Estates Ch 6 Estate Tax

Question 1

A court award for wrongful death paid to the decedent’s family will be included in the decedent’s gross estate.

a. True b. False

Answer 1

b. False

Question 2

Proceeds of a life insurance policy on the life of the decedent will be included in the decedent’s gross estate if, at the decedent’s death, the decedent possessed any incidents of ownership in the policy.

a. True b. False

Answer 2

True

Question 3

Assets disposed of between the date of death and the alternate valuation date are valued on the date of disposition if the alternate valuation date is properly elected.

a. True b. False

Answer 3

True

Question 4

Caleb had been working with an estate planner for several years prior to his death. Accordingly, Caleb made many transfers during his life in an attempt to reduce his potential estate tax burden, and Caleb’s executor, Landry, is thoroughly confused. Landry comes to you for clarification of which assets to include in Caleb’s gross estate. Which of the following transactions will not be included in Caleb’s gross estate?

a. Caleb gave $40,000 to each of his three grandchildren two years ago. No gift tax was due on the gifts.

b. Caleb purchased a life insurance policy on his life with a face value of $300,000. Caleb transferred the policy to his son two years ago.

c. Caleb and his spouse owned their personal residence valued at $250,000 as tenants by the entirety.

d. After inheriting a mountain vacation home from his mother, Caleb gifted the vacation home to his daughter to remove it from his gross estate. Caleb continued to use the property as a weekend getaway and continued all maintenance on the property.

Answer 4

The correct answer is a.

The $40,000 gifts to his grandchildren are excluded from his gross estate because only gifts of life insurance within three years, gift of a previously-retained interest within three years, and any gift tax
paid on a gift within three years are included in a transferor’s gross estate.

The life insurance policy in option b is included in Caleb’ gross estate because transfers of life insurance within three years of death
are included in the decedent’s gross estate. A

ny property owned at the decedent’s date of death, as in option c, is included in the decedent’s gross estate. (Do not confuse gross estate inclusion with probate inclusion.)

Even though Caleb gave the mountain home in option d to his daughter, and the value of the property generally would not be included in Caleb’s gross estate, the fact that Caleb continued to utilize the property each weekend and maintained the property would cause inclusion in his gross estate.

Question 5

The gross estate of a decedent who died in the current year would not include which of the following items?

a. A luxury sedan, valued at $60,000, driven every day by the decedent.

b. Cash of $1,000,000 given to decedent’s daughter two years ago. No gift tax was paid on the transfer.

c. A bond given to decedent’s cousin last year. Gift tax of $4,000 was paid on the transfer.

d. A home which the decedent owned as tenants by the entirety with his spouse

Answer 5

The correct answer is b.

The $1,000,000 transfer is not included in the decedent’s gross estate because the three-year look back
rule only applies to life insurance, previously-retained interest, and gift taxes paid. Only the gift tax paid
on the transfer in answer c would be included in the decedent’s gross estate. The property listed in answer a and answer d would be included in the decedent’s gross estate.

Question 6

Mitzi dies owning several shares of an infrequently traded stock.
She dies on Wednesday, November 7th, and the stock has the following trading information: Monday, 11/5 $31 Thursday, 11/8 $36 Monday, 11/12 $28

What is the per share value (rounded to the nearest dollar) of the stock on the federal estate tax return?

a. $31.
b. $33.
c. $34.
d. $36.

Answer 6

The correct answer is c.
To value an infrequently traded stock, or to find the value on a date which falls in between trading dates, we must follow a special formula.

First, multiply the first trading price after the valuation date by the number of days between the valuation date and the last trade before the valuation date.

Add to this product, the product of the last trading price before the valuation date by the number of days between the valuation date and the first trade after the valuation date. Now, divide the total of the two by the total number of days between the trade before the valuation date and the trade after the valuation date

Question 7

Rowland died eight months ago and the executor is finalizing his estate tax return. The executor has determined that Rowland’s gross estate includes $400,000 of real estate, $750,000 of cash and cash equivalents, and $300,000 of qualified retirement plans. The total gross estate is $1,450,000. As the executor reviews the deductions, which of the following will the executor deduct from the total gross estate to arrive at the adjusted gross estate on Rowland’s Form 706?

a. Income in Respect of Decedent (IRD).
b. Unlimited charitable deduction.
c. Unlimited marital deduction.
d. Executor’s fee.

