PART 4—STUDY QUESTIONS
(Questions followed by [A] are answered in part V.)
- What is the nature of the gift tax, and what
is its objective? (2.1)
- What is the effect of the unified estate and
gift tax system? [A] (2.2–2.3)
- What are the tax-related incentives for making
lifetime gifts? (2.2–2.4)
- Explain the meaning and significance of gift
splitting. (2.4–2.5)
- Larry and Louise Longfellow are considering
giving $15,000 to each of their three children this year.
- Can Louise make the entire gift from her own funds and still split the
gift with Larry?
- How much is each spouse deemed to be giving after the split?
- Explain whether the consent for the split gift can be made after Larry’s
death.
- Explain the purpose of the annual gift tax exclusion. (2.5)
- Explain the following terms:
- present-interest gifts
- future-interest gifts (2.5–2.7)
- Cecelia and Henry Hunt have seven children. Henry would like to give each
child as much money as possible this year without exceeding the annual-exclusion
limits. Assume Cecelia will join in the gifts. Compute the maximum total amount
Henry can give the children this year within the limits he has established.
[A] (2.5–2.6)
- Mrs. Martin is considering the gratuitous transfer of an apartment house
valued at $50,000 to her daughter, Nancy, in trust for Nancy’s lifetime, with
remainder to Nancy’s children. Explain whether this gift would qualify as
one of a present interest, future interest, or both, if trust income is distributable
to Nancy at the discretion of the trustee only. [A] (2.6–2.7)
- Explain what a Crummey power is and how it can be used. (2.8)
- Will the following transfers qualify for the annual exclusion? Explain.
[A]
- Bill Nagle gives his son, Bill, Jr., an outright gift of $15,000 this
year.
- Bill transfers $10,000 in cash to a trustee. Income from the trust is
to be paid to Bill’s daughter annually, and the remainder is to go to
Bill’s son upon the daughter’s death.
- Same facts as in 10b above, but the trustee is given the discretion
to accumulate rather than to distribute income.
- Bill transfers $10,000 in cash to a trust, but the trustee is required
to accumulate all trust income until Bill, Jr., is 21, at which time the
entire principal is to be distributed to him. (2.7–.14)
- Discuss the reasons that donors should consider making large and/or recurring
gifts to minors in a form other than an outright gift. (2.9–2.10)
- Explain if and when the following types of property may qualify for the
annual exclusion:
- an outright gift of life insurance
- life insurance transferred to a trust with no Crummey demand powers
- premium payments on life insurance owned by a trust where the beneficiary
has Crummey demand powers
- gifts in trust of closely held non-dividend-paying stock (2.7–2.13)
- Distinguish between an IRC Sec. 2503(b) trust and an IRC Sec. 2503(c) trust
regarding
- distribution of income
- discretion of trustee in accumulating income
- time by which trust principal is required to be distributed
- payment of trust assets if minor dies (2.9–2.12)
- Compare an IRC Sec. 2503(c) trust to the Uniform Gifts to Minors Act regarding
- type of property that can be used
- allowable dispositive provisions for gift assets
- investment flexibility that can be given to the trustee
- time by which assets must be distributed (2.9–2.13)
- What is the significance of the gift tax marital deduction? (2.14)
- Josephine Carmeron gave her husband, Thomas, $210,000. How is this gift
treated for gift tax purposes? (2.14–2.15)
- Explain the significance of the gift tax charitable deduction. (2.15)
- Mr. Fisher is married and has made gifts of his own property this year.
Neither Fisher nor his wife has made any prior gifts. Mrs. Fisher joined in
making all gifts to the following third parties: $25,000 in cash to their
son; $52,000 (market value) of common stock, which cost $35,000, to Fisher’s
brother; $23,000 (market value) of common stock, which cost $5,000, to the
XYZ Hospital—a nonprofit public charitable institution; and a gift to Mrs.
Fisher of $50,000 (market value) of corporate bonds, which cost $60,000. [A]
- What would be the total taxable gifts, if any, made by Mr. Fisher this
year after taking into account all available exclusions and deductions?
Explain each step in your answer.
- What would be the total taxable gifts, if any, made by Mrs. Fisher this
year? Explain each step in your answer. (2.14–2.16)
- Assume that Paul Gaffney, an unmarried donor, gave $60,000 to his friend,
Ellen, and $25,000 to the American Red Cross in 1992. [A]
- Compute the gift tax payable, assuming Paul had made no prior gifts.
- Compute the gift tax payable, assuming instead that Paul had made $100,000
of taxable gifts in prior reporting periods. (2.16–2.17)
- Explain if and when a gift tax return would be required in the following
situations:
- Marvin Jackson gives his niece a $2,000 charm bracelet for her birthday.
- Jessie Rotelli gives her husband a Mercedes Benz valued at $30,000.
- Pat Cressito places $15,000 in trust for her niece. The trustee has
the discretion to accumulate income until Pat’s niece is 21. After that,
all principal and income will be distributed to the niece. (2.20–2.22)
- Explain a carryover of a donor’s basis. (2.22)
- Compute the donee’s basis for income tax purposes in the following situation:
Lee Rostler bought stock for $50,000. He gave it to his son when it was worth
$150,000. Lee paid $30,000 in gift taxes on the transfer. [A] (2.22–2.23)
- You have been discussing the use of a gift-giving program with a client.
She asks you to tell her in general terms what characteristics the ideal subject
of a gift would have. (2.23–2.25)