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.