, a gift must be of cash or property. C) A gift of a partial interest will qualify for a charitable deduction only if it meets the requirements of the Internal Revenue Code and IRS regulations. D) A charitable gift tax deduction is given only for the portion of the contribution in excess of any value the donor receives from the charity.
A) The charitable gift tax deduction is limited by the type of property gifted, the type of charitable donee, and the donor's adjusted gross income (AGI). The charitable gift tax deduction is unlimited for qualifying transfers. For income tax purposes, the charitable deduction has limits based on the type of charitable donee, the type of property gifted, and the donor's AGI (adjusted gross income).
The Chapter 14 zero valuation rules focus on proper valuation of assets at the time of transfer for purposes of determining gift tax. Which of the following statements regarding the Chapter 14 valuation rules are CORRECT? I. An estate freeze involving the intrafamily transfer of corporate stock or partnership interests generally results in an immediate gift tax based on the entire value of the business held by the senior family member. II. In the case of buy-sell agreements, the Chapter 14 rules do not apply to transfers between non-family members. A) I only B) Neither I nor II C) II only D) Both I and II
A) I only Statement II is incorrect because in the case of buy-sell agreements, the Chapter 14 valuation rules apply to transfers between nonfamily members as well as transfers between family members.
Which of the following statements concerning gifts of appreciated property are CORRECT? The donor's holding period carries over to the donee. Generally, the donor's basis carries over to the donee. If the donor paid gift tax on the gift, the donee's basis is increased by a portion of the gift tax paid.
All of these statements are correct.
Which of the following transfers are gifts for purposes of the gift tax statutes? I. Kurt creates an irrevocable trust providing that his son is to receive income for life and his grandson the remainder at his son's death. II. Kurt purchases real property and has the title conveyed to himself and to his brother as joint tenants. III. Kurt creates an irrevocable trust giving income for life to his spouse and providing that upon her death the corpus is to be distributed to his daughter. IV. Kurt purchases a U.S. savings bond made payable to himself and his spouse. The spouse later surrenders the bond for cash to be used for her benefit. A) II and III B) I, II, III, and IV C) I and II D) I, II, and IV
All of these transfers are gifts for purposes of the gift tax statutes. Statement IV falls under the gift tax statutes, but the unlimited marital deduction may be utilized to offset any possible gift tax due.
Humphrey recently gave his nephew several shares of ABC stock, a listed security. On the date of the gift, this stock closed at $12 per share and traded between a high of $14 per share and a low of $8 per share. In valuing ABC stock for gift tax purposes, what is its appropriate per share value? A) $14 B) $11 C) $8 D) $12
B) $11 The fair market value of listed securities for gift tax purposes is the mean between the highest and lowest quoted selling price on the date of the gift. This is calculated as $11 per share: ($14 + $8) ÷ 2.
George and Claire are married and have four children. If they elect gift splitting, what is the maximum amount of total gifts they can make to their children in 2020 and have the gifts be covered by their annual exclusions? A) $15,000 B) $120,000 C) $30,000 D) $60,000
B) $120,000 If George and Claire elect gift splitting, they can give up to $30,000 to each child (a total of $120,000) and have the gifts be covered by the annual exclusion.
Katie, who is unmarried, made the following gifts in 2020: Cash to her sister, Kellie, in the amount of $16,000 Stocks valued at $26,000 to her cousin, Lawrence An automobile (valued at $17,000) to her uncle, Burt $24,000 to the Compassion Center, a charitable organization Certificates of deposit worth $10,000 to her childhood friend, Marjorie What is the amount of Katie's taxable gifts in 2020? A) $69,000 B) $14,000 C) $93,000 D) $45,000
B) $14,000 The total of Katie's taxable gifts is $14,000 ($1,000 to Kellie, $11,000 to Lawrence, and $2,000 to Burt). Note that with the exception of the gift to the Compassion Center, the $15,000 annual exclusion is deducted from each gift to arrive at the taxable gift. The $24,000 given to the Compassion Center is a charitable gift and is fully deductible under gift tax law, so there is no gift tax liability.
What is the maximum gift that Bob and Stan, a married couple, can give to one donee in 2020 without paying any gift tax, assuming they have not made any previous taxable gifts? A) $30,000 B) $23,190,000 C) $22,800,000 D) $11,430,000
B) $23,190,000 For 2020, the answer is $23,160,000: ($11,580,000 applicable exclusion amount × 2 donors) + ($15,000 annual exclusion × 2 donors).
Which of the following statements regarding the gift tax lifetime exemption amount (applicable exclusion amount) and applicable credit amount are CORRECT? The gift tax lifetime exemption amount in 2020 is $11,580,000. The gift tax applicable credit amount in 2020 is $4,577,800. A) II only B) Both I and II C) Neither I nor II D) I only
B) Both I and II Both of these statements are correct.
In which type of charitable trust does the income interest pass to a qualified charity and the remainder interest pass to one or more noncharitable beneficiaries? A) Pooled income fund (PIF) B) Charitable lead trust (CLT) C) Charitable remainder annuity trust (CRAT) D) Charitable remainder unitrust (CRUT)
B) Charitable lead trust (CLT) With a charitable lead trust, income payments go to a charity and the remainder interest passes to noncharitable beneficiaries. With CRATs, CRUTs, and PIFs, the remainder interest passes to a charity.
