Prentice Hall's Federal Taxation 2011: Corporations, 24e (Pope) Chapter 13 The Estate Tax

1) The estate tax is scheduled to be eliminated in 2010 and later years. Answer: FALSE
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2) The tax base #or the #ederal estate tax is the total o# the decedent's taxable estate and (ost&1)*+ taxable !i#ts i# the decedent made !i#ts in 1)*1. Answer: FALSE
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%) ,n 200)- the uni#ied credit enables an estate .alued at /%-000-000 or less to not be sub1ect to the estate tax. Answer: T"2E
a!e "e#.: $:1%&0

3) Listed stoc4s are .alued at their closin! (rice on the date o# death. Answer: FALSE
a!e "e#.: $:1%&+

0) An executor can .alue each asset in an estate at the lower o# its F56 at death or the alternate .aluation date. Answer: FALSE
a!e "e#.: $:1%&7- $:1%&*

+) The (robate estate includes (ro(erty which (asses by will or an intestacy statute and does not include (ro(erty which (asses due to a bene#iciary desi!nation. Answer: T"2E
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7) Tax(ayers can a.oid the estate tax by ma4in! !i#ts at least a year (rior to death. Answer: FALSE
a!e "e#.: $:1%&10- $:1%&11

*) A s(ecial (ower o# a((ointment exists i# the holder can exercise the (ower in #a.or o# himsel# or hersel#- his or her creditors or the creditors o# his or her estate. Answer: FALSE
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)) Administrati.e ex(enses are not deductible on the estate's income tax return. Answer: FALSE
a!e "e#.: $:1%&1*

10) A terminable interest is one that ceases u(on the (assa!e o# time or the occurrence o# some e.ent. Answer: T"2E
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11) An executor may elect to (ost(one (ayment o# the estate tax attributable to a remainder or re.ersionary interest until + months a#ter the interests o# the other (erson8s) terminate. Answer: T"2E
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12) The estate tax return is due- i!norin! extensions- three and a hal# months a#ter the decedent's date o# death. Answer: FALSE
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1%) ,denti#y which o# the #ollowin! statements is true. A) The tax base #or the #ederal estate tax is the total o# the decedent's taxable estate and (ost&1)7+ taxable !i#ts. 9) ro(erty included in a decedent's !ross estate consists o# only that (ro(erty to which the decedent held title. $) Funeral ex(enses are not deductible #rom the !ross estate. :) All are #alse. Answer: A
a!e "e#.: $:1%&2

13) 5artin trans#ers stoc4 to an irre.ocable trust and names himsel# to recei.e the trust income #or li#e with the remainder interest !i#ted to his son. ;hen 5artin dies A) none o# the stoc4 will be included in 5artin's estate. 9) the stoc4's .alue at the time o# trans#er to the trust will be included in 5artin's estate. $) the .alue o# the stoc4 less the (resent .alue o# the income recei.able by 5artin will be included in 5artin's estate. :) the .alue o# the stoc4 at death will be included in 5artin's estate. Answer: :
a!e "e#.: $:1%&2

10) ;hich o# the #ollowin! is deductible in arri.in! at the amount o# the taxable estate< A) ex(enses incurred in administerin! the estate. 9) casualty losses that occurred while administerin! the estate. $) charitable contributions :) all o# the abo.e Answer: :
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1+) For 200)- the uni#ied credit is e=ui.alent to a statutory exem(tion o# A) /1-000-000. 9) /1-000-000. $) /7*0-*00. :) /%-000-000 Answer: :
a!e "e#.: $:1%&0

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17) ,denti#y which o# the #ollowin! statements is true. A) The uni#ied credit is the only credit common to both the !i#t and estate tax com(utation. 9) For estate tax (ur(oses- (ublicly traded stoc4s are .alued at their closin! (rice on the date o# death. $) Stoc4s traded on a stoc4 exchan!e are .alued at closin! (rice #or the date o# death unless the alternate .aluation date is elected. :) All are #alse. Answer: A
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1*) The F56 o# an asset #or !i#t or estate tax (ur(oses is the same exce(t #or A) mar4etable securities. 9) land. $) li#e insurance (olicies. :) (atents. Answer: $
a!e "e#.: $:1%&+

1)) 9rent- who died on >anuary 10- owned 10 shares o# otts $or(oration stoc4. The closest tradin! dates to >anuary 10 are >anuary * 8two wor4in! days be#ore the date o# death) and >anuary 11 8one wor4in! day a#ter the date o# death). ?n >anuary *- the stoc4 traded at a hi!h o# 101 and a low o# )7 while on >anuary 11 the hi!h was )0 and the low was *+. The date&o#&death (er&share .alue is A) /)).00. 9) /)0.%%. $) /)%.00. :) /)1.+7. Answer: : Ex(lanation: :) 8101 @ )7) A 0.00 B ))C 8)0 @ *+) A 0.00 B ** 81 A ))) @ 82 A **) B /)1.+7 %

a!e "e#.: $:1%&+C Exam(le $:1%&7

20) The .alue o# stoc4 that is not (ublicly traded may be determined by considerin! A) the nature and history o# the business. 9) earnin! ca(acity. $) di.idend (ayin! ca(acity. :) all o# the abo.e Answer: :
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21) A((raisal methods used to .alue real estate #or estate tax (ur(oses may include A) com(arable sales. 9) re(roduction cost. $) ca(italiDation o# earnin!s. :) all o# the abo.e Answer: :
a!e "e#.: $:1%&7

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22) "e.ersionary interests in (ublicly traded stoc4s included in a !ross estate must be .alued A) by an inde(endent actuary. 9) by an a((raiser. $) by considerin! the #act that the trans#eror has died. :) usin! actuarial tables. Answer: :
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2%) The alternate .aluation date is !enerally A) % months a#ter the date o# death. 9) + months a#ter the date o# death. $) ) months a#ter the date o# death. :) 12 months a#ter the date o# death. Answer: 9
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23) :enise died A(ril 1 and owned se.eral bonds that (aid interest 5arch %1 and Se(tember %0. Also- she owned stoc4 that (aid di.idends =uarterly on 5arch %1- >une %0- Se(tember %0 and :ecember %1. :enise's estate recei.ed the interest and di.idends on the (ayment dates. ;hat should be included in :enise's !ross estate< A) All interest and di.idends recei.ed in year o# death. 9) ?nly interest and di.idends recei.ed (rior to the date o# death. $) ?nly interest and di.idends recei.ed a#ter the date o# death. :) Eone o# the interest and di.idends recei.ed. Answer: 9
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20) ,denti#y which o# the #ollowin! statements is #alse. A) The Fbloc4a!eF re!ulations allow the ,"S to (re.ent the estate's executor #rom electin! the alternate .aluation date. 9) ,# the alternate .aluation date is elected- chan!es in .alue that occur solely because o# a Fmere la(se o# timeF usually are to be i!nored. $) The alternate .aluation date can be elected #or estate tax (ur(oses only i# the election decreases the .alue o# the !ross estate and estate tax liability 8a#ter reduction #or credits). :) ,# (ro(erty is sold within + months o# the date o# death- the alternati.e .aluation date is the date o# sale. Answer: A
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2+) The alternate .aluation date can be elected #or estate tax (ur(oses only i# the election A) increases the .alue o# the !ross estate. 9) decreases the .alue o# the !ross estate. $) decreases the estate tax liability 8a#ter reduction #or tax credits). :) both 9 and $ are re=uired Answer: :
a!e "e#.: $:1%&*

