IV. Federal Taxation of Individuals-Estate and Gift Taxation

Question 1

IV. Federal Taxation of Individuals

5. Estate and Gift Taxation
6. Federal Gift Tax

Answer 1

A bank account is held with the right of survivorship by TP and his son, S, as joint tenants. When TP deposits $50,000 to the account, TP has made a gift of $25,000 to S.

• True
• False

There is no gift until the son withdraws some cash, and then that amount is gift.

Charitable contributions qualify for a gift tax deduction regardless of the amount of the contribution.

• True
• False

The annual gift tax exclusion is not available for a gift of a remainder interest in real estate.

• True
• False

The retention of control over a gratuitous transfer by the donor can occur for a taxable gift.

• True
• False

Question 2

IV. Federal Taxation of Individuals

5. Estate and Gift Taxation
6. Federal Gift Tax

VIII. Deductions—Two important deductions are available in calculating the amount of taxable gifts.

Answer 2

A. A Marital Deduction

1. Gifts of terminable interests generally do not qualify for the deduction.
2. The marital deduction does not apply for gifts to a spouse who is not a U.S. citizen, but an annual exclusion of $155,000 (2019) is permitted.

B. A Charitable Contribution Deduction—Is allowed for gifts to charitable organizations.

Question 3

IV. Federal Taxation of Individuals

5. Estate and Gift Taxation
6. Federal Gift Tax

Filing requirements—The requirement for filing a return is based upon the annual exclusion.

Answer 3

1. April 15 is the due date for gifts made in the prior year; no fiscal years are allowed.
2. The gift tax return (Form 709) is due if gifts exceed the annual exclusion or if a gift is made of a future interest.
3. No gift tax return is required if a gift to charity exceeds the annual exclusion, as long as the entire value of the transfer qualifies for a charitable contribution.
4. If the donor dies, the gift tax return for the year of death is due not later than the due date for filing the decedent’s federal estate tax return (generally nine months after date of death).

Question 4

IV. Federal Taxation of Individuals

5. Estate and Gift Taxation
6. Federal Gift Tax

This year, Beck gave $5,000 cash to a nephew, canceled $3,000 of the same nephew’s indebtedness, donated $1,500 to a political party, and gave $1,200 of municipal bonds to a parent. What is the amount of Beck’s gifts before considering the gift tax annual exclusion?

1. $5,000
2. $8,000
3. $9,200
4. $10,700

Answer 4

C.

Correct! The $5,000 cash, $3,000 debt cancellation, and $1,200 municipal bonds are all subject to the gift tax. Donations to political parties are not subject to the gift tax.

Question 5

IV. Federal Taxation of Individuals

5. Estate and Gift Taxation
6. Federal Gift Tax

Which of the following payments would require the donor to file a gift tax return?

1. $30,000 to a university for a spouse’s tuition
2. $40,000 to a university for a cousin’s room and board
3. $50,000 to a hospital for a parent’s medical expenses
4. $80,000 to a physician for a friend’s surgery

Answer 5

B.

There is an unlimited exclusion for education gifts if the tuition is paid directly to the educational institution. However, this exclusion is limited to tuition and does not apply to room and board. For 2019, $15,000 of the gifts to the cousin can be excluded from the gift tax, so the remaining $25,000 is subject to the gift tax. A gift tax return must be filed to reflect this transaction.

Question 6

IV. Federal Taxation of Individuals

5. Estate and Gift Taxation
6. Federal Gift Tax

Jan, an unmarried individual, gave the following outright gifts in 2019:

Donee Amount Use by Donee

Jones $16,000 Down payment on house

Craig 14,000 College tuition

Kande 5,000 Vacation trip

Jan’s 2019 exclusions for gift tax purposes should total

1. $35,000
2. $34,000
3. $29,000
4. $9,000

Answer 6

B.

For gift tax purposes, donors may exclude the first $15,000 of gifts to each donee for each calendar year from the amount of taxable gifts.

Hence, Jan could exclude $15,000 of her $16,000 gift to Jones and, similarly, $14,000 of her $14,000 gift to Craig. Jan could exclude her entire $5,000 gift to Kande because the gift was less than $15,000. Therefore, Jan’s 2019 exclusions for gift tax purposes should total $34,000.

Question 7

IV. Federal Taxation of Individuals

5. Estate and Gift Taxation
6. Federal Estate Tax
7. Probate Estate: This estate includes cash, stocks, and assets such as a residence, clothing, and jewelry. The probate estate is the collection of the decedent’s possessions for legal purposes,
8. gross estate is a measure of the value of these possessions for estate tax purposes.

