G.57 Gift, estate, and GST tax compliance and calculation Flashcards
Learners will better understand the the intricacies of gift, estate, and GST tax compliance and calculations.
Margaret is in the process of estate planning and she’s consulting with her financial advisor, Jason. She intends to transfer a piece of real estate she owns to her nephew, Kevin. In exchange, Kevin agrees to transfer a valuable art collection to Margaret. The properties in question have been assessed to have roughly the same market value.
Which of the following best describes the nature of Margaret’s transaction with her nephew, Kevin?
A. A gratuitous transfer of property
B. A transfer subject to GST tax
C. A transaction of consideration
D. A taxable gift under the estate tax
C. A transaction of consideration
The transaction between Margaret and Kevin is not a gratuitous or one-sided transfer. Both parties are exchanging properties of roughly equivalent value. Hence, it is a transaction where property is transferred in return for other property. It’s not considered a gift because something of equal value is given in return, which means it wouldn’t fall under the category of a taxable gift for estate tax purposes.
G.57 Gift, estate, and GST tax compliance and calculation
Jessica recently set up a trust for the benefit of her nephew, Alex. She has included a provision in the trust deed that allows Alex to withdraw any amount from the trust for 30 days after any contribution is made by Jessica. She hopes to maximize her usage of the annual exclusion in gift taxes through this approach.
Which of the following best describes the impact of this provision in the trust?
A. The provision converts a gift of a present interest to a gift of a future interest, making it ineligible for the annual exclusion.
B. The provision does not impact the gift’s status regarding the annual exclusion.
C. The provision converts a gift of a future interest to a gift of a present interest, making it eligible for the annual exclusion.
D. The provision will result in a higher tax penalty for Jessica.
C. The provision converts a gift of a future interest to a gift of a present interest, making it eligible for the annual exclusion.
The provision in the trust deed, known as a Crummey power or right, allows the beneficiary to withdraw contributions for a limited time. This makes the gift a present interest, meaning the beneficiary has an immediate right to the gift, rather than a future interest. As gifts of present interest qualify for the annual gift tax exclusion, this provision ensures that Jessica’s contribution to the trust can make use of this tax advantage.
G.57 Gift, estate, and GST tax compliance and calculation
David intends to support his daughter by providing her with some financial assistance. Which of the following best describes the action if David either hands her a sum of cash directly or transfers ownership of a property to her?
A. Charitable contribution
B. Testamentary bequest
C. Direct gift
D. Loan
C. Direct gift
G.57 Gift, estate, and GST tax compliance and calculation
Jane decides to transfer a valuable antique to her friend Mark without any consideration in return. In this situation, Mark is best described as:
A. Donor
B. Donee
C. Beneficiary
D. Trustee
B. Donee
G.57 Gift, estate, and GST tax compliance and calculation
Emily wishes to transfer some of her assets to her nephew as a gesture of goodwill. In the context of gift-giving for financial planning purposes, what term best describes Emily’s role?
A. Beneficiary
B. Donee
C. Trustee
D. Donor
D. Donor
G.57 Gift, estate, and GST tax compliance and calculation
Jane decided to gift her son, Michael, a piece of property. At the time of the gift, the fair market value of the property was lower than Jane’s adjusted basis. If Michael decides to sell this property in the future, how would his basis be determined for gains and losses?
A. He will use Jane’s adjusted basis for both gains and losses.
B. He will use the fair market value for both gains and losses.
C. He will have one basis for gains and another basis for losses.
D. He will use the average of Jane’s adjusted basis and the fair market value for both gains and losses.
C. He will have one basis for gains and another basis for losses.
G.57 Gift, estate, and GST tax compliance and calculation
John and Clara, a married couple, decide to contribute to their daughter’s Section 529 plan. If they make a one-time contribution of $180,000, which of the following best describes the tax consequences of this contribution?
A. The contribution is fully taxable for the current year.
B. The contribution is deductible on their federal income tax return.
C. The contribution is considered a gift, but they can apply the special 5-year gift tax averaging rule.
D. The contribution has no tax implications whatsoever.
C. The contribution is considered a gift, but they can apply the special 5-year gift tax averaging rule.
Jane is considering assisting her granddaughter, Emily, with her college fees. She decides to send a check directly to Pine Valley University, where Emily is enrolled, for the amount of $40,000 to cover her tuition expenses. How much of the $40,000 is considered a taxable gift?
A. $40,000
B. $30,000
C. $20,000
D. $0
D. $0
G.57 Gift, estate, and GST tax compliance and calculation
