Test bank taxation of individuals and business entities 2015 6e by brian c spilker chap025

FALSE AACSB: Reflective Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 25-02 Describe the federal estate tax and the valua

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Chapter 25 Transfer Taxes and Wealth Planning

True / False Questions

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

5 The unified credit is designed to allow a minimum amount of lifetime transfers

without triggering the imposition of a transfer tax

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

18 A transfer of cash to a bank account held in joint tenancy with the right of

survivorship is not a completed gift

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23 A transfer of a terminable interest will not generally qualify for a marital deduction True False

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

True False

25 A gift tax return does not need to be filed unless the taxpayer has made current gifts

in excess of the unified credit

31 The gross estate will not include the value of clothes and other personal items owned

by the decedent at the time of death

True False

32 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

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34 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

True False

37 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

41 The testamentary transfer of property to a qualified charity is deductible in

calculating the taxable estate without any ceiling limitation

True False

42 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

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

47 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

True False

48 Property inherited from a decedent has an adjusted basis equal to the value of the

property included in the decedent's estate

True False

49 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

True False

50 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

True False

Multiple Choice Questions

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

C

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52 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

53 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

54 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

55 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

56 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

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57 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

58 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

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

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

60 The calculation of the value of a life estate in a trust generally does not depend upon

which of the following factors?

C the value of the property at the time of the transfer

D the manner in which the trust corpus is invested

E

61 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?

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62 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

63 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

64 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

65 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

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66 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

B

C

D

E None of these - the amount of the taxable gifts cannot be ascertained without valuing each income interest

67 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?

68 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?

69 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

B

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70 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

71 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

C

D zero - this transfer is not gratuitous

E

72 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

73 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?

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74 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

75 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

76 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

77 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

B

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

78 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,

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79 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

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

80 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

B

C

D

81 At her death Serena owned real estate worth $210,000 with her spouse in joint

tenancy with the right of survivorship Serena contributed $50,000 to the original

cost of the property and her spouse contributed the remaining $100,000 What

amount, if any, is included in Serena's gross estate?

A

B

C

D zero - this property qualifies for the marital deduction

82 Harold and Mary are married and live in a community property state During the

marriage Harold bought a parcel of real estate for $100,000 in community funds and

titled the property in his name alone Mary died on January 30th of this year and was

survived by Harold who did not remarry The parcel of real property was worth

$250,000 on January 30th of this year but was only worth $220,000 at year end What

amount, if any, is included in Mary's gross estate?

A

B

C

D

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83 At his death Jose owned real estate worth $22 million but subject to a mortgage of $7

million Which of the following is a true statement?

A $22 million is included in Jose's gross estate

B $15 million is included in Jose's gross estate

C The $7 million mortgage must be paid by Jose's estate

D The $7 million mortgage is not deductible if Jose's will transfers the property to a charity

E

84 At her death Emily owned real estate worth $2.5 million and other property worth $1

million Property taxes of $200,000 were accrued on the real estate at the time of

Emily's death Which of the following is a true statement?

A Emily's gross estate is $3.3 million

B Emily's taxable estate is $3.5 million

C Emily's adjusted gross estate is $3.3 million

D Emily's estate tax base is $3.5 million

85 Which of the following is a true statement?

A Executor's fees paid by an estate are deductible in computing the gross estate

B Funeral expenses for the decedent paid by an estate are deductible in computing the adjusted gross estate

C An executor can choose to deduct the decedent's funeral expenses on either the estate tax return or the estate's income tax return

D An executor can only deduct the costs of administering the decedent's estate on the estate's income tax return

86 The executor of Isabella's estate incurred administration expenses of $32,000 and

paid $5,000 in funeral expenses The executor charged the estate for $24,000 in

fees What is the maximum amount Isabella's estate can deduct in computing the

adjusted gross estate?

87 Christopher's residence was damaged by a storm during the administration of his

estate Christopher's executor paid $120,000 to repair the residence after the storm

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88 Chloe's gross estate consists of the following property valued at the date of death:

Chloe's real estate is encumbered by a mortgage of $450,000, and Chloe's executor

paid her funeral costs of $6,000 and charged fees for $24,000 Which of the following

is a true statement?

A Chloe's adjusted gross estate is at least $7,020,000

B Chloe's taxable estate is at least $7,020,000

D Chloe's estate will calculate the tentative estate tax on $7.5 million

89 Tracey is unmarried and owns $7 million in stock and bonds What is the result if

Tracey dies this year and leaves all of her property to a qualified charity?

B Tracey's estate tax basis will be zero

D Tracey's estate will have a tentative estate tax of zero

E

90 Madison was married at the time of her death and her gross estate consisted of $22

million in stock and bonds Madison left all of her property to her spouse What is the

result?