Answer 7

A. Valuation of Property—Property is included in the gross estate at the fair market value.

1. The alternate valuation date is six months after the date of death or on the date the property is disposed of (if earlier than six months after the date of death).
2. The election to use the alternate valuation date is only available if it causes gross estate and tax payable to decline.

B. Filing Requirement

1. The estate tax return (Form 706) is due nine months after date of death.
2. An estate tax return must be filed if the gross estate plus adjusted taxable gifts equal or exceed the exemption equivalent.

C. Generation-Skipping Tax (GST)

Example

Determine whether the transfer is subject to the generation-skipping transfer tax (A), the gift tax (B), or both taxes (C).

Question: TP’s daughter, D, has one child, GD. This year TP made an outright gift of $8,000,000 to GD.

Answer: C. The GST is an addition to the gift tax because a generation (D) was skipped.

Question 8

IV. Federal Taxation of Individuals

5. Estate and Gift Taxation
6. Federal Estate Tax

A beneficiary acquired property from a decedent. The fair market value at the date of the decedent’s death was $100,000. The decedent had paid $130,000 for the property. Estate taxes attributed to the property were $2,000. The beneficiary sold the property two years after receipt from the estate. What is the basis of the property for the beneficiary?

1. $100,000
2. $102,000
3. $130,000
4. $132,000

Answer 8

A.

Correct! The beneficiary’s basis in inherited property is the property’s fair market value on the date of death, unless the executor properly elects the alternate valuation date.

Question 9

IV. Federal Taxation of Individuals

5. Estate and Gift Taxation
6. Federal Estate Tax

Ordinary and necessary administration expenses of an estate are deductible:

1. Only on the fiduciary income tax return.
2. Only on the estate tax return.
3. On the fiduciary income tax return if the estate tax deduction is waived.
4. On both the fiduciary income tax return and the estate tax return.

Answer 9

C.

Ordinary and necessary administration expenses of an estate are deductible on the fiduciary income tax return if the administrator of the estate waives the deduction on the estate tax return.

Question 10

IV. Federal Taxation of Individuals

5. Estate and Gift Taxation
6. Federal Estate Tax

The federal estate tax may not be reduced by a credit of

1. Foreign death taxes.
2. Credit for estate tax paid on a prior transfer of the same property within ten years of the death of the decedent.
3. Gift taxes paid on pre-1977 gifts.
4. State death taxes paid.

Answer 10

1. The federal estate tax may be reduced by a credit for foreign death taxes paid to a foreign country on account of property located in that country that is included in the gross estate.
2. If two family members die in close time proximity to one another the same property may be taxed in both estates. A credit is allowed to mitigate this problem as long as the number of years between the two deaths is not longer than ten. The credit is reduced as the time period between the two deaths lengthens.
3. If a taxable gift was made before 1977 and the gifted property is included in the gross estate, a credit is allowed equal to the lesser of the gift tax paid or the estate tax attributable to this property.
4. An estate tax credit is not allowed for death taxes paid to states.

Question 11

IV. Federal Taxation of Individuals

5. Estate and Gift Taxation
6. Federal Estate Tax

The generation-skipping transfer tax is imposed

1. Instead of the gift tax.
2. Instead of the estate tax.
3. As a separate tax in addition to the gift and estate taxes.
4. On transfers of future interest to beneficiaries who are more than one generation above the donor’s generation.

Answer 11

C.

The generation-skipping transfer tax is a tax imposed on outright or in trust transfers to beneficiaries more than one generation below the generation of the donor. This tax is a flat tax equal to the maximum gift and estate tax rate. The generation-skipping transfer tax is a separate tax imposed in addition to the gift and estate taxes.

Question 12

IV. Federal Taxation of Individuals

5. Estate and Gift Taxation
6. Federal Estate Tax

The generation-skipping transfer tax is imposed

1. Instead of the gift tax.
2. Instead of the estate tax.
3. As a separate tax in addition to the gift and estate taxes.
4. On transfers of future interest to beneficiaries who are more than one generation above the donor’s generation.

Answer 12

C.

The generation-skipping transfer tax is a tax imposed on outright or in trust transfers to beneficiaries more than one generation below the generation of the donor. This tax is a flat tax equal to the maximum gift and estate tax rate. The generation-skipping transfer tax is a separate tax imposed in addition to the gift and estate taxes.