Chapter 18 Test Bank

Which of the following is not a characteristic of both the Federal gift tax and the Federal estate tax? a. A deduction for state death taxes may be available. b. A charitable deduction is available. c. A marital deduction is available. d. An exclusion amount is available in computing the tax.

a The deduction for state death taxes (§ 2058), formerly a credit, is only available for estate tax purposes (choice a.).

Concerning the Federal estate tax deduction for asset transfers to charity: a. The deduction is allowed only if the decedent had a valid will. b. A deduction is allowed for a gift to the cemetery association. c. A deduction is disallowed if the gift is made to the United Way of Bosnia. d. All of the above statements are true.

a.

Concerning the Federal tax on generation-skipping transfers: a. The tax applies in addition to any applicable gift or estate tax. b. The tax applies in lieu of any applicable gift or estate tax. c.The tax is applied at a flat 33 percent tax rate. d. The annual gift tax exclusion cannot be used to reduce the tax.

a.

In 2005, Mandy and Hal (mother and son) purchased land for $600,000 as joint tenants with right of survivorship. Of the $600,000 purchase price, Mandy provided $300,000 and Hal $300,000 (of which $200,000 had been received as a gift from Mandy). Hal dies first when the land is worth $3,000,000. As to the land, Hal's gross estate must include: a. $500,000. b. $1,500,000. c. $2,500,000. d. $3,000,000. e. None of the above.

a.

Matt and Patricia are husband and wife and live in Oregon. In 2000 and using her funds, Patricia purchases a residence for $400,000, listing title to the property as "Matt and Patricia, joint tenants with right of survivorship." In 2018, Matt dies first when the residence is worth $2 million. A correct statement as to these transactions is: a. In 2018, Matt's gross estate includes $1 million and a marital deduction of $1 million is allowed for estate tax purposes. b. In 2000, Patricia made a gift to Matt but no marital deduction is available for gift tax purposes. c. In 2000, Patricia did not make a gift to Matt. d. In 2018, Matt's estate includes nothing as to the property. e. None of the above.

a.

The Federal gift tax does not include a: a. Deduction for state gift taxes paid. b. Charitable deduction c. Gift-splitting election. d. Marital deduction.

a.

The Federal unified transfer tax credit: a. Is indexed annually. b. Applies only to the estate tax. c. Is a different amount for the estate and gift taxes. d. Is doubled on a joint gift tax return.

a.

In which of the following independent situations has Trent made a gift? a. Trent established an irrevocable trust, income payable to himself for life and, upon his death, remainder to his children. b. Trent dies owning a U.S. savings bond with ownership listed as: "Trent, payable to Sue on Trent's death." Sue redeems the bond. c. Trent sends $25,000 to Alice's oral surgeon in payment of her dental implants. Alice is Trent's sister and does not qualify as his dependent. d. Trent pays Eva $800,000 in a property settlement of her marital rights. One month later, Trent and Eva are divorced.

a. Choice a. is a complete transfer—there is no retention of a right to revoke the trust and he has made a gift of the remainder interest. Choice b. is not a gift but is a testamentary transfer. Payment was made directly to the provider of another's medical expenses and is, therefore, not a gift (choice c.). Code § 2516 treats property settlements incident to divorce as being for full and adequate consideration (choice d.).

The alternate valuation date: a. Applies for Federal estate tax purposes. b. Applies for Federal gift tax purposes. c. Both a. and b. d. Neither a. nor b.

a. The election also can be used in computing the GST tax.

Which, if any, of the following statements correctly reflects the rules applicable to the alternate valuation date? a. The election is made by the executor. b. Can be elected even though no estate tax return (i.e., Form 706) has to be filed. c. Can be elected only if it reduces the amount of the gross estate or reduces the estate tax liability. d. Its election does not affect the income tax basis of property included in the gross estate.

a. The election is made by the executor of the estate (choice a.). No election can be made unless a Form 706 is due (choice b.), and the effect is to reduce both the gross estate and the estate tax liability (choice c.). The election (or nonelection) has a direct impact on income tax basis (choice d.).

