tax chapter 25

50. [LO 2] In 2010 Casey made a taxable gift of $5 million to both Stephanie and Linda (a total of $10 million in taxable gifts). Calculate the amount of gift tax due this year and Casey’s unused exemption equivalent under the following alternatives.

a. This year Casey made a taxable gift of $1 million to Stephanie. Casey is not married, and the 2010 gift was the only other taxable gift he has ever made.

b. This year Casey made a taxable gift of $5 million to Stephanie. Casey is not married, and the 2010 gift was the only other taxable gift he has ever made.

c. This year Casey made a gift worth $5 million to Stephanie. Casey is married to Helen in a common law state, and the 2010 gift was the only other taxable gift he or Helen has ever made. Casey and Helen elect to gift split.

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51. [LO 3] Hal and Wendy are married, and they own a parcel of realty, Blackacre, as joint tenants with the right of survivorship. Hal owns an additional parcel of realty, Redacre, in his name alone. Suppose Hal should die when Blackacre is worth $800,000 and Redacre is worth $750,000, what value of realty would be included in Hal’s probate estate, and what value would be included in Hal’s gross estate?

52. [LO 3] Walter owns a whole-life insurance policy worth $52,000 that directs the insurance company to pay the beneficiary $250,000 on Walter’s death. Walter pays the annual premiums and has the power to designate the beneficiary of the policy (it is currently his son, James). What value of the policy, if any, will be included in Walter’s estate upon his death?

53. [LO 3] Many years ago James and Sergio purchased property for $450,000. Although they are listed as equal co-owners, Sergio was able to provide only $200,000 of the purchase price. James treated the additional $25,000 of his contribution to the purchase price as a gift to Sergio. Suppose the property is worth $900,000 at Sergio’s death, what amount would be included in Sergio’s estate if the title to the property was tenants in common? What if the title were joint tenancy with right of survivorship?

54. [LO 3] Terry transferred $500,000 of real estate into an irrevocable trust for her son, Lee. The trustee was directed to retain income until Lee’s 21^st birthday and then pay him the corpus of the trust. Terry retained the power to require the trustee to pay income to Lee at any time, and the right to the assets if Lee predeceased her. What amount of the trust, if any, will be included in Terry’s estate?

55. [LO 3] Last year Robert transferred a life insurance policy worth $45,000 to an irrevocable trust with directions to distribute the corpus of the trust to his grandson, Danny, upon his graduation from college, or to Danny’s estate upon his death. Robert paid $15,000 of gift tax on the transfer of the policy. Early this year, Robert died and the insurance company paid $400,000 to the trust. What amount, if any, is included in Robert’s gross estate?

Robert died within three years of the date of gifting the life insurance, so the face value of the policy ($400,000) and the gift tax ($15,000) is included in his gross estate.

56. [LO 3] {Research} Willie purchased a whole-life insurance policy on his brother, Benny. Under the policy, the insurance company will pay the named beneficiary $100,000 upon the death of the insured, Benny. Willie names Tess the beneficiary, and upon Benny’s death, Tess receives the proceeds of the policy, $100,000. Identify and discuss the transfer tax implications of this arrangement.

57. [LO 3] Jimmy owns two parcels of real estate, Tara and Sundance. Tara is worth $240,000 and Sundance is worth $360,000. Jimmy plans to bequeath Tara directly to his wife Lois and leave her a life estate in Sundance. What amount of value will be included in Jimmy’s gross estate and taxable estate should he die now?

58. [LO 3] Roland had a taxable estate of $5.5 million when he died this year. Calculate the amount of estate tax due (if any) under the following alternatives.

a. Roland’s prior taxable gifts consist of a taxable gift of $1 million in 2005.

b. Roland’s prior taxable gifts consist of a taxable gift of $1.5 million in 2005.

c. Explain how the tax calculation would change if Roland made a $1 million taxable gift in the year prior to his death.

59. [LO 3] {Forms} Brad and Angelina are a wealthy couple who have three children, Fred, Bridget, and Lisa. Two of the three children, Fred and Bridget, are from Brad’s previous marriages. On Christmas this year Brad gave each of the three children a cash gift of $10,000 and Angelina gave Lisa an additional cash gift of $40,000. Brad also gave stock worth $40,000 (adjusted basis of $10,000) to the Actor’s Guild (an “A” charity).

a. Brad and Angelina have chosen to split gifts. Calculate Brad’s gift tax. Assume that Angelina has no previous taxable gifts, but Brad reported previous taxable gifts of $2 million in 2009 when he used $345,800 of unified credit and paid $435,000 of gift taxes.

b. Fill out parts 1 and 4 of Form 709 for Brad.

Part1—GiftsSubject OnlytoGiftTax.Giftslesspoliticalorganization, medical,andeducationalexclusions.(seeinstructions)

60. [LO 4] {Planning} Jones is seriously ill and has $6 million of property that he wants to leave to his four children. He is considering making a current gift of the property (rather than leaving the property to pass through his will). Assuming any taxable transfer will be subject to the highest transfer tax rate, determine how much gift tax Jones will owe if he makes the transfers now. How much estate tax will Jones save if he dies after three years, during which time the property appreciates to $6.8 million?

61 [LO 4] Angelina gave a parcel of realty to Julie valued at $210,000 (Angelina purchased the property five years ago for $88,000). Compute the amount of the taxable gift on the transfer, if any. Suppose several years later Julie sold the property for $215,000. What is the amount of her gain or loss, if any, on the sale?

62. [LO 4] {Research} Several years ago Doug invested $21,000 in stock. This year he gave his daughter Tina the stock on a day it was valued at $20,000. She promptly sold it for $19,500. Determine the amount of the taxable gift, if any, and calculate the amount of taxable income or gain, if any, for Tina. Assume Doug is not married and does not support Tina, who is 28.

63. [LO 4] Roberta is considering making annual gifts of $14,000 of stock each to each of her four children. She expects to live another five years and to leave a taxable estate worth approximately $8,000,000. She requests you justify the gifts by estimating her estate tax savings from making the gifts.

64. [LO 4] Harold and Maude are married and live in a common law state. Neither have made any taxable gifts and Maude owns (holds title) all their property. She dies with a taxable estate of $15 million and leaves it all to Harold. He dies several years later, leaving the entire $15 million to their three children. Calculate how much estate tax would have been saved if Maude had used a bypass provision in her will to direct $9 million to her children and the remaining $6 million to Harold. Ignore the time value of money and all credits in this problem except for the unified credit.