True/False
Indicate whether the
statement is true or false.
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1.
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Sometimes also known as
transaction taxes, Federal gift and estate taxes are excise taxes.
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2.
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A lifetime transfer that is
supported by full and adequate consideration is not a gift.
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3.
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One of the reasons the estate tax was enacted was to prevent the avoidance of
the gift tax by the making of “deathbed gifts.”
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4.
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Some states impose inheritance
taxes, but the Federal tax system does not.
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5.
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An estate tax is a tax on the right of an heir to receive property on the death
of the owner.
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6.
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. In some cases, the Federal gift tax can be imposed on someone other than
the donor
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7.
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. Manuel, a citizen and resident of Argentina, makes a gift to his children
of a ranch located in Colorado. Manuel will be subject to the U.S. gift tax
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8.
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Kim, a resident and citizen of
Korea, dies during an operation at the Mayo Clinic in Rochester (MN). Because Kim died in the U.S.,
he will be subject to the Federal estate tax.
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9.
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Becky made taxable gifts in 2016, 2017, and 2018. In computing the gift tax on
the 2018 gift, she must consider all of the prior taxable gifts
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10.
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. For Federal estate tax purposes, the gross estate does not include
property that will pass to a surviving spouse.
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Multiple Choice
Identify the
choice that best completes the statement or answers the question.
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11.
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Which, if any, of the following is not a characteristic of the Federal
gift tax?
a. | A charitable deduction is available. | d. | A marital deduction is
available. | b. | The alternate valuation date of § 2032 can be elected. | e. | None of the above. | c. | A disclaimer
procedure may avoid the tax. |
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12.
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Which, if any, of the following
is not a characteristic of the Federal estate tax?
a. | A foreign tax credit is available. | d. | A charitable deduction is
available. | b. | A credit for tax on prior transfers may be available. | e. | None of the above. | c. | Post-1976 taxable
gifts need to be considered. |
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13.
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Which of the following is
not a characteristic of both the Federal gift tax and the Federal estate tax?
a. | A deduction for state death taxes may be available. | d. | An exclusion amount is available in
computing the tax. | b. | A charitable deduction is
available. | e. | None of the
above. | c. | A charitable deduction is available. |
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14.
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In which of the following
situations is Polly’s property ownership interest not lost by her prior death?
a. | Tenancy by the entirety. | d. | Life estate in an irrevocable
trust. | b. | Tenancy in common. | e. | None of the above. | c. | Joint tenancy. |
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15.
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Which, if any, of the following
statements correctly reflects the rules applicable to the alternate valuation date (i.e.,
§ 2032)?
a. | The election is made by the executor. | d. | Its election does not affect the
income tax basis of property included in the gross estate. | b. | Can be elected even
though no estate tax return (i.e., Form 706) has to be filed. | e. | None of the above. | c. | Can be elected only
if it reduces the amount of the gross estate or reduces the estate tax
liability. |
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16.
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At the time of his death, Tom
owned some common stock.
| Date of Death | Value Six | | Value | Months Later | Citron Corporation | $1,500,000 | $1,100,000 | Grey Corporation | 1,300,000 | 1,400,000 | | | |
If the alternate valuation
date is properly elected, the value of Tom’s estate as to these stocks is:
a. | $2,300,000. | d. | $2,700,000. | b. | $2,400,000. | e. | None of the above. | c. | $2,500,000. |
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17.
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In which, if any, of the following independent situations has Jean made a
gift?
a. | Jean gives her 19-year old son $20,000 to be used by him for his college
expenses. | d. | Jean contributes $10,000 to her U.S. Senator’s reelection
campaign | b. | Jean buys her non-dependent grandfather a new $120,000 RV for his
birthday. | e. | None of the
above | c. | Jean sends $14,000 to Temple University to cover her nephew’s tuition. The
nephew does not qualify as Jean’s dependent |
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18.
