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Exam 14: Transfer Taxes and Wealth Planning

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Question 1

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This year Nathan transferred $7 million to an irrevocable trust established for the benefit of his nephew. The trustee is directed to accumulate income for the next five years before distributing the trust corpus to Nathan's nephew. In past years Nathan has made taxable gifts of $6 million and used an applicable credit on an exemption equivalent of $5 million. What amount of gift tax, if any, must Nathan remit?

A) $168,000.
B) $240,000.
C) $345,800.
D) zero-there is a $11.58 million exemption equivalent.
E) None of the choices are correct. The amount of tax cannot be estimated without the use of a tax rate schedule.

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

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Question 2

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At his death Stanley owned real estate worth $345,000 with two other individuals as equal tenants in common. Stanley contributed $50,000 to the $100,000 total cost of the property. What amount, if any, is included in Stanley's gross estate?

A) $50,000.
B) $172,500.
C) $345,000.
D) $115,000.
E) None of the choices are correct.

F) B) and D)
G) A) and D)

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Question 3

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Isaac is married and Isaac and his spouse agree that they want to transfer the maximum amount of cash to each of their four children and six grandchildren. How much cash in total can Isaac and his spouse transfer to his children and grandchildren each year without creating any taxable gifts?

The executor of Isabella's estate incurred administration expenses of $39,500 and paid $6,600 in funeral expenses. The executor charged the estate for $25,500 in fees. What is the maximum amount Isabella's estate can deduct in computing the adjusted gross estate?

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 asa tenant in common or asa joint tenant with the right of survivorship.

No deductions are allowed when calculating the taxable estate.

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

Alexis transferred $413,000 to a trust with directions to pay income to her spouse, William, for his life. After William's death the corpus of the trust will pass to William's son. If the life estate is valued at $79,500, what is the total amount of the taxable gifts?

The executor of Isabella's estate incurred administration expenses of $32,000 and paid $5,000 in funeral expenses. The executor charged the estate for $24,000 in fees. What is the maximum amount Isabella's estate can deduct in computing the adjusted gross estate?

The gross estate always includes the value of half of any real property owned by a decedent and another person in joint tenancy with the right of survivorship.

An applicable 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 applicable credit amount?

Matthew and Addison are married and live in Michigan, a common-law state. For the holidays Addison gave cash gifts of $41,500 to each of her two sons, and Matthew gave $41,800 to his daughter. What is the amount of Addison's taxable gifts if Matthew and Addison opt to gift-split?

At his death Jose owned real estate worth $22 million but subject to a mortgage of $7 million. Which of the following is a true statement?

Property is included in the gross estate at the value a willing buyer would pay a willing seller, neither being under any compulsion to buy or to sell, and both having reasonable knowledge of the relevant facts.

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 Titus had a gross estate consisting of $6 million of property. Which of the following is a true statement about Titus' estate or estate tax?

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

Which of the following is a complete taxable gift?

An exemption equivalent is the amount of annual gifts that is automatically exempt from the gift tax.

A terminable interest in property is any interest that terminates during the current year.