Estates Ch 5 Gift Taxe

Question 1

If Kyle pays Krystal’s car note, and there is no consideration from Krystal to Kyle, Kyle has made a gift to Krystal.

a. True b. False

Answer 1

a. True

Question 2

The lender of a $150,000 no-interest gift loan will always impute interest.

a. True b. False

Answer 2

a. True

Question 3

Generally, gift tax is calculated based on the fair market value of the property at the date of the gift.

a. True b. False

Answer 3

True

Question 4

A donor’s gross estate will not include the fair market value of lifetime gifts that qualify for the annual exclusion.

a. True b. False

Answer 4

a. True

Question 5

If the annual exclusion is not used during the year, it does not carryover to the following year.

a. True b. False

Answer 5

True

Question 6

An individual who gifts a total of $100,000 split equally between eleven donees is not required to file a gift tax return.

a. True b. False

Answer 6

True

Question 7

A Crummey provision is the explicit right of a trust beneficiary to withdraw some, or all, of any contribution to a trust for a limited period after the contribution.
a . True b. False

Answer 7

True

Question 8

To be eligible for the unlimited marital deduction, the donee spouse must be a citizen of the United States.

a. True b. False

Answer 8

True

Question 9

If at the date of a gift, the fair market value of the gifted property is less than the donor’s adjusted basis in the gifted property, the donee will be subject to the double-basis rule.

a. True b. False

Answer 9

True

Question 10

Grandmother Jones contributed $2,500,000 to a revocable trust. She has a life expectancy of 24 years and she will receive an 8% per year annuity from the trust. At her death, the corpus will be paid to her granddaughter, Lisa. What is Grandmother Jones’s taxable gift?

a. $0.
b. $2,094,752.
c. $2,484,000.
d. $2,500,000.

Answer 10

The correct answer is a.

Because Grandmother Jones reserves the right to revoke the trust, she has not made a completed transfer to Lisa and thus she does not have a taxable gift

Question 11

In the current year, Liam loaned his daughter, Miley, $15,000 to purchase a new car. The loan was payable on demand, but there was no stated interest rate. The applicable federal rate for the current year was 10%, and Miley had $900 of net investment income for the year. For gift tax purposes with regards to this loan, how much has Liam gifted Miley during the current year?

a. $0.
b. $900.
c. $1,500.
d. $15,000.

Answer 11

The correct answer is a.

Because the loan is for less than $100,000 and Miley has less than $1,000 in net investment income, Liam does not have to impute any interest on the loan and, as such, has not made a gift of interest to Miley during the current year.

Question 12

Lola and Rico would like to give the maximum possible gift that they can to their son without having to pay gift tax. Lola and Rico have never filed a gift tax return and live in a community-property state. How much can they transfer in 2022 to their son free of gift tax?

a. $32,000.
b. $4,769,800.
c. $12,060,000.
d. $24,152,000

Answer 12

The correct answer is d.

Lola and Rico can each transfer $12,060,000 tax free during their lifetimes. Lola and Rico can also make a gift of $16,000 each during the year to qualify under the annual exclusion. In total to their son, Lola and Rico can transfer $24,152,000 (($12,060,000 x 2)+($16,000 x 2)=$24,152,000).

Question 13

During the year, Sean made the following gifts to his daughter:

1. An interest-free loan of $6,000 to purchase an SUV. The applicable federal rate was 6%. The loan has been outstanding for two years.
2. A corporate bond with an adjusted basis of $16,000 and a fair market value of $20,000.
3. A portfolio of stock with an adjusted basis of $10,000 and a fair market value of $25,000.

Sean’s wife agrees to elect gift-splitting for the year, but she did not make any gifts of her own. What is the amount of total taxable gifts made by Sean during the year?

a. $6,500.
b. $9,500.
c. $29,000.
d. $35,000.

Answer 13

The correct answer is a.

The interest-free loan is not subject to gift tax because the loan is below $10,000 and meets the exclusion
from imputed interest rules.

To calculate Sean’s taxable gifts, first add the fair market value of the
transfers subject to gift tax and reduce by the annual exclusions and the gift-splitting. The calculation is as follows:

Sum of the fair market values of the taxable transfers: $25,000 + $20,000 = $45,000.

Allocation for gift splitting: $45,000/2 = $22,500.
Reduction for annual exclusion: $22,500 - $16,000 = $6,500.

