01 May Question2383. CHAPTER 19—FAMILY TAX PLANNING Question MA #1-10
Question
2383. CHAPTER 19—FAMILY TAX PLANNING Question MA #1-10
Match each statement with the correct choice. Some choices may be used more than once or not used at all.Valuation of a commercial annuity contract.Valuation of a life insurance policy that is not paid up.Martial deduction allowed.Discount for lack of marketability as to stock.Special use valuation as to certain realty (§ 2032A).Discount attributable to a large number of shares.Valuation of life estate interest created by transfer in trust.Exemption equivalent.Surviving owners agree to purchase withdrawing owner’s interest.Corporation agrees to redeem withdrawing shareholder’s stock.Replacement cost of a comparable contact No correct choice is given Portion of a deceased spouse’s share of community property that passes to a surviving spouse Cost of going public Current use value Blockage rule Use IRS valuation tables Bypass amount Cross-purchase buy and sell agreement Entity buy and sell agreement Best or most suitable use value
[a] 1. Valuation of a commercial annuity contract.
[b] 2. Valuation of a life insurance policy that is not paid up.
[c] 3. Martial deduction allowed.
[d] 4. Discount for lack of marketability as to stock.
[e] 5. Special use valuation as to certain realty (§ 2032A).
[f] 6. Discount attributable to a large number of shares.
[g] 7. Valuation of life estate interest created by transfer in trust.
[h] 8. Exemption equivalent.
[i] 9. Surviving owners agree to purchase withdrawing owner’s interest.
[j] 10. Corporation agrees to redeem withdrawing shareholder’s stock.
2384. CHAPTER 19—FAMILY TAX PLANNING Question MA #11-20
Match each statement with the correct choice. Some choices may be used more than once or not used at all.Deferral approach.Equalization approach.Donee’s basis for gain.Donee’s basis for loss.A gift will not cause income tax consequences to the donor.Decedent owned stock that had appreciated in value.Decedent owned traditional IRA that has appreciated.Surviving spouse disclaims inheritance in favor of bypass amount.A gift causes income tax consequences to the donor.Measure of income tax deduction on a gift of property to charity.Expected surviving spouse is in good health Expected surviving spouse is already wealthy Donor’s basis on date of gift (appreciated property given, no gift tax due) Fair market value on date of gift (depreciated property given) Gift of property that has § 1245 or § 1250 potential for recapture of depreciation Step-up in basis Income in respect of a decedent (IRD) The amount of the deceased spouse’s taxable estate does not change Gift of installment notes receivable Fair market value on date of gift (depreciated property given) Step-down in basis No correct choice is given
[a] 1. Deferral approach.
[b] 2. Equalization approach.
[c] 3. Donee’s basis for gain.
[d] 4. Donee’s basis for loss.
[e] 5. A gift will not cause income tax consequences to the donor.
[f] 6. Decedent owned stock that had appreciated in value.
[g] 7. Decedent owned traditional IRA that has appreciated.
[h] 8. Surviving spouse disclaims inheritance in favor of bypass amount.
[i] 9. A gift causes income tax consequences to the donor.
[j] 10. Measure of income tax deduction on a gift of property to charity.
2385. CHAPTER 19—FAMILY TAX PLANNING Question MA #21-30
Match each statement with the correct choice. Some choices may be used more than once or not used at all.Can produce income tax, ad valorem property tax, and estate tax savings.Election by estate can affect income tax basis of surviving spouse’s share of community property.Living trusts.Eliminates common stock from donor’s gross estate.Transfer by death of depreciable property.Reasonable cause will justify election.Doubles the number of annual exclusions available.No step-up in basis at death.Eliminates preferred stock from donor’s gross estate.Can postpone payments of the estate tax for up to 10 years from due date of the return.Conservation easement Special use valuation as to certain realty (§ 2032A) Revocable trusts Estate freeze—corporations Depreciation recapture potential eliminated Discretionary extension of time to pay estate tax (§ 6161) Election to split gifts (§ 2513) Income in respect of a decedent (IRD) No correct choice is given Discretionary extension of time to pay estate tax (§ 6161) Extension of time involving interest in closely held business (§ 6166) Alternate valuation date (§ 2032)
[a] 1. Can produce income tax, ad valorem property tax, and estate tax savings.
[b] 2. Election by estate can affect income tax basis of surviving spouse’s share of community property.
[c] 3. Living trusts.
[d] 4. Eliminates common stock from donor’s gross estate.
[e] 5. Transfer by death of depreciable property.
[f] 6. Reasonable cause will justify election.
[g] 7. Doubles the number of annual exclusions available.
[h] 8. No step-up in basis at death.
[i] 9. Eliminates preferred stock from donor’s gross estate.
[j] 10. Can postpone payments of the estate tax for up to 10 years from due date of the return.
2386. CHAPTER 19—FAMILY TAX PLANNING Question MA #31-40
Match each statement with the correct choice. Some choices may be used more than once or not used at all.Created a living trust.Made life insurance payable to estate.Established a joint tenancy with right of survivorship.Made lifetime gifts.Sold out-of-state realty.Made life insurance payable to children.Created during life an irrevocable trust naming others as beneficiaries.Two years prior to her death, the insured transferred by gift all of the incidents of ownership in an insurance policy on her life. The gift was to her son, the beneficiary of the policy.Paid a gift tax on a gift made two years prior to death of the donor.Purchased a certificate of deposit listing daughter as the beneficiary under a payable on death designation.Decreases the probate estate Increases the probate estate Decreases the probate estate Decreases the probate estate Has no effect on the probate estate Decreases the probate estate Decreases the probate estate Decreases the probate estate Decreases the probate estate Decreases the probate estate
[a] 1. Created a living trust.