A Madison's taxable estate will be zero

B Madison's surviving spouse will have an income tax basis in the inherited property of zero

C Madison's adjusted gross estate will be zero

D Madison's estate will have a tentative estate tax of zero

E

A A remainder interest held by the decedent at the time of death is not included in the decedent's gross estate

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92 Ethan owned a vacation home at the time of his death Which of the following is a

true statement if Ethan was married to Emma and resided in a common law state at

the time of his death?

A Ethan can claim a marital deduction for the vacation home if he bequeaths it to Emma

B Ethan cannot claim a marital deduction if he bequeaths a life estate in the vacation home to Emma

C Ethan can claim a marital deduction for half the value of the vacation home if it was owned with Emma in joint tenancy with the right of survivorship

D Ethan can claim a charitable deduction if he bequeaths it to a qualified charity

93 Adjusted taxable gifts are added to the taxable estate to accomplish which of the

following objectives?

A Prevent double taxation of previously taxed gifts

B Increase the marginal tax rate on previously taxed gifts

C Increase the marginal tax rate on the taxable estate

D Remove inter vivos transfers from cumulative taxable transfers

E

94 A unified credit is subtracted in calculating both the gift tax and the estate tax Why

doesn't this calculation have the effect of increasing the total unified credit amount?

A The tentative estate tax is reduced by only taxes payable on adjusted taxable gifts rather than gross gift taxes

B The unified credit only offsets the exemption equivalent

C The unified credit cannot be used to offset gift taxes on adjusted taxable gifts

D The unified credit varies in amount from year to year

E

95 The generation-skipping tax is designed to accomplish which of the following?

A generate additional revenues to supplement the estate tax

B prevent the avoidance of transfer taxes (both estate and gift tax) through transfers that skip a generation of recipients

C eliminate the possibility that the estate tax can be avoided by gifts in contemplation of death

D replace the gift tax on distributions from trusts

E

A A fiduciary entity is a legal entity that takes possession of property for the benefit of a person

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A A serial gift strategy utilizes inter vivos gifts to multiple donees over multiple years to maximize the annual exclusion

B A serial gift strategy works well even if the gifts don't qualify as present interests

C A bypass trust avoids all estate taxes on the estate of the first spouse to die

D The income tax savings from holding appreciated property until death is always outweighed by the additional estate tax imposed on the property

A Leaving all property to the surviving spouse maximizes the marital deduction and therefore minimizes total transfer taxes on the estates of both spouses

B A bypass provision in the will of the deceased spouse is designed to use the unified credit of the deceased spouse by transferring property to beneficiaries other than the surviving spouse

C Serial gifts are limited in scope because only $10,000 can be transferred each year tax-free to any specific donee

D Serial gifts can move significant amounts of wealth only if employed by multiple donors

Essay Questions

99 Andrea transferred $500,000 of stock to a trust, with income to be paid to her niece

for 20 years (value $125,000) and the remainder to her nephew (value $375,000)

Andrea named a bank as independent trustee but retained the power to determine

how much income, if any, will be paid in any particular year What is the amount of

the taxable gift, if any? Explain your answer

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This year Alex's friend, Kimberly, was disabled Alex paid $25,000 to Kimberly's doctor for medical expenses In addition, Alex also paid $15,000 to Kimberly so that her son could afford tuition at State University this year Has Alex made taxable gifts,and if so, in what amounts?

101

This year Carlos and Hailey purchased realty for $480,000 and took title as equal tenants in common However, Hailey was able to provide only $200,000 of the purchase price and Carlos paid the remaining $280,000 Has Carlos made a taxable gift to Hailey, and if so, in what amount?

102

Last year Brandon opened a savings account with a deposit of $45,000 The account was in the name of Brandon and Melanie, joint tenancy with the right of survivorship.Melanie did not contribute to the account, but this year she withdrew $18,000 Has Brandon made a taxable gift to Melanie, and if so, in what amount?

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Aiden transferred $2 million to an irrevocable trust with income to Valeria for her life and the remainder to Jocelyn (or her estate) Calculate the value of the remainder and the life estate if Valeria's age and the prevailing interest rate result in a Table S discount factor for the remainder of 0.47

This year Maria transferred $600,000 to an irrevocable trust that pays equal shares

of income annually to four cousins (or their estates) for the next eight years At that time, the trust is terminated and the corpus of the trust reverts to Maria Determine the amount, if any, of the current gifts and the taxable gifts if the relevant interest rate is 6 percent and Maria is married and elects to gift-split with her spouse

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James and Jasmine live in a community property state This year they transferred

$800,000 of property to an irrevocable trust that provides their son, Aaron, a life estate and their daughter, Lauren, the remainder At the time of the gift, the Table S value for Aaron was 18031 What is the amount, if any, of the taxable gifts?

