Ilene Ishi is planning to fund an irrevocable charitable remainder annuity trust with $100,000 of cash. She will designate her sister, age 60, to receive an annuity of $5,000 per year for 15 years and State University to receive the remainder at the end of the fifteenth year. The valuation of the charitable portion of the transfer, according to Reg. Sec. 25.2522(c)-3(d) (2)(i), is to be determined under Reg. Sec. 1.664-2(c), an income tax regulation. Regulation Sec. 1.664-2(c) provides that, in valuing the remainder interest, the donor may elect to use the Sec. 7520 interest rate for either of the two months preceding the month of the transfer as an alternative to using the rate for the actual month of transfer. Otherwise, the value will be determined by using the Sec. 7520 rate for the month of the transfer. Assume that in the month of the transfer the interest rate was 4% but that in the two preceding months the rate was 4.2%. Should the donor elect to calculate the value of the remainder interest by using the interest rate for one of the two preceding months? Explain your answer. Note: The 4.2% rate does not appear in the excerpts from the actuarial tables, but the absence of such rate from the tables will not preclude you from answering this question.
> Joseph Jernigan died in 2017 with a taxable estate of $4.1 million. He was survived by his spouse Josephine and several children. He made taxable gifts of $100,000 in 1974 and $650,000 in 2000. The property given in 1974 was valued at $425,000 when he di
> Bess, a widow, died in October 2017. Her gross estate, which totaled $7 million, included a $100,000 life insurance policy on her life that she gave away in 2015. The taxable gift that arose from giving away the policy was $15,000. In December 2014, Bess
> Sam Snider died February 14, 2016, survived by his spouse Janet and several children. Sam had not made any taxable gifts. Sam’s gross estate was $7 million. In each of the following independent situations, indicate the amount of Sam’s basic exclusion amo
> Assume the same facts as in Problem C:13-48 and that before Yuji’s death in 2017 his wife already owned property valued at $300,000. Assume that each asset owned by each spouse increased 8% in value by the surviving spouse’s date of death later in 2017 a
> Assume the same facts as in Problem C:13-47 except that Yuji’s will also provided for setting up a trust to be funded with $400,000 of property with a bank named as trustee. His wife is to receive all the trust income semiannually for life, and upon her
> Refer to Problem C:13-45. What is the net addition to Joy’s taxable estate with respect to the insurance policies if all the property passing under Joy’s will was left to Joy’s son? From problem 45: J
> Joy died on November 5, 2017. Soon after Joy’s death, the executor discovered the following insurance policies on Joy’s life. Joy transferred ownership of policies 757 and 848 to her son in 2009. She gave ownership of
> Tai was the sole income beneficiary for life of each of the trusts described below. For each trust, indicate whether and why it was includible in Tai’s gross estate. a. A trust created under the will of Tai’s mother, who died in 1996. Upon Tai’s death,
> Maria died two years after her retirement. At the time of her death at age 67, she was covered by the two annuities listed below. • An annuity purchased by Maria’s father providing benefits to Maria upon her attaining age 65. Upon Maria’s death, surviv
> Complete the chart for each of the following independent distributions. Assume that all distributions are nonliquidating and pro rata to the partners, that no contributed property was distributed, that all precontribution gain has been recognized before
> John died in 2017. What amount, if any, was included in his gross estate in each of the following situations: a. In 1997, John created a revocable trust, funded it with $400,000 of assets, and named a bank as trustee. The trust instrument provided that
> In December 2015, Curt and Kate elected gift splitting to report $16,228,000 of gifts of stocks Curt made to Curt, Jr. Each paid gift taxes of $1,068,000 by spending his or her own funds. Kate died in January 2017 and was survived by Curt. Her only taxab
> In December 2015, Jody transferred stock having an $8,114,000 FMV to her daughter Joan. Jody paid $1,068,000 ($3,185,800 - $2,117,800) of gift taxes on this transfer. When Jody died in January 2017, the stock was valued at $9 million. Jody made no other
> Val died on May 13, 2017. On July 3, 2015, she gave a $400,000 life insurance policy on her own life to son Ray. Because the value of the policy was relatively low, the transfer did not cause any gift tax to be payable. a. What amount was included in Va
> Elaine died on May 1, 2017. Her gross estate consisted of the following items: Elaine’s Sec. 2053 deductions totaled $200,000. She had no other deductions. a. What percentage of Elaine’s federal estate taxes can be p
> Jeung Hong, a widower, died in March 2017. His gross estate was $6.5 million and, at the time of his death, he owed debts of $60,000. His will made a bequest of $200,000 to his undergraduate alma mater and left the rest of his property to his children. H
> Assume the same facts as in Problem C:13-29 except that Annie’s will leaves all her property to a QTIP trust for Dave for life with the remainder to their children. What tax issues should Dave James and the estate’s executor consider with respect to the
> Annie James died early in 2017. All her property passed subject to her will, which provides that her surviving husband, Dave James, is to receive all the property outright. Her will further states that any property Dave disclaims will pass instead to the
> Henry Arkin (a widower) is quite elderly and is beginning to engage in some estate planning. His goal is to reduce his transfer taxes. He is considering purchasing land with a high potential for appreciation and having it titled in the names of himself a
> From a tax standpoint, describe an advantage a very wealthy married person would achieve by disposing of an amount equal to the exemption equivalent (basic exclusion amount) to individuals other than his or her spouse?