Question 14

Romeo and Juliet have lived in Louisiana their entire marriage. Currently, their combined net worth is $4,000,000 and all of their assets are community property.
After meeting with their financial advisor, Romeo and Juliet begin a plan of lifetime gifting to reduce their gross estates. During 2022, they made the following cash gifts:
* Son: $80,000
* Daughter: $160,000
* Republican National Committee: $75,000
* Granddaughter: $15,000

What is the amount of the taxable gifts to be reported by Juliet?

a. $79,500. b. $88,000. c. $127,500. d. $255,000

Answer 14

$84,000.
Rationale

Because the assets are community property, the gifts are deemed to be made 50% by each spouse. Gift-splitting is not an issue. The cash payment to the Republican National Committee is not a gift for gift tax purposes. Juliet’s taxable gifts are calculated as follows:
Juliet’s
Total Gifts
(1/2) Juliet’s
Annual
Exclusion Juliet’s
Taxable
Gifts
Son $40,000 $18,000 $22,000
Daughter $80,000 $18,000 $62,000
Granddaughter $7,500 $7,500 - 0 -
Total $127,500 $43,500 $84,000

Question 15

Jerry and his wife, Elaine, live in Texas with their two minor children. All of their property is owned as community property. During the year, Jerry gave his brother a $13,000 car, his friend a $4,000 watch, and his dad a $45,000 fishing boat.

What is the total amount of split gifts for Elaine?

$0.
$7,500.
$31,000.
$62,000.

Answer 15

$0.
Rationale

Because the question asked the amount of gifts attributable to Elaine due to gift splitting, the answer is $0.

Community property assets are not eligible for gift splitting because they are viewed as being owned one-half by each spouse.

$31,000 (1/2 of the total of the all gifts during the year) would be attributable to Elaine as gifts made by her during the year.

Question 16

UPDATED FOR 2024:

Romeo and Juliet have lived in Louisiana their entire marriage. Currently, their combined net worth is $24,000,000 and all of their assets are community property. After meeting with their financial advisor, Romeo and Julie begin a plan of lifetime gifting to reduce their gross estates.

During 2024, they made the following cash gifts:

Son $80,000
Daughter $160,000
Republican National Committee $75,000
Granddaughter $15,000

What is the amount of the taxable gifts to be reported by Juliet?

$73,500.
$84,000.
$103,500.
$127,500.

Answer 16

$84,000.
Rationale

Because the assets are community property, the gifts are deemed to be made 50% by each spouse. Gift-splitting is not an issue. The cash payment to the Republican National Committee is not a gift for gift tax purposes. Juliet’s taxable gifts are calculated as follows:
Juliet’s
Total Gifts
(1/2) Juliet’s
Annual
Exclusion Juliet’s
Taxable
Gifts
Son $40,000 $18,000 $22,000
Daughter $80,000 $18,000 $62,000
Granddaughter $7,500 $7,500 - 0 -
Total $127,500 $43,500 $84,000

Question 17

Randy transferred property with a fair market value of $56,000 to his brother, Robbie. Randy’s adjusted basis in the property was $23,000. Which of the following statements concerning this transfer is correct?

Robbie has an adjusted basis in the property of $0.

Randy must recognize a capital gain on this transfer of $33,000.

If Robbie subsequently sells the property for $60,000, he will have a capital gain of $4,000.

Randy has a taxable gift to Robbie of $38,000.

Answer 17

Randy has a taxable gift to Robbie of $38,000.
Rationale

Randy made a taxable gift to Robbie of $38,000.

The taxable gift is calculated on the fair market value as of the date of the transfer, $56,000, less the annual exclusion available, $18,000 for 2024 ($56,000-$18,000=$38,000).

Option a is incorrect because the donee has a carry-over of the donor’s adjusted basis when the fair market value is greater than the donor’s adjusted basis. If the donor had paid gift tax on the transfer, an allocation of the gift tax attributable to the appreciation of the property would have been added to the donee’s adjusted basis.

Option b is incorrect because a donor does not recognize gain on a gift of appreciated property.

Option c is incorrect as Randy’s adjusted basis will carryover, as described above, and his capital gain would be $37,000 ($60,000 - $23,000).

Question 18

During 2024, Janice made the following transfers.

1. Janice gave $10,000 to her boyfriend so he could buy a new car.
2. Janice’s neighbor needed $15,000 to pay for her knee surgery. Janice paid Doctors-R-Us Hospital directly.
3. Her nephew began attending Georgetown Law School this year. Janice made the initial yearly tuition payment of $25,000 directly to Georgetown Law School during 2024.

