CHAPTER 14—ESTATE AND GIFT TAXATION Key
1. The Federal estate and gift taxes do not represent a major source of revenue for the Federal government.
2. In common law systems, married individuals own an equal, undivided interest in all wealth acquired during
the course of the marriage, regardless of which spouse made any individual contribution to the marital wealth.
3. If individual A performs legal services for his daughter, the fair market value of the services is subject to
Federal gift tax.
4. The transfer of municipal bonds, the income from which is not subject to income tax, is subject to the Federal
gift tax.
5. For Federal gift tax purposes, when a transfer is made to an irrevocable trust, the transfer is considered a gift
to the beneficiaries of the trust and not to the trustee or the trust itself.
6. Donative intent on the part of the donor must be present in order for a transfer to be classified as a “gift”
subject to the Federal gift tax.
7. During the year, D transfers title to certain investment real estate to her close friends E and F. E is given a life
estate in the property and F is given the remainder interest. If the value of the real estate is $200,000 at date of
gift, the amount of the taxable gift made by D is $187,000.
8. Even if a transfer is deemed complete for Federal gift tax purposes, the transfer may be incomplete for
Federal estate tax purposes, with the result that the value of the transferred assets will be included in the
transferor’s gross estate.
9. A probate estate consists of all property interests legally owned by the decedent at death.
10. Upon the death of a resident of a community property state, only half of the value of any assets owned as
community property are included in the decedent’s gross estate.
11. An executor may elect the alternate valuation date of six months after date of death for any one or more of
the assets included in the gross estate.
12. An estate includes certain farmland that has a market value of $5,000,000. If the estate is eligible to elect
special-use valuation under § 2032A, the land may be valued at its business-usage value of only $2,000,000.
13. The value of social security death benefits paid to the survivors on the death of an individual is not
includible in the individual’s gross estate.
14. In 1980, T bought 100 shares of X Corporation stock with her own funds and had the shares registered in
her name and that of her grandson G as joint tenants with right of survivorship. T died in the current year. Only
half of the value of the 100 shares of X stock is included in T’s gross estate for Federal estate tax purposes.
15. In 1978, X created an irrevocable trust. The trust income is paid annually to whichever of his children X
designates. The trust will terminate when X’s youngest child reaches age 25, at which time all trust assets will
pass to the children in equal shares. X dies while the trust was still in existence. The date-of-death value of the
trust assets will be includible in X’s gross estate.
16. H and W are married. This year H died with a modest estate. As a result, a portion of this unified credit
was not used. The unused portion can be assigned to his surviving spouse, W, assuming an estate tax return is
filed for H and the executor makes the proper election.
17. An estate that consists primarily of the assets of a closely held business may defer payment of its estate tax
liability attributable to that business for up to 20 years.
18. During the current year, taxpayer U gives a gift of $300,000 cash to her grandson L. This is the first
substantial gift she has given any grandchild. Because the gift is a generation-skipping transfer, U must pay a
generation-skipping transfer tax.
19. Which of the following is not a true statement concerning joint tenancy with right of survivorship
(JTWROS)?
20. Which of the following is not a true statement concerning community property systems?
21. Which of the following property interests cannot be transferred under the will of the holder of the interest?
22. Which of the following transfers is a taxable gift? (Ignore the availability of the annual exclusion.)
23. On January 1, 2003, S transferred $500,000 of securities into a revocable trust for the sole benefit of her
brother U. On January 1, 2012, S amends the trust instrument to make the trust irrevocable. S retains no control
over the trust assets. On January 1, 2012, the trust assets have a fair market value of $430,000. Based on these
facts,
24. On May 6 of the current year, S gifted 10 shares of publicly traded common stock to G. On that date, the
highest selling price of the stock was $60 per share, the lowest selling price was $58 per share, and the closing
price was $59.50 per share. What is the value of the 10 shares for gift tax purposes?
25. D, a single taxpayer, made the following cash gifts in 2012:
To qualified charity A
$18,000
To minor child C
27,000
To political party P
12,000
To friend F
7,000
After application of the annual exclusion, what is the total amount of taxable gifts made by D?
26. During the 2012, Mr. and Mrs. Z decide to begin a program of inter vivos giving to their children, their
children’s spouses, and their grandchildren. The couple has one married daughter, one married son, and six
minor grandchildren. What is the maximum total amount that Mr. and Mrs. Z may give to those mentioned in
2012 without incurring the Federal gift tax?
27. In 2012, X made the following cash transfers:
To wife W
$ 90,000
To son M
30,000
To daughter N
8,000
To irrevocable trust for grandchild O
200,000
Under the terms of the trust, all accumulated income and the trust assets will be distributed to O on her 23rd birthday. Based on these facts, if X and
M elect gift splitting, X’s taxable gifts total
28. Taxpayer T made a taxable gift of $90,000 to one individual in the current year. The gift tax liability before
credit is $21,000. T had not made any gift in excess of the annual exclusion before this year. T
29. W, a single taxpayer, made her first taxable gift (after application of the annual exclusion) of $100,000 in
1989. In the current year, she made her second taxable gift of $6,000,000. What is the gift tax payable by W in
the current year?
