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Exam 14: Transfer Taxes and Wealth Planning

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Question 41

Multiple Choice

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This year Anthony transferred $250,000 of bonds to a trust with directions to the trustee to pay income to his son for the next 20 years. After 20 years the trust corpus would revert to Anthony. Which of the following is a true statement?

A) Anthony has made a $250,000 gift.
B) Anthony has made a $237,000 taxable gift.
C) Anthony has not yet made a completed gift.
D) Anthony has made a completed gift of the income interest only.
E) None of these

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

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Question 42

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An exemption equivalent is the amount of annual gifts that is automatically exempt from the gift tax. The amount of cumulative taxable transfers a person can make without exceeding the unified credit is the exemption equivalent.

A) True
B) False

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Question 43

Multiple Choice

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The unified credit is designed to:

Gabriel had a taxable estate of $6 million when he died in 2016. Calculate the amount of estate tax due (if any) if Gabriel made prior taxable gifts in 2005 totaling $1 million at which time he claimed a unified credit of $1 million and paid no tax. Gabriel was unmarried at his death.

A serial gift strategy consists of arranging a trust to maximize the value of the unified credit.

The income tax benefit derived from a step-up in tax basis should be measured against the estate tax cost of including the property in the decedent's gross estate.

Including adjusted taxable gifts in the taxable estate causes these gifts to be taxed twice, once under the gift tax and again under the estate tax.

The theft of property included in the gross estate is only deductible in calculating the taxable estate if the loss exceeds 10 percent of the decedent's adjusted gross estate. Casualty and theft losses are deductible without any floor limitation.

Which of the following is a true statement?

Ashley owns a whole-life insurance policy worth $25,000 that directs the insurance company to pay the beneficiary $500,000 on her death. Ashley pays the annual policy premiums and has the power to designate the beneficiary of the policy. What value of the policy, if any, would be included in Ashley's estate upon her death?

This year Alex's friend, Kimberly, was disabled. Alex paid $25,000 to Kimberly's doctor for medical expenses. In addition, Alex also paid $15,000 to Kimberly so that her son could afford tuition at State University this year. Has Alex made taxable gifts, and if so, in what amounts?

A withdrawal of money from a bank account held in joint tenancy with the right of survivorship may constitute a completed gift.

The testamentary transfer of property to a qualified charity is deductible in calculating the taxable estate without any ceiling limitation.

A transfer of cash to a bank account held in joint tenancy with the right of survivorship is not a completed gift.

At her death Serena owned real estate worth $210,000 with her spouse in joint tenancy with the right of survivorship. Serena contributed $50,000 to the original cost of the property and her spouse contributed the remaining $100,000. What amount, if any, is included in Serena's gross estate?

Caleb transferred $115,000 to an irrevocable trust for Avery. The trustee has the discretion to distribute income or corpus for Avery's benefit but is required to distribute all assets to Avery (or his estate) not later than Avery's 21^st birthday. What is the amount, if any, of the taxable gift?

The estate tax is imposed on testamentary transfers.

Natalie transferred $500,000 of bonds to a revocable trust with directions to the trustee to pay income to her aunt for five years after which the corpus is to be distributed to Natalie's niece. At year end, the trustee paid $15,000 of income to the aunt. Which of the following is a true statement?

For the holidays, Samuel gave a necklace worth $35,000 to Jennifer and jewelry worth $44,000 to Savannah. Samuel is married to Wendy and they live in a community property state. Has Samuel made any taxable gifts and, if so, in what amounts?

The tax rate schedule on taxable transfers has a maximum tax rate of 40% for 2016.