Section 3 Quiz

Question 1

What powers make an irrevocable trust to be included in a gross estate?

Answer 1

General Powers of appointment (Retained Interest)- The power to direct the trustee to use the trust assets to pay for your estate taxes if any.

Question 2

Gift splitting

Answer 2

$15,000 per person. So if someone make a $110,000 gift they would split $30,000 and the taxlable amount to both of the would be $40,000 each.

Question 3

GSTT

Answer 3

The annual exclusion is available for direct skip gifts to a grandchild.

• GSTT is in addition to Federal Gift and Estate Tax.
• GSTT applies to any individual, not just family members who is two or more generations below the transferor.
• GSTT applies to either lifetime or at-death transfers to individuals who are two or more generations below the transferor.

Question 4

Estate worth $5,000,000; and the person wants to transfer assets to his 5 grandkids. How can he do this without incurring GSTT? (GSTT exemption is $11.58mill

Answer 4

He can use his life time exemption of $11.58 mill of his estate to transfer. Then he can do $15,000 per grandchild this year ($75,000 total) = $11,655,000

Question 5

Taxable estate: $7,900,000
Post-1976 adjusted taxable gifts: $150,000
Post-1976 gifts made to a qualified charity: $300,000
The tentative tax base of this estate is

Answer 5

You take the taxable estate and add back gifts made after 1976 back into the figure. = $8,050,000 (Charities are excluded)

Gross Estate
(Less Funeral Expenses, Admin Expenses, Debts, Taxes and Casualty Losses)
= Adjusted Gross Income
(Less Marital and Charitable Deduction)
= Taxable Estate
(Plus Adjusted Taxable Gifts/ Amounts Exceeding annual gift tax exclusion)
= Tax Base
(Minus Estate Tax Deduction (11.7 mill 2021) Remainder @ 40%))
= Tentative Tax
(Minus Gift Taxes paid)
= Net Estate Tax

Question 6

Appropriate mechanisms for transferring assets if a donor, is in bad health and wants to minimize taxable estate.

Answer 6

• Giving friends g-kids $5,000 for birthdays.
• Creating an irrevocable trust in which a teenage g-kid receives income for life, and the corpus is distributed to a charity.
• Directing the executor to utilize the marital deduction for all qualified property.

You cannot create a trust with retained interest (creating a trust and receiving income for 10 years and at death it passes to a charity). Not a problem if she passes away before the term is up, but she’ll die before that time.