What is the amount of her total taxable gifts for 2024?
$0.
$9,000.
$18,000.
$50,000.

Answer 18

0.
Rationale

Statement 1 is the only gift subject to gift tax, but to arrive at the total taxable gifts for the year the value of the gross gift is reduced by the available annual exclusion. In this case, Janice’s gift to her boyfriend would be eliminated after the application of the $18,000 for 2024 annual exclusion. Statements 2 and 3 are transfers not subject to gift tax because they are qualified transfers paid directly to a medical or educational institution.

Question 19

Peyton gave his nephew, Eli, 1,000 shares of ABC Corporation. Peyton had an adjusted basis of $10,000 for all 1,000 shares and the fair market value at the date of the gift was $45,000. Peyton paid gift tax of $9,000 on the gift to Eli. If Eli sells the stock three days after receiving the gift for $46,000, what is his capital gain/loss?

(Assume Peyton had already made transfers to Eli during the year to utilize the annual exclusion.)

No gain or loss.
$1,000 gain.
$29,000 gain.
$36,000 gain

Answer 19

$29,000 gain.
Rationale

First calculate Eli’s adjusted basis at the time of the sale. When the fair market value of gifted property is greater than the donor’s adjusted basis, the donee’s adjusted basis in the gifted property is equal to the donor’s adjusted basis, $10,000, plus an allocation of gift tax paid on the appreciation of the property, [($35,000÷$45,000) x $9,000] = $7,000. Accordingly, Eli’s adjusted basis is equal to $17,000 ($10,000 + $7,000).
To calculate Eli’s gain or loss on the sale of the gifted property subtract his adjusted basis from the proceeds of the sale.
$46,000 - $17,000 = $29,000

Question 20

Crystal loans Alexis $650,000, so that Alexis can buy a home. Alexis signs a note, with a term of 5 years, promising to repay the loan. The home is the collateral, but because Crystal and Alexis have been friends since childhood, Crystal does not charge Alexis interest. Which of the following statements is true?

1. The imputed interest is considered a taxable gift from Crystal to Alexis.
2. The imputed interest is taxable income on Crystal’s income tax return.
3. The imputed interest is an interest expense deduction for Crystal.
4. Alexis can deduct the imputed interest on her income tax return, assuming that she itemizes deductions.

2 only.
2 and 4.
1, 2, and 4.

Answer 20

1, 2, and 4.
Rationale

The loan is greater than $100,000 and does not meet any of the exceptions to imputing interest.

Crystal will have imputed interest income based on the applicable federal rate and the imputed interest will also be considered a taxable gift to Alexis.

Because the loan is secured by Alexis’s personal residence, Alexis will also have an itemized deduction equal to the imputed interest. Crystal does not have an interest expense.

Question 21

After reading an estate planning article in a popular magazine, Vaughn has decided to take action to reduce his gross estate by making annual gifts to his 4 kids, 8 grandchildren, and 4 great-grandchildren. Vaughn has discussed the gifting strategy with his wife, Rebecca, and provided it does not result in use of any of her transfer tax exemption, she has agreed to split each gift. Vaughn does not want to use his transfer tax exemption either.
If Vaughn carries the plan out for 5 years, how much can he gift in total while meeting Rebecca’s requirement?
Assume the 2024 exclusion amounts.

$288,000.
$576,000.
$1,440,000.
$2,880,000.

Answer 21

$2,880,000.
Rationale

Vaughn has 4 kids, 8 grandchildren, and 4 great-grandchildren for a total of 16 people that he can make annual exclusion gifts.

16 x $18,000 (annual exclusion) = $288,000

Gift Splitting with his wife would allow $576,000 ($288,000 x 2)

If Vaughn and his wife made these transfers each year for the next 5 years, he could transfer $2,880,000 ($576,000 x 5 years = $2,880,000) without incurring any gift tax liability.

Question 22

Lola and Rico would like to give the maximum possible gift that they can to their son without having to pay gift tax. Lola and Rico have never filed a gift tax return and live in a community-property state. How much can they transfer in 2024 to their son free of gift tax?

$36,000.
$5,389,800.
$13,628,000.
$27,256,000.

Answer 22

$27,256,000.
Rationale

Lola and Rico can each transfer $13,610,000 tax free during their lifetimes.
Lola and Rico can also make a gift of $18,000 each during the year to qualify under the annual exclusion. In total to their son, Lola and Rico can transfer $27,256,000 (($13,610,000 x 2) + ($18,000 x 2) = $27,256,000.

