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.
After Mary died on June 30 of the current year, her executor identified the following items belonging to her estate:
Personal residence with a fair market value of $400,000 and an existing mortgage of $100,000
Certificate of deposit in the amount of $150,000 of which $10,000 was accrued interest payable at maturity on August 1
Stock portfolio with a value at date of death of $2,000,000 and a basis of $500,000
Life insurance policy, with her daughter named as an irrevocable beneficiary, in the amount of $150,000
Assuming that no alternate valuation date is elected, what is the gross value of Mary’s estate?
A. $2,700,000
B. $2,450,000
C. $2,550,000
D. $2,090,000
$2,550,000
Answer (C) is correct.
The gross value of Mary’s estate includes items valued at their gross amount. The $100,000 mortgage is deducted after the gross valuation of the estate. Therefore, the gross value is $2,550,000 ($400,000 + $150,000 + $2,000,000). The life insurance is excluded under Sec. 2042 because there is no incidence of ownership of the decedent.
Mr. X died on September 24 of the current year. His will required the transfer of all possessions to his sister. At the date of death, the assets transferred were
Adj. Basis
FMV
Apartment house
$275,000
$420,000
Stock
525,000
540,000
Dividends on above stock
(declared September 30)
3,000
3,000
Medical insurance reimbursement
(check received September 20
but not cashed)
5,000
5,000
Cash
50,000
50,000
The executrix of Mr. X’s estate did not elect the alternate valuation date. What is Mr. X’s gross estate for purposes of an estate tax return, Form 706?
A. $1,015,000
B. $1,018,000
C. $1,030,000
D. $858,000
$1,015,000 Answer (A) 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 those 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 death, and 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. Medical insurance reimbursements due the individual at death are considered property in which the decedent had an interest. Here the reimbursements were actually received. Thus, the decedent’s gross estate includes Apartment house $ 420,000 Stock 540,000 Medical insurance reimbursement 5,000 Cash 50,000 Gross estate $1,015,000
Candace died on January 20, 2019. The assets included in her estate were valued as follows:
1/20/ 19 7/20/ 19 10/20/ 19 House $13,000,000 $12,900,000 $12,700,000 Stocks 12,850,000 12,700,000 13,000,000 The executor sold the house on October 20, 2019, for $12,700,000. The alternate valuation date was properly elected. What is the value of Candace’s estate? A. $25,700,000 B. $25,850,000 C. $25,600,000 D. $25,400,000
$25,600,000
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 sold after the 6-month period is valued at the alternate valuation date.
Because the home was sold after the 6-month period following the decedent’s death, it is valued as of the alternate valuation date. Its value for estate tax purposes is therefore $12,900,000. The stocks are included in the estate at their alternate-valuation-date value. Thus, the value of Candace’s estate is $25,600,000 ($12,900,000 + $12,700,000).
Given the following information, determine the value of Sara’s gross estate:
FMV at
Date of Death
Beneficiary for life of a QTIP trust (qualified terminable interest property)
$2,000,000
Irrevocable trust (Sara was the grantor, but retained no interest in the trust)
1,000,000
Revocable grantor type trust (Sara was the grantor)
500,000
A. $3,000,000
B. $500,000
C. $2,500,000
D. $3,500,000
$2,500,000
Answer (C) is correct.
Since the grantor of a revocable trust can control the assets in the trust by altering the terms and/or withdrawing the assets from the trust, Sara is taxed on the value of the revocable trust. A QTIP interest involves a transfer entitling the recipient spouse to all of the income for life. Per Sec. 2044, if the recipient spouse has a life estate, has no general power of appointment, and was not the transferor, then the QTIP is included in the gross estate. Since Sara retained no interest in the irrevocable trust, it is not included in her gross estate. Therefore, Sara’s gross estate is $2,500,000 ($2,000,000 QTIP trust + $500,000 revocable grantor trust).
Anna died January 20, 2019. John, the executor, filed Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, on June 30, 2019. John paid the tax due and distributed the assets on September 30, 2019. The assets were properly valued at $14 million on the date of death. The alternate valuation method was not elected. Generally, what is the last day that estate tax may be assessed upon recipients of property? A. September 30, 2022. B. June 30, 2023. C. October 20, 2023. D. October 20, 2022.
October 20, 2023.
Answer (C) is correct.
Although the general period for assessment of estate tax is 3 years after the due date for a timely filed Form 706, the assessment period is extended an additional (fourth) year for transfers from an estate. The due date is 9 months after the date of the decedent’s death.
Mr. C died on June 30 of the current year. Based on the following facts, compute Mr. C’s gross estate:
Last year, C gave cash of $50,000 to his friend. No gift tax was paid on the gift.
C held property jointly with his brother. Each paid $30,000 of the total purchase price of $60,000. Fair market value of the property at date of death was $100,000.
Two years ago, C purchased a life insurance policy on his life and gave it as a gift to his sister. C retained the right to change the beneficiary. Upon C’s death, his sister received $150,000 under the policy.