107

Ryan placed $280,000 in trust with income to Stephen for his life and the remainder

to Kayla (or her estate) At the time of the gift, given the prevailing interest rate, Stephen's life estate was valued at $165,000 and the remainder at $115,000 What

is the amount, if any, of Ryan's taxable gifts?

108

Caleb transferred $115,000 to an irrevocable trust for Avery The trustee has the discretion to distribute income or corpus for Avery's benefit but is required to

distribute all assets to Avery (or his estate) not later than Avery's 21st birthday What

is the amount, if any, of the taxable gift?

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Grace transferred $800,000 into trust with the income to be paid annually to her spouse, Isaiah, for life and the remainder to Taylor Calculate the amount of the taxable gifts from the transfers

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Angel and Abigail are married and live in a common law state Angel and Abigail own

a parcel of realty as joint tenants with the right of survivorship In addition, Abigail owns another parcel of realty in her name alone If Abigail should die when the jointly-owned realty is worth $1 million and her own parcel of realty is worth $1.5 million, what is the total value of realty that would be included in Abigail's gross estate?

114

Ashley owns a whole-life insurance policy worth $25,000 that directs the insurance company to pay the beneficiary $500,000 on her death Ashley pays the annual policy premiums and has the power to designate the beneficiary of the policy What value of the policy, if any, would be included in Ashley's estate upon her death?

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Joshua and David purchased real property for $500,000 as equal tenants in common.Although they are listed as equal co-owners, Joshua was only able to provide

$200,000 of the purchase price David treated the additional $100,000 of his

contribution to the purchase price as a gift to Joshua If the property is worth $2.5 million at Joshua's death, what amount would be included in Joshua's estate?

116

Sophia is single and owns the following property:

Sophia owns the real property in joint tenancy with Daniel They purchased the property several years ago for $1 million Sophia was only able to provide $200,000

of the purchase price If Sophia dies, what is the amount of her gross estate?

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At his death in 2014 Nathan owned the following property:

The real estate is subject to a $1,700,000 mortgage and Nathan made taxable gifts

in 2009 totaling $2 million at which time he offset the gift tax with a unified credit (exemption equivalent of $2 million) Nathan has never been married What is the amount of his estate tax due?

118

Ava transferred $1.5 million of real estate into an irrevocable trust for her son, Luis The trustee was directed to retain income until Luis' 21st birthday and then pay him the corpus of the trust Ava retained the power to require the trustee to pay income

to Luis at any time, and the right to the assets if Luis predeceased her What amount

of the trust, if any, will be included in Ava's estate if she died shortly after making thetransfer?

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Last year Diego transferred a life insurance policy worth $75,000 to an irrevocable trust with directions to distribute the corpus of the trust to his grandson, Juan, upon his graduation from college, or to Juan's estate upon his death Diego paid $5,000 of gift tax on the transfer of the policy Early this year, Diego died and the insurance company paid $600,000 to the trust What amount, if any, is included in Diego's gross estate?

120

Adrian owns two parcels of real estate Parcel #1 is worth $400,000 and Parcel #2 is worth $660,000 Adrian plans to bequeath Parcel #1 directly to his spouse Sofia and leave her a life estate in Parcel #2 What amounts will be included in Adrian's taxableestate for these two parcels?

121

Gabriel had a taxable estate of $6 million when he died in 2014 Calculate the

amount of estate tax due (if any) if Gabriel made prior taxable gifts in 2005 totaling

$1 million at which time he claimed a unified credit of $1 million and paid no tax Gabriel was unmarried at his death

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Isaac is married and wants to transfer the maximum amount of cash to each of his four children and six grandchildren How much in total can Isaac transfer to his children and grandchildren each year without triggering any taxable gifts?

123

Eric has $5 million of property that he wants to leave to his four children He is considering making a current gift of the property (rather than leaving the property to pass through his will) Eric has made many prior taxable gifts and additional taxable transfers will be subject to the highest transfer tax rate Determine how much estate tax Eric will save if he gifts the property now and survives at least three years, duringwhich time the property appreciates to $5.5 million Ignore the time value of money

in your calculation

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Chapter 25 Transfer Taxes and Wealth Planning Answer Key

True / False Questions

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

TRUE

AACSB: Reflective Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation

Blooms: Remember Learning Objective: 25-01 Outline the basic structure of federal transfer taxes.

Level of Difficulty: 1 Easy Topic: Introduction to federal transfer taxes

2 The Federal transfer taxes are calculated using cumulative lifetime transfers

TRUE

3 An exemption equivalent is the amount of annual gifts that is automatically

exempt from the gift tax

FALSE

The amount of cumulative taxable transfers a person can make without exceeding the unified credit is the exemption equivalent

AACSB: Analytic AACSB: Reflective Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation

Blooms: Analyze Blooms: Apply Learning Objective: 25-01 Outline the basic structure of federal transfer taxes.

