Deck 25: Transfer Taxes and Wealth Planning of the Cfa Institute

Question 1

The annual exclusion applies to cumulative gifts made to each donee over the course of the year.

Answer 1

True

Question 2

The estate tax is imposed on testamentary transfers.

Answer 2

True

Question 3

The exemption equivalent was repealed in 1976.

Answer 3

False

Question 4

A future interest is a right to receive income or property in the future.

Question 5

When a gift-splitting election is made, gifts made by either spouse during the year will be treated as if each spouse made one-half of the transfer.

Question 6

The Federal transfer taxes are calculated using cumulative lifetime transfers.

Question 7

The amount of the estate tax is directly related to the amount of taxable gifts.

Question 8

The unified credit is designed to allow a minimum amount of lifetime transfers without triggering the imposition of a transfer tax.

Question 9

The annual exclusion eliminates relatively small transfers of present interests in property.

Question 10

The marital and charitable deductions are common to both the estate tax and the gift tax formulas.

Question 11

A transfer of cash to a bank account held in joint tenancy with the right of survivorship is not a completed gift.

Question 12

The tax rate schedule on taxable transfers has a maximum tax rate of 40% for 2014.

Question 13

A withdrawal of money from a bank account held in joint tenancy with the right of survivorship may constitute a completed gift.

Question 14

Only complete gifts are subject to the Federal gift tax.

Question 15

A gratuitous transfer of cash to an individual who uses the cash to pay medical expenses is not subject to a gift tax.

Question 16

The gift tax is imposed on inter vivos (lifetime) transfers.

Question 17

For 2014, the exemption equivalent for the estate tax is $5.34 million.

Question 18

An exemption equivalent is the amount of annual gifts that is automatically exempt from the gift tax.

Question 19

A completed gift must be irrevocably relinquished by the donor.

Question 20

A couple who is married at the time of completing a gift can elect to file a joint gift tax return.

Question 21

A transfer of a terminable interest will not generally qualify for a marital deduction.

Question 22

The probate estate consists of all property owned by the decedent that is excluded from the gross estate.

Question 23

The gift-splitting election only applies to gifts made by taxpayers who reside in community property states.

Question 24

Proceeds of life insurance paid due to the death of the decedent are included in the decedent's gross estate if the decedent had the right to designate the beneficiary of the policy.

Question 25

No deductions are allowed when calculating the taxable estate.

Question 26

A present interest is the right to currently enjoy property or receive income payments from property.

Question 27

The gross estate includes the value of half of real property owned by a decedent and spouse in joint tenancy with the right of survivorship.

Question 28

Property is included in the gross estate at the value a willing buyer would pay a willing seller, neither being under any compulsion to buy or to sell, and both having reasonable knowledge of the relevant facts.

Question 29

The theft of property included in the gross estate is only deductible in calculating the taxable estate if the loss exceeds 10 percent of the decedent's adjusted gross estate.

Question 30

Including adjusted taxable gifts in the taxable estate causes these gifts to be taxed twice, once under the gift tax and again under the estate tax.

Question 31

A terminable interest in property is any interest that terminates during the current year.

Question 32

Proceeds of life insurance paid to the decedent's estate due to the death of the decedent are included in the decedent's gross estate even if the decedent had no ownership rights in the policy at the time of death.

Question 33

The tax on cumulative taxable gifts is reduced by the unified credit regardless of whether any unified credit was used in prior years.

Question 34

The gross estate always includes the value of half of any real property owned by a decedent and another person in joint tenancy with the right of survivorship.

Question 35

The debts of the decedent at the time of death are deducted in calculating the taxable estate.

Question 36

Both spouses must consent to any gift-splitting election.

Question 37

A gift tax return does not need to be filed unless the taxpayer has made current gifts in excess of the unified credit.

Question 38

The gross estate may contain property transfers that are not included in the probate estate.

Question 39

The probate estate will include the total value of all real property owned by the decedent at the time of death regardless of whether the decedent co-owned the property as tenants in common or as joint tenants with the right of survivorship.

Question 40

The gross estate will not include the value of clothes and other personal items owned by the decedent at the time of death.

Question 41

A fiduciary is a legal entity that can only exist for a year.

Question 42

A trust is a legal entity whose purpose is to hold and administer property for beneficiaries.