Ten years ago, C gave his son a summer home (fair market value when gifted was $125,000). C continued to use it until his death pursuant to an understanding with his son. Fair market value at date of death was $175,000.
A. $375,000
B. $200,000
C. $250,000
D. $425,000
$375,000
Answer (A) is correct.
For decedents dying after 1981, gifts made prior to death are not included in the estate except for certain transfers, such as those in which a life estate is retained or those involving life insurance [Sec. 2035(a)]. Therefore, the cash gift to a friend is not included in Mr. C’s estate, but the life insurance ($150,000) is included because the right to change the beneficiary is an incident of ownership under Sec. 2042.
The value of property owned jointly is included [Sec. 2040(a)]. To the extent it can be shown that consideration for the acquisition of the jointly held property was provided by the other joint tenant, a proportionate part is excluded. Thus, half of the FMV of the property ($50,000) held with the brother must be included in the estate.
Section 2036 requires inclusion in the GE of all property that the decedent transferred without full consideration while retaining for life its possession or enjoyment. Accordingly, the $175,000 FMV of the summer home is included in C’s GE. The GE therefore totals $375,000 ($50,000 FMV of jointly held property + $150,000 life insurance + $175,000 summer home).
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. The election may be made only if it will decrease the value of the gross estate and the sum of the estate tax and the generation-skipping transfer tax (reduced by any allowable credits).
B. The election applies to all of the property in the estate and does not preclude the election of the special-use valuation for qualified real property.
C. The election may be changed after filing the return by filing an amended return.
D. The election must be made on a return filed within 1 year of the due date, including extensions, for filing the return.
The election may be changed after filing the return by filing an amended return.
Answer (C) is correct.
The alternate valuation method is used to value the estate property as of 6 months after death or when disposed of, if earlier (Sec. 2032). Alternate valuation is elected by checking “Yes” on line 1 and filing Form 706. Once the election is made, it may not be revoked.
An executor paid the following on behalf of an estate: $3,500 for attorney’s fees, $1,000 for a burial lot, $5,000 of state estate tax, and a $750 credit card debt of the decedent. What amount can be deducted from the gross estate? A. $5,250 B. $4,250 C. $10,250 D. $3,500
$10,250
Answer (C) is correct.
Deductions from the gross estate include administration and funeral expenses ($3,500 attorney fee + $1,000 burial lot), state taxes ($5,000), and claims against the estate ($750 credit card debt).
Which of the following tax credits are allowed on an estate tax return (Form 706)?
A. Credit for foreign death taxes.
B. All of the answers are correct.
C. Credit for federal gift taxes (pre-1977).
D. Credit for tax on prior transfers.
All of the answers are correct.
Answer (B) is correct.
Section 2013 allows a credit for taxes paid on prior transfers. The credit applies to a transfer of property by or from a person who died within 10 years before, or within 2 years after, the decedent’s death. Section 2014 allows a credit for death taxes paid to foreign governments, and Sec. 2012 allows for a credit for gift taxes paid on federal gift taxes (pre-1977).
Ordinary and necessary administration expenses paid by the fiduciary of an estate are deductible
A. On the fiduciary income tax return only if the estate tax deduction is waived for these expenses.
B. On both the fiduciary income tax return and the estate tax return by adding a tax computed on the proportionate rates attributable to both returns.
C. Only on the federal estate tax return and never on the fiduciary income tax return.
D. Only on the fiduciary income tax return (Form 1041) and never on the federal estate tax return (Form 706).
On the fiduciary income tax return only if the estate tax deduction is waived for these expenses. Answer (A) is correct. Administration expenses (and debts of a decedent) are deductible on the estate tax return under Sec. 2053, and some may also qualify as deductions for income tax purposes on the estate’s income tax return. Section 642(g), however, disallows a double deduction and requires a waiver of the right to deduct them on Form 706 in order to claim them on Form 1041.
Charlie Jones is preparing Form 706, United States Estate Tax Return, for his brother John, who died June 30, 2019. Charlie has identified gross estate items totaling $1,000,000. Considering the following potential deductions and other information, what will be John’s estate? Funeral expenses paid out of the estate $ 10,000 Value of the residence owned jointly with John’s spouse that will pass to the spouse (this property is included in the gross estate) 240,000 Mortgage on residence 20,000 Value of property given to charitable organizations per John’s will 50,000 A. $700,000 B. $720,000 C. $740,000 D. $730,000
$720,000
Answer (B) 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.
John’s estate is computed as follows:
GE items $1,000,000 Funeral expenses (10,000) Marital transfer ($240,000 – $20,000 mortgage on residence)
(220,000) Charitable contribution (50,000) Total estate $ 720,000
Mike and Carol, a married couple, have two assets at the time of Mike’s death: a $10,000,000 life insurance policy owned by Mike naming Carol as the sole beneficiary, and $8,000,000 of real estate owned by the couple as joint tenants with right of survivorship. What is the amount of the marital deduction to Mike’s estate for these two assets? A. $18,000,000 B. $14,000,000 C. $10,000,000 D. $9,000,000
$14,000,000
Answer (B) is correct.