Question 23

In the current year, Liam loaned his daughter, Miley, $15,000 to purchase a new car. The loan was payable on demand, but there was no stated interest rate. The applicable federal rate for the current year was 10%, and Miley had $900 of net investment income for the year.
For gift tax purposes with regards to this loan, how much has Liam gifted Miley during the current year?

$0.
$900.
$1,500.
$15,000.

Answer 23

$0.
Rationale

Because the loan is for less than $100,000 and Miley has less than $1,000 in net investment income, Liam does not have to impute any interest on the loan and, as such, has not made a gift of interest to Miley during the current year.

Question 24

judy made the following transfers during 2024:

1. Her friend, Elroy, needed $26,000 to begin law school. Judy gave Elroy the cash.
2. An alimony payment of $18,000 to her ex-husband.
3. She paid $15,000 to Diamond Shores Hospital for her friend Jane’s medical bills.

What is the amount of Judy’s taxable gifts?

$0.
$8,000.
$44,000.
$59,000.

Answer 24

$8,000.
Rationale
1. The payment to Elroy is for his tuition, but to be a qualified transfer, the payment must be made directly to the educational institution. The payment is therefore a gift of $26,000 which will be reduced by the available $18,000 annual exclusion (2024), resulting in a taxable gift of $8,000. $8,000
2. Alimony payments are deductible for income tax purposes by the payor and included in the recipient’s taxable income (if the divorce occurred prior to 2019). Alimony payments are not taxable gifts. $0
3. A payment directly to a medical institution for the medical treatment of anyone is a qualified transfer not subject to gift taxes. $0

Taxable Gifts 	$8,00

Question 25

Becky and Jesse have been married for 29 years. Last year, Jesse sold his extremely successful automotive repair shop, and his net worth now exceeds $40 million dollars. Becky and Jesse have twin daughters, Mary-Kate and Ashley, who will be 35 next month. Becky and Jesse, neither of whom have given any gifts in the past, would like to give their daughters the maximum amount of cash possible without paying any gift tax.
How much can Becky and Jesse give to Mary-Kate and Ashley during 2024?

$36,000.
$13,646,000.
$27,220,000.
$27,292,000.

Answer 25

$27,292,000.
Rationale
$72,000 $36,000 (for 2024) per child (annual exclusion for both parents)
$27,220,000 $13,610,000 (for 2024) per parent (applicable gift tax credit equivalency)
$27,292,000 Total that can be gifted without paying gift tax

Question 26

Brent and his wife live in a common law (separate property) state. Each year, Brent makes gifts equal to the annual exclusion to his three children. During the year, he comes to you looking for a way to transfer more than $100,000 each year to his kids without using his applicable gift tax credit or paying any gift tax. All of the following statements regarding gift-splitting, are true, except:

If Brent’s wife would agree to elect gift splitting, Brent could transfer $108,000 per year to his kids without utilizing his applicable gift tax credit or paying any gift tax.

Even if Brent’s wife elected to split gifts, only Brent’s gifts would be split.

If his spouse agrees to split gifts, Brent will have to file a gift tax return even though all of the gifts are less than the annual exclusion, and not taxable.

If a couple elects to split gifts, all gifts made during the year (while the couple is married) by either spouse must be split.

Answer 26

Even if Brent’s wife elected to split gifts, only Brent’s gifts would be split.

Rationale

The question asks which statement is not true regarding gift-splitting. Option b is incorrect because a couple that elects to split gifts must split all gifts made to third parties during the year. All of the other options are correct statements.

Question 27

During the year, Sean made the following gifts to his daughter:

1. An interest-free loan of $6,000 to purchase an SUV. The applicable federal rate was 6%. The loan has been outstanding for two years.
2. A corporate bond with an adjusted basis of $18,000 and a fair market value of $20,000.
3. A portfolio of stock with an adjusted basis of $10,000 and a fair market value of $25,000.

Sean’s wife agrees to elect gift-splitting for the year, but she did not make any gifts of her own. What is the amount of total taxable gifts made by Sean during the year?

$4,500.
$9,000.
$22,500.
$33,000.

