CTC Estate & Gift Tax Planning

Question 1

What is the primary purpose of the annual gift tax exclusion under the IRC?

Accepted Answer

To allow taxpayers to transfer wealth tax-free up to a specified amount per recipient per year without using their lifetime exemption

Answer

To eliminate gift taxes on transfers made to qualified charitable organizations

Answer

To provide a deduction for gifts made to political action committees

Answer

To allow unlimited tax-free transfers between legally married spouses

Question 2

Which of the following transfers qualifies for the unlimited marital deduction?

Accepted Answer

A bequest to a surviving spouse who is a U.S. citizen

Answer

A bequest to a surviving spouse who is a non-citizen permanent resident

Answer

A gift to a domestic partner registered under state law

Answer

A transfer to a surviving spouse held in a standard testamentary trust

Question 3

What does the concept of 'portability' mean in the context of the federal estate tax?

Accepted Answer

A surviving spouse may elect to use the deceased spouse's unused applicable exclusion amount

Answer

Estate tax exemptions can be transferred between different states' tax systems

Answer

A taxpayer's gift tax exemption can be converted into an estate tax exemption upon death

Answer

Beneficiaries may transfer inherited assets to other family members without incurring estate tax

Question 4

Under IRC Section 1014, the 'step-up in basis' rule provides that:

Accepted Answer

Inherited assets receive a new cost basis equal to the fair market value at the decedent's date of death

Answer

Assets gifted during the donor's lifetime receive a basis equal to the donor's original purchase price

Answer

Closely held business interests inherited from a deceased owner are valued at book value

Answer

All inherited assets must be reported at the lower of historical cost or current market value

Question 5

Which statement correctly describes the gift-splitting election under IRC Section 2513?

Accepted Answer

A married couple may elect to treat a gift made by one spouse as if each spouse made one-half of the gift

Answer

A gift can be divided among multiple recipients to reduce each recipient's individual gift tax liability

Answer

Gift splitting permits married couples to pool their annual exclusions only for gifts to minor children

Answer

The election is available only when both spouses are U.S. citizens and residents

Question 6

The Generation-Skipping Transfer (GST) tax was enacted primarily to prevent:

Accepted Answer

Families from avoiding estate tax by transferring wealth directly to grandchildren or more remote descendants

Answer

High-income taxpayers from shifting investment income to family members in lower tax brackets

Answer

The use of trusts to avoid probate proceedings in multiple states simultaneously

Answer

Donors from gifting appreciated assets to grandchildren to bypass capital gains tax at the parent level

Question 7

Which type of trust is most commonly used to remove life insurance proceeds from the insured's taxable estate?

Accepted Answer

Irrevocable Life Insurance Trust (ILIT)

Answer

Revocable Living Trust

Answer

Charitable Remainder Trust (CRT)

Answer

Grantor Retained Annuity Trust (GRAT)