Unless stated otherwise, it is assumed all property owned by one spouse will be transferred to the surviving spouse upon the other’s death. In this case, Mike’s estate will include the life insurance proceeds of the policy he owned as well as half of the real estate owned jointly with right of survivorship for a total of $14,000,000. All of the property is transferred to his spouse; so the full $14,000,000 counts for the marital deduction.
Ed died on November 1 of the current year. The alternate valuation method was not elected. The assets in his estate as of the date of death were as follows: Home $300,000 Life insurance (proceeds receivable by the estate) 800,000 Stocks, bonds, and savings 150,000 Jewelry 25,000 Car 15,500 Accrued interest on savings as of November 1 6,000 Dividends declared July 1 not paid as of November 1 1,500 What is the amount of Ed’s gross estate? A. $496,500 B. $1,290,500 C. $1,298,000 D. $1,296,500
$1,298,000
Answer (C) 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. Section 2042 requires the inclusion of proceeds from life insurance policies when the proceeds are receivable by, or for the benefit of, the 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.
Which of the following amounts paid may be claimed as a credit on the estate tax return? A. State death taxes paid. B. Generation-skipping transfer tax. C. None of the answers are correct. D. Charitable contributions.
None of the answers are correct.
Answer (C) is correct.
None of the credits may be taken on the estate tax return.
Jason died on October 1, 2019. 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 1,750,000 Jewelry 50,000 Dividends declared July 1, 2019, not paid as of October 1, 2019 1,000 Accrued interest on savings as of October 1, 2019 6,500 What is the amount of Jason’s gross estate? A. $2,127,500 B. $2,120,000 C. $2,121,000 D. $2,070,000
$2,127,500
Answer (A) 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.
Which of the following is a correct statement of the events that may trigger a generation-skipping transfer tax?
A. A taxable distribution only.
B. A taxable termination or a taxable distribution but not a direct skip.
C. A taxable termination, a taxable distribution, or a direct skip.
D. A taxable termination only.
A taxable termination, a taxable distribution, or a direct skip.
Answer (C) is correct.
A generation-skipping transfer is defined as a taxable termination, a taxable distribution, or a direct skip [Sec. 2611(a)]. A taxable termination is a termination (by death, lapse of time, release of power, or otherwise) of an interest in property held in trust, unless immediately after the termination, a non-skip person has an interest in the property or if at no time after the termination may a distribution be made to a skip person [Sec. 2612(a)]. A taxable distribution is any distribution from a trust to a skip person if it is not a taxable termination or a direct skip [Sec. 2612(b)]. A direct skip is a transfer subject to the estate tax or the gift tax of an interest in property to a skip person. A skip person is a natural person assigned to a generation that is two or more generations below the generation assignment of the transferor or a trust where all interests are held by skip persons [Sec. 2613(a)].
Which of the following statements is true regarding allowable deductions on Form 706, United States Estate Tax Return?
A. Penalties incurred as the result of a federal estate tax deficiency are deductible administrative expenses.
B. Executor’s commissions may be deducted if they have actually been paid or if it is expected that they will be paid.
C. Funeral expenses are not an allowable expense.
D. Attorney fees paid incidental to litigation incurred by the beneficiaries are a deductible administrative expense.
Executor’s commissions may be deducted if they have actually been paid or if it is expected that they will be paid.
Answer (B) is correct.
Executor’s commissions may be deducted if they have actually been paid or if it is expected that they will be paid.
Unless an extension is received, Form 706, United States Estate Tax Return, must be filed
A. By the 15th day of the 4th month following the month of death.
B. No later than the due date of the estate income tax return.
C. Within 6 months of the date of death.
D. Within 9 months of the date of death.
Within 9 months of the date of death.
Answer (D) is correct.
The estate tax return is due within 9 months after the date of the decedent’s death. An extension of up to 6 months may be granted.
Which of the following items are included in a decedent’s gross estate?
The decedent’s IRA, where the decedent’s spouse is the named beneficiary.
A checking account with the decedent’s daughter as a joint tenant. The daughter’s funds were used to set up the account.
Assets held in the decedent’s revocable grantor trust.
A. The IRA and checking account are included in the decedent’s estate.
B. The IRA and the assets in the revocable grantor trust are included in the decedent’s estate.
C. None of the assets are included in the decedent’s estate.
D. All of the assets are included in the decedent’s estate.
The IRA and the assets in the revocable grantor trust are included in the decedent’s estate.
Answer (B) is correct.
Instructions for Form 706 state, “The gross estate includes all property in which the decedent had an interest. . . . It also includes: . . . Annuities; the includible portion of joint estates with right of survivorship . . . Property over which the decedents possessed a general power of appointment; . . .” Schedule E states, “Generally, you must include the full value of the jointly owned property in the gross estate. However, the full value should not be included if you can show . . . that any part of the property was acquired with consideration originally belonging to the surviving joint tenant or tenants. In this case, you may exclude from the value of the property any amount proportionate to the consideration furnished by the other tenant or tenants.”
