2373. CHAPTER 19FAMILY TAX PLANNING Question MC #31
In 2009, Sophia sold real estate (adjusted basis of $500,000) for $1,500,000. Under the terms of the sale, she received two notes of $750,000 each, with 9% interest provided. One note is due in 2010 and the other in 2011. She did not elect out of the installment method of recognizing gain. In 2010 and before the first note matures, Sophia gives both notes to her adult children. At this time, the notes are worth a total of $1,400,000. Disregarding the interest element, a tax result of these transactions is:
a. A gift to the children of $1,500,000.
b. Sophia recognizes no gain.
c. Sophia recognizes a gain of $900,000.
d. Sophia recognizes a gain of $1,000,000.
e. None of the above.
2374. CHAPTER 19FAMILY TAX PLANNING Question MC #32
Curt owns the following assets which he gives to his daughter Carla in 2009 (no gift tax results).
Fair Market
Basis
Value
Land
$200,000
$400,000
Securities
800,000
600,000
Both items have been held by Curt as an investment for more than one year. If Carla immediately sells these assets for $1 million ($400,000 + $600,000), she recognizes:
a. No gain or loss.
b. A $200,000 LTCG and no loss.
c. A $200,000 STCG and $200,000 STCL.
d. A $200,000 STCG and no loss.
e. A $200,000 LTCG and $200,000 LTCL.
2375. CHAPTER 19FAMILY TAX PLANNING Question MC #33
Which of the following procedures carried out will reduce both Marys future gross estate and her probate estate?
a. Mary issues a timely disclaimer as to real estate that is willed to her by her grandfather.
b. Mary creates a revocable trust naming her children as the beneficiaries.
c. One year before her death, Mary gives an insurance policy on her life to her son, the designated beneficiary.
d. Mary purchases real estate as joint tenants with her sister. Mary predeceases her sister.
e. None of the above.
2376. CHAPTER 19FAMILY TAX PLANNING Question MC #34
Which, if any, of the following procedures reduces both Neds gross estate and probate estate?
a. Ned purchased a CD listing title as Ned, payable on proof of death to Eileen. Eileen is Neds niece.
b. Four years ago, Ned named his wife as the designated beneficiary of his IRA. (Previously, Neds estate was the designated beneficiary.)
c. Using her funds, Neds wife purchased real estate listing herself and Ned as tenants by the entirety with right of survivorship.
d. Five years ago, Ned made a gift of an insurance policy on his life to his daughter (the designated beneficiary).
e. None of the above.
2377. CHAPTER 19FAMILY TAX PLANNING Question MC #35
In 1990, Gloria purchased as an investment unimproved land for $50,000. In 2011, she sells the land, now worth $200,000, to her church for $50,000. As a result of this transaction, Gloria reports:
a. No gain and no charitable deduction.
b. No gain and a charitable deduction of $50,000.
c. No gain and a charitable deduction of $150,000.
d. A $150,000 capital gain and a charitable deduction of $200,000.
e. A $37,500 capital gain and a charitable deduction of $150,000.
2378. CHAPTER 19FAMILY TAX PLANNING Question MC #36
Eric, age 80, has accumulated about $6 million in net assets. Among his assets are the following marketable securities held as investments.
Basis
FMV
Cardinal Corporation stock
$200,000
$250,000
Crane Corporation stock
300,000
250,000
Hawk Corporation stock
50,000
250,000
Eric would like to donate (either by lifetime or testamentary transfer) $250,000 in value to his church. In addition, to consummate a land deal, he needs $250,000 in cash. Looking solely to tax: considerations and using only the assets described above, Erics best choice is to:
a. Donate by gift to the church the Crane stock and sell the Hawk stock now.
b. Donate by death to the church the Hawk stock and sell the Cardinal stock now.
c. Donate by gift to the church the Hawk stock and sell the Crane stock now.
d. Donate by gift to the church the Cardinal stock and sell the Hawk stock now.
e. None of the above is an attractive technique.
2379. CHAPTER 19FAMILY TAX PLANNING Question MC #37
Lisa has been widowed three times. Her first husband died in 2009 leaving an unused exclusion amount of $3.5 million. The second husband died in early 2011 leaving the entire $5 million exclusion amount unused. Lisas third husband died in late 2012 with an unused exclusion amount of $4 million. Lisas DSUEA is:
a. $3.5 million.
b. $4 million.
c. $5 million.
d. $9 million.
e. $12.5 million.
2380. CHAPTER 19FAMILY TAX PLANNING Question MC #38
After a prolonged illness, Claire has been diagnosed as having a terminal illness. Which of the following procedures best improves her Federal gift and estate tax situation?
a. She makes gifts to family members to help her estate qualify under § 6166 (extension of estate tax payments relative to an interest in a closely held business).
b. She issues large notes made payable to loved ones to increase her future § 2053 deductions for claims against the estate.
c. She makes gifts of her life insurance.
d. She makes enough taxable gifts to keep from losing any of her $5 million gift tax exemption equivalent.
e. None of the above.
2381. CHAPTER 19FAMILY TAX PLANNING Question MC #39
Which, if any, of the following items characterizes § 6166 (i.e., extension of estate tax payments relative to an interest in a closely held business)?
a. No estate tax due need be paid for the first 5 years.
b. No interest needs to be paid for the first 5 years.
c. In satisfying the more-than-35% test for qualification, all interests in closely held businesses can be aggregated.
d. The 2% rate of interest applies to the total amount of estate tax value.
e. None of the above.
