Chapter 9 - Valuation of Assets for Federal Estate and Gift Taxation Flashcards
Special-use valuation is available to the estate of any and all decedents as long as the property is located in the United States
False
One of the requirements for special-use valuation is that the decedent must have been a U.S. citizen or resident. Other requirements include:
-The farm or other closely held business (real and personal property qualifying for the special use) must constitute at least 50 percent of the decedent’s gross estate (after certain adjustments for mortgages and liens).
-The net value of real property qualifying for the special use must constitute at least 25 percent of the adjusted gross estate value.
-The real property in question must pass to a qualified heir (essentially, a lineal descendant of the decedent’s grandfather).
-Either the decedent or a family member must have owned the real property—and used it as a farm or in a closely held business—for at least 5 of the 8 years immediately prior to the date the decedent died.
Either the decedent or a member of the decedent’s family must have materially participated in the operation of the farm or business for at least 5 out of the 8 years immediately prior to the decedent’s death.
The property must continue in its special use by qualified heirs for 10 years after the decedent’s death.
There are a number of methods allowed for valuing real estate of closely held businesses or farms?
True
In general, property in an estate is valued based on fair market value?
True
Because closely held stock cannot be easily valued, the IRS will accept the value imposed by the executor because he or she is most familiar with the value of the business?
False
The IRS emphatically does not automatically accept the executor’s value of closely held stock. If dissatisfied, the IRS will place a value on the stock in accordance with a revenue ruling that lists eight factors that should be examined in arriving at a valuation for gift or estate tax purposes. In addition, other valuation factors have evolved through court cases.
Annuities making payments are typically valued at the date of death because they diminish in value with the passage of time?
True
In order to receive subtraction method value for determining the gift tax value of transfers in trust to a family member the retained interest in the trust must be a qualified interest (i.e. a GRAT or GRUT)
True
The valuation of corporate bonds is similar to the valuation of common stock?
True
When there is no market for a decedent’s real property, it may be valued according to the higher of the highest available price or the salvage value?
False
If there is no market for property, a controlling factor is the greater of: (1) the highest price available, and (2) the salvage value, which is the disposal value of the property at the end of its useful life.
U.S. government bonds, such as Series E bonds, are valued at the price the decedent paid at purchase?
Series E bonds are valued at their redemption price (market value) as of the date of death.
If the alternate valuation date is selected, and property is sold within the 6-month period after the decedent’s death, the property is valued as of the date of death since it will be gone before the 6-month date?
False
Property that is transferred before the 6-month window would be valued on the date of sale, exchange, or distribution.
For estate tax purposes, it is always best to establish a low value in a buy-sell agreement?
False
For estate tax purposes it may not be better to establish a high value in a buy-sell agreement for at least one of the following reasons: If the property is stock in a closely held business or farm, the decedent’s executor will want a higher value established to qualify the estate for installment payment of estate taxes. A lower value reached in an arm’s-length agreement will cause fewer assets to pass to the decedent’s heirs. Also, as the federal exemption amount has doubled and increases with inflation, the floor at which the estate will incur federal estate taxes is very high, and federal estate taxes are not a consideration for most clients.
Special-use valuation allows an executor to elect to value farm or business real estate for federal estate tax purposes based on actual current use, as opposed to the fair market value of the property if it was sold for development purposes?
True
The maximum amount by which the gross estate can be reduced when Sec. 2032A special-use valuation is elected by the executor is $1,160,000 in 2019?
False
The basic amount by which the gross estate can be reduced when special-use valuation is elected is $1,160,000 in 2019.
Once special-use valuation has been elected and the IRS has allowed it, taxes are not subject to recapture?
False
There will be an additional estate tax imposed if the property for which special-use valuation has been elected is sold to nonfamily members within the 10-year period after the decedent’s death. Also, if the qualified heir fails to participate materially in the business for 5 or more years during the 8-year period ending within 10 years after the decedent’s death, there will be a recapture (additional estate tax imposed). However, the qualified heir will be given a 2-year grace period following the decedent’s death to actually participate in the business without risking recapture of the estate tax.
In approximately 50 percent of the estates electing special-use valuation, the IRS allows a nonfamily member to be a qualified heir?
False
One of the requirements of special-use valuation is that the qualified heir is a lineal descendant, family member.