91. At the time of her death on October 4, Kaitlyn was involved in the following transactions. ∙Was the sole life beneficiary of a trust (assets worth $2 million) created 10 years ago by Paul (Kaitlyn's husband). The transfer was by gift of securities then worth $500,000. Paul and Kaitlyn's children are the remainder persons. ∙Owned stock in Mauve Corporation (basis of $800,000 and fair market value of $1 million). On September 7, a dividend of $48,000 was declared on the stock payable to all shareholders of record on October 3. The $48,000 was received by Kaitlyn's executor on October 19. ∙Kaitlyn made a taxable gift of $400,000 in a prior tax year. As to these transactions, Kaitlyn's gross estate includes: a. $1,048,000. b. $1,448,000. c. $3,000,000. d. $3,048,000.

a. $1,048,000. The Mauve stock and the dividend are included (record date of dividend is before death). Because there was no QTIP election, the trust is not included in a donee spouse's estate.

In which of the following situations is Polly's property ownership interest not lost by her death? a. Tenancy by the entirety. b. Tenancy in common. c. Joint tenancy. d. All of the above.

b For the other choices, a right of survivorship automatically applies.

93. At the time of his death, Jason was a participant in Silver Corporation's qualified pension plan and group term life insurance. The balance of the survivorship feature in his pension plan is: ​ Contributions by Silver $800,000 After-tax contributions by Jason 400,000 Plan earnings 300,000 ​ The term insurance has a maturity value of $100,000. All amounts are paid to Pam, Jason's daughter. One result of these transactions is: a. Pam must pay income tax on $300,000. b. Pam must pay income tax on $1,100,000. c. Jason's gross estate must include $1,200,000. d. Jason's gross estate must include $1,500,000.

b.

94. At the time of her death, Megan was involved in the following. ∙Owned an insurance policy on the life of her father with a replacement cost of $250,000 and maturity value of $800,000. The designated beneficiary of the policy is Megan's estate. ∙Was an equal tenant in common with her brother in a tract of land worth $800,000. The land was inherited from their grandmother 10 years ago when it had a value of $200,000. ∙Was a joint tenant with her two sisters in stock worth $1,500,000. The stock was inherited from their grandmother 10 years ago when it had a value of $500,000. ​ As to these transactions, Megan's gross estate must include: a. $250,000. b. $1,150,000. c. $1,400,000. d. $2,150,000. e. None of the above.

b.

Andrea dies on April 30. Which, if any, of the following items is included in her gross estate? a. Rents for the month of May (received on May 2) on an apartment building she owned. b. Rents for the month of March (received on May 2) on an apartment building she owned. c. Insurance recovery from a fire which occurred on November 1, and destroyed Andrea's residence. d. A loan made by Andrea to her daughter and forgiven by Andrea in a prior tax year. e. None of the above.

b.

In which of the following independent situations has Jean made a gift? a. Jean gives her 19-year old son $20,000 to be used by him for his college expenses. b. Jean buys her non-dependent grandfather a new $120,000 RV for his birthday. c. Jean sends $14,000 to Temple University to cover her nephew's tuition. The nephew does not qualify as Jean's dependent. d. Jean contributes $10,000 to her U.S. Senator's reelection campaign.

b.

The Federal transfer taxes generally apply a flat rate of: a. 10%. b. 40%. c. 65%. d. The taxes apply three graduated rates, not a flat rate.

b.

Which, if any, of the following is not a characteristic of the Federal gift tax? a. A charitable deduction is available. b. The alternate valuation date of § 2032 can be elected. c. A disclaimer procedure may avoid the tax. d. A marital deduction is available. e. None of the above.

b. The § 2032 election applies only to the estate tax.

At the time of his death, Norton was involved in the following transactions. ∙Owned land in joint tenancy with Emily. The land is worth $600,000 and was purchased by Norton 15 years ago for $150,000. ∙Owned land in a tenancy by the entirety with his wife Amy. The land is worth $800,000 and was purchased by Norton five years ago for $450,000. ∙Owned land in an equal tenancy in common with Noah. The land is worth $400,000 and was purchased by Norton four years ago for $300,000. ∙Owned City of Dayton bonds worth $500,000. ​ What amount is included in Norton's gross estate? a. $900,000 b. $1,100,000 c. $1,700,000 d. $2,100,000

c.