Answer 7

The correct answer is d.

The executor’s fees listed in answer d are deductions from the gross estate to arrive at the adjusted gross
estate. The marital deduction and charitable deduction, as listed in options b and c, are deductions from
the adjusted gross estate to arrive at the taxable estate. Income in respect of a decedent, option a, is a
deduction on the estate’s Form 1041 or a beneficiary’s Form 1040, and is not a deduction on the
decedent’s Form 706 (the beneficiary’ income tax deduction for estate taxes paid on IRD is covered in
Chapter 12)

Question 8

Destiny has begun some estate planning. What is the maximum amount of estate tax Destiny can avoid by using the applicable estate tax credit during 2022?

a. $345,800.
b. $1,000,000.
c. $4,769,800.
d. $12,060,000.

Answer 8

The correct answer is c.

Destiny can shelter estate tax of $4,769,800 using the applicable estate tax credit of $4,769,800. The applicable estate tax credit equivalency or exclusion amount is $12,060,000 for 2022

Question 9

If an estate pays the funeral expenses of the decedent, on which tax return are these expenses deducted?

The decedent’s final income tax return (Form 1040).
The decedent’s estate tax return (Form 706).
The income tax return of the decedent’s estate (Form 1041).
The surviving spouse’s income tax return (Form 1040).

Answer 9

The decedent’s estate tax return (Form 706).
Rationale

If the funeral expenses are paid by the decedent’s estate, the expenses are deducted on the federal estate tax return. If the expenses are paid by anyone else (or any other entity), the expenses are not deductible.

Question 10

It would be possible for a decedent to avoid having to pay any estate tax by implementing which of the following?

1. Leave all property to a qualified charity.
2. Leave all property to the decedent’s spouse.
3. Make annual gifts during the remainder of their lifetime that are precisely equal to the gift tax annual exclusion and that, in the aggregate, reduced their estate below $13,610,000 (in 2024).
4. Transfer their entire estate to a revocable living trust.

1 and 2.
3 and 4.
1, 2, and 3.
1, 2, 3, and 4.

Answer 10

1, 2, and 3.
Rationale

If all of a decedent’s property is bequeathed to a spouse or charity, the marital and charitable deductions reduce the gross estate to zero. In 2024, a decedent can transfer the exemption equivalent of $13,610,000 tax-free. Property transferred to a revocable trust is included in the decedent’s gross estate and does not avoid estate tax.

Question 11

Destiny has begun some estate planning. What is the maximum amount of estate tax Destiny can avoid by using the applicable estate tax credit during 2024?

$345,800.
$1,000,000.
$5,389,800.
$13,610,000.

Answer 11

$5,389,800.
Rationale

Destiny can shelter estate tax of $5,389,800 using the applicable estate tax credit of $5,389,800. The applicable estate tax credit equivalency or exclusion amount is $13,610,000 for 2024

Question 12

Rowland died eight months ago and his executor is finalizing his estate tax return. The executor has determined that Rowland’s gross estate includes $400,000 of real estate, $750,000 of cash and cash equivalents, and $300,000 of qualified retirement plans. The total gross estate is $1,450,000. As the executor reviews the deductions, which of the following will the executor deduct from the total gross estate to arrive at the adjusted gross estate on Rowland’s Form 706?

Income in Respect of Decedent (IRD).
Unlimited charitable deduction.
Unlimited marital deduction.
Executor’s fee.
Confidence of yo

Answer 12

Executor’s fee.

