Understanding Federal Estate and Gift Taxation: Key Study
School
Golden Gate University**We aren't endorsed by this school
Course
TA 325
Subject
Accounting
Date
Dec 10, 2024
Pages
8
Uploaded by LieutenantSummer11146
PRdBLEM 2 0 [SML&C refers to the abridged edition of Federal Estate and Gift Taxation (9th ed.).] Assignment Code: §8§ 2043(b); 2516; 2518. Skim §§ 2034i 2053(c)(1)(A). Regulations: §§ 25.2516-1, 25.25‘16-2; 25.2518-2(a)- | : 25.2518-2(c)(4)(i), 25.2518-2(c)(5) Exs. 1 and 2, - 25.2518-3(d) Exs. 2 and 21, 25.2518-2(e)(5) Exs. 4 and 5. ' o SML&C: 99 4.15[1]; 10.06; 10.07. Suggested . “references: McDonald v. Comm’r, 853 F2d 1494 (8th Cir. 1988), 88-2 USTC § 13,778, 62 AFTR2d 5995. Merrill v. Fahs, 324 US 308 (1945), 45-1 USTC § 10,180, 33 AFTR 587. Rev. Rul. 60-160, 1960-1 CB 374. Rev. Rul. 68-379, 1968-2 CB 414. Questions 1 Spouses W and H enter into a written separation agreement under which $550 per month is to be paid to W for W’s support during s life, plus $1,000 per month in child support until child C, now age 12, is 18. W also receives $30,000 in settlement of property rights in H’s estate, and, as part of the agreement, /¥ relinquishes all of #”s marital rights, including #”s right to support. The future payments called for are a charge on H’s estate if H predeceases . (a) What are the gift tax consequences if neither party seeks a divorce or separate maintenance decree? : 71
s ® E © | @ ‘ © ® (® ) i @ © ®) R ‘ FEDERAL ESTATE & GIFT TAXATION: STUDY PROBLEMS What are the estate tax consequences if H died prior to any payment in question (1)(a), above, with W and C surviving? What are the gift tax consequences if a divorce is not final until three years after the agreement, but the agreement is conditional on court approval of the agreement, and it is approved with the court having power to accept or reject it? What are the estate tax consequences if H died prior to any payment in question (1)(¢), above, with W and C surviving? What are the gift tax consequences if the court has no power to approve or alter the agreement, but the divorce is final one year after the agreement? What are the estate tax consequences if H died prior to any payment in question (1)(e), above, with W and C surviving? What are the gift tax consequences if a divorce is not final until three years after the agreement and the divorce court has no power to approve or alter the agreement? What are the estate tax consequences if H.died after the divorce was final, but prior to any payment in question (1)(g), above, with W and C surviving? Q) In return for Spouse’s marital rights (not support rights), B, pursuant to a written agreement entered into in the year of the divorce, subsequent to the divorce, creates an irrevocable trust providing income to B for B ’s life and a remainder to Spouse or Spouse’s estate. On a transfer of property to the trust in the same year, does B make a gift? : What are the consequences to B’s estate at B’s death, subsequent to the divorce? What are the gift tax consequences to B if a transfer is made to an irrevocable trust that provides income to Spouse for fifteen years, reversion to B or B’s estate, and the transfer is pursuant to a written agreement entered into in the year of the divorce but it precedes the divorce? See Regulation § 25.2702-1(c)(7). 3) Donor created an irrevocable trust with income to be paid monthly for life to 4, who is age 50, and provided 4 with a general testamentary power of appointment over the corpus of the trust. In default of appointment, the 72
PROBLEM 20 property passes to B, who is age 30, or B’s estate. Donor created the trust on January 1 of year 1, and 4 dies on January 1 of year 5. Assuming all the disclaimers in the following situations are in writing and are transmitted to the proper person, determine if each is a “qualified disclaimer” as described in Section 2518. @) A receives the first six months of income and, on August 1 of year 1, disclaims 4’s income interest. : (b) A receives the first six months of income and, on August 1 of year 1, disclaims 4’s general power of appointment. (c) Same as question (3)(b), above, except that A disclaims 4’s - general power to appoint over only one half of the property. (d) On August 1 of year 1, 4 disclaims any right to exercise the general power in A’s or A’s estate’s favor, thereby converting A’s general power of appointment to a nongeneral power. (e) In view of A’s disclaimer on August 1 of year 1 in question (3)(b), above, B disclaims B’s interest on December 1 of year 1. ) Same as question (3)(e), above, except that 4 held a nongeneral power to appoint to anyone other than 4, 4’s estate, A’s creditors, or the creditors of A’s estate. ® Assume 4, again, has a general power of appointment. A dies on January 1 of year 5, exercising A’s general power of appointment upon A’s death in favor of C. C disclaims on June 1 of year 5, prior to any receipt of the property. (h) Same as question (3)(g), above, except that C disclaims a remainder interest in the property but retains the right to income for C’s life. @) Spouses, both U.S. citizens, owned real property in a joint tenancy funded by Decedent Spouse. At Decedent Spouse’s death in the current year, Surviving Spouse would like to disclaim Surviving Spouse’s survivorship interest in the property. (a) Assuming the disclaimer occurs within nine months of Decedent Spouse’s death, may Surviving Spouse successfully disclaim? (b) What are the results if the property were held in a tenancy by the entirety? 73
FEDERAL ESTATE & GIFT TAXATION: STUDY PROBLEMS (5) . Decedent’s will bequeaths Decedent’s entire estate oufright to Surviving Spouse. However, Decedent’s will also provides that to the extent Surviving Spouse disclaims the property bequeathed outright, the property passes to a trust with income to Surviving Spouse for life with a remainder to whichever of their Children (or their estates) Surviving Spouse appoints and, on failure to appoint to the Children (or their estates), to the Children (or their estates) in equal shares. At the time Decedent’s will was drafted, Decedent had assets worth approximately $6 million, but at death, Decedent’s gross estate is worth $18 million and Surviving Spouse has minimal assets. Surviving Spouse comes to you for advice. What do you advise?
