CIM Estate Planning 4 — Questions and Answers
Question 1: A U.S. citizen dies leaving his estate to his spouse, who is not a U.S. citizen. How can the estate still obtain a marital deduction?
- By filing a gift-splitting election
- By transferring the assets to a qualified domestic trust (QDOT) (Correct answer)
- By naming the spouse executor of the estate
- No method exists; the deduction is unavailable
Correct answer: By transferring the assets to a qualified domestic trust (QDOT)
The unlimited marital deduction is generally unavailable for non-citizen spouses unless property passes to a QDOT.
Question 2: What must happen for a surviving spouse to use the deceased spouse's unused exclusion (DSUE) amount?
- The surviving spouse must remarry within two years
- The surviving spouse must make a lifetime gift within nine months
- The deceased spouse's estate must exceed the exemption amount
- The deceased spouse's executor must elect portability on a timely filed Form 706 (Correct answer)
Correct answer: The deceased spouse's executor must elect portability on a timely filed Form 706
Portability is not automatic; the executor must file an estate tax return and make the election even if no tax is due.
Question 3: A client bought stock for $20,000 that is worth $200,000 at his death. What is the heir's cost basis under IRC Section 1014?
- $200,000 (Correct answer)
- $20,000
- $110,000
- $0
Correct answer: $200,000
Inherited assets generally receive a basis equal to fair market value at the date of death, eliminating the built-in gain.
Question 4: A donor gifts stock with a basis of $50,000 and fair market value of $30,000. The donee later sells it for $40,000. What is the donee's recognized gain or loss?
- $10,000 loss
- $10,000 gain
- No gain or loss (Correct answer)
- $20,000 loss
Correct answer: No gain or loss
Under the dual-basis rule, the gain basis is $50,000 and the loss basis is $30,000; a sale between them produces no gain or loss.
Question 5: For generation-skipping transfer (GST) tax purposes, which of the following is a 'skip person'?
- The transferor's spouse who is 30 years younger
- The transferor's child
- The transferor's grandchild whose parent (the transferor's child) is alive (Correct answer)
- The transferor's grandchild whose parent died before the transfer
Correct answer: The transferor's grandchild whose parent (the transferor's child) is alive
A grandchild is a skip person unless the predeceased parent exception applies, which moves the grandchild up a generation.
Question 6: What is the effect of gift splitting between married spouses?
- A gift by one spouse is treated as made one-half by each spouse, doubling the available annual exclusion (Correct answer)
- It allows a spouse to gift unlimited amounts to children
- It removes the need to file any gift tax return
- It converts a future-interest gift into a present-interest gift
Correct answer: A gift by one spouse is treated as made one-half by each spouse, doubling the available annual exclusion
Gift splitting lets spouses treat a gift by one as made equally by both, using both annual exclusions, and requires filing Form 709.
Question 7: A grandmother wants to pay her grandson's college tuition without using any annual exclusion or lifetime exemption. What must she do?
- Give the cash to the grandson to pay the school
- Deposit the money into his checking account before the semester
- Pay the tuition directly to the educational institution (Correct answer)
- Make the payment through a Crummey trust
Correct answer: Pay the tuition directly to the educational institution
Under IRC Section 2503(e), tuition paid directly to a qualifying educational institution is excluded from gift tax without limit.
CIM Estate Planning 4
A U.S. citizen dies leaving his estate to his spouse, who is not a U.S. citizen.
How can the estate still obtain a marital deduction?