Concerning the Federal estate tax deduction for asset transfers to a surviving spouse: a. The deduction is disallowed for transfers between same-sex spouses. b. A deduction is allowed for a transfer to a member of a same-sex civil union. c. A deduction is allowed for life insurance proceeds paid to a surviving spouse. d. All of the above statements are true.

c.

Concerning the election to split gifts, which of the following statements is incorrect? a. The election can be made even if the parties are not married for the entire year of the gift. b. The election doubles the number of annual exclusions available. c. The election has no utility in a community property jurisdiction. d. The election can be made even if the parties are divorced as long as neither spouse has remarried by the end of the year.

c.

Homer and Laura are husband and wife. At the time of Homer's death, they owned the following: land as tenants by the entirety worth $2,000,000 (purchased by Homer) and stock as equal tenants in common worth $3,000,000 (purchased by Laura). Homer owns an insurance policy on his life (maturity value of $1,000,000) with Laura as the designated beneficiary. Homer's will passes all his property to Laura. How much marital deduction is allowed Homer's estate? a. $2,000,000 b. $2,500,000 c. $3,500,000 d. $4,500,000

c.

The Federal transfer taxes are applied in a manner that is: a. Unified among the taxes. b. Cumulative over the individual's lifetime. c. Both a. and b. d. Neither a. nor b.

c.

Which of the following is a correct statement regarding the filing of a gift tax return (Form 709)? a. A donor must file a Form 709 in the same year in which the gift was made. b. The due date of a Form 709 is the same as the due date of the donor's Form 1040. c. A Form 709 may have to be filed even though the value of the gift was less than the amount of the annual exclusion. d. Melody gives her husband a new Mercedes convertible for his birthday. Melody must file a Form 709 to report the gift even though no gift tax results.

c.

Which, if any, of the following items is subject to indexation (adjusted to reflect inflation)? a. The election to split gifts under § 2513. b. The limitation placed on the amount allowed as a charitable contribution for estate tax purposes (§ 2055). c. Annual gift tax exclusion. d. Unified transfer tax rates.

c.

At the time of his death, Tom owned some common stock. Date of Death Value Citron: $1,500,000 Grey: $1,300,000 Value Six Months Later Citron: $1,100,000 Grey: $1,400,000 Alternate valuation date is properly elected, the value of Tom's estate as to these stocks is: a. $2,300,000. b. $2,400,000. c. $2,500,000. d. $2,700,000.

c. $1,100,000 (Citron Corporation stock) + $1,400,000 (Grey Corporation stock) = $2,500,000.

Which, if any, of the following statements correctly reflects the rules applicable to the alternate valuation date? Value of Gross Estate Date of Death Alternate Date Estate Tax Result Date of Death Alternate Date a. $6,000,000, $6,100,000, $400,000, $390,000 b. $5,900,000, $5,800,000, $400,000, $405,000 c. $6,100,000, $6,000,000, $390,000, $380,000 d. $6,200,000, $6,300,000, $500,000, $490,000

c. Both the value of the gross estate and the estate tax must be lower on the alternate valuation date for the § 2032 election to be available. This is the case only with choice c.

Stacey inherits unimproved land (fair market value of $6 million) from her father on June 1, 2017. Stacey disclaims her interest in the property as follows: one-third on December 1, 2017; one-third on January 3, 2018; and the remaining one-third on May 31, 2018. In all cases, the disclaimers pass the interest to her son (the next heir under state law). The Federal gift tax applies to Stacey for: a. All of the disclaimers. b. The disclaimer made in 2017. c. The May 31, 2018 disclaimer. d. All of the disclaimers made in 2018. e. None of the disclaimers.

c. The gift tax applies only to the disclaimer made on May 31, 2018 (choice c.), since it is after the allowed 9-month grace period.

Concerning the Federal tax on generation-skipping transfers: a. The charitable deduction is allowed to reduce the tax. b. The marital deduction is allowed to reduce the tax. c. A credit is allowed for any state-level GST tax paid. d. All of the above statements are true.

d.