> Lisa has a $25,000 basis in her partnership interest before receiving a current distribution of $4,000 cash and land with a $30,000 FMV and a $14,000 basis to the partnership. Assume that any distribution involving Sec. 751 property is pro rata, that any
> Refer to Problem C:13-24. Explain the negative tax considerations (if any) with respect to Bala’s making gifts of the assets that you recommended. From problem 24: Explain which of the following assets you would recommend that Bala transfer during his li
> Explain which of the following assets you would recommend that Bala transfer during his lifetime (more than one asset may be suggested): a. Life insurance on his life b. Cash c. Corporate bonds (assume interest rates are expected to rise) d. Stock in
> Assume that Larry is wealthier than Jane, his wife, and that he is likely to die before her. From an overall tax standpoint (considering transfer taxes and income taxes), is it preferable for Larry to transfer property to Jane inter vivos or at death, or
> Compare the credits available for estate tax purposes with the credits available for gift tax purposes. What differences exist?
> Judy died and was survived by her husband, Jason, who received the following interests as a result of his wife’s death. Does Judy’s estate receive a marital deduction for them? Explain. a. $400,000 of life insurance proceeds; Jason is the beneficiary;
> Compare the tax treatment of administration expenses with that of the decedent’s debts.
> List the various categories of estate tax deductions, and compare them with the categories of gift tax deductions. What differences exist?
> Carlos died six years before his wife Maria died. His will called for the creation of a trust to be funded with $1 million of property. The bank trustee was required to distribute all the trust income semiannually to Maria for the rest of her life. Upon
> Joe’s will required property to be put in trust with a bank as trustee. His will named his sister Tess to receive the trust income annually for life and empowered Tess to will the property to whomever she so desires. In addition, Tess may require that th
> Indicate two situations in which property that has previously been subject, at least in part, to gift taxation is nevertheless included in the donor decedent’s gross estate.
> XYZ Limited Partnership has more than 300 partners and is publicly traded. XYZ was grandfathered under the 1987 Tax Act and has consistently been treated as a partnership. In the current year, XYZ will continue to be very profitable and will continue to
> Describe two circumstances in which life insurance on a decedent’s life is includible in the gross estate under Sec. 2042. If insurance policies on the decedent’s life escape being included under Sec. 2042, are they definitely excluded from the gross est
> When does the consideration furnished test apply to property that the decedent held as a joint tenant with right of survivorship?
> A widow owns a valuable eighteenth-century residence that she would like the state historical society to own someday. Explain to her the estate tax consequences of the following two alternatives: a. Deeding the state historical society a remainder inter
> A client is considering making a very large gift. She wants to know whether the gross-up rule will apply to the entire amount of gift taxes paid by both her and her spouse if the spouses elect gift splitting and she dies within three years of the gift. E
> Explain the difference between the estate tax treatment for gift taxes paid on gifts made two years before death and on gifts made ten years before death.
