Calculating the Estate Tax - Review Questions Flashcards
Which of the following gifts made two years before the donor’s death will be included in the gross estate at full date-of death value? (Check all that are true.)
1) a gift of $50,000 cash which is split equally between a son and daughter-in-law
2) a gift in which the donor retains an income interest for life
3) donor’s residence transferred into joint tenancy with donor’s daughter
4) stock worth $30,000 given to a friend
5) life insurance policy (cash value $5,000) transferred by the deceased to an irrevocable trust
2) a gift in which the donor retains an income interest for life
3) donor’s residence transferred into joint tenancy with donor’s daughter
5) life insurance policy (cash value $5,000) transferred by the deceased to an irrevocable trust
Donor’s residence transferred into joint tenancy with donor’s daughter is included in the donor’s estate due to the contribution rule. The daughter did not contribute towards the acquisition cost of the residence, therefore the FMV of the home is included in the donor’s gross estate.
What are some tangible properties included in the gross estate?
jewelry
other personal effects
To qualify for the marital deduction, qualified terminable interest property (QTIP) must meet which of the following conditions? (Check all that are true.)
1) The surviving spouse must have a general power to appoint the property.
2) All of the income must be paid out either to the surviving spouse or to the children of the decedent and the
surviving spouse.
3) The executor must make the QTIP election.
4) The surviving spouse must be entitled to make lifetime gifts to family members directly from the QTIP.
3) The executor must make the QTIP election.
What’s the tax on a tentative tax base of $1,000?
Choose the best answer.
1) $100
2) $120
3) $180
4) $200
3) $180
The tentative tax of $180 is computed by applying the appropriate rates specified in the IRS Gift and Estate Tax Rate Schedules to the tentative tax base. Different tax rate schedules apply depending on the year of death. These rates are progressive.
Which of the following is not a step of the estate tax calculation?
1) Calculate the federal estate tax payable
2) Determine the value of the gross estate
3) Determine the taxable estate
4) Determine the value of the probate estate
4) Determine the value of the probate estate
Determine the value of the probate estate is not part of the estate tax calculation.
When should the alternate valuation date be used?
1) When the value of the estate and the estate tax has increased from the date of death
2) When the value of the estate and the estate tax has decreased from the date of death
3) When the value of the estate and the estate tax has not fluctuated from the date of death
4) The alternate valuation date is never appropriate
2) When the value of the estate and the estate tax has decreased from the date of death
If the executor sold property from the estate prior to the alternate valuation date, what day is used to value the asset sold?
1) The fair market value on the date of death
2) The asset would not be added to the estate
3) The purchase price on the date the asset was sold
4) The alternative valuation
3) The purchase price on the date the asset was sold
All of the following are deducted from the gross estate to arrive at the adjusted gross estate except?
1) Funeral and Administrative Expenses
2) Gift Taxes Paid
3) Debts and taxes
4) Casualty and theft losses
2) Gift Taxes Paid
Gift taxes paid may be added back to the gross estate if the 3-year rule applies, but they are not deducted from the gross estate.
If an estate qualifies for Section 6166, how long do they have to pay the estate tax attributed to the closely held business?
1) 2 annual installments
2) 14 annual installments
3) 10 annual installments
4) None – all taxes owed the date the 706 is filed.
2) 14 annual installments
14 annual installments. For the first 4 years is interest only, the next 10 years are principle and interest payments.
Which of the following is not a deduction allowable against the gross estate, when calculating the adjusted gross estate?
1) Mortgages where the decedent was personally liable and property was includable in their estate.
2) Loss to property caused by fire during the month prior to the decedent’s death.
3) Income taxes unpaid but reportable for some tax period prior to the decedent’s death
4) Funeral expenses of the decedent
2) Loss to property caused by fire during the month prior to the decedent’s death.
Claudia owned a $800,000 home which she retitled to JTWROS with her son Nate. The taxable gift to Nate was $386,000 but her unified credit was available to fully offset the gift tax. Claudia died and the FMV of the home was $1 million. Which of the following statements is correct?
1) On Claudia’s IRS Form 706, $386,000 will be added back as an adjusted taxable gift.
2) The value of the home included in Claudia’s gross estate is $500,000.
3) The value of the home included in Claudia’s gross estate is $1 million.
4) Nate will receive a new stepped up basis to $500,000.
3) The value of the home included in Claudia’s gross estate is $1 million.
Claudia was a sole owner of the home, and she gifted one-half to Nate when she added his name to the deed and retitled the property as JTWROS. The percentage of contribution rule applies to property owned by non-spouses. Nate did not contribute to the purchase price therefore the full FMV of the home, $1 million, will be included in Claudia’s gross estate. The taxable gift of $386,000 will not be included in the estate tax calculation as an adjusted taxable gift because the value of the home is included in the gross estate. Nate will inherit the home with a new step-up in basis of $1 million.
CFP Board Released Question 1994
Decedent had made substantial lifetime gifts such that her estate is in the 40% marginal bracket. In the will, she made a bequest of $100,000 to her adult son with no special arrangements, or allocations, for the payment of the estate taxes. The balance of her estate goes to her husband. How much of this bequest will the son actually receive, assuming no other bequests to him from her estate?
1) $60,000 because estate taxes of $40,000 would be charged against the bequest
2) $55,000 because the $10,000 per beneficiary exclusion reduces the taxable amount
3) $90,000 because the $10,000 per beneficiary exclusion applies even for adult children
4) $100,000 because the estate tax will be paid from the residual estate
1) $60,000 because estate taxes of $40,000 would be charged against the bequest
Estate taxes must be paid in the decedent’s estate, therefore the son will not receive $100,000 since estate taxes would be charged against the bequest.
CFP Board Released Question 1994
Which of the following circumstances would definitely cause the date-of-death value of the gifted property to be included in the donor’s gross estate?
1) Donor retains a life estate in the gift property.
2) Donor retains the power to revoke or amend the gift.
3) Donor gives more than $18,000 to one donee in one year.
4) Donor dies within three years of the date of the gift.
1) Donor retains a life estate in the gift property.
2) Donor retains the power to revoke or amend the gift.
Donor retains a life estate in the gift property and donor retains the power to revoke or amend the gift are correct because when a donor gifts property but retains a life estate, the FMV of the property is included in the donor’s estate at death. A donor who can revoke a gift, or who transfers property to a revocable trust, will include the value of the gift or the trust assets in his estate at death.