Bruce, age 80, wants to ensure that he has a continued fixed income to take care of him for the rest of his life. Because Bruce is in a high income tax bracket he also wants to receive a lifetime charitable income tax deduction. He is considering making a charitable gift to the American Cancer Society as long as his stated objectives are met. As his financial planner, which of the following charitable gifting techniques do you recommend? A) Charitable lead trust B) Charitable remainder annuity trust (CRAT) C) Charitable remainder unitrust (CRUT) D) Outright charitable gift
B) Charitable remainder annuity trust (CRAT) A charitable remainder annuity trust (CRAT) is the only option that would provide Bruce with a fixed income amount. The unitrust form would provide lifetime income to Bruce, but the income stream would be variable.
Which of the following statements regarding private foundations are CORRECT? The private foundation must distribute at least 5% of its assets annually for charitable purposes. Private foundations may be administratively expensive to operate because they are subject to strict IRS reporting requirements. Nonoperating private foundations engage in charitable activity directly. A) III only B) I and II C) II only D) I, II, and III
B) I and II Nonoperating private foundations do not engage in any charitable activity directly but generally distribute funds for charitable purposes.
Which of the following statements regarding gift splitting are CORRECT? Gift splitting is permitted only between spouses. If gift splitting is elected, gift splitting applies to all gifts in a given year. Gift splitting doubles the annual exclusion for gifts of a present interest. Gift splitting requires the filing of a gift tax return. A) II and III B) I, II, III, and IV C) I, II, and III D) III and IV
B) I, II, III, and IV
Which of the following statements regarding gift splitting are CORRECT? The annual gift tax exclusion allows spouses who consent to split their gifts to transfer up to $30,000 (for 2020) to any one person during any calendar year without gift tax liability, if the gifts are of a present interest. To qualify for gift splitting, a couple must be married at the time the gift is made. For gift tax purposes, spouses must file a joint income tax return to qualify for the gift splitting benefits. Both spouses must consent to the use of gift splitting and at least one gift tax return must be filed. A) I only B) I, II, and IV C) I and II D) II, III, and IV
B) I, II, and IV Spouses do not have to file a joint income tax return to elect gift splitting. The other statements are correct.
Which of the following statements regarding gifts is NOT correct? A) There may be income tax incentives for making an inter vivos gift, which can involve moving taxable income from a high-bracket donor to a lower-bracket donee. B) If a gift is made within four years prior to the donor's death, the amount of any gift tax paid on the transfer is included in the donor's gross estate. C) An individual can give up to $15,000 gift tax free every year (for 2020) to an unlimited number of donees. D) When a gift is made during the donor's lifetime, any appreciation accruing between the time of the gift and the date of the donor's death escapes the estate tax.
B) If a gift is made within four years prior to the donor's death, the amount of any gift tax paid on the transfer is included in the donor's gross estate. three years
Which of the following situations would NOT constitute a transfer that comes within the gift tax statutes? A) Kai creates an irrevocable trust giving income for life to his spouse, Mina, and providing that at her death the corpus is to be distributed to their son, Jace. B) Mary Sue creates a joint bank account for herself and her daughter, Rachel. Rachel has made no withdrawals from the account. C) Bill purchases real property and has title conveyed to himself and to his brother, Joe, as joint tenants. D) Carla creates an irrevocable trust that provides that her daughter, Amy, is to receive income for life and that Carla's granddaughter, Hayley, is to receive the remainder at Amy's death.
B) Mary Sue creates a joint bank account for herself and her daughter, Rachel. Rachel has made no withdrawals from the account. Rachel has made no withdrawals from the account. A gift does not occur regarding the joint bank account until Rachel withdraws funds for her own benefit.
Which of the following statements about filing and payment of federal gift taxes are CORRECT? A) A donor must file a gift tax return when establishing a QTIP trust only if a QTIP election is not made. B) The donor of a gift is responsible for paying any federal gift tax due on that gift. C) A donor must file a gift tax return for a gift of a future interest only if its value exceeds the maximum annual exclusion. D) The federal gift tax return is IRS Form 706.
B) The donor of a gift is responsible for paying any federal gift tax due on that gift.
Which of the following statements regarding QTIP trusts are CORRECT? QTIP trusts allow a terminable interest to be left to the surviving spouse and still qualify for the estate tax marital deduction. Assets in a QTIP trust are usually included in the gross estate of the second spouse to die. QTIP trusts are useful when the first spouse to die has children from a prior marriage. A) II only B) I, II, and III C) II and III D) I and III
B) I, II, and III All of these statements are correct. The QTIP is included in the estate of the second spouse to die at the same percentage as the first spouse took as a marital deduction. If 100% of the QTIP was taken as a marital deduction when the first spouse dies, then 100% of the QTIP is included in the second spouse to die's gross estate. If the first spouse's estate only took a martial deduction for 70% of the QTIP, then only 70% of the QTIP's value when the second spouse to die passes away is included in the estate of the second spouse to die.
If a decedent's property does not pass to someone by will substitute or by will, and there are no legal heirs under the applicable state intestate succession statute, the property will A) be claimed by the IRS as a death tax. B)escheat to the state. C) be held by the court until a distant relative can be located and petitions the court for distribution. D) be donated to a charitable organization.
B)escheat to the state. The property will be held by the state in trust for a stated number of years, and if no legal heirs under the intestacy statutes come forward, the property escheats to the state.