Mr. Metro, a U.S. citizen, died on June 30, 2019. The value of his gross estate at the date of death was determined to be in excess of $11.40 million. Without regard to extensions, what is the due date of Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return? A. March 30, 2020. B. December 31, 2019. C. March 30, 2021. D. June 30, 2020.
March 30, 2020.
Answer (A) is correct.
Section 6075(a) provides that estate tax returns must be filed within 9 months after the date of the decedent’s death.
Eileen, a U.S. citizen, died on December 17, Year 1. The value of her gross estate at the date of death was determined to be in excess of $11.40 million. Assuming the estate chooses to have an estate tax apply, without regard to extensions, what is the due date of Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return? A. February 28, Year 2. B. April 15, Year 2. C. September 17, Year 2. D. December 31, Year 1.
September 17, Year 2.
Answer (C) is correct.
Section 6075(a) provides that estate tax returns must be filed within 9 months after the date of the decedent’s death.
If the executor of a decedent’s estate elects the alternate valuation date and none of the property included in the gross estate has been sold or distributed, the estate assets must be valued as of how many months after the decedent’s death? A. 3 B. 9 C. 12 D. 6
6
Answer (D) is correct.
Under Sec. 2032, if the executor of an estate elects the alternate valuation date, and the property in the gross estate has not been sold or distributed, the estate assets are valued as of the date 6 months after the decedent’s death. If property is sold or distributed within the 6-month period, it is valued as of the date of sale or distribution.
In general, which of the following items are allowable deductions against a decedent’s estate (Form 706)? A. Charitable bequests. B. Mortgages (decedent’s liability). C. All of the answers are correct. D. Funeral expenses.
All of the answers are correct.
Answer (C) is correct.
Section 2053 allows deductions for administration and funeral 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. Section 2055(a) allows for the deduction of qualified charitable contributions from the taxable estate.
Mr. Good died on April 15 of the current year. His assets and their fair market value at the time of his death were Cash $ 10,000 Home 140,000 Life insurance payable to Mr. Good’s estate 200,000 Series EE bonds 90,000 Municipal bonds 180,000 Mr. Good had borrowed $10,000 against the cash value of his life insurance policy. Mr. Good’s estate is liable for the loan. What is the total amount of Mr. Good’s gross estate for federal estate tax purposes? A. $620,000 B. $420,000 C. $610,000 D. $240,000
$620,000
Answer (A) is correct.
Under Sec. 2033, the value of a gross estate includes the value on the date of death of all property in which the decedent had an interest at the time of death. Section 2042 requires the inclusion of proceeds from life insurance policies when the proceeds are receivable by, or for the benefit of, the estate. U.S. savings bonds purchased by a decedent with his own funds are includible in his gross estate if registered in his own name or with another person as co-owner. The value of the municipal bonds is includible in the gross estate. The fact that the income generated by municipal bonds is tax exempt does not prevent the bonds from being included in the gross estate. The federal estate tax is a tax upon the value of the property and not upon the income the property generates. The cash and the value of the home are also included in the gross estate. The estate’s liability for the loan does not affect the amount of the gross estate unless the estate actually pays the loan.
What amount of a decedent’s taxable estate is effectively tax-free if the maximum applicable credit amount is taken? A. $0 B. $11,400,000 C. $15,000 D. $4,505,800
$11,400,000
Answer (B) is correct.
The $4,505,800 ACA for 2019 offsets the estate tax liability that would be imposed on a taxable estate of $11.40 million computed at current tax rates.
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. Trevor died 22 years after the trust was established, and Bob died 34 years after the trust was established. 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). Assuming both Sara and Hope were alive when Bob died, how many times is the generation-skipping transfer tax levied? A. Twice. B. Never. C. Three times. D. Once.
Once.
Answer (D) is correct.
The generation-skipping transfer tax (GSTT) is imposed on generation-skipping transfers, which 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 non-skip person is any person who is not a skip person [ Sec. 2613(b)].
Trevor and Bob are one generation below the transferor and are non-skip persons. There is no taxable termination on Trevor’s death since Bob, a non-skip person, has an interest in the trust. Both Sara and Hope are skip persons, so there is a taxable termination on Bob’s death.
Form 706, United States Estate Tax Return, is due to be filed (before extensions)
A. By January 31 of the following year.
B. Nine months after the date of death.
C. Twelve months after the date of death.
D. Six months after the date of death.
Nine months after the date of death.
Answer (B) is correct.
Section 6075(a) provides that estate tax returns must be filed within 9 months after the date of the decedent’s death.
Which of the following items is NOT an allowable deduction on a decedent’s estate tax return?
A. Executor’s fees for administering the estate.
B. None of the items is allowed as a deduction against the decedent’s estate.
C. Bequest to a surviving ex-spouse.
D. Property taxes accrued before death but not paid until after death.
Bequest to a surviving ex-spouse.
Answer (C) is correct.
Publication 559 states that accrued taxes “are allowable as a deduction for estate tax purposes as claims against the estate and also are allowable as deductions in respect of a decedent for income tax purposes.”
In addition, 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.”
