Part 6

ANSWERS TO FALSE REVIEW QUESTIONS

3	A gift tax is imposed on transfers of property regardless of the fact that the property is exempt from income tax.
6.	Gift splitting means that a donor’s spouse will join in a gift made by the donor so that the gift will be treated as if one-half was made by each spouse for gift tax purposes.
8.	A gift of life insurance is a present-interest gift if it is made outright. However, since it is not an income-producing property, it is difficult or impossible to ascertain the value of the income interest. Therefore, a gift of life insurance is typically one of a future interest if it is transferred to a trust. Unless certain conditions are met, such a gift of life insurance to a trust will not qualify for the gift tax annual exclusion.
9.	When a gift is made in trust, each beneficiary is considered a donee. Thus, if an annual exclusion is allowed, one annual exclusion of $10,000 is permitted for each beneficiary.
11.	Under the Uniform Gifts to Minors Act, gifts in most states are limited to securities, cash, insurance policies, or annuities.
12.	Either the Uniform Gifts to Minors Act or comparable legislation has been adopted in all states.
16.	Each taxpayer receives one lifetime unified credit to be applied against taxable lifetime or testamentary transfers.
19.	Although they complement each other, the gift tax and income tax systems are not always consistent.
20.	For income tax purposes, the donee’s basis is equal to the donor’s adjusted basis with appropriate adjustments for the amount of gift tax paid by the donor.

T	F	1.	Gift taxation was enacted to discourage individuals from transferring their property during their lifetime to avoid an estate tax. (2.1)

T	F	2.	The gift tax is imposed on the person who gives the property. (2.1)

T	F	3.	A gift tax is not imposed on transferred property that is exempt from federal income taxation, such as a municipal bond. (2.2)

T	F	4.	An individual can make present-interest gifts of up to $10,000 every year gift tax free to an unlimited number of donees. (2.2)

T	F	5.	One advantage of gifting property is that the postgift appreciation in value will be excluded from estate taxation. (2.3)

T	F	6.	Gift splitting means that an individual donor will split the gift among several donees, rather than giving it to just one donee. (2.4)

T	F	7.	If a taxable gift by a spouse to a third party is to be treated as a split gift, both spouses must consent on the gift tax return of the donor-spouse. (2.5)

T	F	8.	The gift of a life insurance policy will always qualify for the annual gift tax exclusion whether the policy is transferred outright or to a trust. (2.7–2.8)

T	F	9.	When a gift is made in trust, the trust is considered the donee. (2.8)

T	F	10.	Large gifts to minors are generally made in trust rather than under the Uniform Gifts to Minors Act. (2.9)

T	F	11.	The Uniform Gifts to Minors Act allows gifts of all types of property to minors to qualify for the annual gift tax exclusion. (2.12)

T	F	12.	Only a few states have adopted the Uniform Gifts to Minors Act. (2.12)

T	F	13.	An individual may give unlimited property to a spouse without incurring any gift tax and without filing a gift tax return. (2.14–2.15, 2.20–2.21)

T	F	14.	It is possible to give a spouse a qualifying terminable interest in property and have the gift qualify for the marital deduction. (2.15)

T	F	15.	When a gift is made to a qualified charity, there is a gift tax charitable deduction equal to the fair market value of the gift reduced by the annual exclusion. (2.15–2.16)

T	F	16.	Every individual has two unified transfer tax credits—one is applied against gift tax and the other against estate tax. (2.20)

T	F	17.	A future-interest gift requires that a gift tax return be filed regardless of the value of the gift. (2.20)

T	F	18.	Assuming there are no future-interest gifts, no gift tax return is required until a present-interest gift to one individual exceeds $10,000. (2.20–2.21)

T	F	19.	The treatment of a transaction for income tax purposes is always consistent with its gift tax consequences.(2.21–2.22)

T	F	20.	The donee generally receives a basis in gifted property equal to the fair market value of the property at the time of the transfer. (2.22–2.23)
	Self-Test Answers 1-T, 2-T, 3-F, 4-T, 5-T, 6-F, 7-T, 8-F, 9-F, 10-T, 11-F, 12-F, 13-T, 14-T, 15-T, 16-F, 17-T, 18-T, 19-F, 20-F