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27) ,denti#y which o# the #ollowin! statements is true. A) The alternate .aluation date can be used #or estate tax (ur(oses only i# the election increases the .alue o# the !ross estate. 9) ,# the alternati.e .aluation date is elected- chan!es in .alue that occur solely because o# Fmere la(se o# timeF usually are to be i!nored. $) The !ross estate- a #ederal law conce(t- is !enerally smaller than the (robate estate- a state law conce(t. :) All are #alse. Answer: 9
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2*) ,denti#y which o# the #ollowin! statements is true. A) A curtesy interest is a widower's interest in his deceased wi#e's (ro(erty. 9) All !i#ts made within three years o# the date o# death must be included in the !ross estate. $) :ower ri!hts are not the same as curtesy ri!hts. :) All are #alse. Answer: A
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2)) ?n 5arch 1- 9art trans#ers ownershi( o# a /700-000 li#e insurance (olicy on his li#e that he (urchased in 2002. Gow lon! must 9art li.e to a.oid inclusion o# the /700-000 death bene#it in his estate< A) six months 9) one year $) three years :) Eo minimum time (eriod exists. Answer: $
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%0) Four years a!o "o(er trans#erred to his son ownershi( o# a /100-000 li#e insurance (olicy that "o(er (urchased on his own li#e in 2000. The cash .alue o# the (olicy on the trans#er date was /20-000. "o(er died on 5arch 1 o# this year. The amount included in "o(er's !ross estate due to the li#e insurance (olicy is A) /0 9) /20-000 $) /%0-000 :) /100-000 Answer: A
a!e "e#.: $:1%&11- Exam(le $:1%&1%

%1) ?n 5arch 1 Sue trans#ers stoc4 worth /20-000 to Fran4. Gow lon! must Sue li.e to a.oid inclusion o# the /20-000 o# stoc4 in her !ross estate< A) six months 9) one year $) three years :) Eo minimum time (eriod exists- but she must be ali.e at trans#er o# ownershi(. Answer: :
a!e "e#.: $:1%&11C Exam(le $:1%&13

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%2) The !ross&u( rule re=uires A) all bene#icial interests be included in the decedent's estate. 9) (ost&1)7+ !i#ts by the decedent to be included in the decedent's estate. $) certain !i#ts made by the decedent within three years o# the date o# death are included in the decedent's !ross estate. :) !i#t taxes on !i#ts made by the decedent or the decedent's s(ouse that are (aid by the decedent or his estate durin! the three&year (eriod endin! with the decedent's date o# death must be included in the decedent's !ross estate. Answer: :
a!e "e#.: $:1%&11

%%) ,n February o# the current year Tom dies. Two years and nine months be#ore the date o# death- Tom made a !i#t o# stoc4 .alued at /2 million. Hi#t taxes (aid on the trans#er by Tom were /3%0-000 a#ter reduction #or a /%30-*00 uni#ied credit 8/7*0-*00 & /%30-*00). At the time o# his death the !i#ted stoc4 was .alued at /2.% million. The amount included in Tom's !ross estate #rom this trans#er is A) /2-000-000. 9) /2-%00-000. $) /3%0-000. :) none o# the abo.e Answer: $
a!e "e#.: $:1%&11C Exam(le $:1%&10

%3) ,n 200% aul trans#ers /1-000-000 to a trust bene#itin! his three children. As trustee- he has the (ower to determine the amount o# distributions each year. aul dies in the current year when the trust has a .alue o# /1-200-000. Gow much o# the trust's .alue is included in aul's estate< A) /0. 9) /300-000. $) /1-000-000. :) /1-200-000. Answer: :
a!e "e#.: $:1%&11- $:1%&12

%0) ,denti#y which o# the #ollowin! statements is true. A) The !ross&u( rule a((lies to the !i#t tax tri!!ered by a !i#t durin! a three&year loo4 #orward (eriod. 9) All !i#t taxes (aid by the decedent on !i#ts made within #i.e years o# the date o# death must be included in the !ross estate. $) ,# a trans#eror retains .otin! ri!hts in stoc4 o# a controlled cor(oration #or the trans#eror's li#etime- the stoc4 is included in the trans#eror's !ross estate. :) All are #alse. Answer: $
a!e "e#.: $:1%&12

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%+) ,denti#y which o# the #ollowin! statements is true. A) "e.ersionary interests o# less than 0I are includible in the !ross estate. 9) A re.ersionary interest means a chance exists that the (ro(erty may (ass bac4 to the trans#eror under the terms o# the trans#er. $) ,# a re.ersionary interest exceeds %I o# the (ro(erty's .alue- the amount that is included in the estate is not the .alue o# the re.ersionary interest- but rather the date&o#&death .alue o# the !i#ted (ro(erty less the .alue o# inter.enin! li#e estates. :) All are #alse. Answer: 9
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%7) :an trans#ers an a(artment buildin! to Hrace but retains the ri!ht to the rental income #or 10 years. :an dies nine years a#ter the trans#er when the buildin! is worth /+00-000. The a((licable #ederal rate is 10I and the re.ersionary actuarial #actor is 0.%0. Gow much would be included in :an's estate< A) /0 9) /100-000 $) /%00-000 :) /+00-000 Answer: :
a!e "e#.: $:1%&12C Exam(le $:1%&1*

%*) ,n 2001- Ale1andro buys an annuity #or /100-000 that will (ay Ale1andro an annual amount #or li#e with sur.i.or bene#its to his wi#e. ;hen Ale1andro dies in the current year a com(arable contract would ha.e cost /*1-000. ;hat amount is included in Ale1andro's !ross estate< A) /0 9) /*1-000 $) /100-000 :) /1*1-000 Answer: 9
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%)) ,denti#y which o# the #ollowin! statements is #alse. A) Annuities not related to em(loyment are .alued in the !ross estate at the cost o# a com(arable contract multi(lied by a #raction that re(resents the (ortion o# the (urchase (rice that the decedent has contributed. 9) ,# an annuity ceases (ayments with the death o# the decedent and nothin! is to be recei.ed by any other (arty- the annuity is included in the !ross estate. $) ;hen (ersons other than s(ouses own (ro(erty 1ointly- the amount included in the 1oint owner's !ross estate is measured in accordance with the consideration the decedent #urnished to (urchase the (ro(erty. :) Statements A and $ are true. Answer: 9
a!e "e#.: $:1%&1%

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30) Joyo $or(oration maintains a retirement (lan #or its em(loyees to which it ma4es 70I o# the contributions and the em(loyees ma4e %0I. Hary dies this year and is em(loyed at the time o# his death. Hary's s(ouse will recei.e an annuity .alued at /+00-000 #rom the retirement (lan. Gow much o# the annuity will be included in Hary's !ross estate< A) /+00-000 9) /320-000 $) /1*0-000 :) /0 Answer: A
a!e "e#.: $:1%&13C Exam(le $:1%&23

