Chapter 27
Computational Exercises
20. LO.2 Elizabeth, a widow since 2000, made taxable gifts of $3 million in 2011 and $4 million in 2016. She paid no gift tax on the 2011 transfer. What is her tax base for determining any gift tax on the 2016 gift?
21. LO.3 Carter died in 2016 with a gross estate of $6 million. Before he was married in
2002, Carter had made taxable gifts of $400,000 upon which he paid no gift tax. All of Carter’s property passes to his surviving spouse. Referring to the formula for the Federal estate tax, as to Carter’s estate, what is his:
a. Taxable estate?
b. Tax base?
22. LO.3 Mary dies in 2016, and included in her gross estate are the following assets:
Fair Market Value
Date of Death Six Months Later
Stock in Orange Corporation $3,000,000 $3,100,000
Stock in Crimson Corporation 6,100,000 5,900,000
a. How much is included in her gross estate if the alternate valuation date is elected?
b. Suppose all of Mary’s assets pass to her surviving spouse?
23. LO.4 During the year, Fred makes the following transfers:
• $1,000 to his mayor’s reelection campaign.
• $21,000 to his aunt, Ava, to reimburse her for what she paid the hospital for her gallbladder operation. (Ava is not Fred’s dependent.)
• $18,000 paid directly to the surgeon who performed Ava’s gallbladder operation.
• $22,000 to purchase a used pickup truck for his son to use while attending college.
Which of these transfers are subject to the Federal gift tax? (Include the total amount and disregard the annual exclusion.)
24. LO.4 In 2013 and with $200,000, Alice purchases a CD at State Bank listing title as follows: “Alice, payable on proof of death to Clark.” Alice dies in 2016, and
Clark (Alice’s nephew) redeems the CD (now worth $205,000). Disregarding the annual exclusion, what is Alice’s gift in:
a. 2013?
b. 2016?
25. LO.5 In 2016, Christian wants to transfer as much as possible to his four adult married children (including spouses) and eight minor grandchildren without using any unified transfer tax credit.
a. How much can Christian give?
b. What if Christian’s wife, Mia, joins in the gifts?
26. LO.5 In 2016, Noah and Sophia want to make a maximum contribution to their state’s qualified tuition program (Code § 529 plan) on behalf of their minor granddaughter, Amanda, without exceeding the annual exclusion. How much can they give?
27. LO.6 At his death, Andrew was a participant in his employer’s contributory qualified pension plan. His account reflects the following:
Employer’s contribution $1,000,000
Andrew’s contribution 800,000
Income earned 500,000
a. As to this plan, how much is included in Andrew’s gross estate?
b. If paid to Andrew’s surviving spouse, how much qualifies for the marital deduction?
c. How much is subject to the Federal income tax?
28. LO.6 In 2001, Mason buys real estate for $1.5 million and lists ownership as follows: “Mason and Dana, joint tenants with the right of survivorship.” Mason dies first in 2016 when the real estate is valued at $2 million. How much is included in Mason’s gross estate if Mason and Dana are:
a. Brother and sister.
b. Husband and wife.
29. LO.6 Matthew owns an insurance policy (face amount of $500,000) on the life of
Emily, with Lily as the designated beneficiary. If Emily dies first and the $500,000 is paid to Lily, how much as to this policy is included in:
a. Matthew’s gross estate?
b. Emily’s gross estate?
30. LO.7 Donald dies this year, and under his will, a trust is created in the amount of $6 million with the following provisions: life estate to Cindy (Donald’s wife) and remainder to their children. His will also passes land (cost basis of $1 million and fair market value of $3 million) to the Salvation Army for the site of a new homeless housing project.
a. If a QTIP election is made, how much will these transactions reduce Donald’s gross estate to arrive at the taxable estate?
b. If a QTIP election is not made?
31. LO.8 Under Emma’s will, Addison inherits property that generates an estate tax of $800,000. Three years later, Addison dies and the property generates an estate tax of $700,000. To how much of a credit for estate tax on prior transfers is
Addison’s estate entitled?
32. LO.9 In 2000 and with $5 million, Paul’s will creates a trust with the following provisions: life estate to Jacob (Paul’s son) and remainder to Anastasia (Paul’s granddaughter and Jacob’s daughter). Jacob dies in 2016 when the value of the trust is $8 million.
a. Does a generation skipping transfer result?
b. If so, when and in what amount?