In 2005, Drew creates a trust with $1,000,000 of securities. Under the terms of the trust, Paula (Drew's wife) is granted a life estate with remainder to their children. Drew makes a QTIP election as to the trust. Drew dies in 2012 when the trust is worth $1,500,000, and Paula dies in 2018 when the trust is worth $2,000,000. Which, if any, of the following is a correct statement? a. The trust is included in Drew's gross estate when he dies in 2012. b. None of the trust is included in Paula's gross estate when she dies in 2018. c. Drew does not get a marital deduction in 2005. d. All of the value of the trust ($2,000,000) is included in Paula's gross estate when she dies in 2018.

d.

In 2015, Thalia purchases land for $900,000 and lists title in the names of her daughters as follows: "April and Theresa, joint tenants with right of survivorship." In 2017, April and Theresa purchase an apartment building for $1 million as equal tenants in common; April furnished $400,000 and Theresa furnished $600,000 of the cost. April dies first in 2018 when the land is worth $1.5 million and the apartment building is worth $2 million. One of the results of these transactions is: a. April made a gift to Theresa of $100,000 in 2017. b. None of the land is included in April's gross estate. c. April's gross estate includes $800,000 (40% × $2 million) as to the apartment building. d. April's gross estate includes $1,750,000 as to these properties.

d.

Ling and Jiang are unrelated and equal joint tenants in a plot of land. Ling died this year. Ling's share of the land goes to: a. The party named in Ling's will. b. Ling's surviving spouse. c. Jiang, under community property principles. d. Jiang, under a right of survivorship.

d.

Setting up a trust to benefit a minor can: a. Gain an annual exclusion even though no present interest is conveyed. b. Protect the donor against the minor's unwise use of the funds. c. Accumulate income for future use, like college tuition. d. All of the above.

d.

The Federal gift-splitting election: a. Allows the annual exclusion of both spouses to reduce the gift tax due. b. Allows the exemption equivalent of both spouses to reduce the gift tax due. c. Is made on both spouses' Forms 709. d. All of the above.

d.

Which, if any, of the following is not a characteristic of the Federal estate tax? a. A foreign tax credit is available. b. A credit for tax on prior transfers may be available. c. A charitable deduction is available. d. All of the above.

d. Other deductions also are allowed.

Mark dies on March 6. Which, if any, of the following items is not included in his gross estate? a. Interest earned (before death) on City of Cleveland bonds. b. Cash dividend on stock owned by Mark—declaration date was February 4, and record date was March 4. c. Federal income tax refund for a prior tax year, —received on March 5. d. Insurance recovery on auto accident that occurred on February 25. e. Insurance recovery from theft of sailboat on March 7.

e.

Pursuant to Corey's will, Emma (Corey's sister) inherits his property. Emma dies in a later tax year. The estate tax attributable to the inclusion of the property in Corey's gross estate was $300,000. The estate tax attributable to the inclusion of the property in Emma's gross estate is $400,000. Emma's credit for the tax on prior transfers is: a. $0 if Emma died 9 1/2 years after Corey. b. $300,000 if Emma died 3 years after Corey. c. $400,000 if Emma died 1 year after Corey. d. $240,000 if Emma died 5 1/2 years after Corey. e. The credit as computed is some other amount.

e.

Calvin's will passes $800,000 of cash to his widowed sister, Muriel. The estate tax attributable to the cash is $110,000. Muriel dies five years later, and the estate tax generated by the $800,000 is $100,000. How much of a credit for tax on prior transfers will Muriel's estate be allowed?

$60,000. 60% × $100,000.

A lifetime transfer that is supported by full and adequate consideration is not a gift. a. True b. False

True

A surviving spouse's share of the community property is not included in the deceased spouse's gross estate. a. True b. False

True

A timely issued disclaimer by an heir transfers the property to someone else without a Federal gift tax result. a. True b. False

True

At the time of his death, Gene held a Roth IRA account with his wife as the designated beneficiary. The IRA is included in Gene's gross estate. a. True b. False

True

For Federal estate, gift, and generation-skipping tax purposes, the exemption equivalent is the same thing as the exclusion amount. a. True b. False

True

For both the Federal gift and estate tax, a deduction is allowed for certain transfers to a spouse. a. True b. False

True

In 2015 and with $100,000, Ronald establishes a joint savings account with his cousin, Allison. In 2017, Allison withdraws the $100,000 and disappears. Ronald made a gift to Allison in 2017. a. True b. False