Rationale

The executor’s fees listed in option d are deductions from the gross estate to arrive at the adjusted gross estate. The marital deduction and charitable deduction, as listed in options b and c, are deductions from the adjusted gross estate to arrive at the taxable estate. Income in respect of a decedent, option a, is a deduction on the estate’s Form 1041 or a beneficiary’s Form 1040, and is not a deduction on the decedent’s Form 706 (the beneficiary’s income tax deduction for estate taxes paid on IRD is covered in Chapter 12).

Question 13

Azrael, a widower, made a cash gift to her son of $1,000,000 two years before she died and paid a $400,000 gift tax.
What amount is included in her gross estate?

$0.
$400,000.
$1,000,000.
$1,400,000.

Answer 13

$400,000.
Rationale

Under the gross-up rule, gift taxes paid within three years of death are included in the decedent’s gross estate. The gift itself is not included, but the gift tax is included.

Question 14

Cary and Grant are married and live in California, a community property state. Their community property consists of real property with an adjusted basis of $300,000 and a fair market value of $750,000 and other property with an adjusted basis of $100,000 and a fair market value of $75,000.
Cary dies and leaves his entire estate to Grant. What is Grant’s adjusted basis in the real property and other property after Cary’s death?

Real Property: $150,000 Other Property: $37,500
Real Property: $300,000 Other Property: $50,000
Real Property: $375,000 Other Property: $100,000
Real Property: $750,000 Other Property: $75,000

Answer 14

Real Property: $750,000 Other Property: $75,000
Rationale

Both the decedent’s and survivor’s interest in the community property receive a basis adjustment to the fair market value on the date of Cary’s death

Question 15

Which of the following statements is correct about Form 706, Estate Tax Return?

The return is due within six months of the date of death, but can be extended.

The return can be extended for up to seven months.

The surviving spouse can apply the DSUE amount received from the estate of any of his or her deceased spouses against any tax liability arising from subsequent lifetime gifts and transfers at death.

To elect portability of the DSUE amount to a surviving spouse, the executor must file the Form 706 and elect this treatment.

Answer 15

To elect portability of the DSUE amount to a surviving spouse, the executor must file the Form 706 and elect this treatment.
Rationale

Option a is incorrect as the return is due within 9 months. Option b is incorrect as the extension is for 6 months. Option c is incorrect as it is the last spouse, not any spouse, and the DSUE cannot be applied against the GSTT.

Question 16

The gross estate of a decedent who died in the current year would not include which of the following items?

A luxury sedan, valued at $60,000, driven every day by the decedent.

Cash of $1,000,000 given to decedent’s daughter two years ago. No gift tax was paid on the transfer.

A bond given to decedent’s cousin last year. Gift tax of $4,000 was paid on the transfer.

A home which the decedent owned as tenants by the entirety with his wife.

Answer 16

Cash of $1,000,000 given to decedent’s daughter two years ago. No gift tax was paid on the transfer.

Rationale

The $1,000,000 transfer is not included in the decedent’s gross estate because the three-year look back rule only applies to life insurance, previously-retained interest, and gift taxes paid. Only the gift tax paid on the transfer in answer c would be included in the decedent’s gross estate. The property listed in answer a and answer d would be included in the decedent’s gross estate

Question 17

Gargamel, age 91, created an irrevocable trust for his daughter and placed income-producing securities in the trust. In which of the following circumstances would the full value of the trust corpus be included in Gargamel’s gross estate at his death?

1. Gargamel retained the right to change the trust beneficiary.
2. Gargamel retained the right to the trust’s income for his lifetime.
3. Gargamel selected his own bank to be trustee, but retained no control over the trustee.

2 only.
1 and 2.
2 and 3.
1, 2, and 3.

Answer 17

1 and 2.
Rationale

In Statements 1 and 2, Gargamel has retained interests that require the full value of the trust corpus to be included in his gross estate. The right to determine who will enjoy the property and the right to receive income are retained interests that require the full value to be included.

The selection of a trustee is not a retained interest.

Question 18

Which of the following statements concerning revocable transfers is correct?

If the grantor gives up the power to revoke a trust four years before their death, the property will be included in their gross estate.

