Estate Flashcards
Adam is single with no immediate family. He wants the executor of his will to pay his final bills and expenses. Besides his home, Social Security, and pension benefits, he owns a small life insurance policy. How should the beneficiary of the life insurance policy be named?
A. The estate of the insured
B. His niece (the executor)
C. No beneficiary should be named
D. His home (domicile) state-escheats
A. The estate of the insured
By paying the death benefit proceeds to the estate of the insured, Adam’s executor will be able to use the proceeds to pay his final expenses. It is a small policy.
Mr. Substantial made a gift of $15,000,000 into an irrevocable trust naming daughter and her children as the beneficiaries. He paid the gift tax. Mr. Substantial appointed an independent trustee with the discretion to distribute money to Mr. Substantial’s daughter and her three children. After his daughter’s death the trust principal will be distributed to her children. What is the GSTT consequence at the daughter’s death?
A. The daughter’s children will owe any GSTT on the taxable distribution
B. The trust will owe any GSTT on the death of the daughter upon the taxable termination
C. Mr. Substantial’s estate will pay the GSTT; if any
D. No GSTT is due because Mr. Substantial already paid the transfer tax
B. The trust will owe any GSTT on the death of the daughter upon the taxable termination
This situation is a taxable termination. The GSTT is paid by the trustee at the time of distribution. The $15,000,000 would be subject to gift tax at the time of transfer into the trust.
Mr. Substantial made a gift of $15,000,000 into an irrevocable trust for his daughter. He paid the gift tax. Mr. Substantial appointed an independent trustee who had discretion to distribute money to Mr. Substantial’s daughter and her three children. The trust assets will be distributed after his daughter’s death to her children. What is the GSTT consequence of a $100,000 distribution to each of the children while his daughter is still alive?
A. A taxable distribution
B. A taxable termination
C. A direct skip
D. No GSTT because Mr. Substantial paid the GSTT tax
A. A taxable distribution
This situation is taxable distribution. The grandchildren will pay any GSTT that is due.
Mrs. Smith, age 89, gifts to the following persons in the following amounts:
$200,000 to her grandson (His parents died in an accident)
$200,000 to her grand nephew
$200,000 to her sister’s daughter
$200,000 to her housekeeper, age 50
$200,000 to her friend, age 85
What amount of her $13.61 million GSTT exemption did she use?
A. $0
B. $182,000
C. $364,000
D. $546,000
E. $13,610,000
C. $364,000
Taxable gifts to the grandnephew ($182,000) and the housekeeper ($182,000) are to skip-persons. It was necessary to subtract the two annual exclusions ($18,000 each). The sister’s daughter is not a skip person. The grandson is no longer a skip person when both of his parents die.
Question 4 changes the case information. 4. Mr. Substantial decided to gift $14,664,000 into an irrevocable trust for his daughter. He paid the gift tax. Mr. Substantial appointed an independent trustee who had discretion to distribute money to Mr. Substantial’s daughter and her three children. The trust will be distributed after his daughter’s death to her children. What is the GSTT consequence if his daughter dies before he sets up the trust (Question 1) and instead he gives the $14,664,000 directly to his daughter’s children?
A. The GSTT is due on $1,000,000. 3 annual exclusions are allowed.
B. No GSTT is due because the children are no longer determined to be “skip persons.”
C. The taxable gift for gift tax purposes is $14,610,000.
B. No GSTT is due because the children are no longer determined to be “skip persons.”
There is no GST because the daughter died, and the children move up one generation. The daughter’s children (grandchildren) are the donees. Even the annual exclusion can be applied against both the GST and gift tax. (14,664,000 - 54,000 = $14,610,000). Answer C is true, but it doesn’t answer the question.