Answer 27

$4,500.
Rationale

The interest-free loan is not subject to gift tax because the loan is below $10,000 and meets the exclusion from imputed interest rules. To calculate Sean’s taxable gifts, first add the fair market value of the transfers subject to gift tax and reduce by the annual exclusions and the gift-splitting. The calculation is as follows:

Sum of the fair market values of the taxable transfers:

$25,000 + $20,000 = $45,000

Allocation for gift splitting: $45,000÷2 = $22,500

Reduction for annual exclusion: $22,500 - $18,000 = $4,500

Question 28

Bubby would like to make a gift to his son, but does not want the value of the gift and the associated gift tax to total an amount greater than $100,000. Bubby’s cousin has told him about the net gift, but Bubby has come to you for clarification.
Which of the following statements from Bubby’s cousin is correct?

A net gift does not qualify for the annual exclusion because it is a gift of a future interest.

Bubby must prepay the gift tax due when he makes a net gift.

A net gift requires Bubby’s son to disclaim the interest in the gift.

Bubby will have taxable income to the extent the gift tax paid is greater than his adjusted basis in the gifted property.

Answer 28

Bubby will have taxable income to the extent the gift tax paid is greater than his adjusted basis in the gifted property.
Rationale

Option d is a correct statement. As long as the gifted property is a gift of a present interest, a net gift qualifies for the annual exclusion. Also, Bubby does not have any obligation to prepay the gift taxes. The gift taxes are due April 15th of the year after the gift. A net gift does not require the donee to disclaim the gift.

Question 29

while completing Joelle’s tax returns, Joelle’s CPA asked her if she made any gifts during the year. Joelle emailed her the following information. Of the following, which would not require the filing of a gift tax return?

Joelle created a revocable trust under the terms of which her son is the income beneficiary for his life and her grandson is the remainder beneficiary. Joelle created the trust with a $6,000,000 contribution and the trust made an income distribution in the current year.

Joelle opened a joint checking account in the name of herself and her sister with $75,000. The day after Joelle opened the account, her sister withdrew $35,000 to purchase a car.

Joelle created an irrevocable trust giving a life estate to her husband and a remainder interest to her daughter. Joelle created the trust with a $1,000,000 contribution.

Joelle gave her husband, a U.S. citizen, one-half of an inheritance she received from her uncle. The inheritance was $3,000,000.

Answer 29

Joelle gave her husband, a U.S. citizen, one-half of an inheritance she received from her uncle. The inheritance was $3,000,000.
Rationale

The transfer in option d would qualify for the unlimited marital deduction, so it is not a taxable gift and Joelle would not have to file a gift tax return.

All of the other transfers would create taxable transfers and would require a gift tax return to be filed.

The transfer in option a to a revocable trust would still be subject to gift tax reporting because the trust has current beneficiaries, as Joelle’s son received an income distribution in the current year.

Question 30

Which of the following statements about Freddie and Carly who are married, regarding the rules of the federal gift tax return is incorrect?

Freddie made a gift to his brother of $20,000 from his separate property. Carly agreed to elect gift-splitting. Only Freddie will be required to file a gift tax return.

Carly made a gift to her sister of $18,000 from community property. Because it is community property, Carly and Freddie are each deemed to have made a gift of $9,000.

A gift tax return is due 3½ months after the end of the donor’s tax year-end but is extended by extending the income tax return.

Carly and Freddie filed an extension to file their federal income tax return. To extend any gift tax returns due for the year, Carly and Freddie must file a gift tax return extension.

Answer 30

Carly and Freddie filed an extension to file their federal income tax return. To extend any gift tax returns due for the year, Carly and Freddie must file a gift tax return extension.
Rationale

The gift tax return is extended with the federal individual income tax return - no separate extension is required. All of the other options are true statements. Note that in option a, had a taxable gift been made (the value of the gift exceeded 2 x $17,000 = $34,000), both spouses would have to file a gift tax return.

Question 31

Grandmother Jones contributed $2,500,000 to a revocable trust. She has a life expectancy of 24 years and she will receive an 8% per year annuity from the trust. At her death, the corpus will be paid to her granddaughter, Lisa.
What is Grandmother Jones’s taxable gift?

$0.
$2,300,000.
$2,482,000.
$2,500,000.

Question 32

Mallory provides the following list to her CPA who is preparing her gift tax return. Which of the following will Mallory’s CPA include as a taxable gift on Mallory’s gift tax return?

Payment to grandmother of $20,000 to help her with her medical bills.

Payment to Doctor’s Hospital for $35,000 to cover the medical bills of a friend.

Payment to Northshore Medical School for $17,000 to cover nephew’s tuition.

Payment for a child of $6,000 that represents legal support.