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.” A bequest to a spouse qualifies for a deduction, but not a bequest to an ex-spouse.
Mr. Park died on December 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 $5,400,000 Car 30,000 Stocks, bonds, and savings 350,000 Jewelry 25,000 Dividends date of record November 15, not paid as of December 1 5,000 Accrued interest on savings as of December 1 2,500 Life insurance (proceeds receivable by the estate) 300,000 What is the amount of Mr. Park’s gross estate? A. $5,812,500 B. $6,105,000 C. $6,112,500 D. $6,110,000
$6,112,500
Answer (C) 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. Section 2042 requires the inclusion of proceeds from life insurance policies when the proceeds are receivable by, or for the benefit of, the 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. Therefore, all of the items are included in the gross estate.
In 2019, Jim’s will established a trust for his son Kevin and his grandsons. In 2020, a taxable termination occurred when Kevin died, and trust assets were distributed to grandsons Mark and John. Jim’s executor allocated $1,500,000 of his exemption to the trust, which had a value of $6,500,000 at that time. When the taxable termination occurred in 2020, trust assets had a value of $9,000,000. State death taxes attributable to trust property were $500,000. What is the generation-skipping transfer tax due on the taxable termination? A. $2,550,000 B. $1,950,000 C. $1,800,000 D. $2,700,000
$2,700,000
Answer (D) is correct.
The generation-skipping transfer tax is the product of the taxable amount times the applicable rate (Sec. 2602). The applicable rate is the maximum federal estate tax rate for the date of the taxable termination, taxable distribution, or direct skip (40%) times the inclusion ratio, which is 3/4 {1 – [$1,500,000 ÷ ($6,500,000 – $500,000)]} (Sec. 2641). The inclusion ratio is 1 minus a fraction whose numerator is the GST exemption allocated to the trust and whose denominator is generally the value of the property transferred into the trust reduced by the sum of federal estate taxes or state death taxes attributable to the property and paid by the trust and charitable deductions with respect to the trust property [Sec. 2642(a)]. The taxable amount of a taxable termination is the value of all property with respect to which the taxable termination has occurred ($9,000,000) reduced by expenses, deductions, and taxes that would be allowable under Sec. 2053 if this were an estate. State death taxes are not allowable deductions under Sec. 2053(c)(1)(B), so the taxable amount is $9,000,000. The generation-skipping transfer tax is $2,700,000 ($9,000,000 × 40% × 3/4), and the tax will be paid by the trustee from trust assets.
Which of the following statements about the alternate valuation date for valuing property included in the decedent’s gross estate is false?
A. The election applies to all of the property in the estate other than property for which the special-use valuation applies.
B. Property affected by mere lapse of time is valued at the date of death and includes those properties affected by the time value of money.
C. If the alternate valuation date is elected, property disposed of within 6 months after the decedent’s death is valued as of the date of disposition.
D. Property not disposed of within 6 months after the decedent’s death is valued as of 6 months after the decedent’s death.
Property affected by mere lapse of time is valued at the date of death and includes those properties affected by the time value of money.
Answer (B) is correct.
The alternate valuation method is to value the estate property as of 6 months after death or when disposed of, if earlier (Sec. 2032). However, 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. Properties affected by mere lapse of time do not include those due to time value of money, such as obligations of payment. They refer to property interests the value of which is based on years, such as life estates, remainder interests, patents, etc.
If a person died in 2019, an estate tax return must be filed if the value of the gross estate at the date of death was more than A. $11,180,000 B. $5,490,000 C. $11,400,000 D. $5,450,000
$11,400,000
Answer (C) is correct.
In 2019, Sec. 6018 provides that, when the gross estate of a decedent exceeds $11,400,000, the personal representative must file an estate tax return.
Which of the following expenses may NOT be deducted on an estate tax return?
A. Expenses for selling property of an estate specifically to preserve the estate.
B. Administration and funeral expenses.
C. Marital transfers if the spouse is a nonresident alien.
D. Medical expenses paid within 1 year of death.
Marital transfers if the spouse is a nonresident alien.
Answer (C) is correct.
Outright transfers to a surviving spouse are deductible from the gross estate to the extent the interest is included in the gross estate. However, the surviving spouse must be a U.S. citizen when the estate tax return is filed.
All of the following would be allowed as deductions from the gross estate in computing the taxable estate EXCEPT
A. Debts owed by the decedent at the time of death.
B. Funeral expenses paid out of the estate.
C. Income tax on income received after the decedent’s death.
D. Casualty and theft losses that occurred during settlement of the estate.
Income tax on income received after the decedent’s death.
Answer (C) is correct.
The allowable deductions from the gross estate are provided by the following Code Sections: 2053, 2054, 2055, and 2056. Unpaid income taxes are deductible if they are on income includible in a decedent’s income tax return for a period before, but not after, the decedent’s death.
Laura’s gross estate equals $16,000,000. Given the following information, determine Laura’s taxable estate:
Charitable contribution specified in Laura’s will
$100,000
Funeral expenses
10,000
Medical expenses claimed on Laura’s Form 1040
20,000
A. $15,870,000
B. $15,890,000
C. $16,000,000
D. $15,880,000
$15,890,000
Answer (B) is correct.
