Estate Planning Exam 2 - ch5,6 well
answered to pass
Crystal loans Alexis $650,000, so that Alexis can buy a home. Alexis signs a note, with a term of
5 years, promising to repay the loan. The home is the collateral, but because Crystal and Alexis
have been friends since childhood, Crystal does not charge Alexis interest. Which of the
following statements is true?1. The imputed interest is considered a taxable gift from Crystal to
Alexis.2. The imputed interest is taxable income on Crystal's income tax return.3. The imputed
interest is an interest expense deduction for Crystal.4. Alexis can deduct the imputed interest on
her income tax return, assuming that she itemizes deductions. (5) - correct answer ✔✔ 1, 2, and
4
The loan is greater than $100,000 and does not meet any of the exceptions to imputing interest.
Crystal will have imputed interest income based on the applicable federal rate and the imputed
interest will also be considered a present interest gift to Alexis. Because the loan is secured by
Alexis's personal residence, Alexis will also have an itemized deduction equal to the imputed
interest. Crystal does not have an interest expense.
Which of the following statements about Freddie and Carly who are married, regarding the
rules of the federal gift tax return is incorrect? (5) - correct answer ✔✔ Carly and Freddie filed
an extension to file their federal income tax return. To extend any gift tax returns due for the
year, Carly and Freddie must file a gift tax return extension.
The gift tax return is extended with the federal individual income tax return - no separate
extension is required. All of the other options are true statements. Note that in option a, had a
taxable gift been made (the value of the gift exceeded 2 x $16,000 = $32,000), both spouses
would have to file a gift tax return.
Benson has 3 children (1-3) and 6 grandchildren (4-9). His wife, Adele, is his second wife and she
has both an ailing mother and father. During the year, Benson and Adele made the following
gifts:
,Donor, Gift Description, Value, Donee(s): Benson Condo for Life (appraised) $1,000,0001-3
together. Benson Remainder Interest in Condo $200,0004-9 together. BensonCash $50,000 1.
Benson Cash $50,000 2. Benson Cash $50,000 3. Benson Cash to 529 Plan $480,000 4-9. Adele
Cash to 529 Plan $480,000 4-9. Adele Cash $200,000 mother. Adele Cash $200,000 father.
Assume all gifts are split and front-loading is elected. What is the total of Adele's taxable gifts
for the year? (5) - correct answer ✔✔ $795,000
Explanation as picture in phone
J.R. made the following transfers to his only daughter during the year:1. A bond portfolio with
an adjusted basis of $130,000 and a fair market value of $140,000.2. 2,000 shares of RCM
Corporation stock with an adjusted basis of $126,000 and a fair market value of $343,000.3. An
automobile with an adjusted basis of $15,000 and a fair market value of $9,000.4. An interest-
free loan of $2,000 for a personal computer on January 1st. The applicable federal rate for the
tax year was 8%.
What is the value of J.R.'s gross gifts for this year? (5) - correct answer ✔✔ $492,000
The total of gross gifts is the fair market value of all gifted property before any deductions for
gift-splitting, the marital deduction, or the annual exclusion. Because the loan in statement 4 is
less than $10,000, it meets one of the exceptions of the imputed interest rules. The fact that the
basis in Statement 3 is higher than the FMV is ignored for purposes of calculating the total gross
gifts. The double-basis rule will apply to the donee in a subsequent sale (under the income tax
system, not the gift tax system). $140,000 + 343,000 + 9,000 = $492,000.
Brent and his wife live in a common law (separate property) state. Each year, Brent makes gifts
equal to the annual exclusion to his three children. During the year, he comes to you looking for
a way to transfer more than $75,000 each year to his kids without using his applicable gift tax
credit or paying any gift tax. All of the following statements regarding gift-splitting, are true,
except: (5) - correct answer ✔✔ Even if Brent's wife elected to split gifts, only Brent's gifts
would be split.
, The question asks which statement is not true regarding gift-splitting. Option b is incorrect
because a couple that elects to split gifts must split all gifts made during the year. All of the
other options are correct statements.
Hazel received 100 shares of ZYX Corporation from her aunt with an adjusted basis of $60,000
and a fair market value of $30,000 as of the date of the gift. Her aunt paid $1,500 of gift tax.
Hazel sold the stock for $45,000. What is Hazel's recognized gain or loss? (5) - correct answer
✔✔ No gain or loss.
When the fair market value of gifted property is less than the donor's adjusted basis, gift tax on
the appreciation is not added to the basis, and the double-basis rule applies. In such a case, the
gain basis for the property is the donor's adjusted basis, and the loss basis is the fair market
value at the date of the gift. When the sale is between these amounts, there is not a gain or
loss. In this case, Hazel sold the stock for an amount between the gain and loss basis and
therefore has no gain or loss.
Which of the following is eligible for the annual exclusion? (5) - correct answer ✔✔ Frank funds
an irrevocable life insurance trust with the amount necessary to pay the premiums of the policy.
The beneficiaries can take a distribution equal to the contribution each year.
If the beneficiaries of a trust are given the right to take a withdrawal during the year, the
contribution is eligible for the annual exclusion. Options a and b are not completed gifts and
therefore do not qualify for the annual exclusion. The transfer to the trust in option c is a gift of
a future interest and is not eligible for the annual exclusion.
Mallory provides the following list to her CPA who is preparing her gift tax return. Which of the
following will Mallory's CPA include as a taxable gift on Mallory's gift tax return? (5) - correct
answer ✔✔ Payment to grandmother of $20,000 to help her with her medical bills.