Answer 32

Payment to grandmother of $20,000 to help her with her medical bills.
Rationale

Mallory’s CPA will include the payment made to Mallory’s grandmother as a taxable gift. A payment must be paid directly to the health care provider or educational institution to be a qualified transfer. Options b and c represent qualified transfers and are not taxable gifts. Option d is a payment of legal support and is not considered a gift for gift tax purposes.

Question 33

Hazel received 100 shares of ZYX Corporation from her aunt with an adjusted basis of $60,000 and a fair market value of $30,000 as of the date of the gift. Her aunt paid $1,500 of gift tax. Hazel sold the stock for $45,000.
What is Hazel’s recognized gain or loss?

No gain or loss.
$15,000 gain.
$15,000 loss.
$13,500 loss

Answer 33

No gain or loss.
Rationale

When the fair market value of gifted property is less than the donor’s adjusted basis, gift tax on the appreciation is not added to the basis, and the double-basis rule applies. In such a case, the gain basis for the property is the donor’s adjusted basis, and the loss basis is the fair market value at the date of the gift. When the sale is between these amounts, there is not a gain or loss. In this case, Hazel sold the stock for an amount between the gain and loss basis and therefore has no gain or loss.

Question 34

Sherice has begun a program of lifetime gifting. All of the following statements regarding lifetime gifts are true, except?

Appreciation on property after the date of the gift will not be subject to gift tax and will not be included in ?Sherice’s gross estate.

Payments directly to her grandchildren for their education over the annual exclusion amount will not be taxable.

Annual exclusion gifts will not be subject to the gift tax and will not be included in ?Sherice’s gross estate.

The donee of income producing property will have to recognize the post-gift income from the property on the donee’s income tax return.

Answer 34

payments directly to her grandchildren for their education over the annual exclusion amount will not be taxable.
Rationale

Only option b is false. Payments to Sherice’s grandchildren for education will be taxable because they were not made directly to the institution and thus are not qualified transfers. All of the other statements are true.

Question 35

What is the meaning of the phrase “taxable gifts?”

The gross amount of the gift reduced by any annual exclusion, marital deduction, and charitable deduction.

The gross amount of gift given to any donee.

The amount of any gift exceeding the lifetime exemption which is then subject to gift tax.

The amount of any gift that exceeds both the annual exclusion and the lifetime exemption, which is then subject to gift tax.

Answer 35

The gross amount of the gift reduced by any annual exclusion, marital deduction, and charitable deduction.
Rationale

The term or phrase “taxable gifts” means net of any annual exclusion, marital deduction, and charitable deduction but before the application of the lifetime exemption.

Question 36

Which of the following is eligible for the annual exclusion?

Frank designates his daughter, Debra, beneficiary of his 401(k) plan.

Frank designates his wife, Marie, as beneficiary of his life insurance policy.

Frank funds an irrevocable trust with $1,100,000 for the benefit of his son. The terms of the trust allow a payout at the discretion of the trustee.

Frank funds an irrevocable life insurance trust with the amount necessary to pay the premiums of the policy. The beneficiaries can take a distribution equal to the contribution each year.

Answer 36

Frank funds an irrevocable life insurance trust with the amount necessary to pay the premiums of the policy. The beneficiaries can take a distribution equal to the contribution each year.

Rationale

If the beneficiaries of a trust are given the right to take a withdrawal during the year, the contribution is eligible for the annual exclusion.

Options a and b are not completed gifts and therefore do not qualify for the annual exclusion.

The transfer to the trust in option c is a gift of a future interest and is not eligible for the annual exclusion.

Question 37

Benson has 3 children (1-3) and 6 grandchildren (4-9). His wife, Adele, is his second wife and she has both an ailing mother and father. During the year, Benson and Adele made the following gifts.
Donor Gift Description Value Donee(s)
Benson Condo for Life (appraised) $1,000,000 1-3 together
Benson Remainder Interest in Condo $200,000 4-9 together
Benson Cash $50,000 1
Benson Cash $50,000 2
Benson Cash $50,000 3
Benson Cash to 529 Plan $540,000 4-9
Adele Cash to 529 Plan $540,000 4-9
Adele Cash $200,000 mother
Adele Cash $200,000 father

Assume all gifts are split and front-loading is elected. What is the total of Adele’s taxable gifts for the year?

$182,000.
$785,000.
$1,217,000.
$1,570,000.