31) ,n 2001- olly and Fred- brother and sister- (urchased a condominium at a !ol# resort. olly contributed +0I o# the /200-000 costC Fred contributed 30I. olly dies in the current year when the condominium has a /%00-000 .alue. Gow much is included in olly's estate< A) /120-000 9) /1*0-000 $) /200-000 :) /%00-000 Answer: 9
a!e "e#.: $:1%&13- $:1%&10

32) Followin! are the #air mar4et .alues o# ;ilma's assets at her date o# death: ersonal e##ects and 1ewelry /100-000 Land which ;ilma bou!ht and held as a 1oint tenant with ri!ht o# sur.i.orshi( with her sister *00-000 The executor o# ;ilma's estate did not elect the alternate .aluation date. The amount includible in ;ilma's !ross estate is A) /100-000 9) /000-000 $) /*00-000 :) /)00-000 Answer: :
a!e "e#.: $:1%&13

3%) Four years a!o- :a.id !a.e land to 5i4e that he (urchased #or /70-000- which is (resently worth /100-000. Three years a!o- 5i4e exchan!ed the land 8then worth /100-000) alon! with a /100-000 cash contribution made by :a.id #or a new (iece o# land worth /200-000. The new land is titled with :a.id and 5i4e as 1oint tenants with the ri!ht o# sur.i.orshi(. ;hen 5i4e dies this year the land is worth /%00-000. 5i4e's estate will include A) /0. 9) /100-000. $) /1*0-000. :) /%00-000. Answer: A Ex(lanation: A) 5i4e is treated as !i.in! no considerationC thus his estate will not include the realty
a!e "e#.: $:1%&10C Exam(le $:1%&2+

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33) ,n 1)))- "o!er !i.es stoc4 .alued at /100-000 to 5artha. "o!er and 5artha are not related. ,n 2000- 5artha uses the stoc4 then .alued at /110-000 as (artial consideration to ac=uire realty costin! /220-000. at 8her brother) #urnishes the remainin! /110-000 o# consideration. The realty is titled in the names o# 5artha and at as 1oint tenants with ri!ht o# sur.i.orshi(. This year- 5artha dies and at sur.i.es. The realty is .alued at /%00-000 at 5artha's death. Gow much- i# any- o# the realty's .alue will be included in 5artha's estate< A) /0 9) /110-000 $) /100-000 :) /%00-000 Answer: $ Ex(lanation: $) 9ecause "o!er is not an owner o# the realty- the #act that he !a.e the stoc4 to 5artha does not a##ect the consideration 5artha is deemed to ha.e #urnished. 5artha #urnished one&hal# the consideration
a!e "e#.: $:1%&10C Exam(le $:1%&2+

30) ,denti#y which o# the #ollowin! statements is true. A) ,# s(ouses are the only 1oint owners- only one&hal# o# the .alue o# the 1ointly owned (ro(erty is included in the !ross estate- re!ardless o# the relati.e amount o# consideration (ro.ided by either s(ouse. 9) S(ecial (owers o# a((ointment !i.e the (ower holder less restricted (owers than a !eneral (ower o# a((ointment. $) The !ross estate does not include the .alue o# li#e insurance (olicies on the decedent i# the (roceeds are recei.able by the executor or #or the bene#it o# the estate. :) All are #alse. Answer: A
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3+) roceeds o# a li#e insurance (olicy (ayable to the estate's executor- as the estate's re(resentati.e- are A) includible in the decedent's !ross estate only i# the (remiums had been (aid by the insured. 9) includible in the decedent's !ross estate only i# the (olicy was ta4en out within three years o# the insured's death. $) ne.er includible in the decedent's !ross estate. :) always includible in the decedent's !ross estate. Answer: :
a!e "e#.: $:1%&1+

37) Two years a!o Eils trans#ers a /200-000 li#e insurance (olicy on his li#e to his dau!hterHail. The (olicy is worth /+0-000 at the time o# trans#er and Hail (ays Eils /00-000. ;hen Eils dies this year- the /00-000 cash is still in a sa.in!s account. The consideration o##set when com(utin! Eil's !ross estate is A) /0. 9) /00-000. $) /100-000. :) /1++-++7. Answer: 9
a!e "e#.: $:1%&17C Exam(le $:1%&%%

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3*) Ernie died this year. Gis will creates a /2-000-000 KT, trust #or his widow. Ernie's executor elects to claim the marital deduction #or the KT, trans#er. At the time o# the sur.i.in! s(ouse's death- the .alue o# the KT, trust is /%.+ million. The amount o# the KT, trust included in the sur.i.in! s(ouse's !ross estate is A) /%-+00-000. 9) /2-000-000. $) /1-*00-000. :) /0. Answer: A
a!e "e#.: $:1%&1*C Exam(le $:1%&%3

3)) Ted died on 5ay %. At the time o# his death- he owned a beach house .alued at /200-000. ?n >une 10- the beach house was com(letely destroyed by a hurricane and there was no insurance co.era!e. ,# the executor elects to use the alternate .aluation date- the executor will A) include the beach house in the !ross estate at /200-000. 9) ta4e a casualty loss o# /200-000 on the estate tax return. $) ta4e a casualty loss o# /200-000 on the estate's income tax return. :) include the beach house in the !ross estate at /0. Answer: :
a!e "e#.: $:1%&1)C Exam(le $:1%&%7

00) ,denti#y which o# the #ollowin! statements is true. A) Administrati.e ex(enses are not deductible on the estate's income tax return. 9) $asualty or the#t losses incurred durin! the administration o# the estate are not deductible on the estate tax return. $) There is a limitation o# /100-000 on the charitable contribution deduction #or estate tax (ur(oses. :) All are #alse. Answer: :
a!e "e#.: $:1%&1*- $:1%&1)

01) ,denti#y which o# the #ollowin! statements is true. A) "e!ardless o# how lar!e the !ross estate is- the estate tax liability can be com(letely eliminated i# the estate is willed to a charitable or!aniDation. 9) There is a ceilin! on the marital deduction. $) All trans#ers to the sur.i.in! s(ouse are eli!ible #or the marital deduction. :) All are #alse. Answer: A
a!e "e#.: $:1%&1)

02) ,denti#y which o# the #ollowin! statements is #alse. A) To =uali#y #or the marital deduction- (ro(erty must be includible in the decedent's !ross estate. 9) ro(erty is not eli!ible #or the marital deduction i# it (asses to the s(ouse under the indi.idual's dower ri!hts. $) A terminable interest is one that ceases u(on the (assa!e o# time or the occurrence o# some e.ent. :) Some- but not all- terminal interests =uali#y #or the marital deduction. Answer: 9
a!e "e#.: $:1%&21

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0%) ;hich o# the #ollowin! is not a test #or an interest to =uali#y #or the marital deduction< A) The (ro(erty must be included in the decedent's !ross estate. 9) ,# a KT, trans#er is made- the s(ouse must be entitled to all o# the income at least annually #or li#e. $) The interest con.eyed must not be a nondeductible terminable interest. :) All o# the abo.e are re=uired. Answer: :
a!e "e#.: $:1%&21