Question 43

Which of the following statements is(are) true for both gratuitous and testamentary transfers?

A) A unified credit of up to $1 million reduces the tax on any transfer.
B) An annual exclusion offsets any transfer up to $12,000.
C) An election can be made to split a transfer between spouses.
D) A charitable and a marital deduction are allowed in computing the taxable transfer.
E) All of these are true.

Question 44

Which of the following transfers is a completed gift?

A) Payment of child support by a former spouse.
B) Transfer of property to a revocable trust.
C) Transfer of cash to a bank account held in joint tenancy with the right of survivorship.
D) Income paid to the beneficiary of a revocable trust.
E) None of these is a completed gift.

Question 45

Which of the following is a true statement about the Federal gift tax return (Form 709)?

A) Form 709 is due by the 15th day of the ninth month following the date of the gift.
B) Form 709 must be filed if a taxpayer wishes to elect gift splitting.
C) Form 709 need not be filed unless a taxpayer's taxable gifts exceed the exemption equivalent.
D) Form 709 is due nine months after the death of the decedent.
E) None of these is true.

Question 46

A serial gift strategy uses multiple gifts to maximize the value of the annual exclusion.

Question 47

Adjusted taxable gifts are included when calculating the taxable estate but are not subject to double taxation because a tax credit is provided for taxes payable on adjusted taxable gifts.

Question 48

The unified credit is designed to:

A) apply only to taxable transfers included in the gross estate.
B) prevent taxation of cumulative transfers that do not exceed a certain minimum amount.
C) apply to amounts not already eliminated by the exemption equivalent.
D) exclude up to $1 million for any individual transfer.
E) None of these.

Question 49

The calculation of the value of a life estate in a trust generally does not depend upon which of the following factors?

A) the age of the life tenant.
B) the Section 7520 interest rate.
C) the value of the property at the time of the transfer.
D) the manner in which the trust corpus is invested.
E) All of these.

Question 50

A bypass provision in a will requires a decedent to have a taxable estate in order to use a unified credit to reduce total estate taxes on a married couple.

Question 51

The estate and gift taxes share several common features. Which of the following characteristics are common to both the estate and gift taxes?

A) A unified credit and a marital deduction.
B) A charitable deduction and an annual exclusion.
C) A gift-splitting election and a deduction for income taxes paid by the fiduciary.
D) A charitable deduction and the unused spousal exemption equivalent.
E) All of these are characteristics common to both the gift and the estate tax.

Question 52

A gratuitous transfer of property made during the lifetime of the donor is called:

A) an incomplete gift.
B) a testamentary transfer.
C) a taxable gift.
D) an inter vivos transfer.
E) All of these.

Question 53

The estate and gift taxes share several common features. Which of the following characteristics is common to both the estate and gift taxes?

A) A marital deduction and a deduction for casualty losses.
B) A marital deduction for transfers of all terminable interests.
C) The tax rate schedule for calculating gross transfer taxes.
D) A charitable deduction and an annual exclusion.
E) None of these list characteristics common to both the gift and the estate tax.

Question 54

The income tax benefit derived from a step-up in tax basis should be measured against the estate tax cost of including the property in the decedent's gross estate.

Question 55

Life insurance is an asset that can be used to fund a trust to support a surviving spouse and, yet, may not be included in the decedent's gross estate.

Question 56

A serial gift strategy consists of arranging a trust to maximize the value of the unified credit.

Question 57

Which of the following statements is(are) true?

A) The same transfer tax rate schedule is used to calculate both the estate tax and the gift tax.
B) The transfer tax rate schedule is regressive in nature.
C) The amount of the unified credit varies according to whether the taxable transfer is inter vivos or testamentary.
D) The exemption equivalent automatically offsets transfers in calculating cumulative taxable transfers.
E) All of these are true.

Question 58

Property inherited from a decedent has an adjusted basis equal to the value of the property included in the decedent's estate.

Question 59

Which of the following transactions would not utilize the "Section 7520 rate" to calculate the value of the transfer?

A) A transfer of property with a retained life estate.
B) A transfer of property to a spouse.
C) A transfer of a remainder interest in real property.
D) A transfer of a 10-year term certain in real property.
E) None of these utilizes the "Section 7520 rate" in the calculation of the value of the property.