Powers of revocation must be exercised in order for the property to be included in the decedent’s gross estate.

If a person places all of their assets in a revocable living trust, the trust assets will escape probate and will not be included in the gross estate.

If a trustee who was not the grantor has the power to revoke, the trust property will be excluded from the trustee’s gross estate.

Answer 18

If a trustee who was not the grantor has the power to revoke, the trust property will be excluded from the trustee’s gross estate.
Rationale

A revocable transfer will be included in the transferor’s gross estate, but when a trustee who was not the transferor is given a power to terminate the trust, the trust assets are not included in the trustee’s gross estate. A power of revocation need not be exercised to have the property included in the transferor’s gross estate. A power of revocation released within three years of death will cause the assets to be included in the gross estate, however, if the power is released greater than three years from the date of death, the assets are not included. Assets placed in a revocable living trust will escape probate, but they are included in the grantor’s gross estate.

Question 19

An estate tax return must be filed for a U.S. resident or a U.S. citizen dying during 2024 if the total value of his gross estate plus post-1976 adjusted taxable gifts on his date of death is greater than:

$1,000,000.
$2,101,720.
$5,389,800.
$13,610,000.

Answer 19

$13,610,000.
Rationale

This question is asking for the applicable estate tax credit equivalency for 2024, or the fair market value of property that can transfer with an estate tax less than or equal to the applicable estate tax credit

For 2024, the applicable estate tax credit equivalency is $13,610,000. (For 2023, the applicable estate tax credit equivalency is $12,920,000.)

Question 20

To avoid inclusion in a power holder’s gross estate, a power should limit the appointment of property to the power holder for the sole purpose of:

Pleasure.
Support.
Wealth.
Happiness

Answer 20

Support.
Rationale

A power of appointment which limits the holder’s benefit to support is not included in the power holder’s gross estate. As a general rule, a power which limits the power holder’s benefit to health, education, maintenance, or support (or any combination of those listed) is not included in the power holder’s gross estate as an ascertainable standard.

Question 21

In August of the current year, Jax died of lung cancer. Jax’s son, Otto, has decided to prepare his father’s estate tax return, but has come to you for clarification on whether the following list of items are included in Jax’s gross estate. After reviewing the list, which item(s) will you tell Otto to exclude from Jax’s gross estate?

A life insurance policy on the life of Jax’s wife owned by Jax.

A check from Doctor’s Hospital for the refund of medical expenses that Jax initially paid, but were subsequently paid for by Jax’s health insurance company. The reimbursements were due to Jax before his death.

A check from ABC Corporation for dividends in the amount of $15,000 declared September 23rd (the month after Jax’s death).

A payment of $500,000 from Mutual Life Insurance of America representing the proceeds of a life insurance policy owned by Jax.

Answer 21

A check from ABC Corporation for dividends in the amount of $15,000 declared September 23rd (the month after Jax’s death).

Rationale

Jax died in August. The dividends from ABC Corporation in the amount of $15,000 are not included in Jax’s gross estate because they were not declared until September.

The life insurance policy in answer a is included in Jax’s gross estate (valued based on the interpolated terminal reserve plus unearned premiums, not the death benefit) as all property owned by the decedent at his date of death is included in the decedent’s gross estate.

The check from the hospital detailed in answer b is included in Jax’s gross estate because the payments were due to him before his death.

The life insurance policy death benefit in answer d is included in Jax’s gross estate because life insurance on the decedent’s life owned or transferred within three years of a decedent’s date of death is included in the decedent’s gross estate.

Question 22

Caleb had been working with an estate planner for several years prior to his death. Accordingly, Caleb made many transfers during his life in an attempt to reduce his potential estate tax burden, and Caleb’s executor, Landry, is thoroughly confused. Landry comes to you for clarification of which assets to include in Caleb’s gross estate. Which of the following transactions will not be included in Caleb’s gross estate?

Caleb gave $40,000 to each of his three grandchildren two years ago. No gift tax was due on the gifts.