03) ;hen com(utin! the #ederal estate tax liability in 200)- the maximum amount #or a taxable estate 8not tentati.e tax) which the uni#ied credit #or the current year will eliminate all o# the tax is A) /000-*00. 9) /7*0-*00. $) /%-000-000. :) /2-000-000. Answer: $
a!e "e#.: $:1%&2%

00) The #ollowin! credit is a.ailable #or estate tax (ur(oses A) in.estment tax credit. 9) credit #or income taxes (aid on decedent's #inal return. $) credit #or estate taxes (aid on certain (rior trans#ers. :) all o# the abo.e Answer: $
a!e "e#.: $:1%&20

0+) ;hich o# the #ollowin! is not a credit #or (ur(oses o# com(utin! the #ederal estate tax liability< A) $redit #or !i#t tax (aid on (re&1)77 !i#ts. 9) $redit #or estate taxes (aid on certain (rior trans#ers. $) A credit #or #orei!n death taxes. :) All o# the abo.e are credits #or the #ederal estate tax. Answer: :
a!e "e#.: $:1%&23- $:1%&20

07) ,denti#y which o# the #ollowin! statements is true. A) ,# a marital deduction is elected on a KT, trust trans#er- (ro(erty remainin! in the KT, trust is not included in the estate o# the sur.i.in! s(ouse. 9) The credit #or state death taxes has been re(laced with a deduction #or state estate taxes. $) The uni#ied credit is the only credit allowed a!ainst the estate tax. :) All are #alse. Answer: 9
a!e "e#.: $:1%&23

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0*) ,denti#y which o# the #ollowin! statements is true. A) The credit #or taxes (aid on (rior trans#ers does not reduce the im(act o# (ro(erty bein! taxed in more than one estate in =uic4 succession. 9) The deduction #or state death taxes is not limited. $) An estate is not entitled to a credit #or #orei!n death taxes (aid on (ro(erty located in a #orei!n country and included in the !ross estate. :) All are #alse. Answer: 9
a!e "e#.: $:1%&23

0)) Lou dies on A(ril 12- 2007. All o# Lou's (ro(erty (assed to aula- his dau!hter. aula dies >anuary 10- 200). 9oth Lou's and aula's estates (ay #ederal estate taxes. Lou's estate tax was /%00-000. Gow much can aula's estate claim #or a credit #or tax on (rior trans#ers< A) /%00-000 9) /2*0-000 $) /210-000 :) /130-000 Answer: A
a!e "e#.: $:1%&23- $:1%&20

+0) >oe dies late in 2007 and his estate is sub1ect to an estate tax o# /2 million. Ge lea.es all o# his assets to his dau!hter- $laudia. $laudia dies early in 200). ;hich o# the #ollowin! statements is correct< A) $laudia's estate recei.es no credit or deduction #or the tax (aid by >oe's estate. 9) $laudia's estate recei.es a credit #or /1-000-000 o# >oe's estate tax. $) $laudia's estate recei.es a credit #or /2-000-000 o# >oe's estate tax. :) $laudia's estate recei.es a deduction #or /2-000-000 o# >oe's estate tax. Answer: $
a!e "e#.: $:1%&23- $:1%&20

+1) 9etty dies on February 20 o# the current year. Ger estate consisted o# the #ollowin! assets- all .alued as o# her date o# death: Stoc4 with a basis o# /30-000 and a #air mar4et .alue o# /200-000 Gome .alued at /1-000-000 and a basis o# /3)0-000 $ash o# /70-000 Li#e insurance on 9etty's li#e owned by her dau!hter with a /000-000 #ace .alue ;hat is 9etty's !ross estate< A) /+00-000 9) /1-100-000 $) /1-770-000 :) /2-270-000 Answer: $ Ex(lanation: $) 8200-000 @ 1-000-000 @ 70-000). The li#e insurance (olicy is excluded since 9etty is not the owner
a!e "e#.: $:1%&20&$:1%&27

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+2) ;hich o# the #ollowin! circumstances would cause the !i#ted (ro(erty to be included in the donor's !ross estate< ,. :onor retains a li#e estate in the !i#t (ro(erty. ,,. :onor retains the (ower to re.o4e or amend the !i#t. ,,,. :onor !i.es more than /12-000 to one donee in one year. ,6. :onor dies within three years o# !i#tin! land. A) ,- ,, and ,,, 9) ,- ,, $) ,,- ,6 :) ,,,- ,6 Answer: 9
a!e "e#.: $:1%&20&$:1%&27

+%) ?ne o# the ma1or (roblems #acin! executors in mana!in! the estate is A) identi#yin! deductions. 9) li=uidity. $) the uni#ied credit com(utation. :) determinin! the method to .alue assets. Answer: 9
a!e "e#.: $:1%&27

+3) The (ayment date #or estate taxes may be extended by the ,"S #or all o# the #ollowin! reasons exce(t A) the estate includes a 30I interest in a closely held business. 9) the estate includes a relati.ely lar!e remainder or re.ersionary interest. $) the executor o# the estate shows reasonable cause. :) all are .alid reasons Answer: :
a!e "e#.: $:1%&2*

+0) ,denti#y which o# the #ollowin! statements is true. A) The (eriod #or (ayment o# estate taxes may be extended i# the executor shows Freasonable causeF #or not bein! able to (ay some- or all- o# the estate tax liability on the re!ular due date. 9) The estate tax on interests in certain closely held businesses may be (aid in installments o.er a 10 year (eriod i# elected. $) An executor may elect to (ost(one (ayment o# the estate tax attributable to a remainder or re.ersionary interest until ei!ht months a#ter the interests o# the other (erson8s) terminate. :) All are #alse. Answer: A
a!e "e#.: $:1%&2*

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++) ,denti#y which o# the #ollowin! statements is true. A) The estate tax on interests in certain closely held businesses may be (aid in installments o.er a 10&year (eriod i# elected. 9) An executor my elect to (ost(one (ayment o# the estate tax attributable to a remainder or re.ersionary interest until six months a#ter the interests o# the other (erson8s) terminate. $) A cor(oration with 20 owners can be classi#ied as a closely held business i# the decedent's !ross estate holds 10I o# the stoc4. :) All are #alse. Answer: 9
a!e "e#.: $:1%&2*

+7) A stoc4 redem(tion to (ay death taxes under Sec. %0% is !enerally treated as A) a sale or exchan!e o# (ro(erty. 9) a di.idend. $) a return o# ca(ital. :) ordinary income. Answer: A
a!e "e#.: $:1%&2)

+*) The maximum amount o# the stoc4 redem(tion (roceeds under Sec. %0% is determined by summin! all o# the #ollowin! exce(t A) the estate's death taxes. 9) the estate's #uneral ex(enses. $) the estate's administrati.e ex(enses. :) all are allowable Answer: :
a!e "e#.: $:1%&2)

+)) ,denti#y which o# the #ollowin! statements is #alse. A) S(ecial use .aluation is a.ailable #or #arm land to hel( alle.iate li=uidity (roblems. 9) The trans#eree is liable #or the !eneration s4i((in! trans#er tax 8HSTT) in the case o# a direct s4i(. $) The !eneration s4i((in! trans#er tax 8HSTT) is im(osed to assure that some #orm o# trans#er taxation is im(osed once a !eneration. :) A direct s4i( s4i(s one or more !enerations. Answer: 9
a!e "e#.: $:1%&2)- $:1%&%0

