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Exam 27: The Federal Gift and Estate Taxes

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Question 1

True/False

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Using his separate funds, Wilbur purchases an annuity which pays him a specified amount until death. Upon Wilbur's prior death, a reduced amount is to be paid to Marcia for her life. Marcia predeceases Wilbur. Nothing concerning the annuity contract is included in Marcia's gross estate.

A) True
B) False

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Question 2

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At the time of his death, Jason was a participant in Silver Corporation's qualified pension plan and group term life Insurance. The balance of the survivorship feature in his pension plan is: $\begin{array}{ll}\text { Contributions by Slver } & \$ 800,000 \\\text { After-tax contributions by Jason } & 400,000 \\\text { Plan earnings } & 300,000\end{array}$ The term insurance has a maturity value of $100,000. All amounts are paid to Pam, Jason's daughter. One result of these transactions is:

A) Pam must pay income tax on $300,000.
B) Pam must pay income tax on $1,100,000.
C) Jason's gross estate must include $1,200,000.
D) Jason's gross estate must include $1,500,000.
E) None of the above.

F) All of the above
G) A) and B)

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Question 3

Multiple Choice

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In which, if any, of the following independent situations has Trent made a gift?

Which, if any, of the following items is subject to indexation (adjusted to reflect inflation) ?

Classify each of the independent statements appearing below. -Interest on municipal bonds accrued after death.

In some cases, the Federal gift tax can be imposed on someone other than the donor.

Transfers to political organizations are exempt from the application of the Federal gift tax.

At the time of his death, Hal owned 10 cemetery lots worth $40,000 ($4,000 each) for use by himself and his family. These lots are not included in Hal's gross estate and no deduction is allowed the estate.

One of the reasons the estate tax was enacted was to prevent the avoidance of the gift tax by the making of "deathbed gifts."

A husband and wife make a gift of their jointly owned vacation home to their adult children. The gift-splitting election must be made.

Classify each statement appropriately. -Selling expenses incurred to sell estate assets in order to pay administration expenses.

At the time of her death, Amber owns property worth $5,000,000. 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 grandson 20,000 Local property taxes owed (accrued prior to death) 100,000 Casualty loss to uninsured vacation home (fire occurred one month before death) 500,000 Mortgage owed on personal residence 800,000 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?

Cary and Bo are husband and wife. Using their community funds, they create a trust, life estate to Bo, remainder to their children. Four years later, Cary predeceases Bo. Nothing as to this trust is included in Cary's gross estate.

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.

Match each statement with the correct choice. Some choices may be used more than once or not at all. -Exclusion amount

Matt and Patricia are husband and wife and live in Oregon. In 1980 and using her funds, Patricia purchases a residence for $400,000, listing title to the property as "Matt and Patricia, joint tenants with right of survivorship." In 2013, Matt dies first when the residence is worth $2 million. A correct statement as to these transactions is:

Under the alternate valuation date election, each asset in the gross estate is valued at the lesser of the date of death value or six months thereafter.

Classify each statement appearing below. -Meg gives her 18-year-old son money for his college tuition and living expenses (e.g., room and board) .

The current top Federal transfer tax rate of 40% is the highest rate ever imposed.

Classify each statement appropriately. -Casualty loss to property before the death of the owner.