Caleb purchased a life insurance policy on his life with a face value of $300,000. Caleb transferred the policy to his son two years ago.
Caleb and his wife owned their personal residence valued at $250,000 as tenants by the entirety.

After inheriting a mountain vacation home from his mother, Caleb gifted the vacation home to his daughter to remove it from his gross estate. Caleb continued to use the property as a weekend getaway and continued all maintenance on the property.

Answer 22

Caleb gave $40,000 to each of his three grandchildren two years ago. No gift tax was due on the gifts.
Rationale

The $40,000 gifts to his grandchildren are excluded from his gross estate because only gifts of life insurance within three years, gift of a previously-retained interest within three years, and any gift tax paid on a gift within three years are included in a transferor’s gross estate. The life insurance policy in option b is included in Caleb’ gross estate because transfers of life insurance within three years of death are included in the decedent’s gross estate. Any property owned at the decedent’s date of death, as in option c, is included in the decedent’s gross estate. (Do not confuse gross estate inclusion with probate inclusion.) Even though Caleb gave the mountain home in option d to his daughter, and the value of the property generally would not be included in Caleb’s gross estate, the fact that Caleb continued to utilize the property each weekend and maintained the property would cause inclusion in his gross estate.

Question 23

f the following expenditures from an estate, which is not a deduction from the gross estate or adjusted gross estate to arrive at the taxable estate?

Payment to United Charitable Organization (a charity qualifying under IRC Section 501(c)(3)) to satisfy a specific bequest.

Distribution of assets to spouse to satisfy specific bequests listed in will.

Payment to Second USA Bank for a credit card balance.

A payment to decedent’s friend for $10,000 to satisfy a specific bequest.

Answer 23

A payment to decedent’s friend for $10,000 to satisfy a specific bequest.
Rationale

Payments made to satisfy specific bequests to individuals other than a surviving spouse or a charity are not deductions from the gross estate to arrive at the taxable estate. All of the others are deductible expenses or transfers.

Question 24

Nine months ago, Bonnie gave land to Clyde. At the date of gift, the land had a fair market value of $400,000 and an adjusted taxable basis to Bonnie of $250,000. Clyde died bequeathing all of his property to Bonnie.
If the land had a fair market value of $450,000 on the date of Clyde’s death, what is Bonnie’s adjusted taxable basis in the land?

$0.
$250,000.
$400,000.
$450,000.

Answer 24

$250,000.
Rationale

If a heir or legatee receives property from a decedent that the decedent acquired by gift from the heir/legatee within one year of the decedent’s death, the heir/legatee takes the decedent’s basis (which will be the donor’s basis). There is no stepped-up basis. Since Clyde died within one year of the gift, and bequeathed the property to the original donor (Bonnie), Bonnie’s basis in the property will not be stepped up. Bonnie’s basis will be $250,000

Question 25

When a U.S. citizen dies and bequeaths property to his U.S. citizen spouse, the marital deduction is limited to the following amount:

$185,000.
$5,389,800.
$13,610,000.
The marital deduction is unlimited

Answer 25

The marital deduction is unlimited.
Rationale

For transfers to a U.S. citizen spouse, the marital deduction is unlimited.

Question 26

When an individual dies, which of the following statements concerning the filing of the federal estate tax return is (are) correct?

1. The federal estate tax return is due nine months after the decedent’s date of death.
2. The executor is personally liable for the federal estate tax.
3. If there is no executor for the estate, persons in possession of the decedent’s property must file an estate tax return.

1 only.
1 and 3.
2 and 3.
1, 2, and 3.

Answer 26

1, 2, and 3.
Rationale

The federal estate tax return is due nine months after the decedent’s date of death. The executor is personally liable for the federal estate tax. If there is no executor for the estate, persons in possession of the decedent’s property must file an estate tax return.

Question 27

after an extensive hospital stay, Walton died of heart failure in August of the current year. In computing Walton’s taxable estate, which of the following is not deductible?

Payment to Good Insurance representing the past due balance of Walton’s car insurance for the month July.

