Estate Tax Flashcards
Edwin gave his grandson Todd $30,000. Todd is 15 years old and lives with his parents. Which of the following statements regarding the generation-skipping transfer tax is true?
A. The gift is subject to both the regular gift tax and the generation-skipping transfer tax.
B. If Edwin had transferred the funds into a trust solely for his grandson’s benefit, the gift would not be subject to the generation-skipping transfer tax.
C. The gift is not subject to the generation-skipping transfer tax because Todd’s parents are still alive.
D. Because the gift is subject to the generation-skipping transfer tax, it is not subject to the regular gift tax.
The gift is subject to both the regular gift tax and the generation-skipping transfer tax.
Answer (A) is correct.
The generation-skipping transfer tax (GSTT) is imposed, separately and in addition to gift and estate taxes, on transfers directly or in trust for the sole benefit of a person at least two generations younger than the transferor. Instructions for Form 709 specify requirements for gifts that are subject to both regular gift tax and the GSTT.
An extension of time to pay the estate tax may be granted if the executor can show reasonable cause as to why the estate is unable to pay the tax in a timely manner. Which of the following statements is NOT an illustration of reasonable cause?
A. The liquid assets of the estate are located in several jurisdictions and are not within the immediate control of the executor.
B. The estate would have to borrow funds at an interest rate higher than generally available to satisfy claims against the estate that are due and payable.
C. Payment of the estate taxes would require the liquidation of more than 50% of the assets of the estate.
D. Since the estate includes a claim to substantial assets in a pending lawsuit, the gross estate cannot be determined when the tax is due.
Payment of the estate taxes would require the liquidation of more than 50% of the assets of the estate.
Answer (C) is correct.
Section 6161(a) provides that the time for payment of estate tax may be extended not in excess of 10 years for reasonable cause. Reasonable cause under Reg. 20.6161-1(a) might be based on a claim to substantial assets in a pending lawsuit, estate assets in other jurisdictions, estate assets consisting of rights to receive payment in the future, and payment of the tax requiring the borrowing of funds at a higher interest rate than generally available. Liquidation of estate assets is a function of probate administration, not reasonable cause for deferring payment of estate tax liability.
Which of the following statements concerning the alternate valuation election is true?
A. None of the statements are true.
B. If the alternate valuation election is made, assets that are disposed of within 6 months of the decedent’s death are generally valued on the date of death.
C. If the alternate valuation election is made, it is possible for some but not all of the assets to be included in the decedent’s estate at a higher FMV than on the date of death.
D. The alternate valuation election may be made even if no estate tax will be paid if the election is not made.
If the alternate valuation election is made, it is possible for some but not all of the assets to be included in the decedent’s estate at a higher FMV than on the date of death.
Answer (C) is correct.
The election can be made only if it results in a reduction in both the value of the gross estate and the sum of the federal estate tax and the generation-skipping transfer tax (reduced by allowable credits). The alternate valuation date is 6 months after the decedent’s death. Assets sold or distributed before that time are valued on the date of sale or distribution (Instructions for Form 706).
Based on the following information, what is the total allowable deduction against the decedent’s estate?
$10,000 in mortgages and notes (receivable)
$5,000 in income in respect of a decedent
$12,000 in funeral expenses
$20,000 in attorney fees
A. $47,000
B. $42,000
C. $10,000
D. $32,000
$32,000
Answer (D) is correct.
Under Sec. 2053, deductions from the gross estate are allowed for funeral expenses, administration expenses, and claims against the estate for unpaid mortgages on property in which the value of the decedent’s interest is included in the value of the gross estate. The mortgages and notes are receivables, not payables. Therefore, only the funeral expenses and the attorney fees can be deducted from the decedent’s estate.