33. LO.10 During 2016, Charley wants to take advantage of the annual exclusion and make gifts to his 6 married children (including their spouses) and his
12 minor grandchildren.
a. How much property can Charley give away without creating a taxable gift?
b. How does your answer change if Charley’s wife, Coleen, elects to join in making the gifts?
20. LO.2 Elizabeth, a widow since 2000, made taxable gifts of $3 million in 2011 and $4 million in 2016. She paid no gift tax on the 2011 transfer. What is her tax base for determining any gift tax on the 2016 gift?
21. LO.3 Carter died in 2016 with a gross estate of $6 million. Before he was married in
2002, Carter had made taxable gifts of $400,000 upon which he paid no gift tax. All of Carter’s property passes to his surviving spouse. Referring to the formula for the Federal estate tax, as to Carter’s estate, what is his:
a. Taxable estate?
b. Tax base?
22. LO.3 Mary dies in 2016, and included in her gross estate are the following assets:
Fair Market Value
Date of Death Six Months Later
Stock in Orange Corporation $3,000,000 $3,100,000
Stock in Crimson Corporation 6,100,000 5,900,000
a. How much is included in her gross estate if the alternate valuation date is elected?
b. Suppose all of Mary’s assets pass to her surviving spouse?
23. LO.4 During the year, Fred makes the following transfers:
• $1,000 to his mayor’s reelection campaign.
• $21,000 to his aunt, Ava, to reimburse her for what she paid the hospital for her gallbladder operation. (Ava is not Fred’s dependent.)
• $18,000 paid directly to the surgeon who performed Ava’s gallbladder operation.
• $22,000 to purchase a used pickup truck for his son to use while attending college.
Which of these transfers are subject to the Federal gift tax? (Include the total amount and disregard the annual exclusion.)
24. LO.4 In 2013 and with $200,000, Alice purchases a CD at State Bank listing title as follows: “Alice, payable on proof of death to Clark.” Alice dies in 2016, and
Clark (Alice’s nephew) redeems the CD (now worth $205,000). Disregarding the annual exclusion, what is Alice’s gift in:
a. 2013?
b. 2016?
25. LO.5 In 2016, Christian wants to transfer as much as possible to his four adult married children (including spouses) and eight minor grandchildren without using any unified transfer tax credit.
a. How much can Christian give?
b. What if Christian’s wife, Mia, joins in the gifts?
26. LO.5 In 2016, Noah and Sophia want to make a maximum contribution to their state’s qualified tuition program (Code § 529 plan) on behalf of their minor granddaughter, Amanda, without exceeding the annual exclusion. How much can they give?
27. LO.6 At his death, Andrew was a participant in his employer’s contributory qualified pension plan. His account reflects the following:
Employer’s contribution $1,000,000
Andrew’s contribution 800,000
Income earned 500,000
a. As to this plan, how much is included in Andrew’s gross estate?
b. If paid to Andrew’s surviving spouse, how much qualifies for the marital deduction?
c. How much is subject to the Federal income tax?
28. LO.6 In 2001, Mason buys real estate for $1.5 million and lists ownership as follows: “Mason and Dana, joint tenants with the right of survivorship.” Mason dies first in 2016 when the real estate is valued at $2 million. How much is included in Mason’s gross estate if Mason and Dana are:
a. Brother and sister.
b. Husband and wife.
29. LO.6 Matthew owns an insurance policy (face amount of $500,000) on the life of
Emily, with Lily as the designated beneficiary. If Emily dies first and the $500,000 is paid to Lily, how much as to this policy is included in:
a. Matthew’s gross estate?
b. Emily’s gross estate?
30. LO.7 Donald dies this year, and under his will, a trust is created in the amount of $6 million with the following provisions: life estate to Cindy (Donald’s wife) and remainder to their children. His will also passes land (cost basis of $1 million and fair market value of $3 million) to the Salvation Army for the site of a new homeless housing project.
a. If a QTIP election is made, how much will these transactions reduce Donald’s gross estate to arrive at the taxable estate?
b. If a QTIP election is not made?