PROBLEM 2 3 [SML&C refers to the abridged edition of F ederal Estate and Gift Taxation (9thed.). Appendix begins on page 105 of the Study Problems.] Assignment Code: §§ 2001(c); 2502; 2505; 2513. Skim § 2504. Regulations: §§ 25.2504-1;25.2513-1, 25.2513-4. SML&C: 4 9.03; 9.06; 10.03. Skim §9.05.. Appendix: Applicable Credit Amount Table. Suggested ‘ reference: Kass v. Comm’r, 16 TC 1035 (1957). Questions 1) Donor, who is married to Spouse, made the following gratuitous transfers in the current year. Donor transferred $40,000 to an irrevocable trust, the income to be paid to Spouse for life, with a remainder to Child or Child’s estate, but also gave the trustee the power within trustee’s discretion to invade corpus for Spouse. Donor made no Section 2523() election. Donor also made a cash gift of $30,000 to Child. Using the annual exclusion and the split-gift provision, what would the “total amount of gifts” be for both Donor and Spouse as that term is used in Section 2503(a)? ) A has made numerous taxable gifts and by the current year has exhausted 4’s Section 2505 credit. 4’s spouse, S, has made none, and S’s credit is intact. In the current year, A gives child C $100,000. 4 and S then file a joint gift tax return for the calendar year in which the gift was made, escaping all tax by using §’s exclusion and credit. Is this the correct tax result? 83
PROBLEM 2 2 [SML&C refers to the abridged edition of F ederal Estate and Gift Taxation (9th ed.).] Assignment Code: §§ 2207A(b); 2519; 2522(a), 2522(c)(2); 2523; 2524; 6019(a). See §§ 2044; 2207A. Regulations: §§ 25.2519-1(a)-25.2519-1(g) Ex. 4; o 25.2523(a)-1(a), 25.2523(a)-1(b), 25.2523(b)-1(a), 25.2523(b)-1(c), 25.2523(b)-1(d), 25.2523(f)-1(a)— - 25.2523()-1(c)(2). : SML&C: ~ 9911.01; 11.03 (skim 11.03[3], 11.03[4][a], " 11.03[4][b]); 11.04. Skim Y9 8.07; 10.08; 11.02, Questions : . , (1) " In the current year, Schemer gives $30,000 cash to charity and $30,000 cash to Child. Schemer claims to have made no taxable gifts, as shown below: Gross gifts , _ - $60,000 Exclusions (2) $30,000 Charitable deduction 30,000 ‘ ' 60,000 Taxable gift ‘ -0- (a) What is Schemer overlooking? ) Will Schemer make a taxable gift if Schemer puts $30,000 " cash in an irrevocable trust with income to Child for a period . of years (assume that Child’s interest is worth $15,000), and a remainder to charity? ) Assuming Donor has made no other post-1976 transfers to Spouse, in which of the following circumstances, if any, would Donor be entitled to a gift tax marital deduction, and to what extent? Donor transfers property worth $30,000 to an irrevocable trust. In each instance, assume the income interest is worth $15,000 at the time of the gift. 79
FEDERAL ESTATE & GIFT TAXATION: STUDY PROBLEMS (a) The income to be paid to Parent for life, with a remainder to Spouse or Spouse’s estate. ) The income to be paid to Spouse for life, with a remainder to Child or Child’s estate. What additional facts do you need to know? (©) The income to be paid to Spouse for ten years, with a remainder to Spouse or Spouse’s estate. A3) Determine the extent to which the gift tax marital deduction is available in the following transactions: (a) Donor purchases, for $200,000, a parcel of real property for Donor and Spouse as joint tenants with right of survivorship. b) Donor places $100,000 in trust with income to Spouse for life, and a remainder to their children. In addition, Spouse is given a power to appoint the corpus to anyone by will. (c) Is a gift tax return required to be filed in either question (3)(a) or question (3)(b), above? ' ) Donor places $500,000 worth of closely held stock into an inter vivos trust with a qualifying income interest to Spouse for life and a remainder to the children of Donor’s first marriage. (a) What are the gift tax consequences to Donor if Donor makes a Section 2523(f) election? (b) What are the gift tax consequences to Spouse in question (4)(a), above, if Spouse gives the entire life estate to X’ pI‘lOI‘ to death? (© What are the estate tax consequences to Spouse in question (4)(b), above? (d) Is the result in question (4)(b), above, fair to Spouse? To the ' children? (e) What are the estate tax consequences to Spouse in question (4)(a), above, if Spouse dies without making an inter vivos disposition of the life estate? ® What is the amount of gross estate inclusion in Spouse’s gross estate if Spouse owns one third of the stock of closely held corporation outright and one third of the stock of closely 80
"PROBLEM 22 held corporation is held in the trust in question (4)(e), above? Assume each block of stock of closely held corporation is worth $500,000 before discounts and premiums and each would qualify for a combined minority and lack of marketability discounts (if applicable) of 40 percent. (2 What are the gift tax consequences t0 Spouse in question (4)(a), above, if Spouse gives one third of the life estate to unrelated X prior to death? (h) What are the estate tax consequences to Spouse in question 4)(H), above? ' (5) - Considering the fact that interspousal transfers can be made tax-free either during life or at death, is there any tax reason to make an inter vivos interspousal transfer as was done in question (4), above? 81