Ellie died on June 15 of the current year. The assets in her estate were valued on her date of death and alternate valuation date, respectively, as follows:
Date-of-Death
Alternate
Asset
Valuation
Valuation
Home
$13,250,000
$13,300,000
Stock
425,000
450,000
Bonds
200,000
125,000
Patent
100,000
95,000
The patent had 10 years of its life remaining at the time of Ellie’s death. The executor sold the home on August 1 of the current year for $13,275,000. If Ellie’s executor elects the alternate-valuation-date method, what is the value of Ellie’s estate?
A. $13,895,000
B. $13,945,000
C. $13,950,000
D. $13,970,000
$13,950,000
Answer (C) is correct.
Under Sec. 2032, if the executor elects to use the alternate valuation date, the estate’s assets are valued as of the date 6 months after the decedent’s death. Assets that are sold or distributed within that 6-month period are valued as of the date of sale or distribution. Any asset that is affected by mere lapse of time is valued as of the date of the decedent’s death but adjusted for any difference in its value not due to mere lapse of time as of the date 6 months after the decedent’s death. Assets that are affected by mere lapse of time include patents, life estates, remainders, reversions, and other like properties.
Because the home was sold within the 6-month period after the decedent’s death, it is valued as of the date of sale. Its value for estate tax purposes is therefore $13,275,000. The stock and the bonds are included in the estate at their alternate-valuation-date value. The patent is an asset that is affected by mere lapse of time. It is included in the estate at its date-of-death value since the $5,000 decline in value as of the alternate valuation date is apparently the value change associated with the passage of 6 months of time. The value of Ellie’s estate is $13,950,000 ($13,275,000 home + $450,000 stock + $125,000 bonds + $100,000 patent).
On June 30, 2019, Rita died with a taxable estate of $12,340,000 and estate taxes payable of $64,000. Victor, the executor, filed the estate tax return on December 31, 2019. He distributed all the assets of the estate without paying the estate tax liability. Dustin (one of several beneficiaries) received $35,000. What are the possible tax assessments against Victor and/or Dustin?
Victor
Dustin
A. $64,000 $0 B. $64,000 $35,000 C. $45,000 $35,000 D. $64,000 $64,000
$64,000
$35,000
Answer (B) is correct.
An executor is personally liable for unpaid estate taxes. An estate beneficiary is also personally liable but only to the extent of the value of assets (s)he received from the estate.
Which of the following is a true statement about the taxable amount of a generation-skipping transfer?
A. The taxable amount for a taxable distribution is the value of all property distributed less allowable expenses, debt, and taxes.
B. The taxable amount for a direct skip and a taxable termination are the same.
C. The taxable amount for a taxable termination is the value of the property received by the transferee reduced by expenses incurred by the transferee in connection with the determination, collection, or refund of the GSTT.
D. If a generation-skipping transfer tax on a taxable distribution is paid by the generation-skipping trust, an amount equal to the taxes paid by the trust will be treated as a taxable distribution.
If a generation-skipping transfer tax on a taxable distribution is paid by the generation-skipping trust, an amount equal to the taxes paid by the trust will be treated as a taxable distribution.
Answer (D) is correct.
Under Sec. 2603, the transferee is liable for the GSTT on a taxable distribution. Therefore, if the GSTT on a taxable distribution is paid by the trust, the transferee is deemed to have received an additional taxable distribution equal to the amount of taxes paid by the trust [Sec. 2621(b)].
Sara, a cash-basis taxpayer, died September 30, 2019. Assume the following details regarding the assets of her estate:
Sara’s home was appraised for $11,500,000 at the date of her death and sold on March 15, 2020, for $11,450,000.
Sara had a time certificate in the amount of $100,000. The certificate was redeemed for funeral expenses on October 1, 2019. (Ignore interest for purposes of this question.)
Sara had common stock valued at $350,000 at the date of death. On the alternate valuation date, the stock was valued at $250,000.
Sara had personal and household furnishings that were appraised at $25,000 as of the date of death. The executor gave all of the items to a charity on November 1, 2019.
If the alternate valuation date is elected, what is the gross value that must be reported?
