R4 - Estate, Trust, and Gift Taxation

Question 1

Estates are subject to two separate taxes. What are they?

Answer 1

1) Income tax

2) Estate tax

Question 2

What is defined as a one-time only transfer tax based on the value of the decedent’s estate (taxed to the estate before the property is transferred)?

Answer 2

Estate tax

Question 3

Are all gifts subject to the gift tax?

Answer 3

NO

Question 4

Gifts of what amount or less per year/per donee are excluded?

Answer 4

$14,000

Question 5

True or false.

For 2015, a $2,117,800 unified estate and gift tax credit effectively exempts from the gift tax cumulative, nonexcluded gifts having a value of $5,430,000.

Answer 5

True

Question 6

What is defined as a limitation on the amount the trust or estate can deduct (on line 18 of IRS Form 1041) with respect to distributions to beneficiaries?

Answer 6

DNI (distributable net income)

Question 7

The income distribution deduction equals the lesser of what two things?

Answer 7

• actual distribution to beneficiary OR

- DNI (less adjusted tax-exempt interest)

Question 8

An estate is required to file an income tax return when annual income exceeds what amount?

Answer 8

$600

Question 9

An estate is exempted from making estimated tax payments for what time period?

Answer 9

Its first two years

Question 10

True or false.

All trusts, except tax-exempt trusts, must use a calendar year.

Answer 10

True

Question 11

What kind of trust only makes distributions out of current income and cannot make distributions from the trust corpus?

Answer 11

Simple trusts

Question 12

What type of trust is entitled to a $300 exemption in arriving at its taxable income?

Answer 12

Simple trusts

Question 13

What type of trust is permitted to an exemption of $100 in arriving at its taxable income?

Answer 13

Complex trusts

Question 14

An estate must file what form if the gross value of the estate plus historical taxable gifts by the decedent exceed $5,430,000 in 2015?

Answer 14

IRS Form 706

Question 15

The Form 706 must be filed within how many months after the decedent’s death (unless an extension is requested)?

Answer 15

9 months

Question 16

Can foreign death tax credits reduce the gross estate tax?

Answer 16

YES

Question 17

Who pays the gift tax?

Answer 17

Person giving the gift

Question 18

True or false.

Ordinary and necessary administration expenses paid by the fiduciary of an estate are deductible on the fiduciary income tax return only if the estate tax eduction is waived for these expenses.

Answer 18

True

Question 19

Pat created a trust, transferred property to this trust, and retained certain interests. For income tax purposes, Pat was treated as the owner of the trust. Pat has created which of the following types of trusts?

Answer 19

Grantor trust

Question 20

In calculating the estate transfer tax, what is included in the gross estate?

Answer 20

• FMV property
• Insurance proceeds
• Incomplete gifts
• Revocable transfers
• Income in respect of decedent

Question 21

How do you calculate adjusted gross estate?

Answer 21

Gross estate
(Nondiscretionary deductions)
= Adjusted gross estate

Question 22

How do you calculate taxable estate?

Answer 22

Adjusted gross estate
(Discretionary deductions)
= Taxable estate

Question 23

In calculating the estate transfer tax, what is included in discretionary deductions?

Answer 23

• Charitable bequests, unlimited

- Marital deduction, unlimited

Question 24

Discretionary or nondiscretionary deduction.

Funeral expenses

Answer 24

Nondiscretionary

Question 25

Discretionary or nondiscretionary deduction

Claims against the estate

Answer 25

Nondiscretionary

Question 26

Discretionary or nondiscretionary deduction

Administrative expenses

Answer 26

Nondiscretionary

Question 27

Discretionary or nondiscretionary deduction

Medical expenses

Answer 27

Nondiscretionary

Question 28

Identify appropriate the federal estate tax/income tax deduction.

Decedent’s medical expenses paid w/i one year of death.

Answer 28

Deductible on either the decedent’s estate tax return or the decedent’s individual income tax return.

Question 29

Identify the appropriate federal estate tax/income tax deduction.

Expenses of administering and settling the estate.

Answer 29

Deductible on either the decedent’s estate tax return or the estate’s individual income tax return

EXPLANATION: The expenses of administering and settling the estate are an estate deduction or may be deducted on the estate’s Form 1041

Question 30

Identify the appropriate federal estate tax/income tax deduction.

Decedent’s auto loan outstanding at death

Answer 30

Deductible from the decedent’s gross estate to arrive at taxable estate

EXPLANATION: Outstanding debts of the decedent are estate deductions, which reduce the gross estate (Form 706)

Question 31

Identify the appropriate federal estate tax/income tax deduction

A bequest in the decedent’s will to transfer assets to his son

Answer 31

Not deductible on either the decedent’s estate tax return or the decedent’s individual tax return

EXPLANATION: Bequests to children are not permitted on either the estate tax return or the decedent’s individual income tax return