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In which, if any, of the
following independent situations has Trent made a gift?
a. | Trent established an irrevocable trust, income payable to himself for life and, upon
his death, remainder to his children. | d. | Trent pays Eva $800,000 in a property settlement of her marital
rights. One month later Trent and Eva are divorced. | b. | Trent dies owning a U.S. savings bond with
ownership listed as: “Trent, payable to Sue on Trent’s death.” Sue redeems the
bond. | e. | None of the
above. | c. | Trent sends $25,000 to Alice’s oral surgeon in payment of her dental implants.
Alice is Trent’s sister and does not qualify as his dependent. |
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19.
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In which of the following situations has a taxable gift occurred?
a. | Heidi creates a revocable trust, income payable to herself, remainder to her
children. | d. | Before their marriage, Eva gives Arlan $500,000 in securities. | b. | Herman establishes a
joint savings account with his sister. | e. | None of the above. | c. | After Herman’s death, his sister
withdraws the funds he placed in their joint savings account. |
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20.
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Stacey inherits unimproved land
(fair market value of $6 million) from her father on June 1, 2017. Stacey disclaims her interest in
the property as follows: one-third on December 1, 2017 one-third on January 3, 2018; and the
remaining one-third on May 31, 2018. In all cases, the disclaimers pass the interest to her son (the
next heir under state law). The Federal gift tax applies to Stacey for:
a. | All of the disclaimers. | d. | All of the disclaimers made in
2017. | b. | The disclaimer made in 2017. | e. | None of the disclaimers. | c. | The May 31, 2018
disclaimer. |
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21.
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Concerning the election to split gifts under § 2513, which of the
following statements is incorrect?
a. | The election can be made even if the parties are not married for the entire year of
the gift. | d. | The election has no utility in a community property jurisdiction. | b. | The election does
take into account any prior taxable gifts made by either spouses. | e. | The election can be made even if the parties
are divorced as long as neither spouse has remarried by the end of the year. | c. | The election doubles
the number of annual exclusions available. |
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22.
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Which, if any, of the following is a correct statement regarding the
filing of a gift tax return (Form 709)?
a. | A donor must file a Form 709 in the same year in which the gift was
made. | d. | Melody gives her husband a new Mercedes convertible for his birthday. Melody must
file a Form 709 to report the gift even though no gift tax results. | b. | The due date of a
Form 709 is the same as the due date of the donor’s Form 1040. | e. | None of the above. | c. | A Form 709 may have
to be filed even though the value of the gift was less than the amount of the annual
exclusion. |
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23.
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Mark dies on March 6, 2018.
Which, if any, of the following items is not included in his gross estate?
a. | Interest earned (before death) on City of Cleveland bonds. | d. | Insurance recovery
on auto accident that occurred on February 25, 2018. | b. | Cash dividend on stock owned by
Mark—declaration date was February 3, 2018, and record date was March 5,
2018. | e. | Insurance recovery
from theft of sailboat on March 7, 2018. | c. | Federal income tax refund for
2017—received on March 5, 2018. |
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24.
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At the time of his death, Norton
was involved in the following transactions.
| | Owned land in joint
tenancy with Emily. The land is worth $600,000 and was purchased by Norton 15 years ago for
$150,000. | | | | | Owned land in a tenancy by the entirety with Amy. The land is
worth $800,000 and was purchased by Norton five years ago for $450,000. | | | | | Owned land in an equal tenancy in common with Noah. The land
is worth $400,000 and was purchased by Norton four years ago for $300,000. | | | | | Owned City of Dayton bonds worth $500,000. | | |
What amount is included in Norton’s gross estate?
a. | $900,000 | d. | $2,100,000 | b. | $1,100,000 | e. | None of the above. | c. | $1,700,000 |
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25.