Bob Dickson established a Uniform Transfers to Minors Act (UTMA) account for each of his 10 children in 2019. He funded each account with $580,000. Bob had made $200,000 of taxable gifts in prior years. The gift tax due on these prior gifts was paid by his gift tax credit amount. Bob did not make any other gifts to his children in 2020. Which of the following is the net federal gift tax due for the 2020 gifts? A) $67,525 B) $232,000 C) $0 D) $185,400
C) $0 Transfers to an UTMA are eligible for an annual exclusion. Therefore, $565,000 of each transfer is taxable, for a total of $5,650,000. Bob's prior taxable gifts must be added to this amount to determine total taxable gifts of $5,850,000 ($5,650,000 + $200,000). This figure is taken to the gift tax rate table to compute a tax due of $2,285,800 ($4,850,000 × 40% = $1,940,000 + $345,800 [tax on $1 million]). From this amount, the tax on $200,000 (the prior taxable gifts) is deducted. The tax on $200,000 is $54,800. Therefore, $2,285,800 - $54,800 = $2,231,000. Because Bob has used $54,800 of his $4,577,800 gift tax credit amount on prior gifts, he has $4,523,000 of this credit left to apply to current gifts. Therefore, Bob's net federal gift tax due for the current transfers is $0 because he can use a portion of his remaining applicable credit amount.
Erwin makes a gift of his vacation home to his friend, Winnie. Erwin paid $200,000 for the home 20 years ago, and the home has a fair market value of $1.5 million on the date of the gift. What is the value of the gift for gift tax purposes? A) $1.7 million B) $1.3 million C) $1.5 million D) $200,000
C) $1.5 million The value of a gift for gift tax purposes is the fair market value of the property on the date of the gift less any consideration paid by the donee. The value of the gift is not affected by the donor's basis in the gifted property.
Margo has made the following lifetime transfers to her spouse, Jim: She gave him a remainder interest in a parcel of real estate valued at $100,000. She gave him a life estate in her seaside cottage valued at $50,000 and did not make a QTIP election. She created an irrevocable trust that gave him a qualifying income interest and a general power of appointment over the trust asset and funded it with securities valued at $300,000. She created a QTIP trust, which she funded with securities valued at $200,000, gave him a qualifying income interest, and named her sister as the remainder beneficiary; she elected the marital deduction for the entire amount of the transfer. How much have Margo's lifetime transfers increased Jim's gross estate tax if Margo predeceases him, he does not remarry, and he retains the assets until death and they do not increase in value? A) $400,000 B) $100,000 C) $600,000 D) $650,000
C) $600,000 Jim's gross estate will be increased by $600,000. All of the interests transferred will be included, except the life estate interest in the seaside cottage ($100,000 remainder interest, $300,000 marital trust interest, and $200,000 QTIP trust interest). The transfer of the three interests escaped gift taxation when made by Margo because they qualified for the unlimited marital deduction. Even though Jim has no control over who will receive the QTIP trust interest (as he does with the other two interests), the amount that escaped taxation because of the marital deduction will be part of his gross estate. Like the QTIP trust interest, Jim has no control over who will receive the seaside cottage at his death because his life estate rights end at his death, but the $50,000 value will not be included in his gross estate. This is because, unlike the QTIP trust, when Margo made the transfer of the life estate in the cottage, it was taxed as a gift due to it not qualifying for the marital deduction because it was a terminable interest and the QTIP election was not made.
Which of the following situations does not require the filing of a federal gift tax return? A) A donor makes a transfer to one donee of a present value for more than the annual exclusion, but has not used any applicable credit amount. B) A donor and spouse agree to split a present interest gift to one donee valued at more than the annual exclusion, but less than twice the annual exclusion amount. C) A donor makes a transfer to one donee of a present interest valued at less than the annual exclusion, but has used all of his applicable credit amount to offset the tax on prior gifts. D) A donor transfers to one donee a future interest valued at less than the annual exclusion amount.
C) A donor makes a transfer to one donee of a present interest valued at less than the annual exclusion, but has used all of his applicable credit amount to offset the tax on prior gifts. This is the correct answer because there is no requirement to file a federal gift tax return if the gift by a donor is of a present interest valued at less than the annual exclusion amount. The donee's applicable credit amount situation is irrelevant to whether a return must be filed.
In which of the following situations must the donor file a gift tax return (IRS Form 709)? A) A husband gives his wife a house with a fair market value of $3 million. B) An uncle gives his niece $5,000 in cash. C) A father gives his son $15,000 in cash and his spouse agrees to gift splitting. D) A man pays $100,000 directly to a hospital to pay the medical expenses of his best friend.
C) A father gives his son $15,000 in cash and his spouse agrees to gift splitting. Any split gift election requires the filing of a gift tax return, even when there is no tax due, unless the gift is community property and less than twice the annual exclusion amount.
Abby is a businessowner, and she wants to provide her key employee with an additional benefit in light of her stellar work performance. Abby is interested in securing a life insurance policy for her key employee. Which type of policy should Abby give to her employee? A) A second-to-die life insurance policy B) A first-to-die life insurance policy C) A split-dollar life insurance policy D) A key-person life insurance policy
C) A split-dollar life insurance policy A split-dollar life insurance policy can be used to retain the services of key employees by providing them with more insurance protection than the employee could otherwise afford.
Which of the following statements regarding gift splitting is NOT correct? A) The gift tax annual exclusion may be doubled if gift splitting is elected. B) If a donor elects to split gifts, the election must be applied to all gifts made during that calendar year. C) Gifts of community property require a gift splitting election. D) Gift splitting is available only to spouses.
