tax problems - questin and answer ,.,. ch 27

44. LO.4, 6 Before her death in early 2012, Katie made the following transfers.
• In 2008, purchased stock in Green Corporation for $200,000, listing title as follows: “Katie, payable on proof of death to my son Travis.” Travis survives Katie, and the stock is worth $300,000 when Katie dies.
• In 2010, purchased an insurance policy on her life for $200,000, listing Paul, another of Katie’s sons, as the designated beneficiary. The policy has a maturity value of $1 million and was immediately transferred to Paul as a gift.
• In 2010, made a gift of land (basis of $300,000; fair market value of $1.3 million) to
Adriana, Katie’s only daughter. As a result of the transfer, Katie paid a gift tax of $150,000. The value of the land is still $1.3 million at Katie’s death.
• In 2010, established a savings account with Noah, her grandfather. Title to the account was listed as “Katie and Noah, joint tenants with right of survivorship.” Of the $200,000 deposited in the account, Katie furnished $20,000 and Noah contributed the balance. At Katie’s death, the balance was $206,000.
As to these transfers, how much is included in Katie’s gross estate?

45. LO.4, 6, 7 In 2005, using $2.5 million in community property, Quinn creates a trust, life estate to his wife, Eve, and remainder to their children. Quinn dies in 2009 when the trust is worth $3.6 million, and Eve dies in 2012 when the trust is worth $5.6 million.
a. Did Quinn make a gift in 2005? Explain.
b. How much, if any, of the trust is included in Quinn’s gross estate in 2009?
c. How much, if any, of the trust is included in Eve’s gross estate in 2012?
d. Would any of the above answers change if Quinn had used his separate property (rather than community property) when he created the trust? Explain.

46. LO.6, 9 At the time of his death, Garth was involved in the following arrangements.
• He held a life estate in the Myrtle Trust with the remainder passing to Garth’s adult children. The trust was created by Myrtle (Garth’s mother) in 1984 with securities worth $900,000. The Myrtle Trust had a value of $4.7 million when Garth died.
• Under the terms of the Myrtle Trust, Garth was given the power to provide for a disproportionate distribution of the remainder interest among his children. As Garth failed to exercise this power, the remainder interest is divided equally among the children.
Discuss the estate tax ramifications of these arrangements as to Garth.

47. LO.6 In 2007, Peggy, a widow, places $3 million in trust, life estate to her children, remainder to her grandchildren, but retains the right to revoke the trust. In 2011, when the trust is worth $3.1 million, Peggy rescinds her right to revoke the trust. Peggy dies in 2012 when the trust is worth $3.2 million. What are Peggy’s transfer tax consequences in:
a. 2007?
b. 2011?
c. 2012?

48. LO.6, 7 In 2000, Alan purchases a commercial single premium annuity. Under the terms of the policy, Alan is to receive $120,000 annually for life. If Alan predeceases his wife, Katelyn, she is to receive $60,000 annually for life. Alan dies first at a time when the value of the survivorship feature is $900,000.
a. How much, if any, of the annuity is included in Alan’s gross estate? Taxable estate?
b. Would the answers to part (a) change if the money Alan used to purchase the annuity was community property? Explain.
c. Would the answer to (a) change if one-half of the annuity purchase price had been furnished by Alan’s employer?

49. LO.6 At the time of his death on July 9, 2012, Aiden was involved in the following real estate.
Fair Market Value (on July 9, 2012)
Apartment building $2,100,000
Tree farm 1,500,000
Pastureland 750,000
Residence 900,000
The apartment building was purchased by Chloe, Aiden’s mother, and is owned in a joint tenancy with her. The tree farm and pastureland were gifts from Chloe to Aiden and his two sisters. The tree farm is held in joint tenancy, and the pastureland is owned as tenants in common. Aiden purchased the residence and owns it with his wife as tenants by the entirety.
How much is included in Aiden’s gross estate based on the following assumptions?
a. Aiden dies first and is survived by Chloe, his sisters, and his wife.
b. Aiden dies after Chloe, but before his sisters and his wife.
c. Aiden dies after Chloe and his sisters, but before his wife.
d. Aiden dies last (i.e., he survives Chloe, his sisters, and his wife).

50. LO.4, 6, 7 In 2002, Gordon purchased real estate for $900,000 and listed title to the property as “Gordon and Fawn, joint tenants with right of survivorship.” Gordon predeceases Fawn in 2012 when the real estate is worth $2.9 million.Gordon and Fawn are brother and sister.
a. Did a gift occur in 2002? Explain.
b. What, if any, are the estate tax consequences in 2012?
c. Under part (b), would your answer change if it was Fawn (not Gordon) who died in 2012? Explain.

