Deck 12: Wealth Transfer Taxes

Question 1

Gift splitting allows a married couple to use both their annual exclusions in determining taxable gifts.

Answer 1

True

Question 2

Putting cash into a joint bank account results in a gift to the joint tenant when deposited.

Answer 2

False

Question 3

Payment to a college for a grandchild's tuition is not a taxable gift.

Answer 3

True

Question 4

Why do we call the gift and estate rate schedule a unified schedule?

Question 5

The kiddie tax applies to all unearned income of a child under 19.

Question 6

The executor can elect the alternative valuation date only if both the value of the estate and the estate tax are reduced.

Question 7

What values are used for determining the taxes on taxable estates and taxable gifts?

Question 8

A taxpayer must not retain any incidents of ownership in a life insurance policy on his or her life to have it excluded from his or her taxable estate.

Question 9

A trust always involves at least three different individuals.

Question 10

Only gift taxes of a present interest in property are eligible for the unified credit.

Question 11

Gifts are valued at their fair market value on the date of the gift and the donee takes this fair market value as basis.

Question 12

No estate tax is due if a husband leaves his entire estate to his wife.

Question 13

The tax on generation skipping transfers has been repealed.

Question 14

With a revocable trust,the grantor can change the terms of a trust at will.

Question 15

A taxpayer can elect to pay a gift tax rather than use part of his or her unified credit.

Question 16

What exclusion removes small gifts from the taxable gift base?

Question 17

____ 3.Painting a house for your mother is not a taxable gift.

Question 18

Probate determines the property included in a decedent's taxable estate.

Question 19

Gifts to most charities are not subject to gift taxes.

Question 20

The gift tax and estate taxes were imposed in 1932 and 1916,respectively.

Question 21

Explain the difference between a simple trust and a complex trust?

Question 22

What is the benefit of the gift-splitting election?

Question 23

Sam and Judy married last year.Sam is very wealthy and had Judy sign a prenuptial agreement.Judy did not want a family,but Sam promised to put $1,000,000 in a bank account solely in her name if she has a child.Judy agrees and gives birth to a child one-year later.Sam puts the $1,000,000 in Judy's bank account.Is this a taxable gift? Explain.

Question 24

What is the difference between the estate tax and the estate income tax?

Question 25

Farouk transfers bonds with a face value of $10,000 into his dependent son's name on January 1,2015 as his son will turn 24 this year.The bonds pay 8 percent interest annually and Farouk bought the bonds in 2006 for $9,500.His son sells the bonds for $10,500 at the end of 2015 after receiving the 2015 interest.If Farouk is in the 39.6 percent marginal tax bracket,how much did he save in 2015 in taxes by transferring the bonds into his son's name.His son had no other income in 2015.

Question 26

Shoshone sold her home to her son and his wife as joint tenants for $100,000.The home had been appraised at $150,000.She sold her daughter an auto valued at $10,900 for $500 and she took her sister on a vacation and paid all of her sister's expenses that amounted to $7,000.What is the total of Shoshone's taxable gifts? Explain.

Question 27

Jose set up a trust for his two married daughters with $500,000 of stocks and bonds at the end of 2014.Jose can change the trust beneficiaries at any time,however.In 2015,each of the daughters receives $15,000 from the trust.What are Jose's gift tax consequences as a result of these events? Explain.

Question 28

Who are the principal parties to a trust? Briefly define each.

Question 29

Sybil gave her son Todd 1,000 shares of XYZ stock on January 16,2015.The stock's high and low selling prices that day were $55 and $53.Sybil had purchased the stock in 2012 for $70 per share.At the end of 2015,Todd sold the shares for $62,000.Provide the details of both income and gift tax effects for these events.

Question 30

Sarah and Clem are very wealthy and have a program of charitable and family giving.In 2015,they give $20,000 to each of their 4 grandchildren,$30,000 to Clem's brother,stock valued at $40,000 (basis = $20,000)to the Cancer society,and they buy a home valued at $525,000 for Sarah's mother.In addition,Clem puts $500,000 of his stock in the family's business into Sarah's name and sets up a revocable trust for Sarah's sister with $100,000 in bonds.If Clem made $1,900,000 and Sarah $1,300,000 in taxable gifts in 2014,their only prior-year taxable gifts,what are Clem's and Sarah's taxable gifts in 2015 if they elect gift splitting?

Question 31

What is an income beneficiary?

Question 32

In 2015,Boris put $7,000,000 in an irrevocable trust for his great grandson.What amount of tax will Boris have to pay because of this transfer?

