Assignment- Transfer Taxes and Wealth Planning

Discussion Questions:

1. Identify the features common to the gift tax formula and the estate tax formula.

2. Explain why Congress felt it necessary to enact a gift tax to complement the estate tax.

Without a gift tax, the estate tax was easily avoided by making intervivos gifts including deathbed transfers.

3. Describe the unified credit and the purpose it serves in the gift and estate tax.

4. Fred is retired and living on his pension. He has accumulated almost $1 million of property he would like to leave to his children. However, Fred is afraid much of his wealth will be eliminated by the federal estate tax. Explain whether this fear is well founded.

5. Explain why the gross estate includes the value of certain property transferred by the decedent at death, such as property held in joint tenancy with the right of survivorship, even though this property is not subject to probate.

6. Identify the factors that determine the proportion of the value of property held in joint tenancy with the right of survivorship that will be included in a decedent s gross estate.

7. Define fair market value for transfer tax purposes.

8. {Research} Harold owns a condo in Hawaii that he plans on using for the rest of his life. However, to ensure his sister Maude will own the property after his death, Harold deeded the remainder of the property to her. He signed the deed transferring the remainder in July 2010 when the condo was worth $250,000 and his life estate was worth $75,000. In January 2010 Harold died, at which time the condo was worth $300,000. What amount, if any, is included in Harold s gross estate Explain.

. Paul is a widower with several grown children. He is considering transferring his residence into a trust for his children but retains a life estate in it. Comment on whether this plan will prevent the value of the home from being included in Paul s gross estate when he dies.

10. Explain how a remainder and an income interest are valued for transfer tax purposes.

11. Explain why the fair market value of a life estate is more difficult to estimate than an income interest.

12. Describe a reason why transfers of terminable interests should not qualify for the marital deduction.

13. True or false Including taxable gifts when calculating the estate tax subjects these transfers to double taxation. Explain.

14. People sometimes confuse the unified credit with the exemption equivalent. Describe how these terms differ.