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Exam 18: The Federal Gift and Estate Taxes

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Question 1

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Lila is the owner and beneficiary of a policy on the life of her husband, Austin. Upon Austin's prior death, the insurance proceeds paid to Lila do not qualify for the marital deduction.

A) True
B) False

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True

Question 2

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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.

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Question 3

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Regarding the transfer tax credits available, which of the following statements is correct?

Distributions from retirement plans and proceeds from life insurance plans usually are not subject to probate.

In which of the following situations is Polly's property ownership interest not lost by her prior death?

Death does not defeat a deceased spouse's interest in a tenancy by the entirety.

The § 2513 election to split gifts is less useful in community property states than in common law states. Explain.

The use of the election to split gifts under § 2513 may be necessary for spouses who live in community property states.

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.

Sally's will passes real estate to Otto (her surviving spouse). The real estate is worth $800,000 but is subject to a mortgage of $200,000. The transfer provides Sally's estate with a marital deduction of $600,000.

Ben and Lynn are married and have two pre-teen grandchildren. They want to contribute to a § 529 plan on behalf of their education. For 2011, what is the maximum amount they can transfer to the plan without making a taxable gift?

As a result of an auto accident from which she later died, Irene totaled a Bentley worth $95,000. If the insurance company covers $60,000 of the loss, Irene's estate can claim a deduction of $35,000 in arriving at the taxable estate.

In 1990, Bret and Olivia acquire realty for $1 million, with Bret furnishing $400,000 of the purchase price and Olivia providing the balance. Title to the property is listed as: "Bret and Olivia, joint tenants with right of survivorship." In 2011, Olivia dies first when the realty is worth $4 million. How much is included in her gross estate under the following circumstances?

Which of the following is not a characteristic of both the Federal gift tax and the Federal estate tax?

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.

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.

In 2009, Katherine made some taxable gifts upon which she paid a Federal gift tax of $96,000. If Katherine dies in 2011, the $96,000 is included in her gross estate under the "gross up" rule.

At the time of his prior death, Raul owned a residence with his wife, Manuela, as tenants by the entirety. The residence was purchased by Manuela ten years ago at a cost of $300,000 and has a fair market value of $1.4 million. Raul's estate will be allowed no marital deduction as to the property.

The current Federal transfer tax rate of 35% is as low as any top rate that ever has been imposed.

If a donor has a fiscal year of July 1-June 30 for income tax purposes, this changes the normal filing date for Form 709.