Chapter 6 - Estate Tax

Question 1

Define Adjusted Gross Estate

Answer 1

The adjusted gross estate is equal to the gross estate less any deductions for funeral expenses, last medical expenses, administrative expenses, debts, and losses during the administration of the estate.

Question 2

Define Alternate Valuation Date

Answer 2

An alternate date, other than the date of death, to value a decedent’s gross estate. The alternate valuation date is either six months after the date of death, or if the asset is disposed of within six months of the date of death, the asset’s disposition date. Wasting assets do not qualify to use the alternative valuation date.

Question 3

Define Blockage Discount

Answer 3

A reduction in the fair market value of a large block of publicly traded stock because the transfer of a large block of stock is less marketable than other transfers of smaller amounts of stock.

Question 4

Define Date of Declaration

Answer 4

The date a board of directors approves and declares a dividend to be paid to its shareholders.

Question 5

Define Date of Record

Answer 5

The date a dividend paying company determines the owners of its stock who are entitled to a dividend (regardless of whether of not the individual owns the stock as of the payment date).

Question 6

Define Estate Tax Liability

Answer 6

The amount equal to the tentative tax less any applicable credits available to a decedent’s estate.

Question 7

Define Gross Estate

Answer 7

The gross estate consists of the fair market value of all a decedent’s interests owned at the decedent’s date of death plus the fair market value of certain property interests the decedent transferred during his life, in which he retained some rights, powers, use, or possession.

Question 8

Define Income in Respect of Decedent (IRD) Assets

Answer 8

Assets that, s a result of income deferral, have built income that must be recognized by the beneficiary of the asset.

Question 9

Define Key Person Discount

Answer 9

A reduction in the fair market value of transferred stock due to an economic reality that the value of the stock will decline if a key person, such as the founder, dies or becomes disabled.

Question 10

Define Lack of Marketability Discount

Answer 10

A reduction in the fair market value of a transferred asset because the interest is more difficult to sell to the public.

Question 11

Define Minority Discount

Answer 11

A reduction in the fair market value of a transferred interest in property because the interest is not a controlling interest.

Question 12

Define Portability

Answer 12

The ability of the executor of an estate to timely file Form 706 to transfer the decedent’s unused credit exclusion to the surviving spouse.

Question 13

Define Power of Appointment

Answer 13

The power to name who will enjoy or own property.

Question 14

Define Reversionary Interest

Answer 14

Interests that have been transferred and subsequently revert back to the transferor. Also, includes a possibility that the property transferred by the decedent may return to him or his estate and a possibility that property transferred by the decedent may become subject to a power of disposition by him.

Question 15

Define Straight Single Life Annuity

Answer 15

An annuity for a term equal to the annuitant’s life.

Question 16

Define Survivorship Annuity

Answer 16

An annuity that provides payments to one person, and then provides payments to a second person upon the death of the first.

Question 17

Define Taxable Estate

Answer 17

The adjusted gross estate less the available unlimited marital and unlimited charitable deductions.

Question 18

Define Tentative Tax

Answer 18

The estate tax calculated on the tentative tax basis.

Question 19

Define Tentative Tax Base

Answer 19

The tentative tax basis equals the taxable estate plus all post-1976 taxable gifts.

Question 20

Define X Dividend Date

Answer 20

The date the market price of a stock adjusts for a declared dividend (i.e. the market price of a stock is reduced approximately by the amount of the dividend.

Question 21

What does section 2033 (Property owned by the decedent) required?

Answer 21

Requires value of all property in which the decedent held an interest at his death to be included in the gross estate.

Question 22

What does the 3 year look back require (section 2035)?

Answer 22

Requires gross estate to include:

1) any gift talc paid on gifts made in 3 years of the decedent’s date of death
2) value of any property gifted in the last 3 years of date of death
3) death proceeds of any life insurance policy insuring the decedent’s life that was gifted with in 3 years of date of death

Question 23

What does section 2036, transfers with a retained life estate, say? ,

Answer 23

Transferred interest is treated as having been retained if, at the time of the transfer, there was an understanding, expressed or implied, that the interest or right would later be conferred.

Question 24

In what 3 situations is section 2036 used?

Answer 24

1) interest retained for life
2) interest retained for a period
3) retained interest held at death

Question 25

What does section 2037 (transfers taking effect at death) say?

Answer 25

Requires transferred property by the decedent be included in the gross estate that :

1) possession or enjoyment of property can be obtained only by surviving the decedent, and
2) decedent retained a reviaionary interest, and
3) value of the revisionary interest is greater than 5% of the value of the property

Question 26

What does section 2038 say regarding revocable transfers?

Answer 26

Decedent’s gross estate includes the FMV of any interest in property transferred by the decedent if the enjoyment of the interest was subject to any change through exercise of power by the decedent.

Question 27

Which type of annuity is included in the gross estate?

Answer 27

Survivorship annuity (Value of comparable policy on the age of the survivor is included in the decedent’s GE).

Question 28

What is the formula for the Gross Estate Inclusion for an annuity?

Answer 28

(Value of annuity at death) x (Decedent’s cost basis/Total annuity cost basis)

Question 29

What does section 2040 require be included in the GE regarding Joint Interests?

Answer 29

• Property held in JTROS (Acutal Contribution Rate unless married)
• Property held as tenants by the entirety
• Money or bond held in the name of decedent and someone else, which is payable to either

Question 30

What does section 2041 say regarding Powers of Appointment?

Answer 30

-Decedent’s gross estate includes the value of property over which the decent possessed, exercised, or released certain powers of appointment

Question 31

What are the 3 parts of a power of appointment?

Answer 31

• Donor who grants power
• Holder who receives power
• Appointee whom the holder appoints to enjoy the property

Question 32

Holder of a General Power of Appointment can appoint property to who?

Answer 32

• To holder
• To the holder’s estate
• To the holder’s creditor’s
• To the creditor’s of the holder’s estate

Question 33

When is a Power of Appointment included or not included in the holder’s gross estate?

Answer 33

Included: General Power of Appointment

Not Included: Limited Power of Appointment (ascertainable standard)

Question 34

What does section 2042 say regarding proceeds from Life Insurance?

Answer 34

• It includes the death benefit proceeds of a policy on the life of the decedent, in the decedent’s GE, if the decedent has any incident of ownership in the policy.
• It includes in the decent’s GE the cash value of a policy that the decedent has an incident of ownership in on someone else’s life.

Question 35

When is a QTIP inlcuded in the GE?

Answer 35

When the surviving spouse dies.