Chapter 6: Estate Tax

Question 0

Alternate Valuation Date

Answer 0

An alternate date, other than the date of death, to value a decedents 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 assets disposition date. Wasting assets do not qualify to use the alternative valuation date.

Question 1

Adjusted Gross Estate

Answer 1

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

Question 2

Blockage Discount

Answer 2

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 3

Date of Declaration

Answer 3

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

Question 4

Date of Record

Answer 4

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

Question 5

Estate Tax Liability

Answer 5

The amount equal to the tentative tax less any applicable credits available to a decedents estate.

Question 6

Gross Estate

Answer 6

The gross estate consists of the fair market value of all of a decedents interests owned at the decedents 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 7

Income in Respect of Decedent (IRD) Assets

Answer 7

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

Question 8

Key Person Discount

Answer 8

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 9

Lack of Marketability Discount

Answer 9

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

Question 10

Minority Discount

Answer 10

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

Question 11

Portability

Answer 11

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

Question 12

Power of Appointment

Answer 12

The power to name who will enjoy or own property

Question 13

Reversionary interest

Answer 13

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 14

Straight Single Life Annuity

Answer 14

An annuity for a term equal to the annuitants life.

Question 15

Survivorship Annuity

Answer 15

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

Question 16

Taxable Estate

Answer 16

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

Question 17

Tentative Tax

Answer 17

The estate tax calculated on the tentative tax base.

Question 18

Tentative Tax Base

Answer 18

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

Question 19

X Dividend Date

Answer 19

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

Question 20

Property owned by the Decedent (§2033)

Answer 20

Cash 
Stocks and bonds
Retirement accounts
Notes receivable 
Personal residence
Other real estate
Household goods
Automobiles
Business interests 
Life insurance on someone elses life
Collectible (art, wine, jewelry)
Vested future rights 
Outstanding loans due from others
Income tax refunds owed to the decedent
Patents/copyrights
Pain and suffering award
Damages owned to the decedent
Dividends declared and payable 
Income in respect of decedent (wages receivable) 
Any other tangible personal property

Question 21

Dower and Curtesy Interest (§ 2034)

Answer 21

Requires that a surviving spouse receive a statutory share of their deceased spouses estate.

The curtesy right is a husbands right to receive a life estate, at his wife’s death, in the land she owned in fee simple if the couple had at least one child.

The dower right was traditionally a wife’s right to a life estate in one third of the land her husband owned in fee simple at his death.

– Dower rights later evolved to be more consistent with curtesy rights be giving the wife a life estate in all property owned at death, not just one third.

Question 22

Gifts Made within Three Years of Death (§2035)

Answer 22

Look back provision that requires the value of certain lifetime transactions to be included in a decedents gross estate.

ALWAYS INCLUDED: any gift tax paid in gifts made within 3 years of decedents date of death

SOMETIMES INCLUDED: the value of of any property gifted within 3 years of the decedents date of death
• Transfers with a retained life estate
• Transfers taking effect at death
• Revocable transfers

ALWAYS INCLUDED: the transfer of a life insurance policy within 3 years of death

Question 23

Transfers with Retained Interest (§2036)

Answer 23

Includes the value of any interest in property transferred by the decedent, in which he retained some interest in the property during his life.

A transferred interest is treated as having been retained if there was an understanding, expressed or implied, that the interest or right would later be conferred.

 1 interest retained for life
 2 interest retained for a period only ascertainable by death 
 3 retained interest held at death

Question 24

Transfers Taking Effect at Death (§2037)

Answer 24

Possession or enjoyment of the property can be obtained only by surviving the decedent.

The decedent has retained a reversionary interest in the property.

E value of such reversionary interest immediately before the death of the decedents exceeds 5% of the value of such property.

Question 25

Revocable Transfers (§2038)

Answer 25

Includes the FMV at the decedents date if death if any interest in property transferred by the decedent if the enjoyment of the interest was subject, at the date of death, to change through the exercise of a power by the decedent to alter, amend, revoke, or terminate the gift, or if decedent relinquished these powers in contemplation of death.

Question 26

Annuities (§2039)

Answer 26

NOT INCLUDED: A straight single life annuity is an annuity paid to the annuitant until his death.

INCLUDED: A survivorship annuity is an annuity that provides payments to one person, and then provides payments to a secondary person upon death of the first.

 Gross estate inclusion= value of annuity @ death x
                                  (decedents cost basis / total annuity cost basis)

Question 27

Joint Owned Property (§2040)

Answer 27

JTWROS
Tenants by the Entirety

Included with consideration of the actual contribution rule (deemed 50/50 if spouses)

Question 28

Powers of Appointment (§2041 & §2514)

Answer 28

Gross estate includes the value of property over which the decedent possessed, exercised, or released certain powers of appointment.

Exception
HEMS: Heath, education, maintenance, support
**ascertainable standard

Question 29

Proceeds of Life Insurance (§2042)

Answer 29

Death benefit proceeds if a life insurance policy if the proceeds were receivable by the decedents estate or the decedent possessed any incident of ownership in the policy.

Question 30

QTIP Property (§2044)

Answer 30

Included in the gross estate if the first spouse to die and transferred to the surviving spouse if a QTIP election is made.

Question 31

Hard-to-Value Assets

Answer 31

Such as real estate, art, jewelry, antiques, collectible, and closely held business interests usually require an appraisal.

Question 32

Closely Held Business

Answer 32

Difficult to value because of the unique characteristics they possess

– nature of the business
– economic outlook
– book value of stock
– financial condition of the business
– goodwill
– earnings capacity and the ability to pay dividends
– shares that have been sold previously

Question 33

Financial securities are priced by…

Answer 33

The market and appear to be easily valued; the average of the high and low trading price for the decedents date of death.

• accrued interest: added to the value of the instrument
• accrued dividends: may also be included in the decedents gross estate; depends upon the decedents date of death in relation to the dividend date of declaration, the X dividend date, the date of record, and the date of payment.

Question 34

Allowable deductions to determine Adjusted Gross Estate

Answer 34

Funeral expenses 
Last medical expenses 
Administrative expenses
Debts
Losses during estate administration

Question 35

Allowable deductions to determine Taxable Estate

Answer 35

Unlimited charitable deduction

Charitable deduction

Question 36

Post-1976 Taxable Gifts

Answer 36

All taxable gifts after 1976 must be added to a decedents taxable estate. These gifts are added back at the fair market value as of the date of the gift.

Question 37

Credits from the Tentative Tax

Answer 37

Applicable estate tax credit
Exemption portability
Credit for tax paid on prior transfers
Foreign death tax credit