70) ,denti#y which o# the #ollowin! statements is true. A) The trans#eree is liable #or the !eneration s4i((in! trans#er tax 8HSTT) in the case o# a direct s4i(. 9) S(ecial use .aluation is a.ailable #or #armland to hel( alle.iate li=uidity (roblems. $) Kuali#ied disclaimers are not a.ailable #or estate (lannin! (ur(oses. :) All are #alse. Answer: 9
a!e "e#.: $:1%&2)- $:1%&%0

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71) The HSTT's 8!eneration&s4i((in! trans#er tax) (ur(ose is A) to im(ose a !raduated trans#er tax one time a !eneration. 9) to im(ose some #orm o# trans#er tax one time a !eneration. $) to im(ose a !raduated trans#er tax e.ery other !eneration. :) to im(ose some #orm o# trans#er tax e.ery other !eneration. Answer: 9
a!e "e#.: $:1%&%0

72) ,denti#y which o# the #ollowin! statements is #alse. A) E.ery !rantor is entitled to a /2 million exem(tion #rom the HSTT in 200*. 9) ,# Hre! trans#ers assets directly to his !randson- this transaction would be an exam(le o# a direct s4i(. $) ,# Shaad trans#ers (ro(erty in trust to his son- with the remainder to his !randson- at the death o# the son a taxable termination will result. :) The HSTT is le.ied at a #lat rate which is hi!her than the to( rate under the estate tax rate schedule. Answer: :
a!e "e#.: $:1%&%0

7%) Sasha !i.es /1-000-000 to her !randdau!hter. Sasha has used all o# her uni#ied credit and is in the 30I mar!inal !i#t tax brac4etC i!nore the annual exclusion and exem(tion. ;hat is the amount o# her tax on this trans#er< A) /300-000 9) /1-102-000 $) /1-300-000 :) /+02-000 Answer: 9
a!e "e#.: $:1%&%1C Exam(le $:1%&02

73) A =uali#ied disclaimer is a .aluable estate (lannin! tool because A) it establishes the .alue o# the disclaimed assets. 9) it =uali#ies the assets #or the alternati.e .aluation date. $) it is not treated as a !i#t made by the (erson who disclaims.. :) it allows the (erson ma4in! the disclaimer to determine the reci(ient. Answer: $
a!e "e#.: $:1%&%3

70) ,denti#y which o# the #ollowin! statements is #alse. A) Li#e insurance can hel( (ro.ide li=uidity #or (ayin! estate taxes. 9) Li#e insurance has the (otential #or lar!e a((reciation. $) The insured does not ha.e to be the owner o# the (olicy. :) Li#e insurance is always (art o# the estate o# the insured. Answer: :
a!e "e#.: $:1%&%3

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7+) ,denti#y which o# the #ollowin! statements is true. A) ,n !eneral- an estate tax return is not re=uired to be #iled unless the .alue o# the !ross estate and ad1usted taxable !i#ts exceeds the exem(tion e=ui.alent. 9) Estate taxes must be (aid when the return is #iled includin! any extensions. $) The estate tax return is due- i!norin! extensions- 12 months a#ter the decedent's date o# death. :) All are #alse. Answer: A
a!e "e#.: $:1%&%0

77) 5elissa trans#erred /+00-000 in trust in 200+- income #or li#e to hersel#- the remainder to her son. ;hat (art- i# any- o# the .alue o# the trust's assets will be included in 5elissa's estate< Answer: The entire trust will be included since she retained the income #rom the trust until her death.
a!e "e#.: $:1%&2

7*) ,n 2001- $lara made taxable !i#ts o# /2 million. This year- $lara dies with a taxable estate o# /3 million. At the time o# her death- the F56 o# the (ro(erty $lara !i#ted in 2001 is /* million. ;hat is the amount o# the estate tax base< Answer: /2-000-000 @ /3-000-000 B /+-000-000.
a!e "e#.: $:1%&3C Exam(le $:1%&2

7)) Jee made /% million o# taxable !i#ts in 1))% and (aid !i#t taxes 8less the uni#ied credit) o# /1-0)*-000. Jee died in 200* with a taxable estate o# /100-000. At current rates the !i#t taxes (ayable on /% million would be /1-230-*00. :etermine her estate tax liability. Answer: 2ni#ied trans#er tax base /%-100-000 $urrent tax /1-2*+-*00 Less uni#ied credit 8/ 7*0-*00) Less credit #or !i#t taxes (aid 8/1-230-*00) Tax liability / &0&
a!e "e#.: $:1%&0

*0) ,n 1))2- Hert made a /0-000-000 taxable !i#t. The 1))2 !i#t tax on /0-000-000 was /2-%)0-000. Hert was entitled to a uni#ied credit o# /1)2-*00- resultin! in a !i#t tax o# /2-1)*-000. Assumin! Hert dies in a year when the credit is /7*0-*00 and the mar!inal rate is 30I- the tax on /0-000-000 would e=ual /2-1%0-*00 be#ore subtractin! any credit. ,n arri.in! at Hert's estate tax liability- what is the amount subtracted #or 1))2 !i#t taxes (aid< Answer: /1-)%*-000 B /2-1+0-*00 8/0-000-000 taxable trans#er at current year rates) & /1)2-*00.
a!e "e#.: $:1%&0C Exam(le $:1%&3

*1) ;ally died on Eo.ember 10. Gis !ross estate includes 100 shares o# A9$ $or(oration stoc4. ?n Eo.ember 10- A9$'s stoc4 trades at a hi!h o# /100- a low o# /)2- and a close o# /)3. ;hat is the (er share .alue o# the stoc4 in ;ally's estate is Answer: 8/100 @ /)2) A 0.00 B /)+
a!e "e#.: $:1%&+

*2) >ulian died Eo.ember 1 and owned 100 shares o# a Eew Jor4 Stoc4 Exchan!e stoc4. The stoc4 trades at a hi!h o# 100 and a low o# )* on Eo.ember 1. ,t o(ened at )* and closed at 100. ?n >ulian's estate tax return- what will be the (er share and total .alue o# the stoc4< Answer: 8/100 @ )*)L2 B /)) (er share A 100 shares B /)-)00.
a!e "e#.: $:1%&+C Exam(le $:1%&+

*%) "ay died on 5arch 3. Gis estate includes some stoc4 and a (arcel o# land. The stoc4 is still owned by the estate on Se(tember 3- but the land is sold on Au!ust %0. ,# "ay's executor elects the alternate .aluation date- what .alues would be used #or estate tax 16 Copyright 2011 Pearson Education, Inc.