Question 60

The testamentary transfer of property to a qualified charity is deductible in calculating the taxable estate without any ceiling limitation.

Question 61

Alexis transferred $400,000 to a trust with directions to pay income to her spouse, William, for his life. After William's death the corpus of the trust will pass to William's son. If the life estate is valued at $72,000, what is the total amount of the taxable gifts?

A) $386,000
B) $59,000
C) $374,000
D) $324,000
E) None of these.

Question 62

Christian transferred $60,000 to an irrevocable trust for the benefit of his three daughters. The three daughters share income equally for five years and then the corpus of the trust is to be divided equally between them. What is the amount of the taxable gifts, if any, made by Christian?

A) $60,000
B) $47,000
C) $34,000
D) $21,000
E) None of these - the amount of the taxable gifts cannot be ascertained without valuing each income interest.

Question 63

This year Anthony transferred $250,000 of bonds to a trust with directions to the trustee to pay income to his son for the next 20 years. After 20 years the trust corpus would revert to Anthony. Which of the following is a true statement?

A) Anthony has made a $250,000 gift.
B) Anthony has made a $237,000 taxable gift.
C) Anthony has not yet made a completed gift.
D) Anthony has made a completed gift of the income interest only.
E) None of these is true.

Question 64

Matthew and Addison are married and live in Michigan, a common-law state. For the holidays Addison gave cash gifts of $30,000 to each of her two sons, and Matthew gave $40,000 to his daughter. What is the amount of Addison's taxable gifts if Matthew and Addison opt to gift split?

A) $58,000
B) $8,000
C) $16,000
D) $4,000
E) None of these

Question 65

At his death Titus had a gross estate consisting of $6 million of property. Which of the following is a true statement about Titus' estate or estate tax?

A) Titus must have a probate estate of at least $6 million.
B) Titus must have an adjusted gross estate of at least $6 million.
C) Titus must have cumulative taxable transfers of at least $6 million.
D) Titus must have a tentative transfer tax calculated on at least $2 million of transfers.
E) None of these is necessarily true.

Question 66

Jayden gave Olivia a ring when she agreed to marry him. The ring is a family heirloom valued at $67,000. What is the amount of the taxable gift?

A) zero - the marital deduction offsets the gift as long as Jayden and Olivia are married by year end.
B) $53,000
C) $67,000
D) zero - this transfer is not gratuitous.
E) None of these.

Question 67

This year Nathan transferred $2 million to an irrevocable trust established for the benefit of his nephew. The trustee is directed to accumulate income for the next 5 years before distributing the trust corpus to Nathan's nephew. In past years Nathan has made taxable gifts of $6 million and used a unified credit on an exemption equivalent of $5 million. What amount of gift tax, if any, must Nathan remit?

A) $300,000
B) $400,000
C) $345,450
D) zero - there is a $10.68 million exemption equivalent
E) None of these.

Question 68

This year Brent purchased season baseball tickets in the exclusive sky club. The price of the tickets was $60,000, and Brent divided the tickets equally with his two brothers. Has Brent made a taxable gift and, if so, in what amount?

A) Brent made a taxable gift of $46,000.
B) Brent made two taxable gifts of $17,000 each.
C) Brent transferred the tickets for love and affection so no gift tax is imposed.
D) Brent made two taxable gifts of $6,000.
E) None of these.

Question 69

Andrew and Brianna are married and live in Texas, a community property state. For their birthdays this year Andrew gave cash gifts of $20,000 to each of his two daughters, and Brianna gave $30,000 to her niece. What is the amount of Andrew's taxable gifts?

A) $1,000
B) $14,000
C) $28,000
D) zero if Andrew and Brianna elect to split gifts.
E) None of these.

Question 70

Natalie transferred $500,000 of bonds to a revocable trust with directions to the trustee to pay income to her aunt for five years after which the corpus is to be distributed to Natalie's niece. At year end, the trustee paid $15,000 of income to the aunt. Which of the following is a true statement?

A) Natalie has made a completed gift of $500,000.
B) Natalie has made a taxable gift of $1,000.
C) Natalie has not made a completed gift because the trust is revocable.
D) Natalie has made a taxable gift of $474,000.
E) None of these.

