a. The justification for the election
b. A Form 706 need not be filed for the estate.
c. The main heir prefers the date of death value
d. An estate asset is distributed to an heir three months after the decedent’s death
e. Some estate assets have appreciated in value since the death of the decedent
f. Effect of the election on income tax basis.
g. Treatment of income accruing from the property from the date of death to the alternate valuation date.
14. Addison provides all the support of her dependent father, Water, who lives with her. Because Walter is very proud and wants to appear independent, Addison gives him the money to pay his medical bills. Is Addison subject to the Federal gift tax as a result of these transfers? Explain
17. The Randalls have a married son and four grandchildren (ages 15, 17, 18, and 19). They establish a trust under which the income is to be paid annually to the grandchildren until the youngest reaches age 25. At that point the trust terminates and the principal (corpus) is distributed to the son. What annual gift tax exclusions are allowed, if any, on the creation of the trust?
19. Regarding the gift splitting provision of 2513, comment on the following:
a. What it was designed to accomplish
b. The treatment of any taxable gifts previously made by the non-owner spouse.
c. How the election is made.
d. The spouses are divorced during the year.
e. The utility of the election in a community property jurisdiction.
27. Due to the negligence of the other driver, Adam’s car is completely destroyed, and he is seriously injured. Two days later, Adam dies from injuries suffered in the accident.
a. What if any are the estate tax consequences of this situation?
b. Are there any income tax consequences to Adam or his estate?
29. Bernice dies, and under a will, passes real estate to her surviving husband. The real estate is subject to a mortgage. For estate tax purposes, how will any marital deduction be determined? Can Bernice’s estate deduct the mortgage under 2053? Explain
34. Arlene’s estate include the following assets
Fair Market Value
Date of Death Six Months Later
Apartment Building 4,400,000 4,380,000
Stock in Red Corporation 1,200,000 1,300,000
Stock in Tan Corporation 900,000 700,000
Accrued rents on the apartment building are as follows” 70,000 (date of death) and 60,000 (six months later). In order to pay expenses, the executor of Arlene’s estate sells the Tan stock for $600,000 eight months after her death
a. If the 2032 election is made, how much is included in Arlene’s gross estate>
b. As to part (a), assume the Tas stock is sold for $600,000 five months (rather than eight months) after Arlene’s death. How does this change your answer, it at all?
c. How much is included in the gross estate if the 2032 election is not made?
35. In each of the following independent situations, indicate whether the alternate valuation date can be elected. Explain why or why not. Assume all death occurs in 2011.
Value of Gross Estate Estate Tax Liability
Decedent Date of Death Six Months Later Date of Death Six Months Later
Art 6,000,000 5,900,000 240,000 241,000
Maude 6,000,000 6,100,000 265,000 260,000
Bob 6,100,000 6,000,000 200,000 190,000
Bette 6,500,000 6,400,000 205,000 210,000
39. Using property she inherited, Myrna makes a gift of $6.2 million to her adult daughter, Doris. The gift takes place in 2011. Neither Myrna nor her husband, Greg, has made any prior taxable gifts. Determine the gift tax liability if:
a. The 2513 election to split gifts is not made.
b. The 2513 election to split gifts is made.
C What are the tax savings from making the election?
40. At the time of death on September 2011, Kenneth owned the following assets.
Fair Market Value
City of Boston bonds 1,500,000
Stock in Brown Corporation 800,000
Promissory note issued by Brad (Kenneth’s son) 300,000
In October 2011, the executor of Kenneth’s estate received the flowing: $90,000 interest on the City of Boston bonds (20,000 accrued since September 2) and an $8,000 cash dividend on the Brown stock (date of record was September 1). The declaration date on the dividend was August 12. The $300,000 loan was made to Brad in late 2007, and he used the money to create a very successful business. The note was forgiven by Kenneth in his will. What are the estate tax consequences of these transactions?
43. At the time of Matthew’s death, he was involved in the transactions described below.
Matthew was a participant t in his employer’s contributory qualified pension plan. The plant balance of $2 million is paid to Olivia, Matthew’s daughter and beneficiary. The distribution consists of the following:
Employers Contributions 900,000
Matthew’s after tax contributions 600,000
Income earned by the plan 500,000
Matthew was covered by his employer’s group term life insurance plan for employees. The $200,000 proceeds are paid to Olivia, the designated beneficiary.
a. What are the estate tax consequences?
b. The income tax consequences?
c. Would the answer to part 9a) change if Olivia was Matthew’s surviving spouse (not his daughter)? Explain
44. Before her death in early 2011, Katie made the following transfers.
• In 2008, purchased stock in Green Corporation for $200,000, listing title as follows: “Katie, payable on proof of death to my son, Travis.” Travis survives Katie, and the stock is worth $300,000 when Katie dies.
• In 2009, purchased an insurance policy on her life for $200,000 listing Paul, another of Katie’s sons, as the designated beneficiary. The policy has a maturity value of $1 million and was immediately transferred to Paul as a gift.
• In 2010, made a gift of land (basis of $300,000; fair market value of $1.3 million) to Adriana, Katie’s only daughter. As a result of the transfer, Katie paid a gift tax of $150,000. The value of the land is still $1.3 million at Katie’s death.
• In 2009, established a savings account with $100,000, listing title as “Katie and Wilma, joint tenants with right of survivorship.” Wilma, Katie’s mother, died in 2010 when the accounts balance was $102,000. At Katie’s death the balance was $104,000
As to these transfers, how much is included in Katie’s gross estate?
45. In 2004, using $2 million in community property, Warrant creates a trust, life estate to his wife, Ava, and remainder to their children. Warren dies in 2008 when the trust is worth $3.4 million, and Ava dies in 2011 when the trust is worth $4.6 million.
a. Did Warren make a gift in 2004? Explain.
b. How much, if any, of the trust is included in Warren’s gross estate in 2008?
c. How much, if any, of the trust is included in Ava’s gross estate in 2011?
d. Would the answer to part (b) change if Warren had died in 2006 (rather than 2008)? Explain
47. In 2007, Peggy, a widow, places $3 million in trust, life estate to her children, reminder to her grandchildren, but retains the right to revoke the trust. In 2010, when the trust is worth $3.1 million, Peggy rescinds her right to revoke the trust. Peggy dies in 2011 when the trust is worth $3.2 million. What are Peggy’s transfer tax consequences in:
49. At the time of his death on June 6, 2011 Keith was involved in the following real estate.
Fair Market Value on June 6, 2011)
Apartment Building 2,000,000
Tree farm 1,200,000
The apartment building was purchased by Emma, Keith’s mother, and is owned in a joint tenancy with her. The tree farm and pastureland were gifts from Emma to Keith and his 2 sisters. The tree farm is held in joint tenancy, and the pastureland is owned as tenants in common. Keith purchased the residence and owns it with his wife as tenants by the entirety. How much is included in Keith’s gross estate based on the following assumptions?
a. Keith dies first and is survived by Emma, his sisters, and his wife
b. Keith dies after Emma, but before his sisters and his wife
c. Keith dies after Emma and his sisters, but before his wife.
d. Keith dies last (i.e. he survives Emma, his sisters, and his wife).