Question 33

Bill set up two trusts in 2014.The first was for his son,John,to which he contributed $200,000 during that year.(The income interest was valued at $100,000 and the remainder interest's value was $100,000.)Bill plans to continue contributing money to the trust each year but John can withdraw only the lesser of $14,000 or the amount transferred to the trust each year.The trustee can pay the amount annually until John receives the trust assets at age 40.The second trust was for his 10-year old son,Tim.Bill contributed $50,000 in 2015.(The income interest was equal to $10,000 and the remainder interest was equal to $40,000.)The trustee may distribute the income or principal to Tim until he reaches age 21,at which time the assets will be transferred to Tim.In 2015,Bill contributes $10,000 to John's trust and $15,000 to Tim's trust.What types of trusts are these and what are Bill's gift tax consequences in 2014 and 2015?

Question 34

Bobbie,age 10,has $6,000 in interest from a trust established by her grandmother.Bobbie has no itemized deductions,no other income,and her parents are in the 39.6 marginal tax bracket.What is the total tax on this income?

Question 35

What is the gross estate of a decedent?

Question 36

What is the purpose of the kiddie tax?

Question 37

Rachel owned four assets when she died in 2015.
Asset Date of Death Value Alternate Date Valuation
A $1,160,000 $1,180,000
B 2,200,000 2,390,000
C 3,250,000 3,310,000
D 825,000 700,000
Which value should the executor or personal representative use for valuing the gross estate? Explain.

Question 38

What is the alternative valuation date? What limit is placed on its use?

Question 39

How does the probate estate differ from the gross estate?

Question 40

What is a remainderman?

Question 41

The following transfer(s)is excluded from gift taxes:

A)John makes a $15,000 payment to Shands Hospital on behalf of Martha.
B)Cal transferred his half of their house to Colleen as part of their divorce settlement.
C)Jonathon gave his grandson a Jaguar automobile when he graduated from College.
D)Both (a)and (b).

Question 42

Carl gave his six children gifts of $15,000 each in the current year.

A)Carl has made $90,000 of taxable gifts.
B)Carl has made $6,000 of taxable gifts.
C)Carl has made no taxable gifts if he and his wife elect gift splitting.
D)(b)and (c)are both true.

Question 43

Charles gave his three grandsons $20,000 each,his friend,Joe,$15,000,and his daughter $30,000.His second wife,Marla,gave her three children $50,000 each and $50,000 to her church.What are Charles and Marla's taxable gifts if they elect gift splitting?

A)$68,000
B)$90,000
C)$145,000
D)$193,000

Question 44

A trust that features a demand provision by a beneficiary equal to the annual exclusion is

A)an irrevocable trust.
B)a revocable trust.
C)a Crummy trust.
D)a trust established under the UTMA.

Question 45

Cheryl bought some stock for $110,000.Two years later,she gave the stock to her brother,Harold,when its value was $100,000.Three years later,Harold sold the stock for $105,000.What is the value of the gift to Harold,and his gain or loss on the sale,respectively?

A)$100,000; 0 gain/loss
B)$100,000; $5,000 gain
C)$110,000; 0 gain/loss
D)$110,000; $5,000 loss

Question 46

Jessica is doing her year-end tax planning and is concerned about gift taxes.If she comes to you for advice,which of the following would you tell her is a taxable gift?

A)Payment to the doctor for her gardener's medical expenses
B)Tuition paid to Norden University for her hairdresser's daughter,Trisha.
C)A donation to her favorite political organization
D)Buying a $20,000 car for Trisha when she goes away to Norden University

Question 47

Chloe gave $15,000 to her son,$20,000 to her daughter,and paid $18,000 to the University of Delaware for her niece's tuition.She gave $12,000 to the United Way campaign,and $18,000 to her church.What is the amount of Chloe's taxable gifts?

A)$ 7,000
B)$15,000
C)$35,000
D)$53,000

Question 48

John made $3,400,000 in taxable gifts prior to his death at the beginning of 2015.His wife,Lola,is the executor of John's estate,and made taxable gifts of $800,000 prior to 2015.What is the maximum amount of taxable lifetime gifts that Lola can make in 2015 before she will have to begin paying a gift tax?

A)$10,860,000
B)$6,660,000
C)$5,430,000
D)$4,630,000

Question 49

The estate tax

A)applies to the person inheriting property.
B)was first imposed in 1932
C)facilitates wealth distribution.
D)was enacted at the same time as the gift tax.