Answer 37

$785,000.
Rationale

1. The grandchildren exclude 5 years x 2 donors x $18,000 annual exclusion x 6 grandchildren = $1,080,000 for contributions to the Sec. 529 Plans, which permit advance payment of 5 times the annual exclusion gift (front-loading).
2. Children (1, 2 and 3) x 2 donors x $18,000 annual exclusion = $108,000
3. Mother and father $18,000 x 2 donors x 2 donees = $72,000

Summary:
$2,830,000 - ($1,080,000 + $108,000 + $72,000) = $1,570,000 ÷ 2 donors = $785,000 (Adele’s taxable gifts)
Total Gifts $2,830,000
Annual Exclusions
Children 1, 2 and 3 ($108,000) [$36,000 x 3]
529 (for 4-9) ($1,080,000) (This includes annual exclusion for 4-9) for 5 years each
Adele’s Mother ($36,000)
Adele’s Father ($36,000)
Taxable Gifts $1,570,000
Adele’s 1/2 $785,000

Question 38

J.R. made the following transfers to his only daughter during the year:

1. A bond portfolio with an adjusted basis of $130,000 and a fair market value of $140,000.
2. 2,000 shares of RCM Corporation stock with an adjusted basis of $126,000 and a fair market value of $343,000.
3. An automobile with an adjusted basis of $15,000 and a fair market value of $9,000.
4. An interest-free loan of $2,000 for a personal computer on January 1st. The applicable federal rate for the tax year was 8%.

What is the value of J.R.’s gross gifts for this year?

$271,000.
$492,000.
$494,000.
$498,000.

Answer 38

$492,000.
Rationale

The total of gross gifts is the fair market value of all gifted property before any deductions for gift-splitting, the marital deduction, or the annual exclusion. Because the loan in statement 4 is less than $10,000, it meets one of the exceptions of the imputed interest rules. The fact that the basis in statement 3 is higher than the FMV is ignored for purposes of calculating the total gross gifts. The double-basis rule will apply to the donee in a subsequent sale. $140,000 + 343,000 + 9,000 = $492,000.

Question 39

Joe gives his sports car with the title to his brother Frank. What type of gift is this?

A.Indirect and Incomplete Gift
B.Indirect  and Complete Gift
C.Direct and Incomplete Gift
D.Direct and Complete Gift

Answer 39

Solution: The correct answer is D. An outright gift with no limitations or future requirements directed to a specific named donee is considered a completed gift.

When a donor makes a direct gift, control of the property is transferred to the donee, and the donor does not retain any control over the property after the transfer.

Question 40

Ivan pays tuition for his nephew William. Ivan makes the payment directly to the university. What type of gift is this?

A.Complete Gift
B.Indirect Gift
C.Incomplete Gift
D.Direct Gift

Answer 40

Solution: The correct answer is B.

Question 41

Jill lends $25,000 to her sister for cosmetic surgery. The note calls for repayment over 5 years at 6% interest. One year later, Jill forgives the debt. What type of gift is this?

A.Complete Gift
B.Indirect Gift
C.Incomplete Gift
D.Direct Gift

Answer 41

Solution: The correct answer is B. This is an indirect gift since the donor is forgiving an obligation of the donee.

Question 42

Brandon opens a joint checking account with his brother Shane. Brandon deposits $30,000 into the account and Shane deposits nothing. What type of gift is this?

A.Complete Gift
B.Indirect Gift
C.Incomplete Gift
D.Direct Gift

Answer 42

Solution: The correct answer is C. There is no gift to Shane until Shane withdraws funds, as a result this is an incomplete gift.

Question 43

Brandon opens a joint checking account with his brother Shane. Brandon deposits $30,000 into the account and Shane deposits nothing. Three months later, Shane withdraws $15,000. What type of gift is this?

A.Complete Gift
B.Indirect Gift
C.Incomplete Gift
D.Direct Gift

Answer 43

Solution: The correct answer is A. Until Shane removed funds, this was an incomplete gift, once Shane removed money, the gift was complete, to the extent he took funds.

Question 44

Which of the following statements relating to qualified transfers for gift tax purposes is not correct?

A.A qualified transfer does not take the relationship between the donor and the donee into account.

B.A payment made directly to an individual to reimburse him for medical expenses is a qualified transfer.

C.The exclusion for a qualified transfer is in addition to the annual exclusion.

D.A payment made to a qualified education institution for tuition costs is a qualified transfer

Answer 44

Solution: The correct answer is B.

