QBank 5
To qualify for the marital deduction, property must pass to the surviving spouse. How can property pass and still qualify for the deduction? By will By survivorship By intestacy By power of appointment A) I, II, III, and IV B) I and III C) I and II D) I and IV
A) All of these methods allow for property to pass and still qualify for the marital deduction.
Which of the following items is NOT deducted from the gross estate to arrive at the adjusted gross estate? A) State death taxes B) Funeral expenses C) Administration expenses attributable to property subject to claims against the estate D) Casualty losses incurred during the period of estate administration
A) State death taxes are not deducted from the gross estate; they are deducted from the adjusted gross estate to arrive at the taxable estate.
Which of the following would cause the proceeds of life insurance on the decedent's life to be included in the decedent's gross estate? The decedent possessed any incidents of ownership in the policy at the time of death. The proceeds are payable to the decedent's estate. The proceeds are payable to an ILIT and must be used to pay the estate tax on the decedent's estate. The decedent gifted the policy more than three years before the decedent's death. A) I, II, and III B) I, II, III, and IV C) I and III D) II, III, and IV
A) Statement IV is incorrect as far as the question goes. The proceeds will not be included in the decedent's gross estate if the decedent gifted the policy more than three years before the date of death. If more information had been given, the answer could change. Even if the policy was transferred more than three years before the date of death other factors could still end up placing the death proceeds into the descendant's gross estate. For example, the original beneficiary was the deceased's estate and this was not changed after the transfer. Another example would be that the primary beneficiary for the policy died before the decedent in question and the decedent's estate is the secondary beneficiary. It is always important to follow life insurance death benefits to their final end before deciding anything about them.
Which of the following statements regarding adjusted taxable gifts (ATGs) is CORRECT? ATGs are taxable gifts made by the decedent after December 31, 1976. ATGs are included in the estate tax calculation at their date of death value. ATGs are included in the decedent's gross estate. A) I only B) I and II C) I, II, and III D) II only
A) Statements II and III are incorrect because ATGs are added to the taxable estate (not the gross estate) at their date of gift value. All appreciation after the gift is made escapes transfer taxation for the original giver.
Shanda transferred $1 million of tax exempt bonds to an irrevocable trust two years ago for the benefit of her grandson. Assuming the gift tax on the transfer was $250,000, what amount is included in Shanda's gross estate if she dies this year? A) $250,000 B) $1,250,000 C) $1,000,000 D) $750,000
A) The gift tax of $250,000 is included in Shanda's gross estate because of the gross-up rule.
Which of the following statements correctly describes the gross-up rule? A) Gift taxes paid on gifts made within three years of the date of death must be included in the gross estate. B) Gift taxes paid on gifts made within five years of the decedent's death must be included in the gross estate. C) Gift taxes paid on any gifts made during the decedent's lifetime must be included in the gross estate. D) The value of any gifts made within three years of the date of death must be included in the gross estate.
A) The gross-up rule states that gift taxes paid on gifts made within three years of the decedent's death must be included in the gross estate. This is an example of being taxed on a tax. The deceased is estate taxed on the gift taxes paid out of pocket within three years of death (not the value of the gifts on which the gift taxes were paid).
If a citizen or resident of the United States dies during 2023, an estate tax return must be filed if the tentative tax base (taxable estate plus adjusted taxable gifts) at the date of death was valued at more than A) $25,840,000. B) $12,920,000. C) $1,000,000. D) $17,000.
B) An estate tax return must be filed if the tentative tax base (taxable estate plus adjusted taxable gifts) exceeds the lifetime exemption amount. For 2023, the lifetime exemption amount is $12,920,000. In other words, an estate tax return must be filed if it is theoretically possible that an estate tax might be paid. However, this does not mean that estates with assets and adjusted taxable gifts below the exemption equivalent should not file a Form 706 when the first spouse dies. The first spouse to die needs to file an estate tax return electing portability for the surviving spouse.
Which of the following are exceptions to the terminable interest rules qualifying for the marital deduction? A bequest to the surviving spouse conditioned upon surviving for up to six months after the decedent's death (as long as the spouse survives the specified period) An interest for life if the surviving spouse also receives a general power of appointment Life insurance proceeds payable in installments to the surviving spouse but only until she remarries Property for which the QTIP election is made A) II and IV B) I, II, and IV C) I, II, and III D) I and III
B) Statement III is incorrect. The life insurance proceeds payable in installments to a spouse until remarriage are an example of a terminable interest that does not qualify for the marital deduction.
Erica owns a house that is not her personal residence and has a fair market value of $575,000. Erica's basis in the house is $400,000. She sells the house to her daughter for $450,000. Which of the following statements regarding this transaction is CORRECT? Erica has a taxable gain of $50,000. The property will not be included in Erica's gross estate when she dies. A) Neither I nor II B) Both I and II C) II only D) I only
B) This is a bargain sale, and Erica has a taxable gain equal to the difference between the sales price and her basis. The property sold in a bargain sale is not included in the seller's gross estate; the taxable gift portion of the transaction is included as an adjusted taxable gift when calculating the seller's tentative tax base.
All of the following could stand alone as descriptions of the process of "estate planning" EXCEPT A) planning for the conservation and distribution of the client's estate during life and at death. B) considering both tax and nontax implications of estate transfer transactions. C) creating a will. D) considering both financial and nonfinancial goals of the client.
C) The answer is creating a will. "Creating a will" does not adequately describe the process of estate planning.
If a client's primary goal in making lifetime gifts to his children is to lower his estate taxes, he should make gifts of property that A) have already appreciated significantly. B) have already depreciated significantly. C) are expected to appreciate significantly in the future. D) are expected to depreciate significantly in the future.