Question 50

In 2015,Bill and his wife,Helen,made the following gifts: Bill's gifts: $50,000 to each of his five children; $30,000 to each of his six grandchildren; $100,000 to Central Hospital for his nephew's hospital bill.Helen's gifts: $100,000 to each of her two children; $50,000 to each of her three grandchildren; $200,000 a state senator's reelection campaign.
What are Bill's and Helen's respective taxable gifts (before their unified credit)if they do not elect gift splitting.

A)$530,000; $550,000
B)$430,000; $350,000
C)$276,000; $280,000
D)$80,000; $150,000

Question 51

Weilin's gross estate was valued at $4,870,000 when he died in 2015.His estate paid administration expenses of $100,000 and funeral expenses of $25,000.Weilin left $50,000 to Georgia State University and $500,000 in a qualifying terminable interest property trust for his second wife.If Weilin had made $1,500,000 of prior taxable gifts in 2012,paying a gift tax of $175,000 on these gifts,how much estate tax would the estate have had to pay in 2015?

Question 52

An income interest in a trust

A)must be established for a fixed term in years.
B)is not eligible for the annual exclusion.
C)must be irrevocable to be eligible for the annual exclusion.
D)is irrevocable if the donor only controls who may receive trust income.

Question 53

Which of the following gifts is not eligible for the annual exclusion?

A)$20,000 given to a spouse
B)The remainder interest in a trust
C)$100,000 given to North Carolina State University.
D)All are eligible for the annual exclusion.

Question 54

The gift tax

A)can apply to tuition paid directly to a school by an unrelated party.
B)is not levied when setting up a revocable trust.
C)applies to property transfers between divorcing parties.
D)Both (a)and (c).

Question 55

What is the limit on the amount of property that can be transferred to a spouse free of any transfer taxes?

A)$14,000 per year
B)$1,000,000
C)An unlimited amount
D)All transfers to a spouse are subject to transfer taxes

Question 56

The annual gift tax exclusion

A)cannot increase beyond $14,000 per donor.
B)does not apply to a bargain purchase between related persons.
C)applies to future interests.
D)removes small gifts from taxation.

Question 57

Charles gave his three grandsons $20,000 each,his friend,Joe,$15,000,and his daughter $30,000.His second wife,Marla,gave her three children $50,000 each and $50,000 to her church.What are their combined taxable gifts if they do not elect gift splitting?

A)$305,000
B)$255,000
C)$143,000
D)$ 71,000

Question 58

In 2015,Bill and his wife,Helen,made the following gifts: Bill's gifts: $50,000 to each of his five children; $30,000 to each of his six grandchildren; $100,000 to Central Hospital for his nephew's hospital bill.Helen's gifts: $100,000 to each of her two children; $50,000 to each of her three grandchildren; $200,000 a state senator's reelection campaign.
What are Bill's and Helen's respective taxable gifts (before their unified credit)if they elect gift splitting.

A)$166,000; $166,000
B)$276,000; $280,000
C)$430,000; $350,000
D)$530,,000; $550,000

Question 59

Which of the following is a taxable gift?

A)$25,000 given to the Democratic party.
B)$24,000 paid to Stanford University by Joel for the tuition for his best friend's son.
C)$100,000 given to the Red Cross.
D)None are taxable gifts.

Question 60

The donor of a trust is the same as

A)the beneficiary.
B)the trustee.
C)the grantor.
D)the fiduciary.

Question 61

All of the following apply to the Coverdell education savings account except:

A)Beneficiaries may be able to be changed.
B)Allows the same contribution as a Section 529 qualified tuition plan.
C)Has a $2,000 annual contribution limit.
D)Limits the contribution of higher income taxpayers.

Question 62

Silvia has three grandchildren.What is the maximum amount that she can contribute this year to a Section 529 education plan without incurring a gift tax?

A)$14,000
B)$42,000
C)$70,000
D)$210,000

Question 63

Which of the following transactions is a taxable gift (before applying the unified credit)?

A)Christian transfers $5,000 to his friend Crystal
B)Carmen gives $5,000 in stocks to her church
C)Yamile gives $30,000 to her husband,Jose.
D)Jessica transfers $30,000 into an irrevocable trust for the benefit of her two children.

Question 64

Which of the following does not apply to the estate tax in effect in 2015?

A)The tax is assessed on the adjusted basis of the decedent's estate.
B)Taxable gifts are integrated with the estate value to determine the estate tax.
C)The gift and estate tax rate schedules are the same.
D)The unified credit applies to gifts and estates.

Question 65

All of the following are deductions from the gross estate except

A)the decedent's funeral expenses.
B)charitable bequests.
C)the annual exclusion.
D)a credit card bill of the decedent.

Question 66

What is the benefit(s)of a living trust?