True

In 2017, grandparents contribute jointly owned funds to a § 529 qualified tuition plan on behalf of their granddaughter. The maximum annual exclusion allowed to them is $140,000 ($28,000 × 5 years). a. True b. False

True

In determining whether a dividend issued on stock held by a decedent is included in the gross estate, the record date (rather than the declaration or payment dates) controls. a. True b. False

True

In the case of a transfer by gift, a QTIP election causes the property to be subject to the estate tax upon the death of the donee spouse. a. True b. False

True

Manfredo makes a donation of $50,000 to the church where he was baptized in Mexico City. The gift does not qualify as a charitable contribution for Federal income tax purposes. a. True b. False

True

Mitch pays the surgeon and the hospital for his nondependent aunt's heart bypass operation. The transfer is not subject to the gift tax. a. True b. False

True

Peggy gives $200,000 to her grandson. This is an example of a direct skip for purposes of the GSTT (generation-skipping transfer tax). a. True b. False

True

Ray purchases U.S. savings bonds which he lists as "Ray and Donna" as co-owners. Donna is Ray's daughter. Donna predeceases Ray. No gift or estate tax consequences result from this situation. a. True b. False

True

Sally's will passes real estate to Otto (her surviving husband). The real estate is worth $800,000 but is subject to a mortgage of $200,000. The transfer provides Sally's estate with a marital deduction of $600,000. a. True b. False

True

The Federal transfer tax system includes three separate taxes. a. True b. False

True

The amount of the unified tax credit is the same for both transfers by gift and transfers by death. a. True b. False

True

The purpose of the marital deduction is to defer any estate tax liability until the second spouse dies. a. True b. False

True

To make the election to split gifts, spouses must file a Form 709 (Federal gift tax return). a. True b. False

True

Transfers to political organizations are exempt from the application of the Federal gift tax. a. True b. False

True

Using his separate funds, Wilbur purchases an annuity which pays him a specified amount until death. Upon Wilbur's death, a reduced amount is to be paid to Marcia for her life. Marcia predeceases Wilbur. Nothing concerning the annuity contract is included in Marcia's gross estate. a. True b. False

True

Under certain circumstances, the gift-splitting election can be made even though the electing spouses are no longer married to each other. a. True b. False

True As long as the spouses were legally married to each other at the time of the gift and neither has married anyone else during the year.

Lila is the owner and beneficiary of a policy on the life of her husband, Austin. Upon Austin's death, the insurance proceeds paid to Lila do not qualify for the marital deduction. a. True b. False

True Because the proceeds are not included in Austin's gross estate, they do not satisfy the passing requirement, and no deduction is allowed.

To avoid the terminable interest limitation on the marital deduction, a QTIP election must be made. a. True b. False

True By default, no marital deduction is allowed. Preserves marital deduction but direct remainder to selected beneficiaries.

An individual generally tries to reduce the present value of any Federal transfer tax liability. a. True b. False

True Consistent with maximizing after-tax value, estate and gift taxes are typically managed to decrease the present value of the tax.

At the time of Dylan's death, he was a resident of the United States. He owns land located in a foreign country, which is subject to that country's estate tax. This same land also can be subject to the Federal estate tax. a. True b. False

True Dylan may, however, be able to claim a credit against the Federal estate tax for foreign death taxes paid.

In community property states, not all property acquired after marriage by either spouse is community property. a. True b. False

True Generally, property inherited or acquired by gift is separate property.

All of the charitable organizations that qualify for estate tax purposes also qualify for income tax purposes. a. True b. False

False

Although qualified tuition plans under § 529 are treated favorably for gift tax purposes, such plans are included in the gross estate upon the grantor's death. a. True b. False

False

At the time of her death, Rita held a promissory note from a loan she had made to her son. If Rita's will forgives the loan, the note is not included in her gross estate. a. True b. False

False

Barry pays State University for his dependent daughter's room and board. Barry has made a transfer that is subject to the Federal gift tax. a. True b. False

False

If the value of the gross estate is lower on the alternate valuation date than on the date of death, the date of death valuation cannot be used. a. True b. False

False

Interest earned on state and local bonds is not subject to the Federal estate tax. a. True b. False

False

Sandy pays a local college for her non-dependent boyfriend's tuition. The payment is subject to the Federal gift tax. a. True b. False

False

Under the alternate valuation date election, each asset in the gross estate is valued at the lesser of the date of death value or six months thereafter. a. True b. False

False All assets are valued on the alternate valuation date if § 2032 is elected. In such cases date of death valuation is not utilized.

