FEDERAL GIFT AND ESTATE TAXES

Question

2254. CHAPTER 18—THE FEDERAL GIFT AND ESTATE TAXES Question PR #12
At the time of her death in 2011, Amber owns property worth $4,000,000. Other information regarding her affairs is as follows.

Unpaid pledge to the building fund of her church$50,000
College graduation gift she had promised her grandson20,000
Local property taxes owed (accrued prior to death)100,000
Casualty loss to uninsured vacation home (fire occurred one month before death)400,000
Mortgage owed on personal residence700,000

All of these items (except the casualty loss) were paid by her estate and none were deducted on Form 1041 (income tax return of the estate). What is Amber’s taxable estate?

2255. CHAPTER 18—THE FEDERAL GIFT AND ESTATE TAXES Question PR #13
At the time of Clint’s death in 2011, part of his estate consists of the following.

·Roth IRA (value of $1,000,000) with Jennifer as the designated beneficiary.
·Land (worth $3,000,000) held in joint tenancy with Jennifer. Jennifer is Clint’s wife and originally furnished the purchase price.
·Building (worth $3,000,000) held as equal tenants in common with Jennifer and Dana. Dana is Clint’s mother, and she originally purchased the property.

Under Clint’s will, all of his property passes to his wife, Jennifer. How much marital deduction is Clint’s estate allowed?

2256. CHAPTER 18—THE FEDERAL GIFT AND ESTATE TAXES Question PR #14
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 seven 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?

2257. CHAPTER 18—THE FEDERAL GIFT AND ESTATE TAXES Question ES #1
As reflected by the tax law, Congressional policy relative to the Federal gift and estate taxes has been very inconsistent. Comment on this policy regarding the following time periods.

a.From original enactment of these taxes up to the Tax Reform Act of 1976.
b.From the Tax Reform Act of 1976 to EGTRRA.
c.From EGTRRA to the Tax Relief Act (TRA) of 2010.

2258. CHAPTER 18—THE FEDERAL GIFT AND ESTATE TAXES Question ES #2
The Federal gift and estate taxes were restructured in 1976 into the unified transfer tax. The objective of the change was to eliminate the tax difference between transfers during life (gift tax) and at death (estate tax). Does this uniformity of treatment currently exist? In this regard, comment on the following differences between the two taxes.

a.Applicable unified transfer tax credit.
b.Applicable unified transfer tax rates.
c.Availability of the charitable and marital deductions.
d.Availability of the annual exclusion.

2259. CHAPTER 18—THE FEDERAL GIFT AND ESTATE TAXES Question ES #3
Byron and Amanda are heirs of the Nelson estate. Although each receives a $20,000 bequest, they pay different amounts of inheritance tax. Explain the possible reason for the discrepancy.

2260. CHAPTER 18—THE FEDERAL GIFT AND ESTATE TAXES Question ES #4
In contrasting the computation of the Federal gift and estate taxes, are past taxable gifts handled in the same fashion? Explain.

2261. CHAPTER 18—THE FEDERAL GIFT AND ESTATE TAXES Question ES #5
For Federal estate tax purposes, the gross estate includes property that the decedent owns at the time of death. It may also include property that the decedent no longer owns. Explain.

2262. CHAPTER 18—THE FEDERAL GIFT AND ESTATE TAXES Question ES #6
Waldo is his mother’s sole heir and is the designated executor of her estate. Although the alternate valuation date would yield a smaller gross estate and less estate tax liability, the § 2032 election is not made. Instead, Waldo files a Form 706 for his mother’s estate using higher date of death values. Why?

2263. CHAPTER 18—THE FEDERAL GIFT AND ESTATE TAXES Question ES #7
Madeline pays for her mother’s nursing home expenses. Under what conditions might such payments not be a gift?

2264. CHAPTER 18—THE FEDERAL GIFT AND ESTATE TAXES Question ES #8
Cliff loans his adult daughter, Stella, a large sum of money to enable her to start her own business. The loan is evidenced by a note, and no interest is provided for or repayment date specified. What are the potential tax ramifications of this arrangement to Cliff and Stella?

2265. CHAPTER 18—THE FEDERAL GIFT AND ESTATE TAXES Question ES #9
The IRS does not consider property settlements in consideration of marriage as being transfers for valuable consideration. Consequently, such prenuptial settlements are subject to the Federal gift tax. Why, then, are property settlements incident to divorce exempt from the gift tax?