A. $11,875,000
B. $11,975,000
C. $11,925,000
D. $11,825,000
$11,825,000
Answer (D) is correct.
The value of the gross estate using the alternative valuation date includes assets that are distributed, sold, exchanged, or otherwise disposed of. Such property shall be valued as of the date of distribution, sale, exchange, or other disposition. Property not distributed, sold, exchanged, or otherwise disposed of within 6 months after the decedent’s death shall be valued as of the date 6 months after the decedent’s death. The home was sold within 6 months of death and is valued as of the date of sale. The time certificate was redeemed before the 6 months date and is valued at the date of redemption. The common stock is valued at the 6 months date. The household furnishings were distributed before the alternative date and are valued at the date of the gift. Assume the value of the household furnishings did not change. The household furnishings will qualify for a charitable deduction on the estate return.
Following the death of her husband, the executrix of his estate paid the following:
Medical expenses of the decedent, paid within 6 months of the date of death and not claimed on the decedent’s final income tax return
Funeral expenses of her husband
State inheritance taxes
Qualified charitable contributions, as a bequest dictated by the will of her husband
Which of the preceding generally are allowable deductions in determining the taxable estate on the United States Estate Tax Return (Form 706)?
A. 1 and 3.
B. 2 and 3.
C. 1, 2, and 4.
D. All of the expenses are allowable.
All of the expenses are allowable.
Answer (D) is correct.
Under Sec. 2053, deductions from the gross estate are allowed for funeral expenses, administration expenses, state inheritance taxes, and claims against the estate, certain taxes, and unpaid mortgages or other indebtedness allowable under the local law governing the administration of the decedent’s estate. Section 2055(a) allows for the deduction of qualified charitable contributions from the taxable estate. Formerly, the estate tax liability was offset by a credit for state inheritance taxes paid, but this was phased out beginning in 2002 and replaced by a deduction in 2005 [Sec. 2012(b)].
Sam is single. Given the following information, determine the value of Sam’s gross estate: FMV at Date of Death Cash $ 15,000 Life insurance on Sam’s life (payable to his estate) 200,000 Jointly owned property (percentage includible-100%) 100,000 A. $115,000 B. $65,000 C. $265,000 D. $315,000
$315,000
Answer (D) is correct.
A decedent’s gross estate includes the FMV of all property (real or personal, tangible or intangible, wherever situated) to the extent the decedent owned a beneficial interest at the time of death. Included in the gross estate are such items as cash; personal residence and effects; securities; other investments; and other personal assets, such as notes and claims and business interests. The gross estate also includes other items, such as the full value of property held as joint tenants with the right of survivorship, except to the extent of any part that is shown to have originally belonged to the other person and for which adequate and full consideration was not provided by the decedent and insurance proceeds on the decedent’s life if either the insurance proceeds are payable to or for the estate or if the decedent had any incident of ownership in the policy at death. Therefore, $315,000 is the value of Sam’s gross estate ($15,000 cash + $200,000 life insurance + $100,000 jointly-owned property).
The generation-skipping transfer tax is imposed
A. Instead of the estate tax.
B. Instead of the gift tax.
C. As a separate tax in addition to the gift and estate taxes.
D. On transfers of future interest to beneficiaries who are more than one generation above the donor’s generation.
As a separate tax in addition to the gift and estate taxes.
Answer (C) is correct.
The generation-skipping transfer tax (GSTT) is imposed, as a separate tax in addition to the gift and estate taxes, on generation-skipping transfers that are any taxable distributions or terminations with respect to a generation-skipping trust or direct skips [Sec. 2611(a)]. A taxable termination means the termination of an interest held in trust unless (1) immediately after the termination, a non-skip person has an interest in the trust or (2) at no time after the termination may a distribution be made to a skip person [Sec. 2612(a)(1)]. A skip person is a natural person assigned to a generation that is two or more generations below the transferor or a trust, all interests of which are held by skip persons.