The estate is allowed to take a deduction for the charitable contribution and the funeral expenses. The medical expenses are not allowed to be deducted on Laura’s gross estate because the expenses were already claimed on Laura’s Form 1040. Medical expenses paid within 1 year of death may be deducted on either the estate tax return or the final income tax return, but not both. Therefore, the taxable estate is $15,890,000 ( $16,000,000 – $100,000 – $10,000).
In 2019, Jim’s will established a trust for his son Kevin and his grandsons. In 2020, a taxable termination occurred when Kevin died, and trust assets were distributed to grandsons Mark and John. Jim’s executor allocated $1,500,000 of his exemption to the trust in 2018, which had a value of $6,500,000 at that time. When the taxable termination occurred in 2020, the trust assets’ value increased to $12,500,000. State death taxes attributable to trust property were $500,000. What is the inclusion ratio used to calculate the GSTT? A. 1/4 B. 1/8 C. 3/4 D. 7/8
3/4
Answer (C) is correct.
The inclusion ratio multiplied by the maximum federal estate tax rate determines the tax rate for a generation-skipping transfer. The inclusion ratio is 1 minus a fraction whose numerator is the GST exemption allocated to the trust and whose denominator is generally the value of the property transferred into the trust reduced by the sum of (1) federal estate taxes or state death taxes attributable to the property and paid by the trust and (2) charitable deductions with respect to the trust property [Sec. 2642(a)]. The inclusion ratio in this case is
1 - $1,500,000 / $6,500,000 - $500,000 = 3/4
When Lisa’s husband died in 2016, a qualified terminable interest property (QTIP) trust he had set up, named Lisa as the beneficiary for her life. Lisa died in 2019. Given the following information, determine the value of Lisa’s gross estate: FMV at Date of Death Lisa’s revocable grantor trust $ 750,000 QTIP trust 1,000,000 A. $1,000,000 B. $0 C. $1,750,000 D. $750,000
$1,750,000
Answer (C) is correct.
The value of both the trusts must be included in Lisa’s gross estate. Lisa is the owner at her death of a revocable grantor trust. The QTIP trust allowed her husband to take a marital deduction at his death and must be included in Lisa’s estate.
Ms. Pub died on February 28, 2019. The assets that comprised her estate were valued as follows:
2/28/ 19
6/28/ 19
8/28/ 19
House
$12,000,000
$11,900,000
$11,800,000
Stocks
3,950,000
3,975,000
3,875,000
Bonds
1,500,000
1,500,000
1,540,000
The executor sold the home on June 28, 2019, for $11,900,000. The executor properly elected the alternate-valuation-date method. What is the value of Ms. Pub’s estate?
A. $17,215,000
B. $17,315,000
C. $17,375,000
D. $17,450,000
$17,315,000
Answer (B) 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. 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 $11,900,000. The stocks and the bonds are included in the estate at their alternate-valuation-date value. Therefore, the value of the estate is $17,315,000 ($11,900,000 house + $3,875,000 stocks + $1,540,000 bonds).
Mr. Duffy died on October 1, 2019. 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 1,700,000 Jewelry 40,000 Dividends declared July 1, 2019 not paid as of October 1, 2019 1,000 Accrued interest on savings as of October 1, 2019 2,000 What is the amount of Mr. Duffy’s gross estate? A. $2,060,000 B. $2,061,000 C. $2,063,000 D. $2,062,000
$2,063,000
Answer (C) 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.
In 2019, which of the following statements about the generation-skipping transfer exemption is false?
A. All appreciation that occurs to property covered by the allocation of the $11.40 million exemption is also covered by the exemption up to a limit of $8 million.
B. The GST exemption may be allocated to an inter vivos transfer on a timely filed gift tax return or later statement of allocation filed with the IRS.
C. An individual (or his or her executor) can allocate a $11.40 million exemption to property with respect to which (s)he is the transferor.
D. If a married couple elects gift-splitting for a transfer, the transferred property may be allocated a GSTT exemption of up to $22.80 million.
All appreciation that occurs to property covered by the allocation of the $11.40 million exemption is also covered by the exemption up to a limit of $8 million.
Answer (A) is correct.
If all or part of the $11.40 million exemption is allocated to trust property, all appreciation that occurs after the allocation to the property covered by the exemption is also exempt from the GSTT. There is no $8 million limit.
Harry, a single person, died in 2019. The executor does not elect the alternate valuation date. Given the following information, determine the value of Harry’s gross estate. Assets of the Estate FMV at Date of Death Certificates of deposit $ 100,000 Mortgage receivable on sale of property 2,000,000 Paintings and collectibles 500,000 Income tax refund due from 2018 individual tax return 30,000 Household goods and personal effects 20,000 A. $2,620,000 B. $2,650,000 C. $2,600,000 D. $2,120,000
$2,650,000
Answer (B) 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, $2,650,000 is the value of Harry’s estate ($100,000 certificates + $2,000,000 mortgage receivable + $500,000 paintings and collectibles + $30,000 income tax refund + $20,000 household goods and effects).