> From a tax standpoint, which of the following alternatives is more favorable for a client’s estate? a. Buying a new insurance policy on his life and soon thereafter giving it to another person b. Encouraging the other person to buy the policy with fund
> A decedent transferred land to an adult child by gift two years before death. Is the land included in the decedent’s gross estate? In the estate tax base?
> Explain how shares of stock traded on a stock exchange are valued. What is the blockage rule?
> Compare the valuation for gift and estate tax purposes of a $150,000 group term life insurance policy on the transferor’s life.
> A client requests that you explain the valuation rules used for gift tax and estate tax purposes. Explain the similarities and differences of the two sets of rules.
> Three individuals recently formed Krypton Company as a limited liability company (LLC). The three individuals—Jeff, Susan, and Richard—own equal interests in the company, and they all have substantial income from other sources. Krypton is a manufacturing
> In general, at what amount are items includible in the gross estate valued? (Answer in words.) Indicate one exception to the general valuation rules and the reason for this exception.
> In general, when is the estate tax due? What are some exceptions?
> Assume the same facts as in Problem C:13-57 except the joint tenancy land was held in the names of Bonnie and her son Doug, joint tenants with right of survivorship. Also assume that Bonnie provided 55% of the consideration to buy the land and that Bonni
> Bonnie died on June 1, 2017, survived by her husband, Abner, and two sons, Carl and Doug. Bonnie’s only lifetime taxable gift was made in October 2015 in the taxable amount of $6.25 million. She did not elect gift splitting. By the time of her death, the
> Your client is Jon Jake, the executor of the Estate of Beth Adams, a widow. Mrs. Adams died 11 years after the death of her husband, Sam. Mr. Jake seeks assistance in the preparation of the estate tax return for Mrs. Adams, whose estate consists primaril
> Your long-time client, Harold (Hal) Holland will meet with your supervising partner next week for an estate planning appointment. Hal has been married to Winona Holland for 25 years. Hal is age 68 and retired. Winona, age 60, retired early to spend more
> George and Martha, spouses, made a number of gifts during 2017. Their accountant is trying to help them decide whether to elect gift splitting. If they elect gift splitting, each spouse will have $4 million of taxable gifts. If they do not elect gift spl
> What was the Sec. 7520 rate for May, June, and July 2016?
> Your manager wants you to participate in delivering a staff training course on the basics of gift taxation. Your assignment is to discuss Crummey trusts. You want to increase your knowledge of some of the advantages and disadvantages of such trusts. Cond
> Alex owns 60% of the Hot Wheels LLC, which is treated as a partnership. He plans to give 15% of the LLC (one fourth of his interest) to his daughter Haley for her high school graduation. He plans to put her interest in a trust, and he will serve as the t
> On August 3, 2014 Ginger Grayson, a widow, transferred $55,000 to each of two Sec. 529 plans (qualified tuition programs), one for grandson Greg Grayson and one for granddaughter Gayle Grayson. Her tax preparer, not a CPA, prepared a Form 1040 (individua
> Consult the case Estate of Edward S. Redstone, 145 T.C. No. 11 (2016), a rather complicated case, and answer the following uncomplicated questions: a. When did the alleged gift occur, and when did the IRS issue a notice of deficiency? b. Why was the IRS
> Janet Mason timely filed a 2015 gift tax return to report the gift on June 3, 2015, of closely held stock in Mason Meat Co., Inc. The tax return, which your firm prepared, reflected a value of $1,500 per share (determined by an appraiser) and a taxable g
> In July of the current year, Horace Hiatt, a widower, transferred $14,000 worth of publicly traded stock to an irrevocable trust with Benton National Bank as trustee. He named his granddaughter, Heather, then age 15, the beneficiary. The trust instrument
> Your manager advises you that clients Mike and Winona Marsh, residents of Bath, Maine, acquired beachfront property in Maine in 2002 and titled the property in their names as joint tenants with right of survivorship. Under Maine law, either joint tenant
> Siu is considering giving her son stock in Ace Corporation or Gold Corporation. Each has a current FMV of $500,000, and each has the same estimated future appreciation rate. Siu’s basis in the Ace stock is $100,000, and her basis in the Gold stock is $45
> In June 2016, Karen transferred property with a $75,000 FMV and a $20,000 adjusted basis to Hal, her husband. Hal dies in March 2017; the property has appreciated to $85,000 in value by then. His gross estate is $1 million. a. What is the amount of Kare
> In 2017, Henry and his wife, Wendy, made the gifts shown below. All gifts are of present interests. What is Wendy’s gift tax payable for 2017 if the couple elects gift splitting and Wendy’s previous taxable gifts (made in 1995) total $1 million? Wendy’s
> In 2017, Homer and his wife, Wilma (residents of a non–community property state) make the gifts listed below. Homer’s previous taxable gifts consist of $100,000 made in 1975 and $1.4 million made in 1996. Wilma has made no previous taxable gifts. Wilma’
> Tien (age 70) transfers a remainder interest in a vacation cabin (with a total value of $100,000) to a charitable organization and retains a life estate in the cabin for herself. a. What is the amount of the gift tax charitable contribution deduction, i
> Explain the differences between the way the following items are reported by a C corporation and an S corporation: a. Ordinary income or loss b. Dividend income c. Capital gains and losses d. Tax-exempt interest income e. Charitable contributions f.