Level of Difficulty: 2 Medium Topic: Introduction to federal transfer taxes

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Topic: Introduction to federal transfer taxes

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

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

TRUE

Blooms: Apply Learning Objective: 25-01 Outline the basic structure of federal transfer taxes.

Level of Difficulty: 3 Hard Topic: Introduction to federal transfer taxes

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

TRUE

8 The estate tax is imposed on testamentary transfers

TRUE

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Accessibility: Keyboard Navigation

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

2014

TRUE

Level of Difficulty: 3 Hard Topic: Introduction to federal transfer taxes

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

FALSE

Blooms: Understand Learning Objective: 25-02 Describe the federal estate tax and the valuation of transfers; and compute taxable

transfers at death and the federal estate tax.

Level of Difficulty: 2 Medium Topic: Federal gift tax

12 Only complete gifts are subject to the Federal gift tax

TRUE

Blooms: Remember Learning Objective: 25-02 Describe the federal estate tax and the valuation of transfers; and compute taxable

Level of Difficulty: 1 Easy Topic: Federal gift tax

13 A completed gift must be irrevocably relinquished by the donor

TRUE

Blooms: Understand

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

Blooms: Apply Learning Objective: 25-02 Describe the federal estate tax and the valuation of transfers; and compute taxable

Level of Difficulty: 3 Hard Topic: Federal gift tax

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

TRUE

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

TRUE

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

TRUE

AACSB: Reflective Thinking

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18 A transfer of cash to a bank account held in joint tenancy with the right of

survivorship is not a completed gift

TRUE

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

TRUE

20 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

TRUE

21 Both spouses must consent to any gift-splitting election

TRUE

Level of Difficulty: 1 Easy

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

deduction

TRUE

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

FALSE

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

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27 The probate estate consists of all property owned by the decedent that is excludedfrom the gross estate

Blooms: Remember Learning Objective: 25-03 Summarize the operation of the federal gift tax and the calculation of the federal gift

tax Level of Difficulty: 1 Easy Topic: Federal estate tax

28 No deductions are allowed when calculating the taxable estate

FALSE

29 Including adjusted taxable gifts in the taxable estate causes these gifts to be taxedtwice, once under the gift tax and again under the estate tax

FALSE

Blooms: Understand Learning Objective: 25-03 Summarize the operation of the federal gift tax and the calculation of the federal gift

tax Level of Difficulty: 2 Medium Topic: Federal estate tax

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

TRUE

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

FALSE

32 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

FALSE

33 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

TRUE

34 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

TRUE

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35 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

FALSE

Blooms: Apply Learning Objective: 25-03 Summarize the operation of the federal gift tax and the calculation of the federal gift

tax Level of Difficulty: 3 Hard Topic: Federal estate tax

36 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

TRUE

Blooms: Apply Learning Objective: 25-03 Summarize the operation of the federal gift tax and the calculation of the federal gift

tax Level of Difficulty: 3 Hard Topic: Federal estate tax

37 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

TRUE

38 A present interest is the right to currently enjoy property or receive income

payments from property

TRUE

Blooms: Understand

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

TRUE

40 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

FALSE

Casualty and theft losses are deductible without any floor limitation

41 The testamentary transfer of property to a qualified charity is deductible in

calculating the taxable estate without any ceiling limitation

TRUE

42 Adjusted taxable gifts are included when calculating the taxable estate but are notsubject to double taxation because a tax credit is provided for taxes payable on adjusted taxable gifts

TRUE

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

TRUE

Blooms: Remember Learning Objective: 25-04 Apply fundamental principles of wealth planning and explain how income and

transfer taxation interact to affect wealth planning.

Level of Difficulty: 1 Easy Topic: Wealth planning concepts

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

FALSE

Level of Difficulty: 1 Easy Topic: Wealth planning concepts

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

FALSE

Blooms: Understand Learning Objective: 25-04 Apply fundamental principles of wealth planning and explain how income and

Level of Difficulty: 2 Medium Topic: Wealth planning concepts

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

exclusion

TRUE

Level of Difficulty: 1 Easy

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Blooms: Apply Learning Objective: 25-04 Apply fundamental principles of wealth planning and explain how income and

Level of Difficulty: 3 Hard Topic: Wealth planning concepts

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

TRUE

49 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

TRUE

50 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

TRUE

Blooms: Apply Learning Objective: 25-04 Apply fundamental principles of wealth planning and explain how income and

Level of Difficulty: 3 Hard Topic: Wealth planning concepts

Multiple Choice Questions

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

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Learning Objective: 25-01 Outline the basic structure of federal transfer taxes.

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