Mallory's CPA will include the payment made to Mallory's grandmother as a taxable gift. A
payment must be paid directly to the health care provider or educational institution to be a
answered to pass
Crystal loans Alexis $650,000, so that Alexis can buy a home. Alexis signs a note, with a term of
5 years, promising to repay the loan. The home is the collateral, but because Crystal and Alexis
have been friends since childhood, Crystal does not charge Alexis interest. Which of the
following statements is true?1. The imputed interest is considered a taxable gift from Crystal to
Alexis.2. The imputed interest is taxable income on Crystal's income tax return.3. The imputed
interest is an interest expense deduction for Crystal.4. Alexis can deduct the imputed interest on
her income tax return, assuming that she itemizes deductions. (5) - correct answer ✔✔ 1, 2, and
4
The loan is greater than $100,000 and does not meet any of the exceptions to imputing interest.
Crystal will have imputed interest income based on the applicable federal rate and the imputed
interest will also be considered a present interest gift to Alexis. Because the loan is secured by
Alexis's personal residence, Alexis will also have an itemized deduction equal to the imputed
interest. Crystal does not have an interest expense.
Which of the following statements about Freddie and Carly who are married, regarding the
rules of the federal gift tax return is incorrect? (5) - correct answer ✔✔ Carly and Freddie filed
an extension to file their federal income tax return. To extend any gift tax returns due for the
year, Carly and Freddie must file a gift tax return extension.
The gift tax return is extended with the federal individual income tax return - no separate
extension is required. All of the other options are true statements. Note that in option a, had a
taxable gift been made (the value of the gift exceeded 2 x $16,000 = $32,000), both spouses
would have to file a gift tax return.
Benson has 3 children (1-3) and 6 grandchildren (4-9). His wife, Adele, is his second wife and she
has both an ailing mother and father. During the year, Benson and Adele made the following
gifts:
,Donor, Gift Description, Value, Donee(s): Benson Condo for Life (appraised) $1,000,0001-3
together. Benson Remainder Interest in Condo $200,0004-9 together. BensonCash $50,000 1.
Benson Cash $50,000 2. Benson Cash $50,000 3. Benson Cash to 529 Plan $480,000 4-9. Adele
Cash to 529 Plan $480,000 4-9. Adele Cash $200,000 mother. Adele Cash $200,000 father.
Assume all gifts are split and front-loading is elected. What is the total of Adele's taxable gifts
for the year? (5) - correct answer ✔✔ $795,000
Explanation as picture in phone
J.R. made the following transfers to his only daughter during the year:1. A bond portfolio with
an adjusted basis of $130,000 and a fair market value of $140,000.2. 2,000 shares of RCM
Corporation stock with an adjusted basis of $126,000 and a fair market value of $343,000.3. An
automobile with an adjusted basis of $15,000 and a fair market value of $9,000.4. An interest-
free loan of $2,000 for a personal computer on January 1st. The applicable federal rate for the
tax year was 8%.
What is the value of J.R.'s gross gifts for this year? (5) - correct answer ✔✔ $492,000
The total of gross gifts is the fair market value of all gifted property before any deductions for
gift-splitting, the marital deduction, or the annual exclusion. Because the loan in statement 4 is
less than $10,000, it meets one of the exceptions of the imputed interest rules. The fact that the
basis in Statement 3 is higher than the FMV is ignored for purposes of calculating the total gross
gifts. The double-basis rule will apply to the donee in a subsequent sale (under the income tax
system, not the gift tax system). $140,000 + 343,000 + 9,000 = $492,000.
Brent and his wife live in a common law (separate property) state. Each year, Brent makes gifts
equal to the annual exclusion to his three children. During the year, he comes to you looking for
a way to transfer more than $75,000 each year to his kids without using his applicable gift tax
credit or paying any gift tax. All of the following statements regarding gift-splitting, are true,
except: (5) - correct answer ✔✔ Even if Brent's wife elected to split gifts, only Brent's gifts
would be split.
, The question asks which statement is not true regarding gift-splitting. Option b is incorrect
because a couple that elects to split gifts must split all gifts made during the year. All of the
other options are correct statements.
Hazel received 100 shares of ZYX Corporation from her aunt with an adjusted basis of $60,000
and a fair market value of $30,000 as of the date of the gift. Her aunt paid $1,500 of gift tax.
Hazel sold the stock for $45,000. What is Hazel's recognized gain or loss? (5) - correct answer
✔✔ No gain or loss.
When the fair market value of gifted property is less than the donor's adjusted basis, gift tax on
the appreciation is not added to the basis, and the double-basis rule applies. In such a case, the
gain basis for the property is the donor's adjusted basis, and the loss basis is the fair market
value at the date of the gift. When the sale is between these amounts, there is not a gain or
loss. In this case, Hazel sold the stock for an amount between the gain and loss basis and
therefore has no gain or loss.
Which of the following is eligible for the annual exclusion? (5) - correct answer ✔✔ Frank funds
an irrevocable life insurance trust with the amount necessary to pay the premiums of the policy.
The beneficiaries can take a distribution equal to the contribution each year.
If the beneficiaries of a trust are given the right to take a withdrawal during the year, the
contribution is eligible for the annual exclusion. Options a and b are not completed gifts and
therefore do not qualify for the annual exclusion. The transfer to the trust in option c is a gift of
a future interest and is not eligible for the annual exclusion.
Mallory provides the following list to her CPA who is preparing her gift tax return. Which of the
following will Mallory's CPA include as a taxable gift on Mallory's gift tax return? (5) - correct
answer ✔✔ Payment to grandmother of $20,000 to help her with her medical bills.
Mallory's CPA will include the payment made to Mallory's grandmother as a taxable gift. A
payment must be paid directly to the health care provider or educational institution to be a