A decedent’s gross estate includes the value of all property to the extent of the decedent’s interest in the property at the time of death. Which one of the following items is NOT included in the gross estate?
A. Proceeds of life insurance on the decedent’s life if the decedent possessed incidents of ownership in the policy.
B. Outstanding dividends declared to the decedent after the date of death.
C. Medical insurance reimbursements that were due the individual at death.
D. The value of the part of a deceased husband’s real property allowed to his widow for her lifetime (dower interest).
Outstanding dividends declared to the decedent after the date of death.
Answer (B) is correct.
Under Sec. 2033, the value of a gross estate includes the value at the time of death of all property in which the decedent had an interest at the time of death. A shareholder has a right to, or an interest in, only the dividends that have been declared by the directors. Since the dividends were declared after death, the decedent had no interest in them at the time of his or her death, so they are not included in the gross estate. Note that, if the dividends had been declared (and the record date had passed) but not paid before the decedent’s death, they would be includible in the gross estate.
Carl died on June 1, 2019. After determining that an estate tax return will be required, his executor decided to use the alternate valuation date for valuing the gross estate. Which of the following dates will be the alternate valuation date?
A. December 31, 2019.
B. On or before the due date of the United States Estate Tax Return.
C. April 15, 2020.
D. December 1, 2019.
December 1, 2019.
Answer (D) is correct.
Under Sec. 2032, if the executor elects to use the alternate valuation date, the estate’s assets are valued as of the date 6 months after the decedent’s death.
Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, was filed for the estate of John Doe. The gross estate tax was $250,000. Which of the following items cannot be credited against the gross estate tax to determine the net estate tax payable? A. Credit for gift taxes. B. Credit for foreign death taxes. C. Credit for marital deduction. D. Credit for tax on prior transfers.
Credit for marital deduction.
Answer (C) is correct.
There is no credit for a marital deduction. Instead, the marital deduction is deductible in arriving at the taxable estate. The estate tax is then computed on the taxable estate.
Which of the following is NOT a characteristic of a skip person as it pertains to the GSTT tax?
A. A person only one generation below the generation of the donor.
B. A person two or more generations below the generation of the donor.
C. A natural person.
D. A donee of a gift.
A person only one generation below the generation of the donor.
Answer (A) is correct.
A skip person is defined in Sec. 2613(a) as a natural person assigned to a generation that is two or more generations below the generation assignment of the transferor.
Charlie Jones died June 15, 2019. His taxable estate is $15 million. Assuming the estate chooses to have an estate tax apply, what date is Form 706, United States Estate Tax Return, due?
A. March 15, 2020.
B. April 15, 2020.
C. December 31, 2019.
D. Not due, because taxable estate is less than the exemption amount.
March 15, 2020.
Answer (A) is correct.
The executor is required to file Form 706, United States Estate Tax Return, if the gross estate at the decedent’s death exceeds $11.40 million. Adjusted taxable gifts made by the decedent during his or her lifetime reduce the threshold. Generally, the estate tax return is due within 9 months after the date of the decedent’s death.
Mr. James died on October 1 of the current year. The alternate valuation method was not elected. The assets in his estate were valued as of the date of death as follows: Home $300,000 Car 20,000 Stocks, bonds, and savings 650,000 Jewelry 35,000 Dividends declared July 1, not paid as of October 1 1,000 Accrued interest on savings as of October 1 6,500 What is the amount of Mr. James’s gross estate? A. $1,006,000 B. $1,012,500 C. $970,000 D. $1,005,000
$1,012,500
Answer (B) is correct.
Under Sec. 2033, the value of the gross estate includes the value of all property in which the decedent had an interest at the time of death. Therefore, the value of the home, stocks, car, accrued interest, and jewelry is included in the gross estate. A dividend is includible in the decedent’s gross estate only if the decedent died after the record date of the dividend; the record date is the date when the shareholder of record becomes entitled to receive the dividend, in this case, the declaration date. Therefore, all of the items are included in the gross estate.