C) Gifts of community property require a gift splitting election. Gifts of community property or JTWROS property do not require a gift splitting election. All of the other statements are correct.
Which of the following transactions made in 2020 require the donor to file a gift tax return? The donor makes a gift of a future interest valued at $5,000 to his son. The donor and spouse use gift splitting and give their son $12,500 for the son's birthday. The donor transfers $15,000 to a revocable inter vivos trust for the son, who is both the income and remainder beneficiary. The donor and his spouse gift community property worth $14,500 to their daughter for her birthday. A) II, III, and IV B) I, II, III, and IV C) I and II D) I and III
C) I and II Statements I and II require filing. Statement III is not a completed gift, and Statement IV is a split gift of community property and is less than the annual exclusion; therefore, no filing is required.
In which of the following situations must the donor file a federal gift tax return? The donor makes a gift of a present interest valued at $10,000 to one donee. The donor makes a gift of a future interest valued at $1,000 to one donee. The donor makes a gift of $10,000 to one donee and the donor's spouse agrees to gift splitting. A) I, II, and III B) I and II C) II and III D) I only
C) II and III Statement I is incorrect; a gift tax return is not required because the gift does not exceed the annual exclusion and is not a gift of a future interest. Statements II and III are correct. A gift tax return is required when a gift of a future interest in any amount has been made or when gift splitting has been elected by spouses.
Which of the following statements regarding the concept of gift splitting in federal gift tax law is CORRECT? A) Spouses can elect to split some gifts but not split other gifts made within the same calendar year. B) Gifts of community property require a gift splitting election. C) In non-community property states, the donor spouse must file a gift tax return even if the split gift value is less than the annual exclusion. D) The gift splitting election may be made by any related party who joins in the making of the gift.
C) In non-community property states, the donor spouse must file a gift tax return even if the split gift value is less than the annual exclusion. If a married couple elects to split gifts, a gift tax return must be filed by the donor spouse even if the split brings the total gift to less than the annual exclusion amount. One exception to this is where the married couple lives in a community property state. In that instance, each spouse is considered to already own a one-half interest in the property gifted (meaning that the filing of a return to indicate spousal consent is not required). The purpose of filing the gift tax return, even though the gift is less than the annual exclusion for either spouse, is to document the gift splitting to the IRS.
Jeanine and Scott are married. Jeanine gifted $100,000 to their son and $100,000 to their daughter in 2020. Scott also gifted $50,000 to their son in the same year. They made no other gifts during the year. Jeanine and Scott elected to split the gifts on their gift tax returns. What is the total amount of taxable gifts made by Jeanine and Scott, respectively, for 2020? A) Jeanine: $110,000; Scott: $110,000. B) Jeanine: $185,000; Scott: $35,000. C) Jeanine: $95,000; Scott: $95,000. D) Jeanine: $170,000; Scott: $20,000.
C) Jeanine: $95,000; Scott: $95,000. Taxable gifts = $95,000 each ($250,000 − $60,000 annual exclusions) ÷ 2.
On January 1, 2020, Paul gifts a piece of land (basis of $100,000, FMV of $300,000) to his father. Which of the following statements is CORRECT? A) If Paul had sold the land to his father for $50,000 instead of gifting it, he would have had a deductible loss of $50,000. B) If Paul's father dies on December 1, 2019, and leaves the land to Paul, Paul will receive a stepped-up basis in the property. C) Paul's father's basis in the property will be $100,000. D) If Paul dies, the property will be included in his gross estate at the date-of-death value.
C) Paul's father's basis in the property will be $100,000. The gift basis to a donee is the carryover basis of the donor ($100,000). The boomerang rule of Section 1014(e) precludes Paul from receiving a stepped-up basis at his father's death if his father dies within one year of receiving the property from Paul.
In 2020, George decided to begin a program of lifetime giving to his five grandchildren and three great- grandchildren. He wants to control the amount of annual gifts to avoid the imposition of federal gift tax, and he does not desire to use any of his or his spouse's applicable credit amount. However, his spouse is willing to split each gift over a period of 10 years. Over the 10-year period, George can give a total amount of gifts (ignoring future indexing of the annual exclusion), including the gift splitting, of
Calculate as follows: $15,000 × 8 × 10 × 2 = $2,400,000. Each spouse can gift $15,000 (for 2020) per donee without resulting in a taxable gift. Using gift splitting over the 10-year period, they can gift a total of $2,400,000.
Phillipe established a revocable living trust naming himself, his spouse, and his two children as income beneficiaries, and his grandchildren as remainder beneficiaries. He funded the trust with $300,000. What is the value of this trust for gift tax purposes? A) $250,000 B) $100,000 C) $50,000 D) $0
D) $0 Funding a revocable living trust has no effect on gift taxes as no gifts are made to oneself.
In 2020, Walter gave his 20-year-old son, Rufus, stock valued at $320,000. Walter's spouse, Frances, consented to split this gift with Walter for gift tax purposes. What amount of taxable gift must Walter report on his gift tax return for 2020? A) $305,000 B) $320,000 C) $160,000 D) $145,000
D) $145,000 Walter must report a taxable gift of $145,000 on his 2020 gift tax return [($320,000 ÷ 2) − $15,000 annual exclusion]. The annual exclusion is considered after the gift is split between spouses.