30. The property of a person who dies intestate is generally
31. In 1960, Grandfather GF created a trust with a corpus of marketable securities worth $1 million. Under the
terms of the trust instrument, GF’s daughter D will receive the income from the trust as long as she lives. Upon
D’s death, the securities in the trust will be distributed to D’s two children. Upon D’s death in the current year,
the securities had a market value of $5 million and were generating an average annual income to D of $400,000.
Based on these facts, the amount includible in D’s gross estate attributable to her interest in the trust is
32. Under what circumstances may an executor elect an alternative valuation date of six months after death
rather than the date of death itself?
33. The Federal estate tax is
34. In 1980, W used her own funds to purchase a $100,000 paid-up life insurance policy on the life of her
husband H. W retained ownership of the policy and designated her oldest daughter D as sole beneficiary. The
cost of the policy was $60,000. Husband H died during the current year. At date of death, the policy had a
replacement cost of $72,000. What amount attributable to the life insurance policy is includible in H’s gross
estate for Federal estate tax purposes?
35. In 1980, W used her own funds to purchase a $100,000 paid-up life insurance policy on the life of her
husband H. W retained ownership of the policy and designated her oldest daughter D as sole beneficiary. The
cost of the policy was $60,000. Assume wife W rather than husband H died in the current year. At date of death,
the policy had a replacement cost of $72,000. What amount attributable to the life insurance policy is includible
in W’s gross estate for Federal estate tax purposes?
36. Decedent Z had been an employee of Acme Corporation for 30 years prior to his death and a participant in
Acme’s qualified profit-sharing plan. Under the terms of the plan, Z’s children are to receive the monthly
annuity to which Z would have been entitled if he had lived until retirement. The current year cost of a
comparable annuity is $180,000. Based on these facts, the amount includible in Z’s gross estate attributable to
the annuity is
37. In 1975, brothers Q and R purchased a tract of real property as joint tenants with right of survivorship. Q
contributed $5,000 toward the $20,000 purchase price and R contributed the remaining $15,000. When R died
in the current year, his will provided that all of his wealth would pass to his daughter D. The date- of-death
value of the real property was $100,000. The value of R’s interest in the real property includible in his gross
estate is
38. Wife P and husband Q own real estate worth $75,000 as joint tenants with right of survivorship. P
contributed $20,000 and Q contributed $30,000 of the original $50,000 purchase price of the property. Q died in
the current year; P survives him. The value of the property to be included in the gross estate of Q is
39. Which of the following is not includible in the gross estate of decedent D?
40. B owns a life estate in certain property and has a power of appointment over the property. B’s gross estate
will not include the value of the property if the appointments of property she may make to herself are limited by
the trust instrument to the sole purpose of her
41. Which of the following actions in the current year completed a taxable gift during donor K’s lifetime but did
not remove the transferred assets from K’s gross estate?
42. In the current year, individual B gave some antique jewelry valued at $600,000 to her son, and paid a gift
tax of $13,000 on the transfer. At the date of B’s death just eighteen months later, the jewelry was worth
$725,000. Based on these facts, the amount includible in B’s gross estate attributable to the gift of the jewelry is
43. Individual D transferred his shares in XYZ Corporation to his son E in exchange for $500,000. The market
value of the shares on the date of the transfer was $1 million. At D’s death the value of the stock, then $3
million, was includible in his gross estate. By what amount may D’s estate reduce the value of the stock because
of the consideration received from E?
44. Which of the following is not deductible in computing the taxable estate of decedent Y?
45. Decedent M left a gross estate of $10 million. M’s will instructed that after all his debts and expenses were
paid, his estate be distributed as follows:
To M’ s church
$ 1,000,000
To M’s sister
500,000
To M’ s best friend
300,000 And residual (remaining estate) to M’s widow
Based on these facts, M’s taxable estate is
46. Which of the following interests in property is ineligible for the Federal estate tax marital deduction?
47. During K’s lifetime, he made taxable gifts totaling $750,000, on which he paid gift taxes of $169,000. All
gifts were made after 1976. Upon K’s death in the current year his taxable estate was $5,000,000. Based on
these facts and ignoring the unified credit, what is the Federal estate tax payable by the estate of K?
48. Grandmother G transferred assets in trust, the life interest payable to her daughter D, with the trust assets
passing to her only grandchild GC upon D’s death. If D dies in the current year, and the value of the property in
trust of the time of her death is $5 million, what is the amount of the generation-skipping transfer tax imposed
on the transfer?