2266. CHAPTER 18—THE FEDERAL GIFT AND ESTATE TAXES Question ES #10
Walt dies intestate (i.e., without a will) in the current year with a gross estate valued at $4,000,000. Under applicable state law, Walt’s property passes to Kelly or to Belle, in that order. Kelly has an estimated net worth of $3,000,000 while Belle has none. From a tax planning standpoint, what course of action might be advisable.

2267. CHAPTER 18—THE FEDERAL GIFT AND ESTATE TAXES Question ES #11

In what manner does the tax law favor contributions to qualified tuition plans under § 529?

2268. CHAPTER 18—THE FEDERAL GIFT AND ESTATE TAXES Question ES #12
In determining the gift tax due on a current gift, a credit is allowed for gift taxes actually paid on prior taxable gifts. Comment on the accuracy of this statement.

2269. CHAPTER 18—THE FEDERAL GIFT AND ESTATE TAXES Question ES #13
The § 2513 election to split gifts is less useful in community property states than in common law states. Explain.

2270. CHAPTER 18—THE FEDERAL GIFT AND ESTATE TAXES Question ES #14
Distributions from retirement plans and proceeds from life insurance plans usually are not subject to probate.

a.Why are they not part of the probate estate?
b.When might they be included in the probate estate?

2271. CHAPTER 18—THE FEDERAL GIFT AND ESTATE TAXES Question ES #15
For estate tax purposes, what is the difference between a surviving spouse’s share of the community property and a dower (or courtesy) interest?

2272. CHAPTER 18—THE FEDERAL GIFT AND ESTATE TAXES Question ES #16
Community property law has been influential in the enactment of several provisions of the Federal estate and gift tax. In this regard, comment on the marital deduction under §§ 2056 and 2523.

2273. CHAPTER 18—THE FEDERAL GIFT AND ESTATE TAXES Question ES #17
Joint tenancies and tenancies by the entirety avoid probate, while tenancies in common and community property do not. Why?

2274. CHAPTER 18—THE FEDERAL GIFT AND ESTATE TAXES Question ES #18
Cole purchases land for $500,000 and transfers it by gift to his two daughters, Madison and Paige, as equal joint tenants with the right of survivorship. Ten years later, when the land is worth $2,000,000, Madison predeceases Paige. Madison’s executor includes none of the value of the land in her gross estate, as she contributed nothing toward its cost. Do you agree?

2275. CHAPTER 18—THE FEDERAL GIFT AND ESTATE TAXES Question ES #19
When Travis learns he is seriously ill, he transfers an insurance policy on his life (maturity value of $2,000,000) to his wife Alexis. The couple’s adult children are the designated beneficiaries of the policy. Has Travis acted wisely?

2276. CHAPTER 18—THE FEDERAL GIFT AND ESTATE TAXES Question ES #20
What is the justification for the terminable interest rule that is applicable to the marital deduction?

2277. CHAPTER 18—THE FEDERAL GIFT AND ESTATE TAXES Question ES #21
Doyle died in 2000 and by will created a trust with the following provisions: “life estate to my wife, Grace, remainder upon her death to our children.” Grace dies in 2011. Is the trust Doyle created included in Grace’s gross estate? Explain.

Correct Answer:

If Doyle’s executor made the QTIP election to obtain a marital deduction for Doyle’s estate, Grace’s gross estate must include the trust. If not, the trust is not included.

2278. CHAPTER 18—THE FEDERAL GIFT AND ESTATE TAXES Question ES #22
Generally, property that passes to a surviving spouse that is not a U.S. citizen does not qualify for the marital deduction.

a.Why?
b.How can this result be avoided?

2279. CHAPTER 18—THE FEDERAL GIFT AND ESTATE TAXES Question ES #23
At the time of her death in an automobile accident, Laura left a modest probate estate, most of which she had inherited from her mother several years ago. Comment on Laura’s Federal estate tax position in connection with each of the following points.

a.Probate estate versus gross estate.
b.Credit for the tax on prior transfers.

2280. CHAPTER 18—THE FEDERAL GIFT AND ESTATE TAXES Question ES #24
When one spouse predeceases the other, the credit for prior transfers does not apply.

a.Why?
b.Under what circumstances might the credit apply?

2281. CHAPTER 18—THE FEDERAL GIFT AND ESTATE TAXES Question ES #25
How could the § 2513 election to split gifts help avoid the generation-skipping transfer tax (GSTT)?

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