Chapter 27: 34, 36, 45, 50 and 57 34. Arlenes estate includes the following assets.

Fair Market Value Date of Death Apartment building $4,400,000 Stock in Red Corporation 1,200,000 Stock in Tan Corporation 900,000 Six months later $4,380,000 1,300,000 700,000

Accrued rents on the apartment building are as follows: $70,000 (date of death) and $60,000 (six months later). To pay expenses, the executor of Arlenes estate sells the tan stock for $600,000 months after her death. a. If the 2032 election is made, how much is included in Arlenes gross estate? b. As to part (a), assume that the Tan stock is sold for $600,000 eight months (rather than five months) after Arlenes death. How does this change your answer, if at all? c. How much is included in the gross estate if the 2032 election is not made? a. $6,350,000. $4,380,000 (apartment building) + $70,000 (accrued rents) + $1,300,000 (Red stock) + $600,000 (Tan stock) = $6,350,000. The accrued rents are determined as of date of death. b. c. $6,450,000. As the Tan stock was not sold within the six month period after death, value on date of disposition does not control. $6,570,000. $4,400,000 + $70,000 + $1,200,000 + $900,000 = $6,570,000.

36. Carl made the following transfers during 2012. * Transferred $900,000 in cash and securities to a revocable trust, life estate to himself and remainder interest to his three adult children by a former wife. * In consideration of their upcoming marriage, gave Lindsey (age21) a $90,000 convertible. * Purchased a $100,000 certificate of deposit listing title as Carl, payable on proof of death to Lindsey * Purchased for $80,000 a paid up insurance policy on his life (maturity value of $500,000). Carl designated Lindsey as the beneficiary

* Paid a college $13,400 for his nieces tuition and $6,000 for her room and board. The niece is not Curls dependent * Gave his Aunt $22,000 for her gallbladder operation. The Aunt is not Carls dependent. What are Carls taxable gifts for 2012?

Carls creation of a revocable trust is not a gift because it is an incomplete transfer. The purchase of a convertible is a gift, as an antenuptial settlement is not recognized by the IRS as being for full and adequate consideration. The mere purchase of the CD with ownership based on survivorship is an incomplete transfer. As the beneficiary of an unmatured insurance policy holds a mere contingent interest, no transfer has occurred. The $6,000 for room and board is a gift but the $13,400 for tuition is not [ 2503(e)]. A gift has taken pace. The gift result could have been avoided if the medical providers (e.g., surgeon, hospital) had been paid directly.

45. In 2005, using $2.5 million in community property, Quinn creates a trust, life estate to his wife, Eve, and remainder to their children. Quinn dies in 2009 when the trust is worth $3.6 million, and Eve dies in 2012 when the trust is worth $5.6 million. a. Did Quinn make a gift in 2005? Explain. b. How much if any, of the trust is included in Quinns gross estate in 2009? c. How much if any is included in Eves gross estate in 2012? a. Yes, Quinn made a gift of a life estate and remainder interest in $1.25 million (1/2 of $2.5 million) which was his share of the community property. Unless he makes a QTIP election, the transfer of the life estate to Eve is a terminable interest and does not qualify for the marital deduction. b. c. As Quinn no longer has any interest in the trust, none of it is included in his gross estate. Unless Quinn made a QTIP election [see part (a.)], Eve includes only $2.8 million (1/2 of $5.6 million) in her gross estate. Note that she was the grantor of only half of the trust (her share of the community property). If Warren made a QTIP election, Eve must include all of the trust ($5.6 million) in her gross estate.

50. In 2002, Gordon purchased real estate for $900,000 and listed title to the property as Gordon and Fawn, joint tenants with right of survivorship. Gordon predeceases Fawn in 2012 when the real estate is worth $2.9 million. Gordon and Fawn are brother and sister. a. Did a gift occur in 202? Explain b. What if any. Are the estate tax consequences in 2012? c. Under part (b), would your answer change if it was Fawn (not Gordon) who died in 2012? Explain. a. In 2002, Gordon made a gift of $450,000 (1/2 of $900,000) to Fawn. Unless the parties provide otherwise, joint tenants are equal owners in the property. Thus, after the gift, Fawn owns one-half of the real estate b. c. Gordons estate must include $2.9 million as to the property since he provided all of the original purchase price. Yes, since Fawns estate includes nothing as to the property.

57. In 2011, Marsha died, and her after-tax estate of $6 million passed to a trust. Under the terms of the trust, Wilma (Marshas daughter) is granted a life estate with the remainder passing to Karl (Marshas grandson) upon Wilmas death. The trustee elects to use $3million of the generation skipping transfer tax exemption. Wilma dies in 2012 when the trust is worth $9million. a. Presuming that the GSTT applies, is it caused by a termination event, a distribution event, or a direct skip? b. How much of the trust is subject to the GSTT? c. Who pays the tax? d. What is the GSTT rate that applies?

a. Wilmas death is a termination event. b. $4,500,000. The exclusion election covered 50% ($3,000,000/$6,000,000) of the trust. Therefore, 50% of $9,000,000 is excluded, and the balance of $4,500,000 is subject to the GSTT. Although the trust pays the tax, the ultimate effect is to reduce what Karl receives.

c.

d.

The maximum rate is 35%.