For Federal estate tax purposes, the gross estate cannot include property the decedent does not own. a. True b. False

False An example of an inclusion could be a life insurance policy on the decedent's life, when the decedent holds incidents of ownership in the policy.

Paul, a U.S. citizen, will avoid the Federal estate tax if he becomes a Canadian resident and owns no property located in the U.S. at the time of his death. a. True b. False

False As long as Paul is a U.S. citizen, his residence and the situs of his property makes no difference for estate tax purposes.

Under his grandfather's will, Thad is entitled to receive shares of Kroger Corporation. For Federal tax purposes, Thad is allowed to disclaim some of these shares and accept the others. a. True b. False

True If timely made, a partial disclaimer is allowed.

Harry and Brenda are husband and wife. Using her funds, Brenda purchases real estate which she lists as: "Harry and Brenda, joint tenants with right of survivorship." If Brenda dies first, all of the value of the real estate will be included in her gross estate. a. True b. False

False Both spouses are treated as contributing one-half of the purchase price of the property.

In his will, Hernando provides for $50,000 to go to the Madrid, Spain, school system. Because it is a foreign charity, the bequest will not qualify as a charitable deduction for estate tax purposes. a. True b. False

False Foreign charities qualify for the estate tax charitable deduction.

The death of a tenant in common will cancel his or her interest in the property. a. True b. False

False In a tenancy in common, the death of a tenant does not defeat (cancel) the ownership interest.

Harry and Brenda are husband and wife. Using his funds, Harry purchases real estate which he lists as: "Harry and Brenda, tenants by the entirety with right of survivorship." If Brenda dies first, none of the real estate will be included in her gross estate. a. True b. False

False In the case of joint ownership between married persons, a spouse's contribution does not matter. One-half of the value of the property is included in the gross estate of the first spouse to die.

A tenancy by the entirety is restricted in most states to having more than two joint owners. a. True b. False

False In this regard, a tenancy by the entirety can be likened to a joint tenancy between spouses.

A husband and wife make a gift of their jointly owned vacation home to their adult children. The gift-splitting election must be made. a. True b. False

False No election to split the gift is necessary if the property is jointly owned (e.g., joint tenancy, community property).

Sam purchases a U.S. savings bond which he registers as follows: "Sam, payable to Don upon Sam's death." A gift occurs when Sam purchases the bond. a. True b. False

False No gift takes place when the bond is purchased. Should Don receive the bond when Sam dies, it is not a gift but a testamentary transfer.

For gift tax purposes, a property settlement in consideration of marriage (i.e., prenuptial agreement) is treated the same as a property settlement incident to a divorce. a. True b. False

False Prenuptial agreements are subject to gift tax, while divorce settlements are not. Section 2516 treats the latter as being for adequate consideration and, therefore, no gift occurs.

Two brothers, Sam and Bob, acquire real estate as equal tenants in common. Of the purchase price of $200,000, Sam furnished $80,000 while Bob provided the balance. If Sam dies first ten years later when the real estate is worth $600,000, his estate includes $240,000 as to the property. a. True b. False

False Sam's estate includes $300,000, as the owners are equal tenants in common.

In 2004, Katelyn inherited considerable property when her father died. When Katelyn dies in 2018, her estate may be able to claim a credit as to some of the estate taxes paid by her father's estate. a. True b. False

False Section 2013 is not available if more than 10 years have elapsed.

As a result of an auto accident from which she later died, Irene totaled a Bentley worth $195,000. If the insurance company covers $60,000 of the loss, Irene's estate can claim a casualty loss of $135,000 in arriving at the taxable estate. a. True b. False

False The casualty loss should be claimed on Irene's final income tax return. The insurance recovery should be included in the gross estate under § 2033.

