Chapter 25-Estate and Gift taxes

Gustavo dies in the current year with a taxable estate of $10,520,000 and adjusted gifts of $1,200,000 for which no gift taxes were previously paid. Using the current year rates and credit amounts, what is Gustavo's estate tax?

$0

Julius' taxable estate if $10,000,000. Five years ago, Julious made a taxable gift of $1,200,000 and paid gift taxes of $400,000. What is the total of Julious' cumulative transfers?

$11,200,000

The federal gift tax annual exclusion amount of 2022 is

$16,000 per donee

Cass owned 40% of two properties with her spouse (who owned the remaining 60%), each valued at $100,000. Ownership form and the amount included in Cass's gross estate. Tenancy in common

$40,000

Cass owned 40% of two properties with her spouse (who owned the remaining 60%), each valued at $100,000. Ownership form and the amount included in Cass's gross estate. Joint with the right of survivorship

$50,000

Jackie purchases real estate with Twiggy as equal tenants in common. Jackie pays $100,000 and Twiggy pays nothing. What is the amount of the gift from Jackie to Twiggy (if any)?

$50,000

Ben transfers shares of stock worth $100,000 to a charitable organization during the current year. He originally purchased the stock for $10,000. What is the charitable deduction that Ben will reflect on his gift tax return?

$84,000 $100,000 -$16,000

What would qualify for the charitable deduction for estate taxes?

-A donation to a foreign charity -A donation to a U.S. charity -A donation to a qualified charity made by the executor for which only the amount of the donation was prescribed in the will.

Marital deduction

-Gifts of property to a spouse may be deducted in computing taxable gifts. -Transfers of terminable interests in property, such as a life estate, will not generally qualify for the deduction. -The deduction is limited to the value of property included in taxable gifts.

Gifts excluded from the gift tax

-Incomplete and revocable gifts -Payments for support obligations or debts -Contributions to political parties or candidates -Medical and education expenses paid on behalf of an unrelated individual

What is excluded from the gift tax?

-Incomplete and revocable gifts. -payments for support obligations or debts. -Contributions to political parties or candidates. -Medical and education expenses paid on behalf of an unrelated individual.

The requirements for gift splitting include:

-Must be married at time of gift -Both spouses must consent to the election -Both spouses must be U.S. citizens or tax residents -must not remarry during the remainder of the year.

What is deducted from the gross estate?

-The charitable deduction -The administrative expenses of the estate -Casualty and theft losses of the estate

Life insurance proceeds will be included in the gross estate if what conditions are met?

-The decedent's estate is the beneficiary of the policy -The decedent owns the policy -The decedent can designate the beneficiary

What can reduce the cumulative gift tax?

-The unified credit NOT previously deducted -The current tax on previous gifts

What would be included in the gross estate?

-Transfer of incidents of ownership in the life insurance policy two years prior to the death of the decedent. -Gift taxes paid on a gift made to the decedent's daughter in the month prior to death.

What gifts can qualify for the annual exclusion?

-a gift of cash to a friend -A gift of cash in a qualified trust, payable to a teenage when he turns 21 -A gift of a life estate

The value of the gross estate may be determined:

-at time of death -6 months after date of death as long as property is not distributed, an election is made by the executor, and the value of the gross estate is lower.

The generation-skipping tax does NOT apply to many taxpayers due to:

A generous exemption amount ($12.06 Million)

Trust

A separate legal entity established by an individual

What is NOT eligible for the marital deduction?

A terminable interest in property worth $400,000

What would NOT utilize the section 7520 rate to calculate the value of the transfer?

A transfer of property to a spouse

What are added to current taxable gifts to calculate the gift tax?

All previous taxable gifts

What is added to current taxable gifts to calculate the gift tax?

All previous taxable gifts

Current taxable gift are current gifts minus:

Current taxable gifts are current gifts minus -1/2 of split gifts -annual exclusion -marital and charitable deductions

Proceeds of life insurance paid due to the death of the decedent are specifically included in the gross estate if either of two conditions are met.

Either (1) the decedent owned the policy or had "incidents of ownership" such as the right to designate the beneficiary OR 2) the decedent's estate or executor is the beneficiary of the insurance policy (that is, the executor must use the insurance proceeds to discharge the obligations of the estate).

Gross estate definition

Fair value of property owned by a decedent at death + the value of certain automatic property transfers that effect at death

Most gifts will qualify for an annual exclusion if the donee has either a present or future interest in the property or income? T/F

False

The estate tax is a transfer tax while the gift tax is an income tax. T/F

False

The value of a remainder interest is

Future payment divided by (1+r)^n r=market rate of interest n=the number of years

Adjusted gross estate =

Gross estate less: State death taxes less: estate administration expense less: debts included in the estate

Adjusted gross estate =

Gross estate less expenses, debts, and losses

Life insurance proceeds will be included in the gross estate under what conditions?