B died in the current year. The state of residence was not a community property state. From the items listed below, what are the allowable deductions from the gross estate? Funeral expenses $ 3,500 Executor and administrative fees 5,000 Mortgage on jointly held property, one-half purchase price paid by B 70,000 Transfers of cash to B’s spouse 60,000 Expense of filing estate’s income tax return 500 A. $135,000 B. $103,500 C. $73,500 D. $68,500
$103,500 Answer (B) is correct. Under Sec. 2053, deductions from the gross estate are allowed for funeral expenses, administration expenses, and claims against the estate for unpaid mortgages on property in which the decedent has an interest that is included in the value of the gross estate. Only one-half of the mortgage may be deducted because only one-half the value of the property is included in B’s estate. Section 2056 allows a marital deduction from the gross estate for most transfers to a surviving spouse. No provision allows the expense of filing the estate’s income tax return to be deducted against the gross estate. Such amount can be deducted on the estate’s income tax return (Form 1041). The allowable deductions are computed as follows: Funeral expenses $ 3,500 Executor and administrative fees 5,000 Mortgage ($70,000 × 1/2) 35,000 Cash to spouse 60,000 Allowable deductions $103,500
Form 706, United States Estate Tax Return, was filed for John Doe in 2019. His gross estate tax was $250,000. Which group of credits is allowable in computing his net estate tax?
A. Credit for gift taxes and credit for casualty and theft losses.
B. Applicable credit amount and marital deduction credit.
C. Credit for funeral expenses and credit for charitable contributions.
D. Credit for foreign death taxes and credit for taxes paid on prior transfers.
Credit for foreign death taxes and credit for taxes paid on prior transfers.
Answer (D) is correct.
The tax due is equal to the tax imposed under Sec. 2001, reduced by allowable credits. Section 2012(a) allows a credit for foreign death taxes paid. Section 2014 allows a credit for taxes paid on prior transfers.
Chester is preparing the estate tax return, Form 706, for his deceased brother John. John died December 15 of the current year. Which of the following will NOT be included in John’s gross estate?
A. Stocks and bonds owned by John at his death.
B. Land that John had signed a contract to sell, but the sale of which was not completed.
C. Property jointly owned by John and his spouse.
D. Real estate that will be passed to John when his parents die.
Real estate that will be passed to John when his parents die.
Answer (D) is correct.
A decedent’s gross estate includes the FMV of all property, real or personal, tangible or intangible, wherever situated, to the extent the decedent owned a beneficial interest at the time of death. Special tax-avoidance rules are established for U.S. citizens or residents who surrender their U.S. citizenship or long-term U.S. residency. Included in the GE are such items as cash, personal residence and effects, securities, other investments (e.g., real estate, collector items), and other personal assets, such as notes and claims (e.g., dividends declared prior to death if the record date had passed) and business interests (e.g., partnership interest). The GE includes the value of the surviving spouse’s interest in property as dower or curtesy. John does not include the real estate in his gross estate since he does not own the real estate. However, the discounted value of his remainder interest in the real estate would be included in his gross estate. John is still the owner of the land that is under contract.
Chuck is preparing Form 706, Estate Tax Return, for his client Jim, who died June 30, 2019. Chuck has identified gross estate items totaling $12,000,000. Considering the following potential deductions and other information, what will be Jim’s estate? Funeral costs paid out of the estate $ 35,000 Value of the residence owned jointly with Jim’s spouse that will pass to the spouse (this property is included in the gross estate) 450,000 Mortgage on residence 100,000 Charitable donation of property per Jim’s will 75,000 A. $11,640,000 B. $11,615,000 C. $11,540,000 D. $11,575,000
$11,540,000
Answer (C) is correct.
Deductions from the GE in computing the taxable estate (TE) include ones with respect to the following:
Administration and funeral expenses are deductible.
