Federal Estate Tax

Question 1

When is estate tax levied?

Answer 1

When TP dies.

Question 2

What is the formula for estate tax?

Answer 2

Gross estate at FMV
- deductions
= Taxable estate
\+ Taxable gifts made after 1976
= Total taxable transfers
x Unified tax rates
= Tentative transfer tax
- Gift tax paid after 1976 (at current rates)
-  Unified credit and other credits
= Estate tax due

Question 3

Gross estate: what are 2 items that could be valued at a special use valuation? How can it be done? Criteria?

Answer 3

• Realty used in farming or a closely held business.
• An executor can elect to do so.
• The farm or business must continue to be used in that capacity for at least 5 yrs during the 8 yr period after the date of death.

Question 4

What is alternate valuation date? Criteria?

Answer 4

An executor can elect to measure FMV six month after the date of death rather than at the date of death.
Allowed only when gross estate and estate tax liability will be less than the date of death value.

Question 5

When is FMV determined when AVD is elected and the property is distributed before the AVD date?

Answer 5

On distribution date.

Question 6

What amount of the property goes into estate when one spouse dies? what is the entirety?

Answer 6

50%. A tenancy by the entirety is a joint tenancy between husband and wife.

Question 7

Jointly owned property: what is joint-tenancy?

Answer 7

Property was owned with a right-of-suvivership: at death, the property immediately passes to the other owner that is still living.

Question 8

Jointly owned property: estate tax implication (not husband and wife)?

Answer 8

Generally, 100% of the property is included in the estate of the first owner to die, unless it can be proven that the surviving owner contributed to the purchase of the asset. Then only the portion the person who died put will be added to the estate.

Question 9

Jointly owned property: what is tenancy in common?

Answer 9

There is no right of survivorship.
The decedent’s share of property passes into the probate estate and its distribution of property is controlled by the decedent’s will.

Question 10

Life insurance: What are 2 conditions that could make life insurance proceeds to be included in the gross estate?

Answer 10

1. The decedent had incidents of ownership (ie. right to designate the beneficiary etc).
2. The decedent’s estate is the beneficiary of the insurance policy.

Question 11

Life insurance: when can proceeds be excluded from the gross estate? What if TP terminate incidents of ownership and dies within 3 years?

Answer 11

When there is buy-sell agreement.

Still included in the gross estate.

Question 12

What is retained interest?

Answer 12

A retained life estate or the retention of a power to alter, amend, revoke a transfer.
The power to designate possession or enjoyment of property or income.

Question 13

Retained interests: implication on gross estate?

Answer 13

Even if the tile transfers legally, everything will be included in the gross estate.

Question 14

Retained interest: how does the power created by another than can be exercised in decendent’s favor impact the gross estate?

Answer 14

It will cause the item to be included in the gross estate.

Question 15

What happens to the property re: gross estate when the retained interest was revoked within 3 years of death?

Answer 15

Still included in the gross estate.

Question 16

When a gift is made within 3 years of death, what is the implication on the gross estate?

Answer 16

Gift will not be included, but any gift tax paid will be included.

Question 17

What are common deductions?

Answer 17

Marital deductions.
Debts of the estate.
Funeral and administrative expenses.
Charitable contributions.
Casualty losses.

Question 18

When does a special rule for medical expenses apply? Who makes the decision? Tax treatment? On which form?

Answer 18

• When paid within a year of death.
• The executor of the estate.
• Can be deducted either on the decedent’s final Form 1040 or the estate tax return (Form 706).

Question 19

When the executor wants to deduct medical expenses on Form 1040, what must he do?

Answer 19

File a waiver. Otherwise, it will be deducted on the estate tax return.

Question 20

What form is used to file the estate tax return? Due date? Can it be extended? Can the due date for pmt of tax be extended?

Answer 20

Form 706.
9 month after date of death.
Yes.
No.

Question 21

How much is the unified credit that will offset a net estate in 2017?

Answer 21

$5,490,000

Question 22

What is a possibility of unused credit? Criteria?

Answer 22

May be used by the surviving spouse.

If it’s from a spouse who dies after 2010.

Question 23

What is generation-skipping tax?

Answer 23

When a bequest skips a generation (from grandpa to grandkids, the estate tax will be levied as if it did not (levied from parents as well).

Question 24

Generation-skipping tax: what if parents were deceased?

Answer 24

Will not apply.

Question 25

Generation-skipping tax: what is the tax rates and unified credit?

Answer 25

Use the same for the estate tax table.

Highest tax rate.

Question 26

What form the estate tax return reported? Skipping generation tax?

Answer 26

Form 706.

Question 27

Joint tenancy: when one dies, what would be the basis for the property for the other?

Answer 27

The amount included in the gross estate of the decedent plus what the surviving party paid for original purchase.

Question 28

Is unpaid income taxes on income received by the decedent before death included in gross estate or deductible?

Answer 28

Deductible.

Question 29

Is alternate valuation date used for both assets and liabilities?

Answer 29

No, just assets.

Question 30

Is the election of AVD revocable?

Answer 30

No.

Question 31

Generation-skipping tax: Is this instead of gift tax, or estate tax?

Answer 31

No, in addition to both taxes.

Question 32

When is dividend income included in the gross estate? Why?

Answer 32

Dividend income is included in the gross estate of the decedent if the dividend has been declared and the decedent is a shareholder of record before death.

Items are included in gross estate when they are owned by the decedent.