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Unformatted text preview: H Chapter Twenty-four H THE FEDERAL TRANSFER TAXES SOLUTIONS TO PROBLEM MATERIALS DISCUSSION QUESTIONS 24-1 Both the Federal gift and estate taxes are computed with reference to a single rate schedule. Both taxes are imposed cumulatively. Upon an individuals death, his or her taxable estate is added to the amount of his or her inter vivos gifts to determine the base for imposition of the Federal estate tax. [See p. 24-3 and 2001(b).] 24-2 Because amounts of wealth transferred at death to a surviving spouse are fully deductible from a decedents gross estate, such amounts of wealth are not subject to the Federal estate tax until the death of the second spouse. Similarly, inter vivos gifts between spouses are not subject to the Federal gift tax. (See p. 24-30 and 2056 and 2523.) 24-3 No. This transaction represents a valid arms length sale between unrelated business parties. (See p. 24-7 and Reg. 25.2512-8.) 24-4 The $50,000 payment does represent a taxable gift from Mr. K to his son. The consideration that Mr. K received in return for the $50,000 payment (Ss agreement to live in the same town as Mr. K) is not valuable in money or moneys worth. (See p. 24-7 and Reg. 25.2512-8.) 24-5 The creation of the joint account is an incomplete transfer and, therefore, does not constitute a taxable gift. The gift is created only when GS makes a withdrawal. [See p. 24-8 and Reg. 25.2511-1(h)(4).] 24-6 The Federal gift tax is computed on a cumulative basis over a taxpayers lifetime. [See Example 7, p. 24-13, and 2502(a).] 24-7 To compute the Federal estate tax, a decedents taxable estate is added to the total amount of his or her adjusted taxable gifts. Tax is computed on this total base, and gift taxes paid during the decedents life are subtracted to leave an amount of Federal estate tax payable. [See Exhibit 24-4, pp. 24-17 and 24-31 and 2001(b).] 24-8 Examples include gifts made in which the donor retains an income interest in the transferred property (see Example 22, p. 24-25, and 2036) and gifts made in which the donor retains the right to alter, amend, or revoke the conditions of the gift. (See Example 21, p. 24-25, and 2038.) 24-9 First, the assets included in the decedents gross estate must be identified and valued. Second, any debts of the decedent, claims against the estate, funeral and administrative expenses, and losses incurred during estate administration may be deducted. Third, any qualifying bequests to charity or to a surviving spouse may be deducted. (See pp. 24-16 and 24-7.) 24-10 The gross estate concept is much broader than the legal probate estate. Many assets not legally owned by the decedent at death may be included in his gross estate for Federal tax purposes. However, only assets owned at death and transferred under the terms of a decedents will are included in his or her probate estate. (See Exhibit 24-5, pp. 24-18 and 24-19.) 24-1 24-11 a. Many individuals see joint tenancy as a substitute for a will without all of the problems associated...
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This note was uploaded on 09/10/2011 for the course ECON 3301 taught by Professor Clavin during the Spring '10 term at Hartford.
- Spring '10