Unpaid mortgages on property are deductible if the value of the decedent’s interest is included in the GE.
Bequests to qualified charitable organizations are deductible.
Outright transfers to a surviving spouse are deductible from the GE, to the extent the interest is included in the gross estate, the property passes in a qualifying manner, and interest conveyed must not be a nondeductible terminable interest.
Jim’s estate is computed as follows:
GE items $12,000,000 Funeral expenses (35,000) Marital transfer ($450,000 – $100,000 mortgage on residence) (350,000) Charitable contribution (75,000) Taxable estate $11,540,000
Mr. Brown died on September 30, 2019. His gross estate was valued at $10,480,000. Unless an extension is granted, a United States Estate Tax Return (Form 706) must be filed on or before
A. April 15, 2020.
B. A United States Estate Tax Return does not have to be filed.
C. June 30, 2020.
D. January 15, 2020.
A United States Estate Tax Return does not have to be filed.
Answer (B) is correct.
Normally, Form 706 must be filed within 9 months after the decedent’s death unless an extension is filed with Form 4768. However, no United States Estate Tax Return has to be filed because the value of $10,480,000 of the gross estate is below the $11,400,000 exemption amount for 2019.
Kramer (age 63) established a trust and named his second wife, Theresa (age 50), as income beneficiary for 20 years. After 20 years, Kramer’s son Trevor (age 40) and nephew Bob (age 25) are to receive lifetime income interests. After the death of both Trevor and Bob, the remainder passes equally to Kramer’s granddaughter Sara (age 20) and great-granddaughter Hope (age 1). How many younger generations are there in this trust arrangement? A. 3 B. 4 C. 1 D. 2
3
Answer (A) is correct.
Younger generations refer to generations younger than the transferor’s generation. An individual who is a lineal descendant of a grandparent of the grantor is assigned to the generation that results from comparing the number of generations between the grandparent and such individual with the number of generations between the grandparent and the transferor [Sec. 2651(b)(1)]. An individual who has been married to the transferor is assigned to the transferor’s generation [Sec. 2651(c)(1)].
Since Theresa is married to the transferor, she is assigned to the same generation as Kramer. Trevor and Bob are assigned to one generation below the transferor’s generation. Sara is assigned to two generations below the transferor’s generation. Hope is assigned to three generations below the transferor’s generation.
Which of the following items of property would be included in the gross estate of a decedent who died in the current year?
Clothes and jewelry of the decedent.
Cash of $400,000 given to the decedent’s friend 3 years ago. No gift tax was paid on the transfer.
Land purchased by the decedent and held as joint tenants with rights of survivorship with the decedent’s brother.
A. II and III.
B. I and II.
C. I, II, and III.
D. I and III.
I and III.
Answer (D) is correct.
Under Secs. 2031 and 2033, a decedent’s gross estate includes the value of all property (real or personal, tangible or intangible, wherever situated) to the extent the decedent owned a beneficial interest at the time of death. Clothes and jewelry of the decedent are included in the gross estate. Section 2040(a) provides for the inclusion of all property held as joint tenants with right of survivorship by the decedent and any other person, except the part of the property shown to have originally belonged to the other person and for which adequate and full consideration was not provided by the decedent. Therefore, the full value of the land is also included in the decedent’s gross estate.
Which of the following is subject to the generation-skipping transfer tax?
A. Margaret wrote her will in 1985 establishing a generation-skipping trust. Her will was unchanged when she died in November 1986.
B. Carlisle established in 1983 a generation-skipping trust by gift for the benefit of her descendants. The irrevocable trust was unchanged and no corpus was added prior to her death in 2019.
C. Sam wrote his will in 1960 but amended it in 1985 to add a generation-skipping trust. Sam was mentally incompetent from January 1986 until his death in February 2019.
D. Carol wrote a will in May 1986 that established a generation-skipping trust. She made no changes in her will before her June 2019 death.