In 2020, Ron gives $20,000 in cash to each of his four children. What amount of taxable gifts, if any, must Ron report for 2020? A) $65,000 B) $80,000 C) $0 D) $20,000
D) $20,000 Because all of the gifts are present interests and they are made to four different donees, each gift is eligible for the annual exclusion of $15,000 (in 2020). Therefore, total taxable gifts are $20,000: 4 × ($20,000 − $15,000).
Kim made the following gratuitous transfers in 2019: $20,000 certificate of deposit to her spouse $50,000 remainder interest in a trust to her two adult children $32,000 cash donation to her church $15,000 custodial account to each of her four grandchildren Kim's spouse consented to gift splitting for the current year. What is the amount of Kim's taxable gifts for 2020? A) $38,000 B) $5,000 C) $58,000 D) $25,000
D) $25,000 Kim's taxable gift amount for the current tax year is $25,000. Only the gift of the remainder interest to her two adult children results in a taxable gift. Because Kim's spouse consented to gift splitting, Kim remains responsible for half of this taxable gift, or $25,000, which is fully taxable because it cannot be offset with the gift tax annual exclusion. Kim's gift of the $20,000 certificate of deposit to her spouse is reduced to a taxable gift of zero by the annual exclusion amount and the unlimited marital deduction ($20,000 - $15,000 = $5,000 - $5,000 = $0). Kim's gift of $32,000 in cash to her church is reduced to a taxable gift of zero by gift splitting, the annual exclusion amount, and the unlimited charitable deduction ($32,000 2 = $16,000 - $15,000 = $1,000 - $1,000 = $0). Finally, Kim's gift of $15,000 to custodial accounts for each of her four grandchildren also is reduced to a taxable gift of zero by gift splitting and the annual exclusion amount (for each child: $15,000 2 = $7,500 - $7,500 = $0). The other answer choices are incorrect because only gifts of present interests qualify for the annual exclusion.
Kent, a widower, has made lifetime gifts to his two children in an effort to reduce the size of his gross estate. In 2014, Kent made a $300,000 taxable gift, and in 2016, he made another taxable gift of $100,000. He used his gift tax applicable credit amount to offset any gift tax liability for all gifts. What amount of the gift tax applicable credit, if any, remains available to Kent for gifts he may desire to make in 2020? A) $4,577,800 B) $4,025,800 C) $4,125,800 D) $4,456,000
D) $4,456,000 To calculate how much of the applicable credit amount remains in 2020, the amount used in prior years must be computed. Because the gifts for 2014 and 2016 are stated to be taxable gifts, nothing further needs to be deducted before computing the tax. Therefore, the tax on $400,000 ($300,000 + $100,000) is $121,800 ($70,800 + 34% of $150,000). Because the maximum gift tax applicable credit amount available in 2019 is $4,577,800 and prior gifts have used $121,800 of this amount, $4,456,000 remains.
Roger has made the following gratuitous lifetime transfers: $30,000 in 2000 to his mother and father; $30,000 to each of his three children in 2001 (these amounts were placed in three separate Section 2503(c) minor's trusts); and $90,000 in 2011 to a revocable trust that gives the corporate trustee the discretion to make disbursements of income or principal for the health, education, maintenance, and support of Roger's brother. Through the end of 2011, the trustee made disbursements of $14,000 from the trust to Roger's brother. Roger's spouse passed away in 1999. What amount of gift tax applicable credit does Roger have available in 2020 for subsequent lifetime transfers after reporting these transfers for gift tax purposes? A) $330,440 B) $984,140 C) $4,283,800 D) $4,561,940
D) $4,561,940 The taxable gifts were as follows: 2000: $30,000 - [2 × $10,000 for annual exclusions (AE)] = $10,000 2001: $30,000 × 3 - [3 × $10,000 (AE)] = $60,000 2011: $14,000 - $13,000 (AE) = $1,000 (only the amount actually disbursed is a completed gift) Therefore, Roger has made total cumulative taxable gifts of $71,000, which has incurred cumulative gift taxes in the amount of $15,860, and therefore he has used $15,860 of his gift tax applicable credit amount, leaving $4,561,940 ($4,577,800 - $15,860) of gift tax applicable credit amount available for lifetime gifts in 2020.
The following is a list of all of the gratuitous transfers that Jean made during her lifetime: 2000:Jean placed the common stock listed above in an irrevocable trust in which she retained the right to a 5% distribution of the trust account revalued annually for 25 years, with the remainder to her children at her death. The date-of-gift fair market value of the stock was $190,000; the value of Jean's retained interest on the date the gift became complete was $90,000.2001:She made a cash gift to her niece of $30,000, which Loren agreed to split.2005:She paid the University of Iowa $11,000 for her youngest child's tuition.2019:She gave her brother $70,000 in cash, which Loren agreed to split. Jean's will, executed in 2000, gave the residence and personal property to Loren and the Hummel figurines to a qualified charity. Jean's three children were designated as equal beneficiaries of her IRAs. Each beneficiary of Jean's estate was to pay any transfer tax due on the portions of the estate received. Her will also stipulated that any real property was to be received without a right of exoneration. Further, her will stipulated that funeral and administrative expenses were to be paid equally by her spouse and three children. These funeral and administrative expenses amounted to $60,000 for Jean's estate. Jean's estate paid state death taxes in the amount of $4,184 and will pay off the car loan. Which of the following amounts most closely approximates Jean's gift tax liability, prior to application of the applicable credit amount, for the 2019 gift? A) $25,300 B) $0 C) $31,300 D) $6,000
D) $6,000 When a question is very long, it can help to skip the background information initially and read the actual question first. In this case, none of the information about Jean's estate matters. The taxable amount of the 2000 transfer was $100,000—the value of the remainder interest ($190,000 - $90,000 she retained). The taxable amount of the 2001 gift was $5,000 ($30,000 2 = $15,000 $10,000). The 2005 transfer is exempt from gift tax. The taxable amount of the 2019 gift was $20,000 ($70,000 2 = $35,000; $35,000 $15,000 = $20,000). Therefore, total taxable gifts equal $125,000 ($100,000 + $5,000 + $20,000). The gift tax on $125,000 is $31,300. Prior taxable gifts equal $105,000 ($100,000 + $5,000). Tax on $105,000 is $25,300. Thus, the gift tax due on the 2019 gift (prior to application of the applicable credit amount) is $6,000 ($31,300 - $25,300).