In general, on Form 709, you can claim a marital deduction for gifts to your spouse. Generally, you cannot take the marital deduction if the gift to your spouse is a terminable interest. You may elect to deduct a gift of a terminable interest (QTIP) if it meets three requirements. Which of the following is NOT a necessary requirement?
A. Your spouse is entitled for life to all of the income from the entire interest.
B. No part of the entire interest is subject to another person’s power of appointment.
C. Your spouse has the unlimited power, while he or she is alive or by will, to appoint the entire interest in all circumstances.
D. The income is paid yearly or more often.
Your spouse has the unlimited power, while he or she is alive or by will, to appoint the entire interest in all circumstances.
Answer (C) is correct.
Section 2056 allows a marital deduction for transfers of qualified terminable interest property (QTIP). These transfers allow a marital deduction where the recipient spouse is not entitled to designate which parties will eventually receive the property. QTIP is defined as property that passes from the decedent in whom the surviving spouse has a qualifying interest for life and to whom an election applies. A spouse has a qualifying income interest for life if he or she is entitled to all the income from the property that is paid at least annually, and no person has a power to appoint any portion of the property to anyone other than the surviving spouse unless the power cannot be exercised during the spouse’s lifetime.
A trust is created by a parent for a child. The trust allows for distributions to the grandchild during the child’s lifetime. A taxable distribution occurs when a distribution is made from the trust to the grandchild. What type of tax is applied to this distribution? A. Direct skip gift tax. B. Generation-skipping distribution tax. C. Generation-skipping transfer tax. D. Generation-skipping termination tax.
Generation-skipping distribution tax.
Answer (B) is correct.
The generation-skipping distribution tax applies to trust distributions out of income or corpus to a beneficiary at least two generations below the grantor, while an older generation beneficiary has an interest in the trust.
Pearl gave $11.40 million in securities to her granddaughter Ruby in 2019. Pearl, a widow, had never made any gift to Ruby prior to the 2019 transfer. Pearl allocated $1,140,000 of her GST exemption to this direct skip. What is the generation-skipping transfer tax amount, and who must pay it?
Tax
Payor
A. $4,104,000 Ruby B. $4,560,000 Ruby C. $4,560,000 Pearl D. $4,104,000 Pearl
$4,104,000
Pearl
Answer (D) is correct.
The GSTT is the product of the taxable amount of the transfer times the applicable rate (Sec. 2602). The applicable rate is the maximum federal estate tax rate for the date of the direct skip (40% for 2019) times the inclusion ratio (Sec. 2641). The taxable amount of the transfer is $11.40 million. The inclusion ratio is one minus the fraction whose numerator is the GST exemption allocated to the property transferred, and whose denominator is the value of the transfer involved in the direct skip reduced by federal estate tax, state death taxes, and charitable deductions related to the property. The inclusion ratio in this case is
1 - $1,140,000 / $11,400,000 = 0.90
The generation-skipping transfer tax is the product of the taxable amount (i.e., amount transferred times the inclusion ratio) times the applicable rate (Sec. 2602). The applicable rate is the maximum federal estate tax rate for decedents dying on the date of the direct skip (40% for 2019). The tax on this transfer is $4,104,000 ( $11,400,000 × 40% × .90). The transferor, Pearl, is liable for the tax on the direct skip [ Sec. 2603(a)(3)].
Mr. Rich died in the current year. The following expenses and credit relate to the estate: Administrative expenses $ 12,500 Funeral expenses 8,500 State inheritance tax 33,000 Applicable credit amount 4,505,800 What amount can the executrix of Mr. Rich’s estate deduct from the gross estate in figuring the taxable estate? A. $21,000 B. $4,526,800 C. $54,000 D. $4,505,800
$54,000
Answer (C) 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 for unpaid mortgages on property in which the value of the decedent’s interest is included in the value of the gross estate. The applicable credit amount is a credit that reduces the tentative estate tax.
With regard to the federal estate tax, the alternate valuation date
A. Can be elected only if its use decreases both the value of the gross estate and the sum of the estate tax and the generation-skipping transfer tax (reduced by any allowable credits).
B. If elected on the first return filed for the estate, may be revoked in an amended return provided that the first return was filed on time.
C. Is required to be used if the fair market value of the estate’s assets has increased since the decedent’s date of death.
D. Must be used for valuation of the estate’s liabilities if such date is used for valuation of the estate’s assets.
Can be elected only if its use decreases both 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 (A) 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 the date 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).
John, who was not married, died on October 12, 2019. He did not leave any of his assets to charity. Given the following information, may the executor of the estate make the alternate valuation election and, if so, what is the value of the gross estate on the alternate valuation date?
FMV
FMV
Date of
Alternate
Death Valuation Residence $16,000,000 $16,010,000 Installment note 5,000 500 Stock 600,000 350,000 Expenses (450,000) (300,000) A. Yes, the election can be made. The alternate value of the gross estate is $16,350,500. B. Yes, the election can be made. The alternate value of the gross estate is $16,360,500. C. No, the election cannot be made. D. Yes, the election can be made. The alternate value of the gross estate is $16,365,000.
