tax chapter 25

34. [LO 2] {Forms} Tom Hruise was an entertainment executive who had a fatal accident on a film set. Tom’s will directed his executor to distribute his cash and stock to his wife, Kaffie, the real estate to his church, The First Church of Methodology, and the remainder of his assets were to be placed in trust for his three children. Tom’s estate consisted of the following:

Assets:
Personal assets $ 800,000
Cash and stock 24,000,000
Intangible assets (film rights) 71,500,000
Real estate 15,000,000
$ 111,300,000
Liabilities:
Mortgage $ 3,200,000
Other liabilities 4,100,000
$ 7,300,000

a. Tom made a taxable gift of $3 million in 2010. Compute the estate tax for Tom’s estate.

b. Fill out lines 1 through 12 in part 2 of Form 706 for Tom’s estate.

2,081,800

24,264,000

35. [LO 2] Raquel transferred $100,000 of stock to a trust, with income to be paid to her nephew for 18 years and the remainder to her nephew’s children (or their estates). Raquel named a bank as independent trustee but retained the power to determine how much income, if any, will be paid in any particular year. Is this transfer a complete gift? Explain.

36. [LO 2] This year Gerry’s friend, Dewey, was disabled. Gerry paid $15,000 to Dewey’s doctor for medical expenses and paid $12,500 to State University for college tuition for Dewey’s son. Has Gerry made taxable gifts, and if so, in what amounts?

37. [LO 2] This year Dan and Mike purchased realty for $180,000 and took title as equal tenants in common. However, Mike was able to provide only $40,000 of the purchase price and Dan paid the remaining $140,000. Has Dan made a complete gift to Mike, and if so, in what amount?

38. [LO 2] Last year Nate opened a savings account with a deposit of $15,000. The account was in the name of Nate and Derrick, joint tenancy with the right of survivorship. Derrick did not contribute to the account, but this year he withdrew $5,000. Has Nate made a complete gift, and if so, what is the amount of the taxable gift and when was the gift made?

39. [LO 2] Barry transfers $1,000,000 to an irrevocable trust with income to Robin for her life and the remainder to Maurice (or his estate). Calculate the value of the life estate and remainder if Robin’s age and the prevailing interest rate result in a Table S discount factor for the remainder of 0.27.

40. [LO 2] This year Jim created an irrevocable trust to provide for Ted, his 32-year-old nephew, and Ted’s family. Jim transferred $70,000 to the trust and named a bank as the trustee. The trust was directed to pay income to Ted until he reaches age 35, and at that time the trust is to be terminated and the corpus is to be distributed to Ted’s two children (or their estates). Determine the amount, if any, of the current gift and the taxable gift. If necessary, you may assume the relevant interest rate is 6 percent and Jim is unmarried.

41. [LO 2] This year Colleen transferred $100,000 to an irrevocable trust that pays equal shares of income annually to three cousins (or their estates) for the next eight years. At that time, the trust is terminated and the corpus of the trust reverts to Colleen. Determine the amount, if any, of the current gifts and the taxable gifts. If necessary, you may assume the relevant interest rate is 6 percent and Colleen is unmarried. What is your answer if Colleen is married and she elects to gift-split with her spouse?

42. [LO 2] Sly is a widower and wants to make annual gifts of cash to each of his four children and six grandchildren. How much can Sly transfer to his children this year if he makes the maximum gifts eligible for the annual exclusion? What is the amount of the total transfer if Sly is married and elects to gift splitting, assuming his spouse makes no other gifts?

43. [LO 2] Jack and Liz live in a community property state and their vacation home is community property. This year they transferred the vacation home to an irrevocable trust that provides their son, Tom, a life estate in the home and the remainder to their daughter, Laura. Under the terms of the trust, Tom has the right to use the vacation home for the duration of his life, and Laura will automatically own the property after Tom’s death. At the time of the gift the home was valued at $500,000, Tom was 35 years old, and the §7520 rate was 5.4 percent. What is the amount, if any, of the taxable gifts? Would your answer be different if the home were not community property and Jack and Liz elected to gift-split?

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44. [LO 2] David placed $80,000 in trust with income to Steve for his life and the remainder to Lil (or her estate). At the time of the gift, given the prevailing interest rate, Steve’s life estate was valued at $65,000 and the remainder at $15,000. What is the amount, if any, of David’s taxable gifts?

45. [LO 2] Stephen transferred $15,000 to an irrevocable trust for Graham. The trustee has the discretion to distribute income or corpus for Graham’s benefit but is required to distribute all assets to Graham (or his estate) not later than Graham’s 21^st birthday. What is the amount, if any, of the taxable gift?

46. [LO 2] For the holidays, Marty gave a watch worth $25,000 to Emily and jewelry worth $40,000 to Natalie. Has Marty made any taxable gifts this year and, if so, in what amounts? Does it matter if Marty is married to Wendy and they live in a community property state?

47. [LO 2] This year Jeff earned $850,000 and used it to purchase land in joint tenancy with a right of survivorship with Mary. Has Jeff made a taxable gift to Mary and, if so, in what amount? What is your answer if Jeff and Mary are married?

48. [LO 2] Laura transfers $500,000 into trust with the income to be paid annually to her spouse, William, for life (a life estate) and the remainder to Jenny. Calculate the amount of the taxable gifts from the transfers.

49. [LO 2] Red transferred $5,000,000 of cash to State University for a new sports complex. Calculate the amount of the taxable gift.