Estate and Gift taxes

Question 1

Who is liable for transfer taxes?

Answer 1

Donor or estate primarily liable; donee or heir secondarily liable.

Question 2

Define “gift.”

Answer 2

A transfer of property for less than adequate consideration.

Question 3

What deductions from transfer taxes are allowed?

Answer 3

Unlimited marital deduction;
Unlimited charitable contribution deduction.
Tuition expenses paid directly to the educational institution

Question 4

Describe the gift-splitting election on a tax return.

Answer 4

A gift is split and treated as being given by both spouses;

Both spouses can use an annual exclusion for gifts of present interests.

Question 5

What is the unified credit?

Answer 5

Allows a minimum cumulative amount of tax-free transfers for the estate tax.

Question 6

What is the limit on charitable contribution gift deductions?

Answer 6

Unlimited, allowed for gifts to charitable organizations.

Question 7

List the steps involved in calculating gift tax.

Answer 7

Determine current taxable gifts;
Add previous taxable gifts and calculate total gift tax;
Reduce total gift tax by previous gift taxes paid;
Reduce remaining gift tax by unused portion of unified credit.

Question 8

What is the annual exclusion from gift tax?

Answer 8

$14,000 (2013);
Applied per donee per year;
Only applies to gift of present interest.

Question 9

Define “present interest.”

Answer 9

The right to income or to enjoy property currently.

Question 10

List the requirements for the complete transfer of a gift.

Answer 10

Gift delivered to donee;
Donor must give up control of the property;
Donee must accept the gift.

Question 11

When is a gift tax return required and when is it due?

Answer 11

Due April 15 for gifts made in prior year;

Required when gifts exceed annual exclusion or are gifts of future interest.

Question 12

List the type of transfers that are not considered gifts.

Answer 12

Payment of another individual’s medical or educational expenses (tuition and fees only) if paid directly to education or medical provider;
Political contributions;
Satisfaction of an obligation.

Question 13

Define “gift tax trigger.”

Answer 13

A transfer without adequate consideration during the life of the donor.

Question 14

What qualifies as a marital gift deduction?

Answer 14

Allowed for most gifts to spouse;
Unlimited in amount;
Gifts of “terminable interests” do not qualify.

Question 15

What is meant by “generation skipping tax?”

Answer 15

Triggered by the transfer of property to someone more than one generation younger than decedent. This tax is not applicable when intervening descendants are deceased.

Question 16

Define “estate.”

Answer 16

A legal entity that comes into existence automatically at the death of a taxpayer (the “decedent”).

Question 17

What are the requirements for a marital deductions transfer?

Answer 17

Only to citizen spouses;
Property the spouse receives outright and for which he/she can control its ultimate destination;
Qualified terminable interest property.

Question 18

List the types of other estate tax deductions.

Answer 18

Debts of the estate;
Final expenses;
Casualty and theft losses;
Charitable contributions.

Question 19

What properties are specifically included in gross estate?

Answer 19

Life insurance proceeds under certain conditions;
Jointly-owned property;
Property transferred where the decedent retained an interest or a power;
Certain gifts within three years of death.

Question 20

What types of transfers must be included in gross estate if they are made within three years of death?

Answer 20

Transfers with retained interests;
Revocable transfers;
Transfers of life insurance.

Question 21

Define “adjusted taxable gifts.”

Answer 21

Taxable gifts other than gifts already included in the gross estate.

Question 22

List the conditions under which life insurance proceeds are included in gross estate.

Answer 22

Decedent had incidents of ownership;

Decedent’s estate or executor is the beneficiary of the insurance policy.

Question 23

What is the gross estate property valuation?

Answer 23

Fair market value at the date of death or the alternate valuation date

Question 24

When are estate tax returns required and when are they due?

Answer 24

Required when gross estate plus adjusted taxable gifts equals or exceeds the exemption equivalent;
Due 9 months after date of death.

Question 25

Define “gross estate.”

Answer 25

Property owned by the decedent at the date of death;

Property “transferred” by the decedent at death.

Question 26

In estate planning, what is the alternative valuation date?

Answer 26

Valuation date is six months after the date of a person’s death. For estate tax purposes, the executor may place a value on the estate as of the date of death or on the alternate valuation date. To use the alternative valuation date, the estate value and tax must be less than on the date of death.

Question 27

List the four steps in calculating estate tax.

Answer 27

Taxable estate increased by adjusted taxable gifts;
Apply tax rates to total transfers;
Reduce tentative transfer tax by gift taxes paid;
Subtract the unified credit.

Question 28

What are the requirements for a property to be classified as a qualified terminable interest property (QTIP)?

Answer 28

Spouse must receive all income annually or more often;

Property must be included in spouse’s estate.

Question 29

Define “distributed net income (DNI).”

Answer 29

DNI is the maximum amount of income that a beneficiary can have from a trust for a tax year, and the maximum amount of the distribution deduction by the trust.

Question 30

What is the personal exemption amount for all other complex trusts?

Answer 30

The exemption amount is $100.

Question 31

What is the estate personal exemption amount?

Answer 31

The exemption amount is $600

Question 32

What is the personal exemption amount for simple trust and complex trusts that distributes all income currently?

Answer 32

The exemption amount is $300.