> Mariel has a $60,000 basis in her partnership interest just before receiving a parcel of land as a liquidating distribution. She has no remaining precontribution gain and will receive no other distributions. Under what conditions will Mariel’s basis in
> In the current year, Louise makes the transfers described below to Lance, her husband, age 47. Assume 4% is the applicable interest rate. What is the amount of her marital deduction, if any, attributable to each transfer? a. In June, she gives him land
> Hugh makes the gifts listed below to Winnie, his wife, age 37. What is the amount of the marital deduction, if any, attributable to each? a. Hugh transfers $500,000 to a trust with a bank named as trustee. All the income must be paid to Winnie monthly f
> In earlier years, neither Hugo nor Wanda, his wife, made any taxable gifts. In 2016, Hugo gave $14,000 cash to each of his nieces, nephews, and grandchildren, 30 persons in total. In 2017, Wanda gives $34,000 of stock to each of the same people. What is
> During 2017, Will gives $40,000 cash to Will, Jr. and a remainder interest in a few acres of land to his friend Suzy. The remainder interest is valued at $32,000. Will and his wife, Helen, elect gift splitting, and during the current year Helen gives Joy
> For each of the following transactions that occur in the current year, indicate the amount of the annual exclusion available. Explain your answer. a. Tracy creates a trust in the amount of $300,000 for the benefit of her eight-year-old daughter, May. Sh
> In June, Tina makes cash gifts of $700,000 to her husband and $100,000 to the City Art Museum. What are the amounts of the deductions available for these gifts when calculating Tina’s income tax and gift tax liabilities if she does not elect gift splitti
> In March 1976, Sue made a taxable gift of $200,000. In arriving at the amount of her taxable gift, Sue elected to deduct the $30,000 specific exemption then available. In 2017, Sue makes her next gift; the taxable amount is $6.5 million. a. What unified
> Determine the amount of the completed gift, if any, arising from each of the following occurrences. a. A parent sells real estate valued at $1.8 million to an adult child, who pays $1 million in consideration. b. A furniture store holds a clearance sal
> In the current year, Marge (age 67) engages in the following transactions. Determine the amount of the completed gift, if any, arising from each of the following events. Assume 4% is the applicable interest rate. a. Marge transfers $100,000 of property
> Refer to the facts of Problem C:12-36 and assume the current year is 2017. Emily’s prior gifts are as follows: What is Emily’s 2017 gift tax liability? From problem 36: In the current year, Emily, a widow, engages in
> David owns a 60% interest in the DDD Partnership, a general partnership, which he sells to the two remaining partners—Drew and Dana. The three partners have agreed that David will receive $150,000 in cash from the sale. David’s basis in the partnership i
> In the current year, Emily, a widow, engages in the following transactions. Determine the amount of the completed gift, if any, arising from each of the following occurrences. a. Emily names Lauren the beneficiary of a $100,000 life insurance policy on
> Yolanda and Xavier, spouses, have four adult children, Andy, Betty, Cathy, and Danny. In 2017, they made a number of gifts. Yolanda gave Andy cash of $40,000 and Betty stock valued at $60,000. Xavier gave Cathy stock valued at $38,000 and deposited $80,0
> In the current year, David gives $180,000 of land to David, Jr. In the current year, David’s wife gives $200,000 of land to George and $44,000 cash to David, Jr. Assume the couple elects gift splitting for the current year. a. What are the couple’s taxa
> In the current year, Beth, who is single, sells stock valued at $40,000 to Linda for $18,000. Later that year, Beth gives Linda $12,000 in cash. a. What is the amount of Beth’s taxable gifts? b. How would your answer to Part a change if Beth instead ga
> Amir made taxable gifts as follows: $800,000 in 1975, $1.2 million in 1999, and $600,000 in 2017. What is Amir’s gift tax liability for 2017?