2382. CHAPTER 19FAMILY TAX PLANNING Question MC #40
For purposes of § 6166 (i.e., extension of estate tax payments relative to an interest in a closely held business), an interest in a closely held business does not include:
a. A sole proprietorship.
b. A 16% interest in a partnership that has 36 partners.
c. A 22% interest in a partnership that has 50 partners.
d. A 10% interest in a partnership that has 48 partners.
e. All of the above.
2383. CHAPTER 19FAMILY 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 owners interest.Corporation agrees to redeem withdrawing shareholders stock.Replacement cost of a comparable contact No correct choice is given Portion of a deceased spouses 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
1. Valuation of a commercial annuity contract.
2. Valuation of a life insurance policy that is not paid up.
3. Martial deduction allowed.
4. Discount for lack of marketability as to stock.
5. Special use valuation as to certain realty (§ 2032A).
6. Discount attributable to a large number of shares.
7. Valuation of life estate interest created by transfer in trust.
8. Exemption equivalent.
9. Surviving owners agree to purchase withdrawing owners interest.
10. Corporation agrees to redeem withdrawing shareholders stock.
a. Replacement cost of a comparable contact
b. No correct choice is given
c. Portion of a deceased spouses share of community property that passes to a surviving spouse
d. Cost of going public
e. Current use value
f. Blockage rule
g. Use IRS valuation tables
h. Bypass amount
i. Cross-purchase buy and sell agreement
j. Entity buy and sell agreement
k. Best or most suitable use value
2384. CHAPTER 19FAMILY 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.Donees basis for gain.Donees 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 Donors 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 spouses 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
1. Deferral approach.
2. Equalization approach.
3. Donees basis for gain.
4. Donees basis for loss.
5. A gift will not cause income tax consequences to the donor.
6. Decedent owned stock that had appreciated in value.
7. Decedent owned traditional IRA that has appreciated.
8. Surviving spouse disclaims inheritance in favor of bypass amount.
9. A gift causes income tax consequences to the donor.
10. Measure of income tax deduction on a gift of property to charity.
a. Expected surviving spouse is in good health
b. Expected surviving spouse is already wealthy
c. Donors basis on date of gift (appreciated property given, no gift tax due)
d. Fair market value on date of gift (depreciated property given)
e. Gift of property that has § 1245 or § 1250 potential for recapture of depreciation
f. Step-up in basis
g. Income in respect of a decedent (IRD)
h. The amount of the deceased spouses taxable estate does not change
i. Gift of installment notes receivable
j. Fair market value on date of gift (depreciated property given)
k. Step-down in basis
l. No correct choice is given
2385. CHAPTER 19FAMILY 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 spouses share of community property.Living trusts.Eliminates common stock from donors 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 donors 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 freezecorporations 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)
1. Can produce income tax, ad valorem property tax, and estate tax savings.
2. Election by estate can affect income tax basis of surviving spouses share of community property.
3. Living trusts.
4. Eliminates common stock from donors gross estate.
5. Transfer by death of depreciable property.
6. Reasonable cause will justify election.
7. Doubles the number of annual exclusions available.
8. No step-up in basis at death.
9. Eliminates preferred stock from donors gross estate.
10. Can postpone payments of the estate tax for up to 10 years from due date of the return.
a. Conservation easement
b. Special use valuation as to certain realty (§ 2032A)
c. Revocable trusts
d. Estate freezecorporations
e. Depreciation recapture potential eliminated
f. Discretionary extension of time to pay estate tax (§ 6161)
g. Election to split gifts (§ 2513)
h. Income in respect of a decedent (IRD)
i. No correct choice is given
j. Discretionary extension of time to pay estate tax (§ 6161)
k. Extension of time involving interest in closely held business (§ 6166)
l. Alternate valuation date (§ 2032)
2386. CHAPTER 19FAMILY 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
1. Created a living trust.
2. Made life insurance payable to estate.
3. Established a joint tenancy with right of survivorship.
4. Made lifetime gifts.
5. Sold out-of-state realty.
6. Made life insurance payable to children.
7. Created during life an irrevocable trust naming others as beneficiaries.
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.
9. Paid a gift tax on a gift made two years prior to death of the donor.
10. Purchased a certificate of deposit listing daughter as the beneficiary under a payable on death designation.
a. Decreases the probate estate
b. Increases the probate estate
c. Decreases the probate estate
d. Decreases the probate estate
e. Has no effect on the probate estate
f. Decreases the probate estate
g. Decreases the probate estate
h. Decreases the probate estate
i. Decreases the probate estate
j. Decreases the probate estate
2387. CHAPTER 19FAMILY 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
1. Purchased a straight life annuity from an insurance company.
2. Created during lifetime an irrevocable trust in which a life estate is retained with remainder interest passing to the children.
3. Purchased real estate designating herself and her children as equal tenants in common.
4. Spouse purchased residence listing ownership as tenants by the entirety.
5. Brother purchased land listing ownership with decedent as tenants in common.
6. Mother purchases land listing ownership with decedent as joint tenants.
7. Purchased insurance policy that pays all funeral expenses.
8. After death, vacation home is destroyed by fire.
9. Prior to death filed for a refund of overpaid income taxes.
10. Paid medical expenses prior to death.
a. Decreases the probate estate
b. Decreases the probate estate
c. Decreases the probate estate
d. Has no effect on the probate estate
e. Increases the probate estate
f. Has no effect on the probate estate
g. Decreases the probate estate
h. Has no effect on the probate estate
i. Increases the probate estate
j. Decreases the probate estate