(ur(oses #or the stoc4 and the land< Answer: Stoc4 .alue on Se(tember 3. Land .alue on Au!ust %0.
a!e "e#.: $:1%&7C Exam(le $:1%&)

*3) ,n 2000- 5i4e trans#ers /100-000 o# leased land to a trust. The trust income is (ayable to 5i4e's son #or 1% years a#ter which time the land is to re.ert to 5i4e. This year 5i4e dies when the land is .alued at /210-000. The a((licable #ederal rate is 10I- and the re.ersionary actuarial #actor is 0.%0. Gow much o# the trust .alue must be included in 5i4e's estate< Answer: 0.%0 A /210-000 B /+%-000.
a!e "e#.: $:1%&7C Exam(le $:1%&*

*0) :onna died on >une 1 o# the current year. The executor considers the #ollowin! in#ormation when (re(arin! her estate tax return. M ,n 1))7 :onna trans#ers title to her (ersonal residence to her son. The residence is worth /+0-000 on the trans#er date. :onna continued to li.e alone in the residence until her death. She did not (ay any rent. At her death- the residence is worth /100-000. M ,n 1))* :onna created an irre.ocable trust and #unded it with /%00-000 o# assets. :onna names a ban4 as trustee. Accordin! to the trust a!reement- all the trust income is to be (aid out annually #or 20 years. The trustee- howe.er- is to decide how much income to (ay each year to :onna's son and dau!hter. 2(on termination o# the trust the assets are to be distributed e=ually amon! her two children or their estates. The trust's assets are worth /%20-000 when :onna dies. M ,n 1))*- :onna created a re.ocable trust with a ban4 named as trustee. She named her !randchild >oe as the bene#iciary #or li#e. 2(on >oe's death- the (ro(erty is to be distributed e=ually amon! >oe's descendants. The trust assets are worth /%00-000 when :onna dies. Gow much would be included in :onna's !ross estate< Answer: /100-000 8residence) @ 0 8irre.ocable trust) @ /%00-0008re.ocable trust) B /300-000.
a!e "e#.: $:1%&)- $:1%&11- $:1%&12

*+) 5ary creates and #unds a re.ocable trust. 5ary names her son to recei.e the income #or li#e and her !randson to recei.e the (ro(erty u(on the son's death. ;hat are 5ary's (owers with res(ect to the trust and how will the trust be treated in her estate< Answer: Since the trust is re.ocable- 5ary may chan!e the terms durin! her li#etime. 5ary's !ross estate will include the date&o#&death .alue o# the entire trust.
a!e "e#.: $:1%&1%C Exam(le $:1%&21

*7) ,n 1))7- 9arry and Fred (ro.ide /20-000 and /+0-000 o# consideration- res(ecti.ely- to (urchase a beach house titled in both their names as 1oint tenants with ri!ht o# sur.i.orshi(. 9arry dies in the current year and is sur.i.ed by Fred. The beach house is .alued at /100-000. ;hat amount must be included in 9arry's !ross estate #or the beach house< Answer:
/20-000 A /20-000 + /+0-000

/100-000 B /20-000

a!e "e#.: $:1%&10C Exam(le $:1%&20

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**) Fi.e years a!o- Heor!e and >erry 8his brother) (ro.ide /30-000 and /+0-000res(ecti.ely- to (urchase realty titled in the names o# Heor!e and >erry as 1oint tenants with ri!ht o# sur.i.orshi(. Heor!e dies in the current year and is sur.i.ed by >erry. At the time o# Heor!e's death- the realty is .alued at /%00-000. ;hat is the .alue o# the realty in Heor!e's !ross estate< Answer: /%00-000 A 8/30-000 L8/30-000 @ /+0-000) B /120-000
a!e "e#.: $:1%&10C Exam(le $:1%&20

*)) The #ollowin! items were disco.ered in re.iewin! materials #or >ohn's estate tax return. 81) Two years a!o- >ohn sold stoc4 to his son- atric4- #or /%0-000. At the date o# sale- the stoc4 had a .alue o# /+0-000. The .alue o# the stoc4s at >ohn's death was /)0-000. 82) >ohn owned a beach house- worth /000-000- with his sister- Amber- who (aid #or it. 8%) >ohn's home was held in a tenancy by the entirety with his wi#e- >ulia. >ulia (aid #or the house- which had a .alue o# /%00-000 on the date o# his death. 83) >ohn's clothin! and other (ersonal belon!in!s are worth /%-700 on the date o# his death. ;hat amount is included in >ohn's estate< Answer: Gome /100-000 $lothin! and (ersonal belon!in!s %-700 /10%-700 ,tems 81) and 82) are not included in the estate.
a!e "e#.: $:1%&13- $:1%&10

)0) Naren died on 5ay 0 o# the current year. Ger executor elects date&o#&death .aluation. Naren's !ross estate (ossibly includes the #ollowin! items: M >oint chec4in! account 8with her husband)- which has a balance o# /10-000. Ger husband did not contribute to the account. M >oint sa.in!s account 8with her dau!hter)- which has a balance o# /00-000. Ger dau!hter did not contribute to the account. M Li#e insurance (olicy on the li#e o# Naren ha.in! a #ace .alue o# /300-000. The cost o# a com(arable (olicy immediately be#ore Naren's death is /100-000. Naren's estate is the bene#iciary. M Li#e insurance (olicy on the li#e o# Naren's dau!hter ha.in! a #ace .alue o# /100-000 with an inter(olated terminal reser.e immediately be#ore Naren's death o# /%0-000. 2nex(ired (remiums are /0-000. Naren is the bene#iciary. Gow much- i# any- o# these items are included in Naren's estate< Answer: /3)0-000 B /0-000 8one&hal# o# 1oint chec4in! account) @ /00-000 8sa.in!s account) @ /300-000 8Naren's li#e insurance) @ /%0-000 8inter(olated terminal reser.e on dau!hter's li#e insurance) @ /0-000 8unex(ired (remiums on dau!hter's li#e insurance).
a!e "e#.: $:1%&13- $:1%&1+

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)1) At 5ar4's death- 5ar4 owed a debt o# /30-000 (lus /2-000 o# accrued interest. 5ar4's #uneral ex(enses were /0-000- and 5ar4's char!e card had a balance due o# /300. The ex(ected administration costs #or the estate are /2-000. Assume the estate will owe no income taxes in the next #ew years and that the taxable estate is ex(ected to be in excess o# /1 million. ;hat amount should the estate deduct< Answer: All the ex(enses are deductible: /30-000 @ /2-000 @ /0-000 @ /300 @ /2-000 B /3)-300. The administration ex(enses can be deducted by the estate or allocated in whole or in (art to the estate's income tax return. ,t is best to deduct them where they can (ro.ide the !reatest tax sa.in!s. ,n this case since no income taxes are ex(ected to be owed- it would be best to claim the deduction a!ainst the !ross estate.
a!e "e#.: $:1%&1)C Exam(le $:1%&%0

)2) ?n :ecember 1- 1)7+- 9art made a !i#t and claimed a /%0-000 s(eci#ic exem(tion. ;hen 9art died in 200*- his tax base was /2-000-000. Assumin! the maximum uni#ied credit is /7*0-*00- the credit a.ailable when com(utin! 9art's estate tax is< Answer: /7*0-*00 & 8/%0-000 A 0.20) B /773-*00. The uni#ied exem(tion must be reduced by 20I o# any o# the old /%0-000 exem(tion used between Se(tember *- 1)7+ and >anuary 1- 1)77.
a!e "e#.: $:1%&23- Exam(le $:1%&3%