Per the will, a payment to Walton’s friend, Elena.

Payment to Brian’s Engraving for Walton’s tombstone.

Payment to Howe & Dewey, LLP, the estate’s attorneys.

Answer 27

Per the will, a payment to Walton’s friend, Elena.
Rationale

A specific bequest, as detailed in option b, is not deductible. All of the other answers are deductible expenses or transfers.

Question 28

Rufus left a will in which he established a $600,000 trust for his children and a $600,000 charitable trust, and the remainder was to pour over into a revocable trust set up by Rufus. The revocable trust is to pay income to his wife for life, and at her death, the principal is to be distributed to their children. At his death, Rufus left the following assets:
Residence - JT $200,000
Common stock - H $250,000
Municipal bonds - H $150,000
Investment real estate - R $200,000
Life insurance - H $500,000
Mutual funds - W $100,000

JT = Joint tenancy WROS
H = Rufus is the owner
W = Rufus’s wife is the owner
R = Revocable trust holds the title

What is the amount of his gross estate if Rufus dies today?
$400,000.
$600,000.
$700,000.
$1,200,000

Answer 28

$1,200,000.
Rationale

The gross estate will include one-half of the value of the residence, which is held in joint tenancy by spouses. The gross estate will also include the entire value of the assets individually owned by Rufus. These assets are the common stock and municipal bonds. Since Rufus owned the life insurance, the value of the policy is included in his gross estate. The investment real estate is held by a revocable trust, so it is included in Rufus’s gross estate by reason of the retained power to revoke the trust. The mutual funds owned by Rufus’s wife are not included in his gross estate. Note that the provisions of Rufus’s will do not have any effect on the gross estate.

Question 29

Micah’s father has been diagnosed with cancer and has been given one year to live. In an attempt to avoid capital gains tax, Micah transfers her stock with an adjusted basis of $1,000 and a fair market value of $11,000 to her father.
Micah’s father dies seven months after the transfer when the fair market value of the stock was $12,000 and her father’s will leaves her everything, including the stock.
Micah subsequently sells the stock for $19,000.

What is Micah’s capital gain on the transaction?

$7,000.
$10,000.
$18,000.
$19,000.

Answer 29

$18,000.
Rationale

A special rule applies when the donee of property dies within one year of the transfer and the donee bequeaths the property back to the original donor.
In this case, the heir (original donor) will not receive a step up to fair market value in the property.
Here, Micah will receive her stock from her father’s estate with her father’s basis - which was her basis before the original gift - or $1,000. So, when Micah sells the stock for $19,000, she has an $18,000 capital gain.

Question 30

If a decedent dies in 2024 with a taxable estate of $16,000,000 and has never used any of his applicable estate tax credit, what amount of the decedent’s estate tax will be absorbed by the applicable estate tax credit amount in 2024?

$345,800.
$2,101,720.
$5,389,800.
$13,610,000.

Answer 30

$5,389,800.
Rationale

The applicable estate tax credit for 2024 is $5,389,800.

Question 31

Despite her efforts to transfer all of her property out of her estate during her life, Brynn died on January 16th still owning the following property:

                                                                                                                        Adj. Basis       FMV      Personal Residence                                                                                             $20,000       $320,000 Rental Property                                                                                                    $84,000       $80,000 Rental Income on above property (February payment)                                          $2,000         $2,000 Cancelled vacation cruise refund (check received 12/31 but not cashed)              $4,500         $4,500 Cash                                                                                                                     $18,000       $18,000

What is the value of Brynn’s gross estate?

$124,500.
$128,500.
$422,500.
$424,500

Question 32

When Ronnie died seven months ago, he left his prize art collection to his daughter, Kate.
Three months before his death, Ronnie purchased an enchanting oil painting for $4,000. Kate has been offered $100,000 for the painting.
Kate is extremely excited because the painting was only valued at $15,000 when her father died.
If Kate sold the painting today, what would her taxable gain be for income tax purposes.

