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Exam 25: Transfer Taxes and Wealth Planning of the Cfa Institute

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Question 31

Multiple Choice

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A unified credit is subtracted in calculating both the gift tax and the estate tax. Why doesn't this calculation have the effect of increasing the total unified credit amount?

A) The tentative estate tax is reduced by only taxes payable on adjusted taxable gifts rather than gross gift taxes.
B) The unified credit only offsets the exemption equivalent.
C) The unified credit cannot be used to offset gift taxes on adjusted taxable gifts.
D) The unified credit varies in amount from year to year.
E) None of these.

F) A) and E)
G) A) and C)

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Question 32

Multiple Choice

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Which of the following is a true statement?

A) A fiduciary entity is a legal entity that takes possession of property for the benefit of a person.
B) An estate is a fiduciary that comes into existence upon a person's death to transfer the decedent's real and personal property.
C) A trust is also a fiduciary whose purpose is to hold and administer the corpus for other persons (beneficiaries) .
D) An estate exists only temporarily, but a trust may have a prolonged or even indefinite existence.
E) All of these are true.

F) B) and D)
G) None of the above

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Question 33

True/False

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No deductions are allowed when calculating the taxable estate.

A bypass provision in a will requires a decedent to have a taxable estate in order to use a unified credit to reduce total estate taxes on a married couple.

The annual exclusion applies to cumulative gifts made to each donee over the course of the year.

The gift-splitting election only applies to gifts made by taxpayers who reside in community property states.

Which of the following statements is(are) true for both gratuitous and testamentary transfers?

This year Samantha gave each of her three nephews birthday gifts of $10,000 in cash. At Christmas, Samantha gave each of her three nephews Christmas gifts of an additional $5,000 in cash. What is the amount of the taxable gifts, if any, made by Samantha this year?

This year Nicholas earned $500,000 and used it to purchase land in joint tenancy with a right of survivorship with Nevaeh. Has Nicholas made a taxable gift to Nevaeh and, if so, in what amount?

Which of the following is a true statement?

For 2014, the exemption equivalent for the estate tax is $5.34 million.

Tracey is unmarried and owns $7 million in stock and bonds. What is the result if Tracey dies this year and leaves all of her property to a qualified charity?

The probate estate will include the total value of all real property owned by the decedent at the time of death regardless of whether the decedent co-owned the property as tenants in common or as joint tenants with the right of survivorship.

The unified credit is designed to allow a minimum amount of lifetime transfers without triggering the imposition of a transfer tax.

The estate tax is imposed on testamentary transfers.

A fiduciary is a legal entity that can only exist for a year.

This year Maria transferred $600,000 to an irrevocable trust that pays equal shares of income annually to four cousins (or their estates) for the next eight years. At that time, the trust is terminated and the corpus of the trust reverts to Maria. Determine the amount, if any, of the current gifts and the taxable gifts if the relevant interest rate is 6 percent and Maria is married and elects to gift-split with her spouse.

At her death Tricia had an adjusted gross estate consisting of $8 million of property. Which of the following is a true statement about Tricia's estate or estate tax?

At his death in 2014 Nathan owned the following property: $\begin{array}{c}\begin{array}{lll}\frac{\text { Description}}\\\\\text{Real estate}\\\text{Cash, stock, and bonds}\\\text{Personal property}\\\end{array}\begin{array}{lll}&\end{array}\begin{array}{lll}\frac{\text { Value }}\\\\{\$ 5,000,000} \\10,500,000 \\200,000\\\end{array}\end{array}$ The real estate is subject to a $1,700,000 mortgage and Nathan made taxable gifts in 2009 totaling $2 million at which time he offset the gift tax with a unified credit (exemption equivalent of $2 million). Nathan has never been married. What is the amount of his estate tax due?

Both spouses must consent to any gift-splitting election.