)%) Huy died this year. Gis estate includes a closely held business interest .alued at /300-000 and other (ro(erty .alued at /+70-000. Huy's allowable Sec. 200% and 2003 deductions total /70-000. ;ithin three years o# death- (artly in ho(es o# =uali#yin! his estate #or the installment (ayment allowed under Sec. +1++ treatment- Huy made !i#ts o# listed securities o# /%00-000 8at 2002 .aluations) and (aid no !i#t tax on the !i#t. ,s Huy's estate eli!ible #or Sec. +1++ treatment< Answer: Eo- it #ails the %0I test in one o# the calculations. Excludin! !i#ts: /300-000 L /1-000-000 B 30I ,ncludin! !i#ts: /300-000 L /1-%00-000 B 2).+%I
a!e "e#.: $:1%&%0- Exam(le $:1%&00

)3) ?utline and brie#ly describe the estate tax com(utation- be!innin! with the !ross estate. Answer: Sum o#: ro(erty titled to decedent and (ro(erty !i#ted i# decedent had ri!ht to the income or control. ,ncludes !i#t tax (aid on !i#ts in (ast three years. E=uals: Gross estate 5inus: :eductions: ex(enses- debts- losses- trans#ers to s(ouse- state death taxes and charitable contributions E=uals: Taxable estate lus: Ad1usted taxable !i#ts 8(ost&1)7+ taxable !i#ts) E=uals: Estate tax base Times: Tax rate8s) E=uals: Tentative tax on estate tax base 5inus: ost&1)7+ !i#t taxes 8usin! current year's uni#ied trans#er tax rate schedules) 2ni#ied credit re&1)77 !i#t tax credit $redit #or estate taxes (aid on (rior trans#ers Forei!n death tax credit E=uals: Estate tax payable
a!e "e#.: $:1%&%

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)0) Ex(lain how shares o# stoc4 traded on a stoc4 exchan!e are .alued. ;hat is the bloc4a!e rule< Answer: Shares traded on a stoc4 exchan!e are .alued at the a.era!e o# their hi!h and low sellin! (rices as o# the a((licable .aluation date. The bloc4a!e rule allows a reduction #rom the a.era!e .alue where the decedent owned a lar!e bloc4 o# shares that would be di##icult to dis(ose o# at one time without usin! an underwriter andLor acce(tin! a lower (rice.
a!e "e#.: $:1%&+

)+) :iscuss the trans#eror (ro.isions relatin! to the estate tax- and (ro.ide three exam(les o# transactions !o.erned by the trans#eror (ro.isions. Answer: They a((ly i# the decedent earlier made a trans#er o# a ty(e s(eci#ied in the $ode and the decedent did not recei.e ade=uate consideration #or the trans#erred interest. ,# one o# the trans#eror (ro.isions a((lies- the trans#erred (ro(erty is included in the !ross estate at its date&o#&death or alternate .aluation date .alue. ?ne s(eci#ied trans#er is the !i#tin! within three years (rior to death o# a li#e insurance (olicy on the decedent's li#e that would ha.e been included in the !ross estate. Also included are trans#ers with a retained li#e estate- trans#ers ta4in! e##ect at death and re.ocable trans#ers. Also- the donor&decedent's !ross estate is increased by any !i#t tax that is (aid by the decedent or his estate on any !i#t that the donor or the donor's s(ouse ma4es durin! the three&year (eriod endin! with the decedent's death. This (ro.ision is 4nown as the !ross&u( rule. The !ross estate also includes earlier trans#erred (ro(erty i# the decedent sti(ulates that another (erson must sur.i.e the decedent to own the (ro(erty and the .alue o# the decedent's re.ersionary interest exceeds 0I o# the .alue o# the trans#erred (ro(erty.
a!e "e#.: $:1%&10&$:1%&1%

)7) Ex(lain why li.in! trusts are (o(ular tax (lannin! .ehicles. Answer: "e.ocable trusts- sometimes called li.in! trusts- are (o(ular arran!ements #rom a non&tax stand(oint because assets held by a re.ocable trust (ass outside o# (robate. Ad.anta!es o# a.oidin! (robate include lower (robate costs and easier administration #or real (ro(erty owned in a state that is not the decedent's state o# domicile. ,n addition- unli4e a will- a re.ocable trust is not a matter o# (ublic record.
a!e "e#.: $:1%&12- $:1%&1%

)*) $om(are the tax treatment o# administration ex(enses with that o# the decedent's debts. Answer: Administration ex(enses may be deducted on either the estate tax return or the estate's income tax return or some in each (lace. The executor should deduct them on the return where they will (roduce the !reatest tax sa.in!s. ,# the estate tax base exceeds /1 million- the tax sa.in!s will be lar!er i# the executor deducts the ex(enses on the estate tax return because the estate tax rates will be hi!her than the to( income tax brac4et #or trusts and estates. The decedent's debts are deductible only on the estate tax return.
a!e "e#.: $:1%&17- $:1%&1*

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))) List the .arious cate!ories o# estate tax deductions- and com(are them with the cate!ories o# !i#t tax deductions. ;hat di##erences exist< Answer: Estate tax deductions are as #ollows: marital- charitable contribution- #uneral and administration ex(enses- debts- casualty and the#t losses- and state death taxes. Hi#t tax deductions consist o# only the marital deduction and the charitable contribution deduction.
a!e "e#.: $:1%&1*&$:1%&22

100) 5r. Gowell died this year. Ge willed a co(yri!ht with a 10&year remainin! li#e to 5rs. Gowell. Gis will also sets u( a trust #or the bene#it o# 5rs. Gowell whom he entitles to recei.e all o# the income semiannually until the earlier o# her remarria!e or her death. 2(on her remarria!e or death- the trust (ro(erty is to be distributed to their children. :o the co(yri!ht and trust trans#ers =uali#y #or the marital deduction< Ex(lain. Answer: The co(yri!ht is a terminable interestC howe.er- it =uali#ies #or the marital deduction because no one other than 5rs. Gowell recei.es an interest in the co(yri!ht. The trust is also a terminable interest- but it does not =uali#y #or the marital deduction. The trust should be examined under the KT, rules. 5rs. Gowell is entitled to all o# the income #rom the (ro(erty (ayable at least annually and no (erson has a (ower to a((oint any (ortion o# the (ro(erty to anyone other than her. Gowe.er- 5rs. Gowell does not ha.e a =uali#yin! income interest #or li#e because her trust interest terminates i# she remarries- whereu(on the children recei.e their interests without (ayin! ade=uate consideration.
a!e "e#.: $:1%&21- $:1%&22

