Estate Tax Flashcards

Question

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.

Answer 1

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.

Answer 2

$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.

Answer 3

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.

Answer 4

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.

Answer 5

$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.

Answer 6

$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.

Answer 7

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.”

Answer 8

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)].

Answer 9

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).

Answer 10

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.

Answer 11

$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.

Answer 12

``` $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 ```

Answer 13

$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).

Answer 14

$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).

Answer 15

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.

Answer 16

$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).

Answer 17

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.

Answer 18

$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).

Answer 19

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).

Answer 20

``` 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. ```

Answer 21

$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 ```

Answer 22

$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.

Answer 23

$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.

Answer 24

None of the answers are correct. Answer (C) is correct. None of the credits may be taken on the estate tax return.

Answer 25

$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.

Answer 26

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)].

Answer 27

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.

Answer 28

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.

Answer 29

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.”

Answer 30

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.

Answer 31

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.

Answer 32

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.

Answer 33

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.

Answer 34

$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.

Answer 35

$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.

Answer 36

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.

Answer 37

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.

Answer 38

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.

Answer 39

$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.

Answer 40

$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.

Answer 41

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.

Answer 42

$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.

Answer 43

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.

Answer 44

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.

Answer 45

$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).

Answer 46

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

Answer 47

$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.

Answer 48

$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).

Answer 49

$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.

Answer 50

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.

Answer 51

$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).

Answer 52

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.

Answer 53

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.

Answer 54

$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)].

Answer 55

$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.

Answer 56

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).

Answer 57

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.

Answer 58

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.

Answer 59

$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)].

Answer 60

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.

Answer 61

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.

Answer 62

$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).