A.$85,000 short term gain
B.$85,000 long term gain
C.$96,000 short term gain
D.$96,000 long term gain

Answer 32

Solution: The correct answer is B.

$85,000 long term gain

Question 33

Petra, single with 2 children died this year. She has a gross estate plus adjusted taxable gifts valued at $11.5 million.
When is her Form 706 and payment of any estate tax owed due?

A.9 months after the decedent's date of death.

B.15 months after the decedent’s date of death.

C.24 months after the decedent's date of death.

D.No due date since the estate is below the estate tax exemption.

Answer 33

Solution: The correct answer is D.
No due date since the estate is below the estate tax exemption.

Gross estate over the exemption amount requires filing Form 706 and payment of tax within 9 months. Petra’s estate is below the annual exemption.

Choice A is incorrect. With a taxable estate over the annual estate tax exemption, Form 706 and payment of any tax owed is due 9 months after date of death. This does not apply since her estate is below the estate tax exemption.

Choice B is incorrect. 15 months would require an extension to file and pay. This does not apply since her estate is below the estate tax exemption.

Choice C is incorrect. 24 months is only allowed as an extension for a simplified filing to elect portability when no estate tax is due. This does not apply since her estate would not file for portability.

Question 34

Which of the following must be included in a decedent’s gross estate?

A.The value of any gifts made within 3 years of death, excluding the gift tax paid on those gifts.

B.The gift tax paid on any gifts made within 3 years of death.

C.The value of life insurance policies transferred within 3 years of death, excluding the death proceeds.

D.The value of any gift made within 3 years of death that does not have a retained or reversionary interest.

Answer 34

Solution: The correct answer is B.

IRS Section 2035 requires any gift tax paid on gifts made within 3 years of death to be included in the gross estate (the gross-up rule).

Choice A is incorrect. Only the gift tax paid, not the full value of the gifts, must be included for gifts made within 3 years of death.
Choice C is incorrect. The full death proceeds of life insurance transferred within 3 years of death is included, not just the value when transferred.
Choice D is incorrect. A completed gift where the decedent does not have a retain interest will not be included in the gross estate.

Question 35

Donny died on January 1, 2024, after a drunk driver hit his car. The property he owned at his death included the information below.

House $200,000 $350,000 $354,393 $358,842
Boat $40,000 $38,000 $37,527 $37,060
Annuity $100,000 $300,000 $275,840 $251,193
Note Receivable $40,000 $200,000 $190,918 $181,744
Personal Property $100,000 $30,000 $29,627 $29,258
Car $47,500 $25,000 $24,689
Rental Property $230,000 $400,000 $411,101 $422,510
Total $757,500 $1,343,000 $1,324,095 $1,280,607

All property listed above was owned in sole ownership by Donny. The annuity is a joint and survivor annuity and will continue to pay his wife Jeanette. Donny’s will leaves all probate assets to his son and daughter in equal shares. Donny also owned a life insurance policy on his life. The basis in the policy was $89,000 and the death benefit was $1,000,000. The beneficiary of the insurance policy was Donny’s daughter, Cheryl. The family sued the drunk driver and received $500,000 for wrongful death payable to Jeanette and $200,000 for Donny’s pain and suffering payable to Donny’s estate. Donny made substantial gifts during his life. He paid gift tax of $98,000 in 2019 and $67,200 in 2021. Donny’s funeral cost $15,000. The car was sold 4/1/2024 for its fair market value on that date in order to pay for Donny’s $16,000 hand-carved marble headstone. Donny had $250,000 of medical expenses from the accident, but all expenses were covered by his medical insurance. The note receivable was being paid monthly.
Question

What is the value of Donny’s gross estate assuming the alternate valuation date is selected?