A)Keeps assets in the trust out of the gross estate.
B)Keeps assets in the trust out of the probate estate.
C)Maintains privacy for the beneficiaries.
D)Both (b)and (c).

Question 67

The amount of the kiddie tax is the sum of

A)the child's tax on the child's earned income and the tax on all the child's unearned income at the parents' rates.
B)the parents' tax on the child's unearned income and the child's tax on the earned income.
C)the parent's tax on the child's unearned income in excess of $2,100 and the child's tax on the balance of his or her taxable income.
D)$1,000 or the tax on unearned income.

Question 68

The alternate valuation date is:

A)3 months after the date of death
B)6 months after the date of death
C)9 months after the date of death
D)12 months after the date of death

Question 69

Which of the following statements is true regarding the filing of a gift tax return?

A)Spouses using the gift-splitting provision do not have to file a return unless the gifts exceed $28,000.
B)A gift tax return must be filed when a gift to a church exceeds the annual exclusion.
C)A gift tax return is due within five months of making the gift.
D)No gift tax return is required to be filed for gifts between spouses.

Question 70

At the time Karen left for college,her grandfather loaned her $100,000 to be used to pay for her college expenses.She signed a note stating that she would begin repaying the loan over 10 years beginning 6 months after graduation.There is no interest specified for the loan.Which of the following is true?

A)The grandfather has interest income on the loan.
B)The grandfather has made a gift of $100,000 to Karen at the time of the loan.
C)Karen can deduct interest expense on the loan
D)Karen owes gift taxes in the year of the loan

Question 71

Appreciated property that was inherited in 2015

A)will have a stepped-up basis.
B)avoids income tax on the appreciation prior to the date of death.
C)avoids income tax on any post inheritance appreciation on a future sale.
D)(a)and (b)only.

Question 72

The unified credit for 2015 gifts is equivalent to an exemption amount of:

A)$1,000,000
B)$3,500,000
C)$5,340,000
D)$5,430,000

Question 73

The kiddie tax can only be imposed on

A)the earned income of a child under 18.
B)unearned income of a child in excess of $2,100.
C)income only from property given to a child
D)the unearned income of a child in excess of the standard deduction

Question 74

Crystal deposited $50,000 into a joint savings account in her name and the name of her son,Jason.Later that same year,Jason withdrew $16,000 from the account.If Crystal made no other gifts to Jason during that year,what is the value of Crystal's taxable gifts (before applying the unified credit)?

A)$2,000
B)$12,000
C)$16,000
D)$25,000

Question 75

When Shipley died,he owned $100,000 in bonds that he left to his church,a $400,000 house held in joint tenancy with right of survivorship with his brother,and a collection of antique automobiles valued at $1,300,000 that he left to his son.What are Shipley's probate estate and his gross estate,respectively?

A)$1,600,000; $1,300,000
B)$1,400,000; $1,300,000
C)$1,600,000; $1,600,000
D)$1,400,000; $1,600,000

Question 76

The federal gift tax is:

A)imposed upon the recipient of gifts
B)imposed upon property in the estate of a deceased person
C)imposed upon the donor on lifetime gift transfers
D)imposed upon the donee only if a gift is not subject to income taxes

Question 77

George made a gift of stock valued at $450,000 (basis = $300,000)to his daughter Sally and was required to pay a gift tax of $30,000 on this gift.Which of the following is true regarding this gift?

A)Sally has a basis of $300,000 for gain in the stock
B)Sally has a basis of $310,000 for gain in the stock
C)Sally has a basis of $330,000 for gain in the stock
D)Sally has a basis of $450,000 for gain in the stock

Question 78

Which of the following statement does not apply to a revocable trust?

A)The grantor of the trust is taxed on trust income.
B)The trust property is included in the grantor's gross estate.
C)Revocable trusts are all simple trusts.
D)The grantor makes a gift when the trust distributes trust income to a beneficiary.

Question 79

Which of the following transfers is taxable under the gift tax statutes?

A)Mark sold land to an unrelated party for less than its fair market value because he needed cash in a hurry.
B)After a friend's death,Sharron wrote a check to the university to pay the college tuition for the friend's son.
C)Marilynn wrote checks to the landlord to pay her aunt's rent for ten months when her aunt was unemployed.
D)Jose wrote a check to the doctor to pay a friend's medical bill when he had surgery.

Question 80

When will an insurance policy on the decedent's life be included in a decedent's gross estate?

A)The decedent could change the beneficiary.
B)The decedent paid the premiums.
C)
C)The decedent gave the policy to his daughter two years ago.
D)Both b and