Determining the Value of Gross Estate - Review Questions Flashcards
If Stan and his wife, Shelley, purchase 100 shares of AT&T for $50,000 and hold the property as joint tenants with rights of survivorship, even if the entire contribution was made by Stan from his salary, what percentage would be included in his estate?
Choose the best answer.
1) 20%
2) 50%
3) 80%
4) 100%
2) 50%
Only 50% will be included in his estate. If the stock is worth $120,000 at that time, $60,000 will be included in his estate.
Stan and his son Bill purchased 200 shares of stock for $100,000. Bill contributed $60,000. At Bill’s death, 60% of the value of the stock at that time is includable in Bill’s estate. If the stock has an estate tax value of $120,000, how much would be includable in Bill’s estate?
Choose the best answer.
1) $60,000
2) $72,000
3) $100,000
4) $120,000
2) $72,000
If the stock has an estate tax value of $120,000, $72,000 (0.60 x $120,000) would be includable.
If a $1,000,000 marital deduction was allowed at Sam’s death for property left to his wife, Sadie, at Sadie’s death the value of such property at the time of her death will be included in whose estate?
Choose the best answer.
1) Sam
2) Sadie
3) Beneficiary
4) Trust
2) Sadie
At Sadie’s death the value of such property at the time of her death will be included in her estate.
However, if the election were made to transfer the same $1 million into a QTIP (qualified terminable interest property) trust, the executor must agree in the election to include the QTIP assets then remaining in Sadie’s estate.
Which combination of the following statements about the marital deduction is true? (Check all that are true.)
1) The marital deduction has the effect of treating the husband and wife as one economic unit for gift and
estate taxes.
2) Property that qualifies for the marital deduction is excluded from the surviving spouse’s estate.
3) Qualifying all of the decedent’s property for the marital deduction may result in more estate tax being paid at
the surviving spouse’s death.
4) A qualified domestic trust is used to provide for the spouse when there has been a second marriage.
1) The marital deduction has the effect of treating the husband and wife as one economic unit for gift and
estate taxes.
3) Qualifying all of the decedent’s property for the marital deduction may result in more estate tax being paid at
the surviving spouse’s death.
A marital deduction transfers all of a decedent spouse’s property to the surviving spouse at death. The surviving spouse has total control and use over the inherited property therefore the property is included in their estate at death. If the inherited property appreciates in value over time, then the marital property may be taxed at a higher rate in the surviving spouse’s estate, A qualified domestic trust, or QDOT, is used to allow a non-U.S. citizen who is the spouse of a U.S. citizen to qualify for the unlimited marital deduction to keep the estate from being subject to federal taxes upon the first death.
A general power of appointment exists when an individual has the right to _______ of property that he or she does not own, including giving it to himself or herself.
dispose
A general power of appointment exists when an individual has the right to dispose of property that he or she does not own, including giving it to himself or herself.
Your client owns a whole-life insurance policy with a death benefit of $200,000 on the life of his spouse. The policy has a cash value of $13,500 of which the dividends are used to purchase additional paid-up life insurance. Their son is the named beneficiary. If the spouse were to die today, which of the following is true? (Select all that are true.)
1) The client continues to own the policy for the benefit of the son.
2) A taxable gift of the life insurance proceeds has been made from the client to the son.
3) The client receives an amount equal to the cash value, and the son receives the remainder of the life
insurance proceeds tax-free.
4) The son must be at least 14 years old in order to collect the proceeds.
5) The client receives the proceeds of the life insurance policy but must hold them in a life insurance trust for
the benefit of the son.
2) A taxable gift of the life insurance proceeds has been made from the client to the son.
If the additional tax is imposed, it is due _____ months after the date of the disposition of the property or the cessation of its use as a farm or as part of the closely held business. The qualified heir who received such property is personally liable for the additional tax imposed.
Six
If the additional tax is imposed, it is due six months after the date of the disposition of the property or the cessation of its use as a farm or as part of the closely held business. The qualified heir who received such property is personally liable for the additional tax imposed.