Carol wrote a will in May 1986 that established a generation-skipping trust. She made no changes in her will before her June 2019 death.
Answer (D) is correct.
Generally, the GSTT imposed by Sec. 2601 applies only to a generation-skipping transfer made after October 22, 1986. There are three exceptions: (1) The tax is not imposed on a generation-skipping transfer under a trust which was irrevocable on September 25, 1985, to the extent that the transfer is not made out of corpus added to the trust after September 25, 1985. (2) The tax is also not imposed on a transfer under a will executed before October 22, 1986, if the decedent dies before 1987. (3) The tax is not imposed on the generation-skipping transfer of a decedent who was mentally incompetent on October 22, 1986, and remains such so as not to be able to change the disposition before death. Since Carol died in 2019 and the corpus was placed in the trust at that time, none of the exceptions apply, and her testamentary generation-skipping trust is subject to the GSTT.
John, a single taxpayer, died on March 3, 2019. Based on the following information, determine the value of John’s gross estate. FMV at Date of Death Life insurance on John’s life (payable to John’s estate) $1,250,000 John’s revocable grantor trust 1,700,000 Stock given to John’s son in 2018 (no gift tax was paid) 50,000 A. $1,700,000 B. $3,000,000 C. $1,250,000 D. $2,950,000
$2,950,000
Answer (D) is correct.
A decedent’s gross estate includes the FMV of all property (real or personal, tangible or intangible, wherever situated) to the extent the decedent owned a beneficial interest at the time of death. John’s gross estate includes the life insurance proceeds and his revocable trust. The stock given to his son is not included in John’s gross estate because gifts made within 3 years of death are not included in the gross estate of a decedent. However, the gross estate does include gift taxes paid on gifts within 3 years before death, but in this situation, no gift taxes were paid.
Proceeds of a life insurance policy payable to the estate’s executor, as the estate’s representative, are
A. Includible in the decedent’s gross estate only if the policy was taken out within 3 years of the insured’s death under the contemplation-of-death rule.
B. Never includible in the decedent’s gross estate.
C. Always includible in the decedent’s gross estate.
D. Includible in the decedent’s gross estate only if the premiums had been paid by the insured.
Always includible in the decedent’s gross estate.
Answer (C) is correct.
Section 2042 requires inclusion in the gross estate of the amounts receivable by all beneficiaries from insurance under policies on the life of the decedent with respect to which the decedent possessed at his or her death any incidents of ownership or when the proceeds are receivable by or for the benefit of the estate. If they are payable to the executor, they are receivable for the benefit of the estate and are always included in the decedent’s gross estate.
Which of the following rules does NOT apply to the filing of an estate tax return of a U.S. citizen?
A. For 2019, the value of the gross estate must be over $11.18 million.
B. The return is due 9 months after the date of death unless an extension of time for filing has been granted.
C. Form 706 is the form that is used to file an estate tax return.
D. The return is filed with the Cincinnati, Ohio Service Center.
For 2019, the value of the gross estate must be over $11.18 million.
Answer (A) is correct.
Section 6018 provides that an estate tax return must be filed when the gross estate of a decedent exceeds $11.40 million in 2019.
Following are the fair market values of Wald’s assets at the date of death:
Personal effects and jewelry
$ 2,298,000
Land bought by Wald with Wald’s funds 5 years prior to death and held with Wald’s sister as joint tenants with right of survivorship
11,490,000
The executor of Wald’s estate did not elect the alternate valuation date. The amount includible as Wald’s gross estate in the federal estate tax return is
A. $2,298,000
B. $7,660,000
C. $11,490,000
D. $13,788,000
$13,788,000
Answer (D) is correct.
The gross estate includes the value of all property in which the decedent had an interest at the time of death. Therefore, the value of the personal effects and jewelry is included in the gross estate. A decedent’s gross estate includes property held jointly at the time of the decedent’s death by the decedent and another person with right of survivorship. Since the decedent furnished the entire purchase price of the jointly-held property, the value of the entire property is included in the gross estate.