101) $om(are the credits a.ailable #or estate tax (ur(oses with the credits a.ailable #or !i#t tax (ur(oses. ;hat di##erences exist< Answer: The #our credits a.ailable #or estate tax (ur(oses and illustrations o# each are as #ollows: M Hi#t tax credit&&(rior to 1)77 the decedent made a !i#t o# a remainder interest in (ro(erty in which he 4e(t a li#e estate and (aid !i#t tax. The !i#ted (ro(erty is in the donor's !ross estate. M re.iously taxed (ro(erty credit&&the decedent recei.ed (ro(erty that was taxed in the estate o# a (erson who (redeceased the decedent by not more than ten years. M Forei!n death tax credit&&the decedent owned real (ro(erty in a #orei!n country and (aid death taxes to that country. M 2ni#ied credit&&/7*0-*00 #or 200+ O 200* #or estate tax (ur(osesC /%30-*00 #or !i#t tax (ur(oses. The only credit a.ailable #or !i#t tax (ur(oses is the uni#ied credit.
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102) 9rie#ly discuss how inter .i.os !i#ts can be used to reduce the siDe o# the estate tax base. Answer: The /12-000 (er&donee (er&year exclusion allows (ro(erty to be trans#erred #ree o# any trans#er tax conse=uences. ost&!i#t a((reciation is remo.ed #rom the estate tax base because ad1usted taxable !i#ts are .alued at date o# !i#t .alues. ,# the donor li.es #or more than three years a#ter ma4in! a taxable !i#t- the !i#t tax (aid is remo.ed #rom the !ross estate.
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10%) :iscuss some o# the #actors to be considered in determinin! the amount o# (ro(erty that should (ass under the marital deduction. Answer: Exce(t in small estates- an amount e=ual to the exem(tion e=ui.alent should (ass to someone other than the sur.i.in! s(ouse. Some (ro(erty should be taxed in the estate o# the #irst decedent to die i# the sur.i.in! s(ouse already has a siDable estate and a relati.ely short li#e ex(ectancy. The mar!inal estate tax rates should not be allowed to be a((reciably di##erent. ,n addition- one needs to consider nontax #actors such as the cash needs o# the sur.i.in! s(ouse andLor children. This last item may be more im(ortant to some indi.iduals than the tax #actors.
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103) 5ichael 5oriarty- a widower- is =uite elderly and is be!innin! to do some estate (lannin!. Gis !oal is to reduce his trans#er taxes. Ge is considerin! (urchasin! land with a hi!h (otential #or a((reciation and ownin! it with his !randson as 1oint tenants with ri!hts o# sur.i.orshi(. 5ichael would (ro.ide all o# the consideration- estimated to be about /3.0 million. ;hat tax issues should 5ichael 5oriarty consider with res(ect to the (urchase o# the land< Answer: M :oes 5ichael ma4e a !i#t when he (urchases the land< M ;hat (ortion o# the land will be in 5ichael's !ross estate< 8Stated di##erently- will usin! this #orm o# ownershi( reduce his estate taxes<) M Are there any other estate tax im(lications< M ;hat are the !eneration&s4i((in! trans#er tax im(lications< At the time o# (urchase- 5ichael will ma4e a !i#t to his !randson o# hal# the land's cost. 9ecause 5ichael (ro.ided all the consideration- under the consideration&#urnished test o# Sec. 2030- 5ichael's !ross estate will include 100I o# the land's date o# death .alue. This strate!y will not reduce his estate tax liability. ,n addition- his estate tax base will include as an ad1usted taxable !i#t the taxable !i#t made u(on the (urchase o# the land as 1oint tenancy (ro(erty. The !i#t will be so lar!e that !i#t taxes will be owed. Thus- i# 5ichael dies within three years o# ac=uirin! the land- there will be a !ross&u( under Sec. 20%0 #or the !i#t taxes he (aid. Fortunately- such !i#t taxes will be subtracted to determine his estate tax (ayable re!ardless o# how lon! he sur.i.es. The !randchild is two !enerations youn!er than 5ichael and is a s4i( (erson. Heneration& s4i((in! trans#er taxes will be owed in addition to the !i#t and estate taxes. The amount o# the trans#er exceeds the HSTT exem(tion amount o# /2-000-000 in 2007 and 200*.
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100) raneh atel- a widower- died in 5arch o# the current year. Gis !ross estate is /2-%20-000 and- and the time o# his death- he owed debts o# /30-000. Gis will made a charitable be=uest o# /2*0-000 and le#t the rest o# his (ro(erty to his children. Gis administrati.e ex(enses are estimated to be about /00-000. ;hat tax issues should the estate's $ A consider when (re(arin! raneh's estate tax return and his estate's income tax return< Answer: M ;hat deductions will raneh's estate recei.e< M ;here should the administrati.e ex(enses be deducted< M ;hat is the amount o# his taxable estate and estate tax base< M Gas raneh made any (rior taxable !i#ts< raneh's estate will recei.e a /30-000 deduction #or the debts- a /2*0-000 deduction #or the charitable contribution- and u( to a /00-000 deduction #or the administration ex(enses. A#ter deductin! the debts and the charitable contribution- raneh's taxable estate is /2-000-000 8/2-%20-000 & /%20-000). Thus- at most- only /0-000 o# the administrati.e ex(enses should be deducted on the estate tax return- and the rest should be deducted on the estate's income tax return. raneh's taxable estate and estate tax base will be /2-000-000 8meanin! no tax will be owed) i# /0-000 o# administrati.e ex(enses are deducted on the estate tax return. The #acts do not indicate whether raneh has made any taxable !i#ts. 9onus credit could be !i.en to students who s(ot that such in#ormation is missin! and reco!niDe the im(lications o# the missin! in#ormation. The abo.e answers were (re(ared on the basis that raneh made no taxable !i#ts. ,# raneh made some- howe.er- a !reater amount o# administrati.e ex(enses should be deducted on the estate tax return.
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10+) 5ary >ohnson dies early in the current year. All her (ro(erty (asses sub1ect to her willwhich states that all o# her (ro(erty is to !o to a KT, trust #or :an #or li#e with the remainder to their children. 5ary's !ross estate is about /0 million- and her Sec. 200% deductions are .ery small. :an- who is in (oor health- already owns about /% million o# (ro(erty. ;hat tax issues should :an >ohnson and the estate's executor consider with res(ect to the (ro(erty that (asses to the KT, trust< Answer: M The issue is what martial deduction 8i# any) should be claimed on the trust< The executor could elect to #ore!o the marital deduction on all or a (ortion o# the KT, trust. The KT, trust is a more #lexible arran!ement because the executor can a##ect the siDe o# the marital deduction whereas with an outri!ht be=uest the amount o# the marital deduction will be altered only i# :an is willin! to ma4e a disclaimer.
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107) Lily dies early in the current year. All her (ro(erty (asses sub1ect to her will- which (ro.ides that her sur.i.in! husband- "ic4- is to recei.e all the (ro(erty outri!ht. Ger will #urther states that any (ro(erty "ic4 disclaims will (ass instead to their children in e=ual shares. Lily's !ross estate is about /0 million- and her Sec. 200% deductions are .ery small. "ic4- who is in (oor health- already owns about /% million o# (ro(erty. ;hat tax issues should "ic4 consider with res(ect to the (ro(erty be=ueathed to him by his wi#e< Answer: M Should "ic4 consider ma4in! a disclaimer< ,# so- o# how much< 2nless "ic4 ma4es a disclaimer- Lily's estate will waste its exem(tion e=ui.alent. "ic4 should disclaim at least /2-000-000 to allow 5ary's estate to ma4e use o# the #ull&uni#ied credit. 9ecause "ic4 is in (oor health 8and li4ely has a short li#e ex(ectancy) and because any additional inclusion in his estate will be taxed at 30I- he should consider disclaimin! some amount exceedin! /2-000-000 to allow some o# the (ro(erty to be taxed in Lily's estate at rates below the 30I mar!inal tax rate that will a((ly to his estate.
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