Bob and Jane are married in a non-community property state. Bob passed away this year. Bob and Jane owned a house as tenants by the entirety. They purchased the home for $200,000. The current market value is $850,000. What is Jane’s new cost basis in the home?
1) $200,000
2) $850,000
3) $525,000
4) $425,000
3) $525,000
$525,000- Bob’s share will be included in his estate and get stepped up to $425,000. Jane’s share will remain at $100,000, and she will inherit Bob’s share of $425,000 equaling a total of $525,000.
Which of the following are assets subject to IRD?
1) Real Estate
2) Deferred Annuities
3) EE Bonds
4) Commission
5) CDs
2) Deferred Annuities
3) EE Bonds
4) Commission
Which of the following will not be included in the individual’s gross estate?
1) Grantor created and retained a life estate in trust
2) A gift of $18,000 cash
3) Life insurance policy transferred to an irrevocable trust 1 year ago
4) Revisionary interest in property greater than 5%
2) A gift of $18,000 cash
All of the following are features of a commercial annuity except:
1) They are usually funded with cash.
2) When determining its payout terms commercial annuity companies use actuarial tables to determine their
payout.
3) A single-life annuity ends at the annuitant’s death and is not included in the gross estate.
4) The amount included in the gross estate for the decedent who owns a joint and survivor commercial annuity
is determined using government valuation tables.
4) The amount included in the gross estate for the decedent who owns a joint and survivor commercial annuity
is determined using government valuation tables.
This statement refers to a private annuity. With a commercial annuity, the value of the survivorship interest included in the gross estate is the amount that the same insurance company would charge for a single annuity on the survivor at the time of the annuitant’s death.
Which of the following are requirements needed to qualify for the special use valuation rule?
1) At least 75% of the gross estate, less debts and mortgages, must be qualified farm or closely held business
real property.
2) Property must pass to a qualified heir defined under IRC Section 2023A(e)
3) At the decedent’s death the property must be involved in qualified use defined by IRC Section 2032A(b)(2)
4) Real property must be owned by the decedent or a member of his or her family or in a closely held business
for an aggregate of 10 years or more of the 15-year period ending on the date of the decedent’s death.
2) Property must pass to a qualified heir defined under IRC Section 2023A(e)
3) At the decedent’s death the property must be involved in qualified use defined by IRC Section 2032A(b)(2)
Two years ago Fred bought a $400,000 policy on his wife’s life and named himself beneficiary. He died last month and left the policy to his wife in his will. Policy value: $190,000. What amount of life insurance was included in Fred’s gross estate?
1) Nothing is included in Fred’s estate.
2) $190,000.
3) $400,000
2) $190,000.
$190,000 is included in Fred’s gross estate. Fred is the owner but not the insured of the policy. A marital deduction is available to his estate because his wife is the new owner of the policy.
Six years ago, Barbara, who was married, bought a $60,000 policy on her mother’s life, and named her children beneficiaries. Barbara died last week and the value of the policy was $12,000. What amount of life insurance was included in Barbara’s gross estate?
1) Nothing is included in Barbara’s estate.
2) $60,000
3) $12,000
3) $12,000
$12,000 is included in Barbara’s gross estate (the policy’s replacement cost) because Barbara is the owner but not the insured. Can Barbara’s estate use a marital deduction to offset an estate tax? In this case, the spouse is not the new owner of the policy and no new owner was named in the policy or in Barbara’s will.A marital deduction is equal to the amount her spouse would receive through intestacy. For example, if Barbara’s state provides the surviving spouse with one-half of the decedent spouse’s estate, then a marital deduction is available for $6,000 in Barbara’s estate.
Three years ago Don bought a $100,000 policy on his wife Irene’s life, and named their children as beneficiaries. Two years ago he irrevocably assigned the policy to his wife. Policy value: $24,000. What amount of life insurance was included in Don’s gross estate?
1) Nothing is included in Don’s estate.
2) $24,000
3) $100,000
1) Nothing is included in Don’s estate.
The 3-year rule does not apply in this situation because Don was not the owner and the insured of the life insurance policy. When a policy owner, who is not the insured, transfers a policy to a person or a trust, it is removed from the owner’s estate as of the date of transfer.