> In 2017, Sondra makes taxable gifts aggregating $300,000. Her only other taxable gifts amount to $200,000, all of which she made in 1997. a. What is Sondra’s 2017 gift tax liability? b. What is her 2017 gift tax liability under the assumption that she
> On October 1, Sam lends Tom $10 million. Tom signs an interestfree demand note. The loan is still outstanding on December 31. Explain the income tax and gift tax consequences of the loan to both Sam and Tom. Assume that the federal shortterm rate is 5%.
> Melvin funds an irrevocable trust with Holcomb Bank as trustee and reserves the right to receive the income for seven years. He provides that at the end of the seventh year the trust assets will pass outright to his adult daughter, Pamela, or to Pamela’s
> Janet (who has made no taxable gifts) is considering transferring assets valued at $9 million to an irrevocable trust (yet to be created) for the benefit of her son, Gordon, age 15, with Farmers Bank as trustee. Her attorney has drafted a trust agreement
> Kwambe is thinking of making a substantial gift of stock to his fiancée, Maya. The wedding is scheduled for October 1 of the current year. Kwambe already has exhausted his unified credit. He also is considering giving $28,000 cash this year to each of hi
> Scott sells his one­third partnership interest to Sally for $43,000 when his basis in the partnership interest is $33,000. On the date of sale, the partnership has no liabilities and the following assets: The partnership has claimed $5,400 of
> In general, what is the due date for the gift tax return? What are two exceptions?
> Describe for a client five advantages and two disadvantages of disposing of property by gift instead of at death.
> Carlos has heard about the unified transfer tax system and does not understand how making gifts can be beneficial. Explain to Carlos how a lifetime gift fixes (freezes) the gifted property’s value for transfer tax purposes.
> Assume the same facts as in Problem C:12-21 and that Marcy has decided to give Phil property valued at $5.48 million. Phil probably will leave the gifted property to their children under his will. a. What are the gift tax consequences to Marcy and the e
> Phil and Marcy have been married for a number of years. Marcy is very wealthy, but Phil is not. In fact, Phil, who has only $10,000 of property, is very ill, and his doctor believes that he probably will die within the next few months. Make one (or more)
> A mother is trying to decide which of the two assets listed below to give to her adult daughter. The mother’s marginal income tax rate exceeds her daughter’s. Describe the pros and cons of giving each of the two prope
> A donor made large taxable gifts beginning in 1999 and a taxable gift in the current year. In the intervening years, the highest gift tax rates declined. In calculating the tax on taxable gifts of previous periods, which rate schedule is applicable: the
> Both Damien and Latoya make taxable gifts of $250,000 in the current year. Will their current year gift tax liabilities necessarily be identical? Explain.
> Describe to a married couple three advantages of making the gift-splitting election.
> A client is under the impression that a donor cannot incur a gift tax liability if he or she makes gifts to only U.S. charitable organizations. What should you say to the client?
> Joel receives a $40,000 cash distribution from the JM Partnership, which reduces his partnership interest from onethird to onefourth. The JM Partnership is a general partnership that uses the cash method of accounting and has substantial liabilities. J
> Explain the requirements for classifying a transaction as a transfer of a qualified terminable interest property (QTIP).
> From a nontax standpoint, would a parent probably prefer to make a transfer to a minor child by using a Sec. 2503(c) trust or a Crummey trust?