Question 71

Jonathan transferred $90,000 of cash to a trust this year for the benefit of Hannah, age 10. The trustee has the discretion to distribute income or corpus (principal) for Hannah's benefit and is required to distribute all assets to Hannah (or her estate) not later than Hannah's 21st birthday. What is the amount of the taxable gift?

A) $90,000
B) $76,000
C) $64,000
D) zero - there is no completed gift until the trustee makes a distribution from the trust.
E) None of these.

Question 72

Which of the following is a completed taxable gift?

A) $20,000 in cash contributed to the committee to reelect Senator BlowHard.
B) $15,000 in cash given to Valley Hospital for the care of a neighbor who was in an auto accident.
C) $18,000 in cash given to a needy student to pay for college tuition.
D) $55,000 in cash transferred to a former spouse under a written property settlement shortly after a divorce.
E) None of these is a completed taxable gift.

Question 73

At her death Tricia owned a life insurance policy on her life that paid her daughter $500,000 upon her death. The policy was only valued at $25,000 prior to Tricia's death. What amount, if any, is included in Tricia's gross estate?

A) $500,000
B) $25,000
C) $25,000 if Tricia transferred ownership of the policy within three years of her date of death.
D) zero - life insurance proceeds due to the death of the decedent are not included in the decedent's gross estate.
E) zero if Tricia's daughter refused to accept the proceeds.

Question 74

At her death Tricia had an adjusted gross estate consisting of $8 million of property. Which of the following is a true statement about Tricia's estate or estate tax?

A) Tricia must have a taxable estate over $8 million.
B) Tricia's taxable estate will not exceed $8 million.
C) Tricia must have a probate estate tax of zero.
D) Tricia must have a gross estate tax of zero.
E) None of these is necessarily true.

Question 75

At his death Stanley owned real estate worth $345,000 with two other individuals as equal tenants in common. Stanley contributed $50,000 to the $100,000 total cost of the property. What amount, if any, is included in Stanley's gross estate?

A) $50,000
B) $172,500
C) $345,000
D) $115,000
E) None of these is correct.

Question 76

At his death Tyrone's life insurance policy paid his estate $85,000. What amount, if any, is included in Tyrone's gross estate?

A) $85,000
B) $85,000 if Tyrone had an incident of ownership of the policy at the time of his death.
C) zero if Tyrone did not transfer any ownership of the policy within three years of his date of death.
D) zero - life insurance proceeds due to the death of the decedent are not included in the gross estate.
E) zero if Tyrone's estate uses the insurance proceeds to pay Tyrone's estate tax.

Question 77

This year Don and his son purchased real estate for an investment. The price of the property was $500,000, and the title named Don and his son as joint tenants with the right of survivorship. Don provided $320,000 of the purchase price and his son provided the remaining $180,000. Has Don made a taxable gift and, if so, in what amount?

A) Don has made a taxable gift of $236,000.
B) Don has made a taxable gift of $70,000.
C) Don has made a taxable gift of $22,000.
D) Don has made a taxable gift of $56,000.
E) None of these - Don did not make a taxable gift.

Question 78

At his death Trevor had a probate estate consisting of $4 million of property. Which of the following is a true statement about Trevor's estate or estate tax?

A) Trevor must have a taxable estate of at least $4 million.
B) Trevor must have an adjusted gross estate of at least $4 million.
C) Trevor must have an estate tax base (cumulative taxable transfers) of at least $4 million.
D) Trevor must have a gross estate of at least $4 million.
E) None of these is necessarily true.

Question 79

At her death Siena owned real estate worth $200,000 that was titled with her sister in joint tenancy with the right of survivorship. Siena contributed $50,000 to the total cost of the property and her sister contributed the remaining $75,000. What amount, if any, is included in Siena's gross estate?

A) $50,000
B) $125,000
C) $80,000
D) $100,000
E) None of these is correct.

Question 80

This year Samantha gave each of her three nephews birthday gifts of $10,000 in cash. At Christmas, Samantha gave each of her three nephews Christmas gifts of an additional $5,000 in cash. What is the amount of the taxable gifts, if any, made by Samantha this year?

A) $3,000
B) $32,000
C) $45,000
D) zero - none of the gifts exceed the annual exclusion.
E) None of these.