148 cole purchases land for 500000 and transfers it

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South-Western Federal Taxation 2020: Corporations, Partnerships, Estates and Trusts
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Chapter 18 / Exercise 38
South-Western Federal Taxation 2020: Corporations, Partnerships, Estates and Trusts
Raabe/Young/Nellen/Hoffman
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148. Cole purchases land for $500,000 and transfers it by gift to his two daughters, Madison and Paige, as equal joint tenants with the right of survivorship. Ten years later, when the land is worth $2,000,000, Madison predeceases Paige. Madison’s executor includes none of the value of the land in her gross estate, as she contributed nothing toward its cost. Do you agree?ANSWER: Madison’s gross estate must include $1,000,000 (50% of $2,000,000) as to the land. Cole’s gift is treated as an equal contribution by each of his daughters.POINTS: 1DIFFICULTY: ModerateLEARNING OBJECTIVES: SCPE.HRMY.15.LO: 18-06 - LO: 18-06
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South-Western Federal Taxation 2020: Corporations, Partnerships, Estates and Trusts
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Chapter 18 / Exercise 38
South-Western Federal Taxation 2020: Corporations, Partnerships, Estates and Trusts
Raabe/Young/Nellen/Hoffman
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Chapter 18 - The Federal Gift and Estate TaxesNATIONAL STANDARDS: United States - BUSPORG: AnalyticSTATE STANDARDS: United States - AK - AICPA: FN-ReportingKEYWORDS: Bloom's: ComprehensionOTHER: Time: 10 min.149. When Travis learns he is seriously ill, he transfers an insurance policy on his life (maturity value of $2,000,000) to his wife Alexis. The couple’s adult children are the designated beneficiaries of the policy. Has Travis acted wisely?ANSWER: Even if Travis lives for three years and avoids § 2035, he has placed Alexis in a gift situation.Unless the beneficiaries are changed, she will make a gift to the children of $2,000,000 when Travis dies.POINTS: 1DIFFICULTY: ModerateLEARNING OBJECTIVES: SCPE.HRMY.15.LO: 18-06 - LO: 18-06NATIONAL STANDARDS: United States - BUSPORG: AnalyticSTATE STANDARDS: United States - AK - AICPA: FN-ReportingKEYWORDS: Bloom's: ComprehensionOTHER: Time: 10 min.150. What is the justification for the terminable interest rule that is applicable to the marital deduction?ANSWER: The marital deduction is based on the premise that husband and wife are a single economic unit. Thus, property can pass between spouses (either by gift or at death) free of any transfer tax. But once property leaves the family unit, any applicable transfer tax should be imposed. The purpose of the terminable interest rule is to preclude the avoidance of this final transfer tax.Example. H dies and leaves his property in trust, life estate to W and remainder to their children. W dies five years later.Without the terminable interest rule, most of the trust would notbe subject to an estate tax. H would be allowed a marital deduction and W’s interest ceases at her death (§ 2036 does not apply as W was not the grantor of the trust). Unless a QTIP election is made (or W is granted a general power of appointment), therefore, W has a terminable interest and H’s estate is not allowed a marital deduction. With a QTIP election (or a general power of appointment), H’s estate receives the marital deduction and the trust is included in W’s gross estate.POINTS: 1DIFFICULTY: ModerateLEARNING OBJECTIVES: SCPE.HRMY.15.LO: 18-07 - LO: 18-07NATIONAL STANDARDS: United States - BUSPORG: AnalyticSTATE STANDARDS: United States - AK - AICPA: FN-ReportingKEYWORDS: Bloom's: ComprehensionOTHER: Time: 10 min.

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