31. LO.8 Under Emma’s will, Addison inherits property that generates an estate tax of $800,000. Three years later, Addison dies and the property generates an estate tax of $700,000. To how much of a credit for estate tax on prior transfers is
Addison’s estate entitled?
32. LO.9 In 2000 and with $5 million, Paul’s will creates a trust with the following provisions: life estate to Jacob (Paul’s son) and remainder to Anastasia (Paul’s granddaughter and Jacob’s daughter). Jacob dies in 2016 when the value of the trust is $8 million.
a. Does a generation skipping transfer result?
b. If so, when and in what amount?
33. LO.10 During 2016, Charley wants to take advantage of the annual exclusion and make gifts to his 6 married children (including their spouses) and his
12 minor grandchildren.
a. How much property can Charley give away without creating a taxable gift?
b. How does your answer change if Charley’s wife, Coleen, elects to join in making the gifts?
Chapter 28
Computational Exercises
12. LO.1 Compute the Federal income tax liability for the Valerio Trust. The entity reports the following transactions for the 2016 tax year. The trustee accumulates all accounting income for the year.
Operating income from a business $ 500,000
Dividend income, all from U.S. corporations 30,000
Interest income, City of San Antonio bonds 40,000
Fiduciary fees, deductible portion (15,000)
Net rental losses, passive activity (100,000)
13. LO.1 For 2016, the Wes Trust reports $100,000 of AMT income before the annual exemption. The AMT for the year is:
a. $19,786.
b. $21,308.
c. $26,000.
d. $28,000.
14. LO.1 For 2016, the Guess Trust retains all of its income items, which include only $100,000 of net investment income and $40,000 of profits from an active business operation. Guess incurs an additional tax on net investment income (NIIT) of:
a. $5,320.
b. $3,800.
c. $3,329.
d. $0.
15. LO.2 The Biltmore Trust is a simple trust. Crawford is its sole beneficiary. In the current year, the trust earns $3,200 in taxable interest and $8,000 in taxexempt interest. In addition, the trust recognizes a $2,500 long-term capital gain.
The trustee assesses a fee of $1,800 for the year.
a. Compute trust accounting income, where the trust agreement allocates fees and capital gains to corpus.
b. Same as part (a), except that fees are allocated to income.
16. LO.2 The Hosta Trust reports gross rent income of $72,000, expenses attributable to the rents of $55,000, and tax-exempt interest from state bonds of $18,000.
Under the trust agreement, the trustee is to pay 20% of the annual trust accounting income to the American Red Cross, a qualifying charitable organization. Compute
Hosta’s charitable contribution deduction.
12. LO.1 Compute the Federal income tax liability for the Valerio Trust. The entity reports the following transactions for the 2016 tax year. The trustee accumulates all accounting income for the year.
Operating income from a business $ 500,000
Dividend income, all from U.S. corporations 30,000
Interest income, City of San Antonio bonds 40,000
Fiduciary fees, deductible portion (15,000)
Net rental losses, passive activity (100,000)
13. LO.1 For 2016, the Wes Trust reports $100,000 of AMT income before the annual exemption. The AMT for the year is:
a. $19,786.
b. $21,308.
c. $26,000.
d. $28,000.
14. LO.1 For 2016, the Guess Trust retains all of its income items, which include only $100,000 of net investment income and $40,000 of profits from an active business operation. Guess incurs an additional tax on net investment income (NIIT) of:
a. $5,320.
b. $3,800.
c. $3,329.
d. $0.
15. LO.2 The Biltmore Trust is a simple trust. Crawford is its sole beneficiary. In the current year, the trust earns $3,200 in taxable interest and $8,000 in taxexempt interest. In addition, the trust recognizes a $2,500 long-term capital gain.
The trustee assesses a fee of $1,800 for the year.
a. Compute trust accounting income, where the trust agreement allocates fees and capital gains to corpus.
b. Same as part (a), except that fees are allocated to income.
16. LO.2 The Hosta Trust reports gross rent income of $72,000, expenses attributable to the rents of $55,000, and tax-exempt interest from state bonds of $18,000.
Under the trust agreement, the trustee is to pay 20% of the annual trust accounting income to the American Red Cross, a qualifying charitable organization. Compute
Hosta’s charitable contribution deduction.