Ted and Betty are spouses. In 2020, Betty makes a gift of $25,000 to her mother, and Ted agrees to treat the gift as a split gift. Who must file a gift tax return for 2020 if this is their only gift? A) Both Betty and Ted B) Neither Betty nor Ted C) Ted D) Betty
D) Betty Only Betty must file a gift tax return. If spouses agree to split gifts for the year and make no gifts in excess of $30,000 (2019), only the donor spouse is required to file a gift tax return. The consenting spouse must sign the donor's gift tax return to consent to the gift splitting. Filing a gift tax return in this situation documents the splitting of the gifts. It also documents the value of the gift.
Christine transfers property worth $15 million into a grantor retained interest trust (GRIT). She retains the right to receive income from the trust for a term of 15 years. At the end of the 15-year term, the trust property will pass to her children. Christine's GRIT does not comply with the zero valuation rules contained in Chapter 14 of the Internal Revenue Code. Which of the following statements regarding the gift tax consequences of Christine's GRIT is CORRECT? Christine's retained income interest will be valued at zero for gift tax purposes. The entire $15 million in property transferred to the GRIT is considered to be a gift for gift tax purposes. A) I only B) Neither I nor II C) II only D) Both I and II
D) Both I and II
This year, Rhonda makes present interest gifts to five different donees and makes future interest gifts to three other donees. Rhonda is entitled to how many gift tax annual exclusions this year? A) One B) Three C) Eight D) Five A separate annual exclusion applies to each donee who receives a gift of a present interest, so Rhonda is entitled to five annual exclusions. Each annual exclusion amount covers up to $15,000 of present interest gifts per recipient in 2019.
D) Five A separate annual exclusion applies to each donee who receives a gift of a present interest, so Rhonda is entitled to five annual exclusions. Each annual exclusion amount covers up to $15,000 of present interest gifts per recipient in 2019.
A gift of which of the following property interests will qualify for the gift tax annual exclusion? Present interest Future interest Remainder interest A) I and III B) II only C) I, II, and III D) I only
D) I only Only a gift of a present interest qualifies for the annual exclusion. A remainder interest is an example of a future interest.
Which of the following charitable trusts may NOT invest in tax-exempt securities? Pooled income fund (PIF) Charitable remainder annuity trust (CRAT) Charitable remainder unitrust (CRUT) A) I, II, and III B) II and III C) III only D) I only
D) I only The pooled income fund is the only option that cannot invest in tax-exempt securities. CRATs and CRUTs are allowed to invest in tax-exempt securities.
Which of the following transactions are subject to the Chapter 14 valuation rules? Corporate recapitalizations Partnership capital freezes Grantor retained trusts, such as GRITs Buy-sell agreements between non-family members A) I and II B) I, II, and III C) IV only D) I, II, III, and IV
D) I, II, III, and IV
Which of the following results from Arthur creating a charitable remainder annuity trust (CRAT) or charitable remainder unitrust (CRUT) and donating his ownership of Bell's Animal Care Center to such a trust, as opposed to a direct sale of the business? He avoids capital gains tax upon the transfer of the business to the trust. He gets an immediate charitable income tax deduction. He may select a joint life annuity. He can receive annuity income. A) I, II, and IV B) II and IV C) II only D) I, II, III, and IV
D) I, II, III, and IV He avoids capital gains tax upon the transfer of the business to the trust. He gets an immediate charitable income tax deduction for transferring assets to the CRAT or CRUT (subject to the rules on the type of charity and AGI limits). He is able to get a retirement annuity from the CRAT or CRUT. He can choose a joint life expectancy for either the CRAT or CRUT.
Which of the following property transfers between family members are subject to the special zero valuation rules under Chapter 14? Corporate recapitalizations Partnership capital freezes Buy-sell agreements A) II and III B) III only C) I and II D) I, II, and III
D) I, II, and III All of these property transfers between family members are subject to the special zero valuation rules under Chapter 14. In other words, these types of transfers must comply with the rules under Chapter 14 of the Tax Code or the transfer will have negative gift tax consequences.
A grandfather decides to implement a systematic annual gifting program to make annual exclusion gifts to each of his 10 grandchildren every year. Which of the following statements regarding this gifting program are CORRECT? The grandfather will need to file a federal gift tax return each year. The program will require the grandfather to use a portion of his gift tax applicable credit amount. The program will allow the grandfather to reduce the size of his gross estate for estate tax purposes. A) II and III B) I only C) III only D) I, II, and III
D) I, II, and III Statements I and II are incorrect. Because the grandfather's gifts will not exceed the annual exclusion amount, he will not be required to file annual gift tax returns and he will not use any of his gift tax applicable credit amount. Statement III is correct because any amounts gifted by the grandfather during his life will be excluded from his gross estate at death.