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At the time of her death on
October 4, 2018, Kaitlyn was involved in the following transactions.
| | Was the sole life
beneficiary of a trust (assets worth $2 million) created 10 years ago by Paul (Kaitlyn’s
husband). The transfer was by gift of securities then worth $500,000 (Paul did not make a QTIP
election). Paul and Kaitlyn’s children are the remainder persons. | | | | | Owned stock in Mauve Corporation (basis of $800,000 and fair
market value of $1 million). On September 7, 2018, a dividend of $48,000 was declared on the stock
payable to all shareholders on record as of October 3, 2018. The $48,000 was received by
Kaitlyn’s executor on October 19, 2018. | | | | | Kaitlyn made a taxable gift of $400,000 in
2018. | | |
As to these transactions,
Kaitlyn’s gross estate includes:
a. | $1,048,000. | d. | $3,048,000. | b. | $1,448,000. | e. | None of the above. | c. | $3,000,000. |
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26.
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Pursuant to Corey’s will,
Emma (Corey’s sister) inherits his property. Emma dies later. The estate tax attributable to
the inclusion of the property in Corey’s gross estate was $300,000. The estate tax attributable
to the inclusion of the property in Emma’s gross estate is $400,000. Emma’s credit for
the tax on prior transfers (under § 2013) is:
a. | $0 if Emma died 9 1/2 years after Corey. | d. | $24,000 if Emma died 5 1/2 years
after Corey. | b. | $32,000 if Emma died 3 years after Corey. | e. | None of the above amounts is
correct. | c. | $40,000 if Emma died 1 year after Corey. |
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27.
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June made taxable gifts as
follows: $200,000 in 2016, $600,000 in 2018 and $700,000 in 2018. In 2018, June dies leaving a
taxable estate of $4,000,000. June’s tax base for applying the unified tax rate schedules (for
estate tax purposes) is:
a. | $4,000,000. | d. | $5,500,000. | b. | $4,500,000. | e. | None of the above. | c. | 5,300,000. |
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28.
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In 1985, Drew creates a trust
with $1,000,000 of securities. Under the terms of the trust, Paula (Drew’s wife) is granted a
life estate with remainder to their children. Drew makes a QTIP election as to the trust. Drew dies
in 1992 when the trust is worth $1,500,000, and Paula dies in 2018 when the trust is worth
$2,000,000. Which, if any, of the following is a correct statement?
a. | The trust is included in Drew’s gross estate when he dies in
2018 | d. | All of the value of the trust ($2,000,000) is included in Paula’s gross estate
when she dies in 2018. | b. | None of the trust is included in Paula’s
gross estate when she dies in 2018. | e. | None of the above. | c. | Drew does not get a marital deduction in
1985. |
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29.
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Homer and Laura are husband and
wife. At the time of Homer’s prior death in 2018, they owned the following: land as tenants by
the entirety worth $2,000,000 (purchased by Homer) and stock as equal tenants in common worth
$3,000,000 (purchased by Laura). Homer owns an insurance policy on his life (maturity value of
$1,000,000) with Laura as the designated beneficiary. Homer’s will passes all his property to
Laura. How much marital deduction is allowed Homer’s estate?
a. | $2,000,000 | d. | $4,500,000 | b. | $2,500,000 | e. | None of the above. | c. | $3,500,000 |
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30.
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Gerald and Pat are husband and wife and live in New York. In 2018, they purchase
an insurance policy (joint ownership) on Gerald’s life and designate their daughter, Marie, as
the beneficiary. The policy has a maturity value of $4,000,000 and lists ownership as tenants in
common. Gerald dies first in 2018 and the insurance proceeds are paid to Marie. As to the
proceeds:
a. | Gerald’s gross estate includes $0, and no other tax consequences
ensue. | d. | Gerald’s gross estate includes $0, and Pat makes a gift of $4,000,000 to
Marie. | b. | Gerald’s gross estate includes $4,000,000. | e. | None of the above | c. | Gerald’s gross
estate includes $2,000,000, and Pat makes a gift to Marie of
$2,000,000. |
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