Forms of Property Ownership -Review Questions Flashcards
What percentage of the assets value on the date of death will be included in the owner’s gross estate after death?
Choose the best answer.
1) 10%
2) 50%
3) 80%
4) 100%
4) 100%
100% of the assets value on the date of death will be included in the owner’s gross estate after death.
What are three types of property ownership that avoid probate?
Assets jointly owned with rights of survivorship.
Assets transferring under a beneficiary designation.
Assets owned within a trust prior to death.
A mother re-titles the deed to her home to JTWROS with her son. What are the consequences of this action?
Assuming the mother dies before the son, 100% of the fair market value of the home will be included in her gross estate, but a unified credit is available to offset estate taxes.
When the mother dies, the executor cannot sell the house to pay her estate taxes.
The mother made a gift of one-half of her home to her son when she gave him ownership of the property.
If the mother is sued, creditors can place a lien on the home and reach her son’s interest.
If the mother is declared incompetent, the son cannot sell her JT interest in the home without obtaining court approval.
According to Internal Revenue Code Section 2040(a), except for joint tenants who are married, unless the surviving owner can prove contribution toward the purchase of the asset, what percentage value of jointly held property will be included in the gross estate when the first owner dies?
Choose the best answer.
1) 10%
2) 20%
3) 50%
4) 80%
5) 100%
5) 100%
Unless the surviving owner can prove contribution toward the purchase of the asset, the full value of jointly held property will be included in the deceased owner’s gross estate.
Carol, Ann, and Barbara hold one-half, one-third, and one-sixth interests respectively in a farm. They all share an undivided interest in the farm. What type of ownership applies to this situation?
Choose the best answer.
1) Joint Tenancy
2) Tenancy in Common
3) Single Ownership
4) Single Tenancy
2) Tenancy in Common
Since each owner shares an undivided interest, even though each owns an unequal share, this is considered a tenancy in common. In a joint tenancy each owner has a simultaneous, equal share of the entire property. It is not single ownership because there is more than one owner. It is not tenancy by the entirety because the property is not owned by spouses.
Tom gave his wife Mary a life estate in his Italian villa at his death. His executor did not make a QTIP election. What are the tax consequences for Tom’s estate?
The FMV of the villa is included in Tom’s estate. Tom has given Mary terminable interest property therefore his estate will not have a marital deduction available to offset the tax attributed to the life estate.
A unified credit is available to offset an estate tax on the villa.
If the executor had made a Q-TIP election, a marital deduction would have been available to Tom’s estate.
If either spouse acquires the property by gift or inheritance how would this property retain its status?
If either spouse acquires the property by gift or inheritance, this property retains its status as separate property even throughout the marriage.
Nicole and Matt live in California and are legally married. Below are a list of their assets. How much does Nicole own individually?.
$500,000 in a joint investment account
$25,000 in Nicole’s name which is inheritance from her grandmother
$5,000 in Matt’s checking account
$30,000 in a Bank account Nicole’s parents set up for her benefit prior to their marriage
$250,000 in a joint checking account of which $50,000 was given to Nicole from her father
$55,000 which is made up of the inheritance from her grandmother and the bank account her parents set up for her benefit prior to marriage.
Which of the following types of ownership does not avoid probate?
1) Joint Tenants with Right of Survivorship
2) IRA account with named beneficiary
3) Tenancy by the Entirety
4) Sole Ownership
4) Sole Ownership
Sole Ownership: If you own the asset as Sole Ownership, it will be included in your probate estate.
Joe and Alfred bought a piece of property for $100,000 two years ago and titled it Joint Tenants with Rights of Survivorship. Joe paid $60,000 for the land and Alfred paid $40,000. When Joe died, the land was worth $400,000. What is Alfred’s new basis in the land?
1) $60,000
2) $280,000
3) $400,000
4) $200,000
2) $280,000
$280,000. Alfred’s cost basis would remain the same at $40,000 but he would receive a step up in Joe’s portion of ownership. Joe owned 60% of the property therefore at Joe’s death, his cost basis was stepped up to $240,000. Alfred’s new cost basis is $280,000 ($240,000 + $40,000).
Tenancy by the Entirety can be used by which of the following?
1) Two Brothers
2) Mother and Son
3) Husband and Wife
4) Two college roommates
3) Husband and Wife
Husband and Wife. Tenancy by the entirety is a specialized form of joint tenancy with right of survivorship existing between co-tenants who are married.
Susan, Emily and Erin bought a piece of property and titled it tenancy in common. Each of them own 1/3rd of the property. Susan decided that she wanted to gift her property to her son Fred. Which of the following statements is correct?
1) Susan cannot gift the property
2) Susan can only sell her portion of the property back to Emily and Erin.
3) Susan can gift her portion of the land to Fred (which may cause a taxable gift)
4) Susan is bound to keep the property.
3) Susan can gift her portion of the land to Fred (which may cause a taxable gift)
Susan can gift her portion of the land to Fred (which may cause a taxable gift). With tenancy in common each tenant owns a separate fractional interest in the same property.
If the life estate property is sold before the death of the life tenant, what is the capital gain tax implications?
1) The gain is 100% taxable to the remaindermen
2) The gain is 100% taxable to the life tenant
3) There is no capital gains tax
4) A portion of the capital gain is taxed to both the life tenant and the remainderman.
4) A portion of the capital gain is taxed to both the life tenant and the remainderman.
A portion of the capital gain is taxed to both the life tenant and the remainderman. The life tenant’s gain qualifies for the $250,000 capital gains exclusion but the remainderman’s gain does not.
Robert and Marty live in California and were married in this state. Robert and Marty own the following assets that were acquired after their marriage.
$ 100,000 in a joint account
$ 1,000,000 house
$ 350,000 in Robert’s individual bank account as inheritance
$ 30,000 as a gift from Marty’s mother to the couple
What is the value of assets that Robert owns?
1) $1,480,000
2) $1,130,000
3) $915,000
4) $565,000
3) $915,000
$915,000 which is made up of $50,000 from the joint account, $500,000 of the house, the full $350,000 which is the inheritance kept in a separate account and $15,000 since it is a gift to the couple
Sally has received a life estate in a vacation home in the Outer Banks from her great aunt. Following Sally’s death, Jake will receive the property outright. Which of the following statement(s) is NOT correct?
1) If Sally rents the home out, she will have to report any income received on her income tax return.
2) Sally is responsible for paying property taxes and maintaining the property during her lifetime.
3) Sally may bequeath the property to her children following her death.
4) The value of the property will not be included in Sally’s estate.
3) Sally may bequeath the property to her children following her death.
As the life tenant, Sally is responsible for maintaining property, paying property taxes and maintaining proper insurance coverage. Sally is also responsible for reporting any income from the asset on her income tax return. Sally’s interest ends at her death, therefore she may not bequeath the property, and the property will not be included in her gross estate at death.
