Tax Chapter 13 The Estate Tax Comprehensive Questions

Explain the difference between the estate tax treatment for gift taxes paid on gifts made two years before death and on gifts made ten years before death.

Gift taxes paid on gifts made two years before death are included in the gross​ estate, however gift taxes on gifts made more than three years prior to death are excluded from the gross estate.

Assume that Larry is wealthier than​ Jane, his​ wife, and that he is likely to die before her. From an overall tax standpoint​ (considering transfer taxes and income​ taxes), is it preferable for Larry to transfer property to Jane inter vivos or at​ death, or does it​ matter? Explain.

It does not matter for transfer tax purposes but does for income tax purposes. The unlimited marital deduction for gift and estate tax purposes causes the transfer tax results to be neutral. From an income tax​ perspective, however, a transfer at death is preferable to an inter vivos transfer because a​ step-up in basis for appreciated property occurs only for transfers at death. On the other​ hand, if the asset is not depreciable and it probably will not be​ sold, basis is a moot point.

In​ general, at what amount are items includible in the gross estate​ valued? Indicate one exception to the general valuation rules and the reason for this exception

Items included in the gross estate are valued at their fair market values​ (FMV) on the date of death or alternate valuation date. An exception includes the FMV rule for farmland meeting certain requirements to reduce the probability that the heirs would have to sell the land to pay estate taxes.

Explain how shares of stock traded on a stock exchange are valued. What is the blockage​ rule?

Shares traded on a stock exchange are valued at the average of their high and low selling prices as of the applicable valuation date. The blockage rule allows a reduction from the average value where the decedent owned a large block of shares that would be difficult to dispose of at one time without using an underwriter​ and/or accepting a lower price.

In​ general, when is the estate tax​ due? What are some​ exceptions?

The estate tax is due by the due date for the estate tax​ return, which is nine months after the date of death. Exceptions​ include, a one year extension to pay the estate​ taxes, and installment payments can be automatic if the estate has an interest in a closely held business.

List the various categories of estate tax​ deductions, and compare them with the categories of gift tax deductions. What differences​ exist?

Various categories include​ debts, casualty and theft​ losses, and state death taxes. Gift tax deductions consist of the charitable contribution deduction. Various categories include​ marital, charitable​ contribution, and funeral and administration expenses. Gift tax deductions consist of the marital deduction.