Arthur and Tasha are a married couple, and they have three children. If they begin making gifts to their children in 2020, which of the following gifts would require the filing of a gift tax return for tax year 2020, knowing the gift tax annual exclusion remains at $15,000 for 2020? Arthur gives each child $10,000, for a total of $30,000 in gifts. Arthur gives each child $10,000, for a total of $30,000 in gifts, and he and Tasha elect gift splitting. Tasha gives a future interest gift worth $5,000 to one child. A) III only B) I, II, and III C) I and II D) II and III
D) II and III Statements II and III are correct. A gift tax return must be filed whenever a married couple elects gift splitting and whenever a gift of a future interest is made. Statement I is incorrect; a gift tax return is not required in this case because no gift to any donee exceeds the annual exclusion amount.
If Arthur and Tasha Bell begin making gifts to their three children in 2020, which of the following gifts would require the filing of a gift tax return for tax year 2020? Arthur gives each child $10,000, for a total of $30,000 in gifts. Arthur gives each child $10,000, for a total of $30,000 in gifts, and he and Tasha elect gift splitting. Tasha gives a future interest gift worth $5,000 to their daughter Danielle. A) I, II, and III B) I and II C) III only D) II and III
D) II and III Statements II and III are correct. A gift tax return must be filed whenever a married couple elects gift splitting and whenever a gift of a future interest is made. Statement I is incorrect; a gift tax return is not required in this case because no gift to any donee exceeds the annual exclusion amount.
Which of the following are examples of gift giving that are likely to result in favorable tax consequences? An advantage of giving property with a current value that is less than its basis (loss property) is that when the recipient sells the property the loss is available to offset any gains. Elderly taxpayers should give highly appreciated, low basis property in preference to cash. Making net gifts is a technique for clients who do not have very much in liquid assets and who want to make taxable gifts. The donee can depreciate depreciable property based on its value for gift tax purposes. A) I and IV B) II, III, and IV C) I, III and IV D) III only
D) III only Statement I is incorrect; the double basis rule would not permit this favorable treatment. Statement II is incorrect; at the date of death, the property basis would be adjusted to fair market value. Statement III is correct. Statement IV is incorrect; the property would be depreciated on the basis of its adjusted basis, not its fair market value.
Tommy wishes to transfer his house valued at $60,000 to his son, Bob, in trust for Bob's lifetime, with the remainder to Bob's children. Tommy plans to occupy the house until his death. Which of the following statements are CORRECT? The gift to Bob is eligible for the annual exclusion. The gift of the remainder interest to Bob's children is eligible for the annual exclusion. Tommy has not made a gift. The transfer of the house is a future interest gift. A) I, II, III, and IV B) III and IV C) II only D) IV only
D) IV only Neither the gift to Bob nor the gift of the remainder interest gift to Bob's children is eligible for the annual exclusion. A present interest gift that qualifies for the annual exclusion generally transfers an immediate right to possession or enjoyment of the property or property interest to the donee. In this case, the gift is one of a future interest, both to Bob and his children.
Which of the following statements about the federal gift tax are CORRECT? The federal gift tax applies to all gratuitous transfers. Gift splitting means that spouses may elect to file a joint gift tax return. The unlimited gift tax marital deduction has the effect of abolishing the terminable interest rule. Taxable gifts for prior years must be added to taxable gifts for the current year to determine the tax bracket(s) applicable to the current year's taxable gifts. A) I, II, and IV B) I only C) I and II D) IV only
D) IV only Certain gratuitous transfers, such as political contributions and direct payment of medical and tuition expenses, are exempt from the gift tax. Statement II is incorrect, as there is no such thing as a joint gift tax return. A marital deduction can be taken only when the gift to the surviving spouse is not a gift of a terminable interest. Thus, one does not abolish the other.
Which of the following charitable remainder trusts can be revoked by the grantor after they are established? Charitable remainder annuity trusts (CRATs) Charitable remainder unitrusts (CRUTs) A) I only B) Both I and II C) II only D) Neither I nor II
D) Neither I nor II Neither is correct. For a trust to qualify as a CRAT or a CRUT, the trust must be irrevocable upon inception.
In which of the following situations is a holder's power to appoint property to himself considered to be a general power of appointment over the entire property for gift tax purposes? The holder's power is limited by an ascertainable standard so that the power is exercisable only for the holder's health, education, maintenance, or support (HEMS). The holder may exercise the power only with the consent of the grantor or a third party who has an interest that is adverse to the holder's. The right to exercise the power each year is limited to the greater of $5,000 or 5% of the total value of the property subject to the power. A) I only B) II and III C) I, II, and III D) None of these
D) None of these None of the statements describe situations in which a holder's power to appoint property to himself is considered a general power of appointment over the entire property. For gift tax purposes, the power of the holder to appoint property to himself is not a general power of appointment in any of these situations.
Which of the following statements about the federal gift tax is CORRECT? A) The unlimited gift tax marital deduction has the effect of abolishing the terminable interest rule. B) The gift tax applies to all gratuitous transfers. C) Gift splitting means that spouses may elect to file a joint gift tax return. D) Taxable gifts for prior years must be added to taxable gifts in the current year to determine the tax bracket(s) applicable to the current year's taxable gifts.