Yes, the election can be made. The alternate value of the gross estate is $16,360,500.
Answer (B) is correct.
The election can be made only if it results in a reduction in the value of the gross estate and the sum (reduced by allowable credits) of the estate and GST taxes payable. The assets are valued on the date 6 months after the date of the decedent’s death. Expenses are not included in the gross estate. Therefore, the gross estate includes the value of the residence, the stock, and the value of the installment note on the alternate valuation date (Instructions for Form 706). It is assumed that the installment note declined in value. Any payments made on the installment note between the date of death and the alternative date are added to the estate value on the alternative date.
Mr. Alexis died April 30, 2019. His gross estate totaled $17.5 million. Assuming no extension is granted, the executor must file Form 706, United States Estate Tax Return, on or before (ignore weekends and holidays) A. August 15, 2019. B. April 15, 2020. C. January 30, 2020. D. October 31, 2020.
January 30, 2020.
Answer (C) is correct.
Section 6075(a) provides that estate tax returns must be filed within 9 months after the date of the decedent’s death.
When Sam died, his property was placed in trust, with his son David and David’s daughter Carole eligible to receive principal and income at the trustee’s discretion. When the property was placed in trust, its value was $5 million, and the GST exemption was not allocated to this trust. Carole received a distribution of $8 million when the trust’s value totaled $10 million. The appraisal to value trust assets cost $40,000 and was paid by the trust. What is the taxable amount of the generation-skipping transfer, and who is responsible for the tax payment?
Taxable Amount
Taxpayer
A. $7,960,000 Carole B. $7,960,000 Trust C. $8,000,000 David D. $5,040,000 David
$7,960,000
Carole
Answer (A) is correct.
This is a taxable distribution because it is a distribution to a skip person (Carole), and a nonskip person (David) still has an interest in the trust. The amount of a taxable distribution is the value of property received by the transferee minus costs of determination, collection, and refund of the GSTT paid by the transferee (Sec. 2621). Since the trust paid the cost of appraisal, only $7,960,000 in assets remained to pass to Carole. The value of assets received by Carole is not further reduced since she incurred no additional costs associated with payment of the GSTT. Carole is responsible for the tax payment as the transferee of a taxable distribution [Sec. 2603(a)(1)].
Which of the following is NOT a credit against gross estate tax in determining net estate tax?
A. Foreign death taxes.
B. Gift taxes on gifts included in the gross estate.
C. Qualified charitable contributions.
D. Unified credit (applicable credit amount).
Qualified charitable contributions.
Answer (C) is correct.
The charitable contribution is a deduction from the gross estate, not a credit against the estate tax liability.
Jane Life, age 55 years exactly, wants to provide for the financial security of her secretary, Sue, and other unrelated friends. She establishes a trust. Sue, age 65, will receive income from the trust for her life. On Sue’s death, Sam, another friend who is currently 51, will receive income for his lifetime. Upon his death, the remainder interest will be divided equally between Kevin (age 39) and Stan (age 43). How many times will this trust be subject to a GSTT? A. None. No GSTT will be assessed. B. Three. C. Two. D. One.
None. No GSTT will be assessed.
Answer (A) is correct.
A taxable termination is a termination of an interest in property held in trust, unless immediately after the termination a nonskip person has an interest in the property, or at no time after the termination may a distribution be made to a skip person. An individual is a skip person if (s)he is assigned to a generation that is two or more generations below the generation assignment of the transferor. An individual who is not a lineal descendant (or married to a lineal descendant) of a grandparent of the transferor is assigned to a generation based on his or her date of birth. An individual born not more than 12 1/2 years after the transferor is assigned to the transferor’s generation; an individual born 12 1/2 to 37 1/2 years after the transferor is assigned to the first generation younger than the transferor [Sec. 2651(d)].
Since Sue is older than the transferor, she is not a younger generation beneficiary. Sam and Stan are assigned to the same generation as the transferor. Kevin is assigned to the first generation younger than the transferor and is the only younger generation beneficiary under this trust.
None of Life’s beneficiaries are skip persons. With no skip person, there is no taxable termination, and no generation-skipping transfer tax is due.
Mrs. Flame passed away on March 15, 2019. The assets included in her estate were properly valued as follows:
3/15/ 19
7/15/ 19
9/15/ 19
Personal residence
$14,500,000
$14,600,000
$14,700,000
Stocks held
2,000,000
1,700,000
1,750,000
The executor sold the home on July 15, 2019, for $14,600,000. The alternate valuation date was properly elected. What is the value of the estate reported for estate tax purposes?
A. $16,300,000
B. $16,500,000
C. $16,350,000
D. $16,450,000
$16,350,000
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. 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 $14,600,000. The stocks are included in the estate at their alternate-valuation-date value. Therefore, the value of the estate is $16,350,000 ($14,600,000 + $1,750,000).