Alan Curtis, a U.S. citizen, died on March 1 of the current year, leaving an adjusted gross estate with a fair market value of $1.4 million at the date of death. Under the terms of Alan’s will, $375,000 was bequeathed outright to his widow. The remainder of Alan’s estate was left to his mother. Alan made no taxable gifts during his lifetime. In computing the taxable estate, the executor of Alan’s estate should claim a marital deduction of A. $250,000 B. $1,025,000 C. $700,000 D. $375,000
$375,000
Answer (D) is correct.
A deduction from the gross estate is allowed for all property transferred in a qualified manner to the surviving spouse (Sec. 2056). Leaving it to the surviving spouse outright qualifies. Therefore, Alan’s estate should claim a marital deduction of the entire $375,000 bequeathed to Alan’s widow.
All of the following items can be claimed as deductions against a decedent’s estate EXCEPT A. Specific bequest to son. B. Charitable bequests. C. Legal fees to settle estate. D. Executor’s fees.
Specific bequest to son.
Answer (A) is correct.
Publication 559 states, “Expenses of administering an estate can be deducted either from the gross estate in figuring the federal estate tax on Form 706 or from the estate’s gross income in figuring the estate’s income tax on Form 1041.” Bequests to qualified charitable organizations are deductible. Publication 559 excludes a deduction for a bequest when: “It is required by the terms of the will, . . . it is a gift or bequest of a specific sum of money or property . . . [and] it is paid out in three or fewer installments under the terms of the will.”
The executor of an estate may request an extension of time to pay the estate tax. Which of the following statements is NOT true?
A. A request for an extension of time to pay estate tax is filed on Form 4768.
B. The IRS may extend the time for payment for up to 12 years.
C. The usual extension of time to pay is up to 12 months.
D. When the executor applies for an extension, (s)he must show why the estate cannot pay the tax in full.
The IRS may extend the time for payment for up to 12 years.
Answer (B) is correct.
Under Sec. 6161(a)(1), the time for paying the estate tax may be extended by a reasonable period not to exceed 12 months. However, a satisfactory showing of undue hardship is required [Reg. 20.6161-1(b)]. For reasonable cause, the term’s payment may be extended for up to 10 years. The extension for filing the return is 6 months [Sec. 6081(a)].
Which of the following provisions regarding the election of the alternate valuation method for property included in the decedent’s gross estate is false?
A. Dividends that were declared before the decedent’s death but paid within the 6-month alternate valuation period are included in the gross estate.
B. The alternate valuation date is only a method of placing a value on the property in an estate. It does not affect the property that must be included in the estate.
C. Property affected by mere lapse of time is valued as of the date of death with adjustments for differences in value 6 months after death that are not due to mere lapse of time.
D. The election may be made only if it will increase the value of the gross estate and the sum of the estate tax and the generation-skipping transfer tax (reduced by any allowable credits).
The election may be made only if it will increase the value of the gross estate and the sum of the estate tax and the generation-skipping transfer tax (reduced by any allowable credits).
Answer (D) is correct.
Section 2032 states the requirements for electing the alternate valuation date for property included in the decedent’s gross estate. The effect of the election is to value all estate property on the date 6 months after death or when disposed of, if earlier. This election can be made if the result is a reduction in both the value of the gross estate and the sum of the federal estate tax and the generation-skipping transfer tax (reduced by any allowable credits).
Which of the following is NOT an allowable deduction against a decedent’s gross estate?
A. Casualty and theft losses.
B. Administration and funeral expenses.
C. Claims against the estate.
D. Penalty incurred as the result of a late payment of the federal estate tax.
Penalty incurred as the result of a late payment of the federal estate tax.
Answer (D) is correct.
Sections 2053, 2054, 2055, and 2056 provide the allowable deductions from the gross estate. No provision allows the deduction of a penalty incurred as the result of a late payment of the federal estate tax.