D) Taxable gifts for prior years must be added to taxable gifts in the current year to determine the tax bracket(s) applicable to the current year's taxable gifts. This is the correct answer. Because the gift tax is cumulative (based on all taxable gifts since the inception of the gift tax in 1932), taxable gifts for prior years must be added to taxable gifts in the current year to determine the tax bracket(s) applicable to the current year's taxable gifts.
Alan created and funded an irrevocable trust with $150,000 for the benefit of his two minor children with income to be accumulated for five years, at which time the trust will terminate and all the income and corpus are to be distributed equally between the two children. Which of the following is a CORRECT statement about the impact of this lifetime transfer on any subsequent lifetime transfers Alan might make? A) Any annual exclusions that Alan applies to the transfer creating the trust will decrease the annual exclusions available for transfers to the same children in the future. B) Alan could not take any annual exclusions in the year he created the trust, but he will be able to do so at the time the trust is distributed to the children. C) Any subsequent taxable lifetime transfers will be taxed at a higher rate. D) This transfer will have no impact on any subsequent transfers.
D) This transfer will have no impact on any subsequent transfers. The taxable amount of this transfer is $150,000 because no annual exclusions can be taken (there are no present interest gifts because the income will be accumulated for five years); $150,000 is at the top of a bracket on the unified rate chart. Therefore, the next taxable transfer will be taxed at a higher rate. There is no gift at the time of distribution to which to apply an annual exclusion. No annual exclusions can be taken at the creation of the trust. Annual exclusions are available each year.
Which of the following most likely describes the reason for including Crummey powers in a trust? A) To relieve the trust of fiduciary obligations regarding the trust assets B) To ensure that the trust complies with the rule against perpetuities C) To protect the trust assets against claims by the beneficiaries' creditors D) To ensure that gifts to the trust qualify for the gift tax annual exclusion
D) To ensure that gifts to the trust qualify for the gift tax annual exclusion
Some financial advisers recommend hiring an appraiser and filing an informational gift tax return of certain property, even when the donor believes that the property has a value that is less than the allowable annual exclusion amount. Why is this good advice? A) If a return is not filed, but the property is appraised, the IRS cannot contest the value of the gift. B) If the property is appraised and a return is filed, the IRS cannot contest the value of the gift. C) If the property is appraised and a return is filed, the IRS has only one year to contest the value of the gift. D)If a return is not filed when a gift is made, the IRS can contest the value of the gift at any future time.
D)If a return is not filed when a gift is made, the IRS can contest the value of the gift at any future time. If a gift tax return is filed, the IRS can only contest the valuation of the gift disclosed on the return within three years.
Which of the following statements regarding lifetime gifts are CORRECT? Annual exclusion gifts will escape gift taxation and will not be included in the donor's gross estate. Future appreciation in the value of gifted property will escape estate taxation in the donor's estate. Income from gift property will generally be taxed to the donee for income tax purposes. Generation-skipping transfer taxes do not apply to lifetime gifts. A) II and III B) I and III C) II, III, and IV D) I, II, and III
I,II, AND iv Only Statement IV is incorrect; the generation-skipping transfer tax (GSTT) does apply to lifetime gifts. Statements I, II, and III are correct.
The Chapter 14 valuation rules of the Internal Revenue Code apply to which of the following types of techniques between family members? Corporate recapitalizations Partnership capital freezes Grantor retained trusts Buy-sell agreements A) I, II, III, and IV B) I and II C) III only D) IV only
The Chapter 14 valuation rules apply to all of these techniques among family members. They also apply to buy-sell agreements among non-family members.
Which of the following correctly describes the federal gift tax annual exclusion? A) It is the maximum amount of present interest gifts allowed per donee per year or the actual amount given to the donee, whichever is less. B) It applies to completed gifts of whole or partial interests and present or future interests. C) It is available only to gifts made by married donors. D) It allows a donor to completely avoid tax liability on a qualifying transfer of any amount.
This is the correct answer. It correctly states that the federal gift tax annual exclusion is the maximum amount of present interest gifts allowed per donee per year or the actual amount given to the donee, whichever is less. If the amount given is less than the maximum annual exclusion amount, the donor can only exclude the actual amount given. For example, if the amount given is $8,000, only $8,000 is excluded. The maximum amount is indexed annually for inflation, but only changes in $1,000 increments.
Sarah and Jenny, a married couple, own real estate as JTWROS, and Sarah is contemplating a transfer of her interest to Jenny. Assuming the transfer occurs, which of the following statements are CORRECT? A taxable gift occurs. The transfer is eligible for the marital deduction. A) I only B) II only C) Both I and II D) Neither I nor II
b) ii ONLY Only Statement II is correct. A taxable gift has not occurred because of the marital deduction.
Which of the following is NOT an advantage of making a lifetime gift? A) It diminishes the size of the gross estate. B) It provides personal satisfaction. C) It excludes gift tax paid on the gift from the donor's gross estate regardless of how soon the donor dies after making the gift. D) It shifts income from the gifted asset to the donee.
c) It excludes gift tax paid on the gift from the donor's gross estate regardless of how soon the donor dies after making the gift. Gift tax taxes paid out of pocket are excluded from the donor's gross estate only if the donor's date of death is not within three years of the gift. In order for a donee to pay gift taxes out of pocket (instead of using the applicable gift tax credit), the donor must have already made adjusted taxable gifts of more than the exemption equivalent.