A payment made directly to an individual to reimburse him for medical expenses is not a qualified transfer. To be a qualified transfer, the payment must be made directly to the healthcare provider. All of the other options are true.

Question 45

Jose created a joint bank account for himself and his friend, Amparo. At what point has a gift been made to Amparo?

A.When the account is created.
B.When Jose notifies Amparo that the account has been created.
C.When Amparo withdraws money from the account for her own benefit.
D.When Jose dies.

Answer 45

solution: The correct answer is C.

A completed gift does not occur until the donee withdraws money from the account for her own benefit.

Question 46

Jane transferred a piece of real estate to her son Christopher 6 months ago. Jane purchased the real estate for $90,000 six years ago and the property was valued at $65,000 on the date of transfer. Jane paid $26,000 in gift tax on the transfer.

All of the following statements are true, except:

A.If Christopher were to sell the property for $60,000 today, then the loss is a short term loss.

B.Christopher’s basis will be adjusted for a portion of the gift tax paid.

C.Christopher will have a dual basis for income tax purposes.

D.If Christopher sold the property for $120,000 after holding it for 5 years, then his gain would be $30,000.

Answer 46

Solution: The correct answer is B.

Because Jane’s basis in the property was greater than the FMV of the property on the date that she gifted the property, Christopher will be subject to the double basis rules.

All but “B” are correct; it’s important to remember that double basis gifts will NEVER be adjusted for gift tax paid since there was no appreciation on the transfer date.

Question 47

Julie recently hit it big at the casino. Because of her good fortune, Julie would like to begin a gifting program in which she will give her family and friends yearly gifts equal to the annual exclusion. She would like to learn more about the gift tax system and how gifts are valued.
all of the following statements regarding the valuation of a gift are true, except:

A.Publicly traded securities are valued at the average of the opening and closing market price for the day of the gift.

B.Real estate is generally valued utilizing an appraisal.

C.The value of a bond is the present value of the expected future payments.

D.Certain valuation discounts may be available due to lack of marketability, lack of liquidity, and lack of control.

Answer 47

Solution: The correct answer is A.

Publicly traded securities are valued at the average of the high and the low trading price for the day of the gift

Question 48

Chris and Jenn, a married couple, made the following gifts this year:

Chris gave their son, Evan, a car worth $4,000 owned as community property. Chris also gave his son his stamp collection (separate property) valued at $62,000.

Chris gave his brother Stephen $22,000 of Chris' separate property so Stephen could purchase a new home.

Chris gave his sister Heather $4,000 in cash from his and Jenn's joint checking account which consists only of community property. He also gave Heather a piece of land he purchased before his marriage to Jenn, valued at $51,000.

Assuming Jenn did not want to split gifts, what is Chris’ total taxable gifts after taking into account any available deductions or exclusions and ignoring the $13,610,000 (2024) exemption equivalent.

A.$81,000
B.$85,000
C.$89,000
D.$139,000

Answer 48

Solution: The correct answer is B.

The term taxable gifts means net of annual exclusions.

Recipient Amount Gift Split - Annual Exclusion - Charitable Deduction - Marital Deduction = Taxable
Evan $64,000 * 0 $18,000 0 0 $46,000
Stephan $22,000 0 $18,000 0 0 $4,000
Heather $53,000 * 0 $18,000 0 0 $35,000
Total $139,000 0 $54,000 0 0 $85,000

• Gifts of community property reflect Chris’ half of the property for the gift. The car for Evan and the cash for Heather are community property.

Question 49

Judy made the following transfers during 2024:

1. Her friend, Elroy, needed $26,000 to begin law school. Judy gave Elroy the cash.
2. An alimony payment of $18,000 to her ex-husband.
3. She paid $15,000 to Diamond Shores Hospital for her friend Jane’s medical bills.

What is the amount of Judy’s taxable gifts?

Answer 49

$8,000.
Rationale

1. The payment to Elroy is for his tuition, but to be a qualified transfer, the payment must be made directly to the educational institution. The payment is therefore a gift of $26,000 which will be reduced by the available $18,000 annual exclusion (2024), resulting in a taxable gift of $8,000. $8,000
2. Alimony payments are deductible for income tax purposes by the payor and included in the recipient’s taxable income (if the divorce occurred prior to 2019). Alimony payments are not taxable gifts. $0
3. A payment directly to a medical institution for the medical treatment of anyone is a qualified transfer not subject to gift taxes. $0

Taxable Gifts 	$8,000