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Terry is considering transferring assets valued at $400,000 to an irrevocable trust for the benefit of her son, Cliff, age 15, with First National Bank as trustee. Her attorney has drafted a trust agreement that provides that Cliff is to receive income at the trustee's discretion for the next 20 years and that at age 35, the trust assets will be distributed equally between Cliff and his sister Joanna. Terry anticipates that her husband will consent to gift splitting. What tax issues should Terry and her husband consider with respect to the trust she is creating?

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• Will any portion of Terry's transfer b...

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Identify which of the following statements is true.


A) The gift tax is a wealth transfer tax that applies to transfers during a person's lifetime and transfers at death.
B) The gift tax is not a part of the unified transfer tax system.
C) Under the unified transfer tax system, taxable gifts made after 1976 are included in the donor's death tax base.
D) All of the above are false.

E) All of the above
F) B) and D)

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In 2020, Lilly makes taxable gifts aggregating $12 million after annual exclusion reduction. Her only other taxable gifts amount to $1 million (after annual exclusion amounts), all of which were made in 2018. What is her gift tax liability?

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Molly sells her car, valued at $30,000, to her nephew Todd for $18,000. Molly has made a taxable gift.

A) True
B) False

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Ward and June decide to divorce after 30 years of marriage. Ward transfers $500,000 to June in settlement of her property rights. What are the gift tax consequences of this transfer?

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Ward is not deemed t...

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In the current year, Cesar, who is single, gives $26,000 to each of his 20 nieces and nephews for a total property transfer of $520,000. Cesar's taxable gifts total


A) $520,000.
B) $260,000.
C) $300,000.
D) $220,000.

E) A) and C)
F) A) and B)

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Contrast the Crummey trust with the Sec. 2503(c)trust.

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Contributions to both discretionary trusts are eligible for the annual exclusion, despite the fact that both trusts limit the ability of the beneficiary to access the trust assets. The Sec. 2503(c)trust permits the minor beneficiary access to trust assets only at the trustee's discretion, while the Crummey trust permits a forfeitable right to withdraw trust assets. The Sec. 2503(c)trust receives its legitimacy from the statutes while the Crummey trust receives its legitimacy through the judicial process. The trustee of a Sec. 2503(c)trust must distribute the assets and accumulated income to the beneficiary at age 21. Thus, the Crummey trust is more flexible than the Sec. 2503(c)trust because the beneficiary can be any age when the trust is created and the trust can be terminated at any age. However, under the Crummey trust, the beneficiary does have the right to demand distribution of the contribution to the trust for a period of time; thus, the donor's intent may be defeated if the beneficiary exercises the right of withdrawal.

The gift tax is a wealth transfer tax that applies to transfers during a person's lifetime and transfers at death.

A) True
B) False

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False

Barbara sells a house with an FMV of $170,000 to her daughter for $120,000. From this transaction, Barbara is deemed to have made a gift (before the annual exclusion) of


A) $50,000.
B) $170,000.
C) $120,000.
D) $0.

E) A) and D)
F) B) and C)

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Miguel gives Roberta land with an adjusted basis of $50,000 and an FMV of $40,000. No gift tax is paid. Roberta sells the land for $36,000. Roberta recognizes


A) no loss.
B) a $4,000 loss.
C) a $14,000 loss.
D) none of the above

E) A) and D)
F) All of the above

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The purchase of a $20,000 engagement ring generates a taxable gift necessitating the filing of a gift tax return.

A) True
B) False

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Identify which of the following statements is true.


A) If the annual exclusion for gifts is not used in the current year, the unused portion can be carried forward to subsequent years.
B) Individuals may not give more than $14,000 per person in gifts each year before being taxed on the transfer.
C) For transfer tax purposes, both the charitable contribution deduction and the marital deduction are unlimited.
D) All of the above are false.

E) None of the above
F) A) and B)

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C

Sandra, who is married, creates an irrevocable trust in the amount of $200,000 for her 18-year-old daughter, Kelly. She names the bank as trustee. Before Kelly reaches age 21, the trustee may pay the income to Kelly. Kelly will receive any undistributed assets when she reaches age 21. If Kelly dies before age 21, the assets will be paid to her estate. In addition, Sandra creates an irrevocable trust for her son, Kevin, age 21. He is entitled to withdraw up to $30,000 per year. Sandra contributes $30,000 in the current year. Sandra elects gift splitting with her husband. Her husband makes no gifts in the current year. Sandra's annual exclusions to be claimed on her gift tax return total


A) $30,000.
B) $15,500.
C) $12,000.
D) $0.

E) A) and D)
F) B) and C)

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Identify which of the following statements is false.


A) A future interest includes reversions, remainders, and other interests, which are limited to commence in use, possession, or enjoyment at some future date or time.
B) The gift tax exclusion is available only for a gift of a present interest.
C) A trust for a minor (Sec. 2503(c) trust) must distribute all of its income currently in order to qualify for the annual exclusion.
D) For a transfer made in trust, each beneficiary is deemed to be a separate donee.

E) None of the above
F) A) and B)

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In 2018, Delores made taxable gifts to her son of property with an FMV of $200,000. In the current year when Delores dies, the property is worth $800,000. The amount included in Delores's estate tax base because of the 2018 gift is


A) $0.
B) $189,000.
C) $200,000.
D) $800,000.

E) B) and C)
F) None of the above

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Calvin transfers land to a trust. His daughter Melissa will receive the income from the land for ten years. After ten years, the land is returned to Calvin. Calvin's interest is


A) a term certain.
B) a life estate.
C) a reversionary interest.
D) none of the above

E) A) and C)
F) A) and B)

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Discuss at least two reasons for making inter vivos (lifetime)gifts.

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The $15,000 per donee annual exclusion a...

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George transfers property to an irrevocable trust for the benefit of his adult children and names himself as trustee. The trust document requires the trustee to distribute trust property to the beneficiaries at the trustee's discretion with the possibility of no distribution to certain beneficiaries as the trustee deems appropriate. The trust will terminate at the end of nine years, and the property will pass to George's children. Which of the following statements is correct?


A) The beneficiaries receive a present interest in the trust property when George transfers the assets to the trust.
B) The transfer by George is eligible for the annual gift tax exclusion.
C) George's transfer of property to the trust is not taxed under gift tax rules at the date of transfer.
D) George's transfer of property to the trust is a gift of a future interest.

E) A) and D)
F) C) and D)

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Identify which of the following statements is true.


A) The trustee of a Sec. 2503(c) trust must distribute all of the corpus and accumulated income when the beneficiary reaches the age of 25.
B) The gift tax exclusion is available for a gift of a present or future interest.
C) A "Crummey demand power" in a trust document allows the donor to demand a distribution from the trust in years in which assets are transferred to the trust.
D) All of the above are true.

E) None of the above
F) C) and D)

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Jennifer and Terry, a married couple, live in Illinois; which is a common law state. In the current year, Terry gives his sister $200,000 cash. Jennifer and Terry agree to gift splitting. Neither Jennifer nor Terry has made any taxable gifts in prior years. What are Jennifer and Terry's taxable gifts?

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Since they elect gift splitting, each sp...

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