51. LO.4, 6, 7 Assume the same facts as in Problem 50, except that Gordon and Fawn are husband and wife (not brother and sister).
a. What are the gift tax consequences in 2002?
b. What are the estate tax consequences in 2012?
c. Under part (b), would your answer change if it was Fawn (not Gordon) who died in 2012? Explain.

52. LO.5, 6, 7 In each of the independent situations below, determine the transfer tax (i.e., estate and gift) consequences of what has occurred. (In all cases, assume that Gene and
Mary are married and that Ashley is their daughter.)
a. Mary purchases an insurance policy on Gene’s life and designates Ashley as the beneficiary.
Mary dies first, and under her will, the policy passes to Gene.
b. Gene purchases an insurance policy on his life and designates Ashley as the beneficiary.
Gene gives the policy to Mary and continues to pay the premiums thereon. Two years after the gift, Gene dies first, and the policy proceeds are paid to Ashley.
c. Gene purchases an insurance policy on Mary’s life and designates Ashley as the beneficiary.
Ashley dies first one year later.
d. Assume the same facts as in part (c). Two years later, Mary dies. Because Gene has not designated a new beneficiary, the insurance proceeds are paid to him.
e. Gene purchases an insurance policy on his life and designates Mary as the beneficiary.
Gene dies first, and the policy proceeds are paid to Mary.

53. LO.7 While vacationing in Florida in November 2012, Sally was seriously injured in an automobile accident (she died several days later). How are the following transactions handled for tax purposes?
a. Bruce, Sally’s son and executor, incurred $6,200 in travel expenses in flying to Florida, retrieving the body, and returning it to Frankfort, Kentucky, for burial.
b. Early in 2012, Sally had pledged $50,000 to the building fund of her church. Bruce paid this pledge from the assets of the estate.
c. Prior to her death, Sally had promised to give her nephew, Gary, $20,000 when he passed the bar exam. Gary passed the exam in late 2012, and Bruce kept Sally’s promise by paying him $20,000 from estate assets.
d. At the scene of the accident and before the ambulance arrived, someone took Sally’s jewelry (i.e., Rolex watch and wedding ring) and money. The property (valued at $33,000) was not insured and was never recovered.
e. As a result of the accident, Sally’s auto was totally destroyed. The auto had a basis of $52,000 and a fair market value of $28,000. In January 2013, the insurance company pays Sally’s estate $27,000.

54. LO.7 Roy dies and is survived by his wife, Marge. Under Roy’s will, all of his otherwise uncommitted assets pass to Marge. Based on the following property interests, determine the marital deduction allowed to Roy’s estate.
a. Timberland worth $1.2 million owned by Roy, Marge, and Amber (Marge’s sister) as equal tenants in common. Amber furnished the original purchase price.
b. Residence of Roy and Marge worth $900,000 owned by them as tenants by the entirety with right of survivorship. Roy provided the original purchase price.

c. Insurance policy on Roy’s life (maturity value of $1 million) owned by Marge and payable to her as the beneficiary.
d. Insurance policy on Roy’s life (maturity value of $500,000) owned by Roy with Marge as the designated beneficiary.
e. Distribution from a qualified pension plan of $1.6 million (Roy matched his employer’s contribution of $500,000) with Marge as the designated beneficiary.

55. LO.8 On the advice of her estate planner, Grace made taxable gifts of $5 million in 2011. Grace dies in late 2012 leaving a taxable estate of $1.1 million. Grace never made any taxable gifts before 2012. Determine her estate tax liability.

56. LO.8 Under Rowena’s will, Mandy (Rowena’s sister) inherits her property. One year later, Mandy dies. Based on the following independent assumptions, what is Mandy’s credit for the tax on prior transfers?
a. The estate tax attributable to the inclusion of the property in Rowena’s gross estate is $700,000, and the estate tax attributable to the inclusion of the property in Mandy’s gross estate is $800,000.
b. The estate tax attributable to the inclusion of the property in Rowena’s gross estate is $1.2 million, and the estate tax attributable to the inclusion of the property in
Mandy’s gross estate is $1.1 million.
c. Would your answers to parts (a) and (b) change if Mandy died seven years (rather than one year) after Rowena?

57. LO.9 In 2012, Loretta makes a taxable gift of $2 million to her granddaughter, Bertha.
Presuming that Loretta used up both her unified transfer tax credit and her generationskipping transfer tax credit, how much tax does Loretta owe as a result of the transfer?