At the time of her death, Emma still owed $36,000 on her church pledge for the year. Because church pledges are not an enforceable obligation in the state where Emma resided, her estate cannot claim a deduction for the $36,000 that it owes and later pays. a. True b. False

False The deduction is allowed under § 2053(c)(1)(A).

At the time of his death, Raul owned a residence with his wife, Manuela, as joint tenants. The residence was purchased by Manuela ten years ago at a cost of $300,000 and has a fair market value of $1.4 million. Raul's estate will be allowed no marital deduction as to the property. a. True b. False

False The marital deduction is $700,000 (50% Raul's share in the gross estate × $1.4 million).

Kim, a resident and citizen of Korea, dies during an operation at the Mayo Clinic in Rochester (MN). Because Kim died in the U.S., she will be subject to the Federal estate tax. a. True b. False

False The place of death is not the determinant for the application of the Federal estate tax. Unless she owns property located in the U.S., Kim (a nonresident alien) is not subject to the Federal estate tax.

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

False The purchase is a gift. Reba retains no interest in the bonds. Rod does not have to survive Reba to gain ownership of the bonds.

Rachel owns an insurance policy on the life of Albert with Belle as the designated beneficiary. Upon Rachel's death, nothing regarding this policy is included in her gross estate. a. True b. False

False The replacement value of an unmatured policy should be included.

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

False, The gross estate does include such property, but the marital deduction offsets its inclusion.

Pauline sells antique furniture to her daughter, Nicole, for $10,000. If the furniture is really worth $100,000, Pauline has made a gift to Nicole of $100,000. a. True b. False

False, the gift is $90,000 As Nicole paid Pauline $10,000, the gift is only $90,000 [$100,000 (fair market value) - $10,000 (consideration received)].

The election of the alternate valuation date can affect the amount of a charitable deduction allowed to an estate for a bequest to a qualified charity. a. True b. False

True It would not if a cash bequest is involved, but it could if property was the subject of the transfer.

Lyle and Kelly are brother and sister. Using his funds, Lyle purchases land, listing title as: "Lyle and Kelly, joint tenants with right of survivorship." If Kelly dies first, none of the land is included in her gross estate. a. True b. False

True Lyle made all of the contribution to the cost of the land while Kelly contributed nothing.

Manuel, a citizen and resident of Argentina, makes a gift to his children of a ranch located in Colorado. Manuel will be subject to the U.S. gift tax. a. True b. False

True NRAs are subject to the Federal gift tax as to transfers of property located in the U.S. (An exception is made in the case of intangibles, such as stocks and bonds).

Some states impose inheritance taxes, but the Federal tax system does not. a. True b. False

True Not all states impose an inheritance tax, but the Federal tax on transfers by death is an estate tax.

A father wants to give a parcel of land to his two children. If he wants the survivor to have sole ownership, he should list ownership of the property as joint tenants. a. True b. False

True Ownership as joint tenancy carries the right of survivorship.

Iris dies intestate (i.e., without a will). All of her property passes to her heirs in accordance with the order of distribution prescribed under applicable state law. a. True b. False

True State, not Federal, law controls the order of distribution. Only the property in her probate estate is subject to these rules.

Georgia owns an insurance policy on the life of Jake, with Scarlet as the designated beneficiary. Upon Scarlet's death, no transfer tax consequences result. a. True b. False

True The death of the beneficiary of an unmatured life insurance policy carries no tax consequences.

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

True The probate estate includes all assets owned by the decedent immediately prior to death. The gross estate includes the probate estate and the value of certain assets associated with the decedent, but not legally owned by the decedent, immediately prior to death.

Sidney dies and leaves property to his sister Giselle. Thirteen months later, Giselle dies. Giselle's estate can claim a full credit for any Federal estate taxes paid by Sidney's estate as to amounts passing to Giselle. a. True b. False

True Under § 2013 (credit for tax on prior transfers), the full credit is allowed if the transferee's death occurs within two years of transferor's death.

At the time of his death, Leroy owed Federal income taxes on income earned in a prior year. Leroy's estate can claim an estate tax deduction for the income tax it pays. a. True b. False

True Unpaid taxes that are paid by the estate can be deducted under § 2053 to arrive at a decedent's taxable estate.