C) The best assets to transfer when trying to lower estate taxes at death are those most likely to appreciate significantly. This strategy removes future appreciation from the estate.
Which of the following circumstances would cause the date-of-death value of the gifted property to be included in the donor's gross estate? Donor transfers property to a revocable trust. Donor makes a gift of real estate and retains a life estate in the gifted property. Donor gives $35,000 to his sister one month before he dies. Donor makes a gift of real estate and dies within three years of the date of the gift. A) II, III, and IV B) I and IV C) I and II D) II and III
C) The donor retained a power to revoke in Statement I and a life estate in Statement II. Both situations require the gifted property to be included in the gross estate. Statements III and IV are incorrect because the donor did not retain any interest in the gifted property.
Holly read a newspaper article promoting lifetime gifting. Until reading this article, Holly had planned to leave all of her property through a testamentary transfer. What advice should you give Holly regarding the advantages of a lifetime gift over a testamentary transfer for a person who will owe estate taxes at death? The donee will usually take the donor's carryover basis. The gifted item is removed from the probate estate. A gift during life is less expensive than a testamentary transfer. A) I, II, and III B) I and III C) I only D) II and III
D) A gift during life is less expensive than a testamentary transfer because of the annual exclusion and because any potential future appreciation is removed from the future transfer tax. Also, the gifted item is removed from the probate estate. Statement I is false because it is not an advantage. The donee does receive the donor's carryover basis, but it is not an advantage when compared to the stepped-up basis received with a testamentary transfer.
Which of these rules does not apply to the estates of decedents who die in 2023? A) $12,920,000 exemption amount B) 40% top estate tax rate C) Portability of unused exemption amount between spouses D) Carryover basis for inherited assets other than income in respect of a decedent (IRD)
D) Assets (other than IRD) inherited from a decedent who dies in 2023 receive a stepped-up basis.
Jose and Alfonso are brothers. They own a rental property as joint tenants with right of survivorship. The current value of the property is $1 million. Jose can prove that he contributed 80% of the acquisition price for the property. If Alfonso dies, what amount will be included in his gross estate for estate tax purposes? A) $1,000,000 B) $0 C) $500,000 D) $200,000
D) Because Jose and Alfonso are not spouses, the consideration furnished rule determines how much of the property is included in the gross estate of the first joint tenant to die. Because Jose can prove he contributed 80% of the acquisition price, only 20% ($200,000) is included in Alfonso's gross estate.
When spouses own property as joint tenants with right of survivorship (JTWROS), what proportion of the property's value will be included in the gross estate of the first spouse to die? A) 100% of the original basis B) 50% of the original basis C) 100% of the fair market value D) 50% of the fair market value
D) Only half of the fair market value (FMV) of the property will be included in the gross estate of the deceased spouse. For estate taxes, the original basis is irrelevant to a deceased person in a JTWROS situation. For income taxes, the surviving joint tenant will receive the stepped-up basis for only the deceased's share of the property. This stepped-up amount is added to his own initial basis. Thus, if the property has had any appreciation at all, the survivor's new income tax basis will be less than the FMV at the decedent's death, but more than the surviving joint tenant's original basis. On the other hand, for community property, if the surviving spouse inherits the property through the will, then the survivor's new income tax basis is the FMV on the date of death.
Which of the following statements regarding the portability of the gift tax lifetime exemption amount is CORRECT? Portability means that a surviving spouse can use any portion of a predeceased spouse's lifetime exemption amount that remained unused when the predeceased spouse died. A surviving spouse may apply the predeceased spouse's unused lifetime exemption amount to gift taxes due on lifetime gifts but not to the estate tax due on transfers at death. A) Both I and II B) Neither I nor II C) II only D) I only
D) Statement I is correct. Statement II is incorrect because a surviving spouse may apply the predeceased spouse's unused lifetime exemption amount both to gift taxes due on lifetime gifts and to any estate tax due on transfers at death.
Omar died on September 8, 2023. His will left all of his possessions listed below to his mother. What is the value of Omar's gross estate at the date of death? - , Adj. Basis, FMV Personal residence, $10,400,400, $10,800,000 Common stock, $200,000, $500,000 Dividends on above stock (declared 9/30), $2,000, $2,000 Medical insurance reimbursement (check received 8/31 but not cashed), $2,500, $2,500 Cash, $42,000, $42,000 A) $11,342,000 B) $10,944,500 C) $11,346,500 D) $11,344,500
D) The dividend is not included in the gross estate because it was declared after Omar's death. Therefore, $10,800,000 + $500,000 + $2,500 + $42,000 = $11,344,500.
Fifteen months before his death, Eddie gave a painting valued at $600,000 to his son and paid gift tax of $30,000 on the gift. At the date of Eddie's death, the painting had a fair market value of $700,000. What amount is included in Eddie's gross estate as a result of the gift? A) $700,000 B) $600,000 C) $730,000 D) $30,000
D) The gross estate includes any gift tax paid on gifts made within three years of death. The value of the gift would not be included in the donor's gross estate, but would be added to his taxable estate as an adjusted taxable gift.
Which of the following would result in the inclusion of life insurance policy proceeds in the insured's gross estate? A) The insured pays the monthly premiums. B) The insured's son owns a policy on the insured, and the death benefit is payable to the insured's son. C) The insured transfers the policy to an irrevocable life insurance trust (ILIT), names the trust as the beneficiary, and dies five years later. D) The insured is permitted to borrow against the policy.
D) The right to borrow against the policy is an incident of ownership, which will cause inclusion of the policy proceeds in the gross estate of the insured at death.
