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Exam 18: The Federal Gift and Estate Taxes

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Question 81

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Manuel, a citizen and resident of Argentina, makes a gift to his children of a ranch located in Colorado. Manuel will be subject to the U.S. gift tax.

A) True
B) False

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Question 82

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In which, if any, of the following independent situations can the alternate valuation date be elected? $\quad\quad\text {Value of Gross Estate}\quad\quad\quad\quad\quad\quad\text {Estate Tax Result}$ $\begin{array}{llr}\text { Date of Death }&\text {Alternate Date}&\text { Date of Death }&\text {Alternate Date }\\\end{array}$ a. $\quad\$ 6,000,000 \quad\quad \$ 6,100,000 \quad\quad\quad\quad \$ 400,000 \quad \quad\quad\$ 390,000$ b. $\quad\$ 5,900,000 \quad\quad \$ 5,800,000\quad\quad\quad \quad \$ 400,000 \quad\quad\quad \$ 405,000$ c. $\quad\$ 6,100,000 \quad \quad\$ 6,000,000\quad\quad\quad \quad \$ 390,000 \quad \quad\quad\$ 380,000$ d. $\quad\$ 6,200,000 \quad\quad \$ 6,300,000\quad\quad\quad \quad \$ 500,000 \quad\quad\quad \$ 490,000$

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Question 83

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Manfredo makes a donation of $50,000 to the church where he was baptized in Mexico City. The gift does not qualify as a charitable contribution for Federal income tax purposes.

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

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?

In 2005, Thalia purchases land for $900,000 and lists title in the names of her daughters as follows: "April and Theresa, joint tenants with right of survivorship." In 2007, April and Theresa purchase an apartment building for $1 million as equal tenants in common; April furnished $400,000 and Theresa furnished $600,000 of the cost. April dies first in 2016 when the land is worth $1.5 million and the apartment building is worth $2 million. One of the results of these transactions is:

At the time of his death on August 7, Michael owned the following assets. ∙ Green Corporation stock (cost $700,000, FMV $950,000). On July 20, Green declared a cash dividend, payable on August 17 to all shareholders as of the record date of August 8. Michael's executor receives the $64,000 dividend on the scheduled payment date. ∙ Note receivable (face amount $600,000) payable on demand. The note was received by Michael two years previously from his daughter Addison. Addison used the loan to start a business which currently is very successful. In his will, Michael forgives the note. ​ How much, as to these transactions, is included in Michael's gross estate?

In his will, Hernando provides for $50,000 to go to the Madrid, Spain, school system. Because it is a foreign charity, the bequest will not qualify as a charitable deduction for estate tax purposes.

Interest on state and local bonds is not subject to the Federal estate tax.

Frank owns an insurance policy on the life of Cynthia, with Leon as the designated beneficiary. Upon Cynthia's death, Frank is treated as making a gift of the insurance proceeds to Leon.

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

Match each statement with the correct choice. Some choices may be used more than once or not at all. -Credit for tax on prior transfers (under § 2013)

At the time of her death on June 6, Mary owned the following assets. ∙ Taupe Corporation stock (cost $400,000, FMV $800,000). On May 4, Taupe declared a cash dividend, payable on June 15, to shareholders as of the record date of June 4. Mary's executor received the $40,000 dividend on the scheduled payment date. ∙ City of Boise bonds (cost $800,000, FMV $780,000). Interest accrued to June 6 was $42,000. The executor eventually collected $50,000 (included post-death accrual of $8,000) on July 20. ​ As to these transactions, how much is included in Mary's gross estate?

At the time of his death, Tom owned some common stock. $\begin{array} { l l l } & \text { Date of Death } & \text { Value Six } \\& \text { Value } & \text { Months Later } \\\text { Citron Corporation } & \$ 1,500,000 & \$ 1,100,000 \\\text { Grey Corporation } & 1,300,000 & 1,400,000\end{array}$ ? If the alternate valuation date is properly elected, the value of Tom's estate as to these stocks is:

At the time of her death, Audrey was (or had been) involved in the following trust arrangements. As to these trusts, how much is included in Audrey's gross estate? ∙ Trust A. Created by Audrey ten years ago as a revocable trust with $1 million in assets. The trust provides for a life estate to Audrey, remainder to her children. When Audrey died, Trust A's assets are valued at $5.1 million. ∙ Trust B. Created by David's will (Audrey's late husband) and provides for a life estate to Audrey, remainder to her children. David's estate made a QTIP election. Trust B was worth $2 million when created and $3 million when Audrey died. ∙ Trust C. Created by Audrey five years ago, provides for a life estate to Audrey's children, remainder to their children (i.e., Audrey's grandchildren). Trust C was worth $1.5 million when created and $2.4 million when Audrey died.

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

Which, if any, of the following is a correct statement regarding the filing of a gift tax return (Form 709) ?

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.

Prior to his death in 2016, Ethan made the following taxable gifts. $\begin{array} { l c c } & \text { Year of } & \text { Amount of } \\\text { Stock in Crimson Corporation } & \text { Gift } & \text { Gift } \\\text { Term life insurance policy (maturity value of } & 2000 & \$ 800,000 \\\$ 200,000 \text { ) } & 2014 & - 0 - \\\text { Unimproved land } & 2014 & 800,000\end{array}$ ​ The policy on Ethan's life was given to the designated beneficiary. The gift of the stock and the land generated gift taxes of $28,750 and $65,250, respectively. As to these transfers, how much is included in Ethan's gross estate?

At the time of her death, Rita held a promissory note from a loan she had made to her son. If Rita's will forgives the loan, the note is not included in her gross estate.