FTax SM_ch24_p001-008

2011 Federal Taxation (with H&R BLOCK At Home(TM) Tax Preparation Software CD-ROM)

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* C HAPTER F OURTEEN * ESTATE AND GIFT TAXATION SOLUTIONS TO PROBLEM MATERIALS DISCUSSION QUESTIONS 14-1 Both the Federal gift and estate taxes are computed with reference to a single rate schedule. Both taxes are imposed cumulatively. Upon an individual ' s 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. 14-3 and § 2001(b).] 14- 2 Because amounts of wealth transferred at death to a surviving spouse are fully deductible from a decedent ' s 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. 14-30 and §§ 2056 and 2523.) 14-3 No. This transaction represents a valid " arm ' s length " sale between unrelated business parties. (See p. 14-7 and Reg. § 25.2512-8.) 14-4 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 (S ' s agreement to live in the same town as Mr. K) is not valuable in money or money ' s worth. (See p. 14-7 and Reg. § 25.2512-8.) 14-5 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. 14-8 and Reg. § 25.2511-l(h)(4).] 14-6 The Federal gift tax is computed on a cumulative basis over a taxpayer ' s lifetime. [See Example 7, p. 14-13, and § 2502(a).] 14-7 To compute the Federal estate tax, a decedent ' s 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 decedent ' s life are subtracted to leave an amount of Federal estate tax payable. [See Exhibit 14-4, pp. 14-17 and 14-31 and § 2001(b).]
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14-8 Examples include gifts made in which the donor retains an income interest in the transferred property (see Example 22, p. 14-25, 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. 14-25, and § 2038.) 14-9 First, the assets included in the decedent ' s 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. 14-16 and 14-7.) 14-10 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 decedent ' s will are included in his or her probate estate. (See Exhibit 14-5, pp. 14-18 and 14-19.)
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FTax SM_ch24_p001-008 - * CHAPTER FOURTEEN * ESTATE AND...

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