House $200,000 $350,000 $354,393 $358,842
Boat $40,000 $38,000 $37,527 $37,060
Annuity $100,000 $300,000 $275,840 $251,193
Note Receivable $40,000 $200,000 $190,918 $181,744
Personal Property $100,000 $30,000 $29,627 $29,258
Car $47,500 $25,000 $24,689
Rental Property $230,000 $400,000 $411,101 $422,510
Total $757,500 $1,343,000 $1,324,095 $1,280,607

All property listed above was owned in sole ownership by Donny. The annuity is a joint and survivor annuity and will continue to pay his wife Jeanette. Donny’s will leaves all probate assets to his son and daughter in equal shares. Donny also owned a life insurance policy on his life. The basis in the policy was $89,000 and the death benefit was $1,000,000. The beneficiary of the insurance policy was Donny’s daughter, Cheryl. The family sued the drunk driver and received $500,000 for wrongful death payable to Jeanette and $200,000 for Donny’s pain and suffering payable to Donny’s estate. Donny made substantial gifts during his life. He paid gift tax of $98,000 in 2019 and $67,200 in 2021. Donny’s funeral cost $15,000. The car was sold 4/1/2024 for its fair market value on that date in order to pay for Donny’s $16,000 hand-carved marble headstone. Donny had $250,000 of medical expenses from the accident, but all expenses were covered by his medical insurance. The note receivable was being paid monthly.
Question

What is the value of Donny’s gross estate assuming the alternate valuation date is selected?
House $200,000 $350,000 $354,393 $358,842
Boat $40,000 $38,000 $37,527 $37,060
Annuity $100,000 $300,000 $275,840 $251,193
Note Receivable $40,000 $200,000 $190,918 $181,744
Personal Property $100,000 $30,000 $29,627 $29,258
Car $47,500 $25,000 $24,689
Rental Property $230,000 $400,000 $411,101 $422,510
Total $757,500 $1,343,000 $1,324,095 $1,280,607

All property listed above was owned in sole ownership by Donny. The annuity is a joint and survivor annuity and will continue to pay his wife Jeanette. Donny’s will leaves all probate assets to his son and daughter in equal shares. Donny also owned a life insurance policy on his life. The basis in the policy was $89,000 and the death benefit was $1,000,000. The beneficiary of the insurance policy was Donny’s daughter, Cheryl. The family sued the drunk driver and received $500,000 for wrongful death payable to Jeanette and $200,000 for Donny’s pain and suffering payable to Donny’s estate. Donny made substantial gifts during his life. He paid gift tax of $98,000 in 2019 and $67,200 in 2021. Donny’s funeral cost $15,000. The car was sold 4/1/2024 for its fair market value on that date in order to pay for Donny’s $16,000 hand-carved marble headstone. Donny had $250,000 of medical expenses from the accident, but all expenses were covered by his medical insurance. The note receivable was being paid monthly.
Question

What is the value of Donny’s gross estate assuming the alternate valuation date is selected?

$1,280,607
B.$2,610,200
C.$2,639,559
D.$3,237,559

Answer 35

Solution: The correct answer is C.

$2,639,559

Question 36

All property listed above was owned in sole ownership by Donny. The annuity is a joint and survivor annuity and will continue to pay his wife Jeanette. Donny’s will leaves all probate assets to his son and daughter in equal shares. Donny also owned a life insurance policy on his life. The basis in the policy was $89,000 and the death benefit was $1,000,000. The beneficiary of the insurance policy was Donny’s daughter, Cheryl. The family sued the drunk driver and received $500,000 for wrongful death payable to Jeanette and $200,000 for Donny’s pain and suffering payable to Donny’s estate. Donny made substantial gifts during his life. He paid gift tax of $98,000 in 2019 and $67,200 in 2021. Donny’s funeral cost $15,000.
The car was sold 4/1/2024 for its fair market value on that date in order to pay for Donny’s $16,000 hand-carved marble headstone. Donny had $250,000 of medical expenses from the accident, but all expenses were covered by his medical insurance.
The note receivable was being paid monthly.
Question

What is the value of Donny’s gross estate assuming the date of death valuation is selected?

A.$1,343,000
B.$2,610,200
C.$2,639,559
D.$3,208,200

Answer 36

Solution: The correct answer is B.

$2,610,200