[b] 2. Made life insurance payable to estate.
[c] 3. Established a joint tenancy with right of survivorship.
[d] 4. Made lifetime gifts.
[e] 5. Sold out-of-state realty.
[f] 6. Made life insurance payable to children.
[g] 7. Created during life an irrevocable trust naming others as beneficiaries.
[h] 8. Two years prior to her death, the insured transferred by gift all of the incidents of ownership in an insurance policy on her life. The gift was to her son, the beneficiary of the policy.
[i] 9. Paid a gift tax on a gift made two years prior to death of the donor.
[j] 10. Purchased a certificate of deposit listing daughter as the beneficiary under a payable on death designation.
2387. CHAPTER 19—FAMILY TAX PLANNING Question MA #41-50
Match each statement with a correct choice. Choices may be used more than once.Purchased a straight life annuity from an insurance company.Created during lifetime an irrevocable trust in which a life estate is retained with remainder interest passing to the children.Purchased real estate designating herself and her children as equal tenants in common.Spouse purchased residence listing ownership as tenants by the entirety.Brother purchased land listing ownership with decedent as tenants in common.Mother purchases land listing ownership with decedent as joint tenants.Purchased insurance policy that pays all funeral expenses.After death, vacation home is destroyed by fire.Prior to death filed for a refund of overpaid income taxes.Paid medical expenses prior to death.Decreases the probate estate Decreases the probate estate Decreases the probate estate Has no effect on the probate estate Increases the probate estate Has no effect on the probate estate Decreases the probate estate Has no effect on the probate estate Increases the probate estate Decreases the probate estate
[a] 1. Purchased a straight life annuity from an insurance company.
[b] 2. Created during lifetime an irrevocable trust in which a life estate is retained with remainder interest passing to the children.
[c] 3. Purchased real estate designating herself and her children as equal tenants in common.
[d] 4. Spouse purchased residence listing ownership as tenants by the entirety.
[e] 5. Brother purchased land listing ownership with decedent as tenants in common.
[f] 6. Mother purchases land listing ownership with decedent as joint tenants.
[g] 7. Purchased insurance policy that pays all funeral expenses.
[h] 8. After death, vacation home is destroyed by fire.
[i] 9. Prior to death filed for a refund of overpaid income taxes.
[j] 10. Paid medical expenses prior to death.
j. Decreases the probate estate
2388. CHAPTER 19—FAMILY TAX PLANNING Question PR #1
Art makes a gift of stock in Drab Corporation, which is not closely held but is traded in an over-the-counter market. The transactions involving this stock that occurred closest to the date of gift took place five trading days before (mean selling price of $120) and six days after (mean selling price of $100). Determine the fair market value of the Drab stock on the date of the gift.
Correct Answer:
$101.91, determined as follows.
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2389. CHAPTER 19—FAMILY TAX PLANNING Question PR #2
Presuming the § 2032A election is properly made in 2011, what value is included in the gross estate in each of the following independent situations?
Special Use
Best Use
Value
Value
Situation A
$3,000,000
$3,900,000
Situation B
1,200,000
3,000,000
2390. CHAPTER 19—FAMILY TAX PLANNING Question PR #3
Carol inherits her father’s farm, and the executor of the estate properly makes a § 2032A election. Five years later, Carol sells the farm. It is determined that the election, which allowed $800,000 in value to be excluded, saved $160,000 in estate taxes. What are Carol’s tax options? Tax consequences?
2391. CHAPTER 19—FAMILY TAX PLANNING Question PR #4
At the time of her death in 2011, Lila owns 50% of the stock in Kingfisher Corporation, with the balance of the stock held by family members. Kingfisher Corporation’s total profits for the past five years are $3,000,000, and the book value of its stock is $2,000,000. If 8% is an appropriate rate of return and goodwill exists, what is a possible value for the stock to be included in Lila’s gross estate?
2392. CHAPTER 19—FAMILY TAX PLANNING Question PR #5
Jane is the founder of Citron Corporation and owns all of its stock, both common and preferred. The preferred stock is noncumulative and possesses no preferential rights as to liquidation. In 1996 and when the common stock has a value of $1,200,000, Jane gives it to her adult children. She retains the preferred stock which, at this time, has a value of $300,000. In 2011, Jane dies. Values on the date of death are: $3,000,000 for the common stock and $500,000 for the preferred.
a.
What is the amount of the gift Jane makes in 1996?
b.
How much as to Citron Corporation is included in Jane’s gross estate in 2011?
2393. CHAPTER 19—FAMILY TAX PLANNING Question PR #6
Abigail makes a gift of stock (basis of $600,000; fair market value of $1,200,000) to her son, Spencer. As a result of the transfer, Abigail paid a gift tax of $120,000. What is Spencer’s income tax basis in the stock if the gift occurred in 2011?
2394. CHAPTER 19—FAMILY TAX PLANNING Question PR #7
Joseph makes a gift of securities (basis of $900,000; fair market value of $600,000) to his son, Earl. As a result of the transfer, Joseph paid a gift tax of $90,000. What is Earl’s income tax basis in the securities if the gift occurred in 2011?
2395. CHAPTER 19—FAMILY TAX PLANNING Question PR #8
In April 2010, Ed gives his mother, Grace, real estate (basis of $400,000; fair market value of $800,000). Ed paid no Federal gift tax on the transfer. Before Grace’s death in March 2011, she makes $40,000 in capital improvements to the property. The real estate is worth $840,000 when Grace dies. What is the income tax basis of the property to Grace’s heir under each of the following assumptions?
a.
The heir is Ed’s wife.
b.
The heir is Grace’s brother (i.e., Ed’s uncle).
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