If -The decedent can designate the beneficiary. -The decedent's estate is the beneficiary of the policy. -The decedent owns the policy

In order to calculate the terminable interest in a life estate, you must know the section 7520 rate and the age of ______.

In order to calculate the terminable interest in a life estate, you must know the section 7520 rate and age of the life tenant only.

In the case an estate earns income during its administration, an estate _____ ______ _______ should be filed.

In the case an estate earns income during its administration, an estate income tax return should be filed

Dale and his son, Clark, have a savings account with a small amount of money in it. The terms of the account stipulate that when Dale or Clark die, the account automatically becomes the account solely of the survivor. This arrangement is known as:

Joint tenancy with the right of survivorship

The marital deduction allows

Most transfers between spouses to go untaxed by transfer taxes

The marital deduction allows

Most transfers between spouses to go untaxed by transfer taxes.

Is transferring of a life estate in property from one spouse to the other allowed as part of the marital deduction for gift taxes?

NO

Are these considered gifts? -The deposit of $50,000 by an individual into a joint checking account held with his or her significant other (not married) -A parent paying over $40,000 a year directly to a college for the college tuition of a child.

No

Lucy and Desi have 5 children and live in a common law state, in the current year. Lucy gave each of their adult children $20,000 (Total $100,000). What is the total taxable gifts after the annual exclusion made by Lucy if she does NOT elect gift-splitting? If she does elect gift-splitting?

No splitting = $25,000; Splitting = $0. $5000 x 5 = $25,000

The gift-splitting election allows

One spouse to treat each gift as if they made a gift of only one-half the gift amount

The generation-skipping tax is intended to:

Prevent the avoidance of transfer taxes by transferring property to a beneficiary more than one generation younger than the decedent

Property inherited at the donor's death _______

Property inherited at the donor's death receives a fair market tax basis

Probate estate

Property owned by a decedent at the time of death.

A transfer that occurs at the time of death is known as a

Testamentary transfer

The ______ _______ applies to both the gift and estate tax and effectively exempts an amount of transfers from taxation.

The applicable credit applies to both the state and gift tax and effectively exempts an amount of transfers from taxation.

The court appointed person who carries out the decedent's will is called the ______

The court appointed person who carries out the decedents will is called the executor.

Grantor

The individual that establishes a trust

Trustee

The person that administers a trust

The price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts, is known as the ______ _______ _______.

The price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts, is known as the fair market value.

Corpus

The property contained within a trust

Fiduciary duty

The responsibility to manage a trust for the benefit of a beneficiary or beneficiaries in a balanced manner.

What is NOT allowed as part of the marital deduction for gift taxes?

Transfer of a life estate in property from one spouse to the other.

For 2022, the applicable exclusion amount for the gift tax is $12.06

True

The federal transfer taxes are calculated using both transfers in the current year and transfers in previous years. T/F

True

Fiduciary entities?

Trusts and estates

The value of a present interest is the

Value of the property less the value of the remainder interest.

Do these gifts qualify for the annual exclusion? -A gift of a life estate -A gift of cash to a friend -A gift of cash in a qualified trust, payable to a teenage when he turns 21

Yes

Adjusted taxable gifts

are prior taxable gifts reduced by prior gifts that are already included in the gross estate. For example, the value of life insurance transferred within 2 years of death would NOT be included in adjusted taxable gifts, BUT the value of the life insurance proceeds paid at death would be included in the estate. Adjusted taxable gifts are NOT subject to double tax because the tentative tax on cumulative transfers is reduced by taxes payable on adjusted taxable gifts calculated under the current tax rate schedule.

The administrative expenses of the estate may be deducted on the

estate tax return or the estate's income tax return, if the estate generates income.

The value of a gift for gift tax purposes is the

fair market value of the property on the date the gift becomes complete.

The taxable estate is the gross estate

less expenses, debts and losses, and charitable and marital deductions.

The amount of a charitable deduction is

limited to the value of the gift after subtracting the annual exclusion

A serial gift is:

spreading a single large gift into a number of smaller annual gifts

What is deducted from the gross estate to achieve the taxable estate

subtract from the gross estate deductions allowed for administrative expenses, debts of the decedent, and losses incurred during the administration of the estate

Adjustable taxable gifts added to the taxable estate to calculate the estate base are

taxable gifts other than transfers already included in the gross estate