668 MODULE 37 TAXES: GIFT AND ESTATE

money into it. Instead, a gift results when the noncontrib- transfer tax. Only taxable gifts made after 1976 are added 15
uting tenant (Dave) withdraws money from the account back to a donor's taxable estate in arriving at the tax base .
for for the application of the federal estate tax at death. To the (a)
his own benefit. extent these taxable gifts exceeded the exemption equivalent Th
e
I.B. Estate Tax of the applicable credit and required the payment of a gift re
10. (c) The requirement is to determine Fred's basis for tax during the donor's lifetime, such tax is then subtracted qu
the property after the death of the joint tenant (Ethel). When from a donor's tentative estate tax at death in arriving at the ire
gross estate tax. Thus, although post-1976 gift taxes reduce me
property is held in joint tenancy by other than spouses, the the net estate tax, they are not subtracted as a tax credit from nt
property's fair market value is included in a decedent's es- the gross estate tax. is
tate to the extent of the percentage that the decedent contrib- • to
det
uted toward the purchase. Since Ethel furnished 80% of the er
land's purchase price, 80% of its $300,000 fair market mi
value, ne
or $240,000 is included in Ethel's estate. Thus, Fred's basis the
is $240,000 plus the $20,000 of purchase price that he fur- co
nished, a total of $260,000. rre
ct
11. (b) The requirement is to determine the correct sta
treatment of medical expenses paid by the executor of Bell's te
me
estate if the executor files the appropriate waiver. The ex- nt
ecutor may elect to treat medical expenses paid by the dece- wi
dent's estate for the decedent's medical care as paid by the th
decedent at the time the medical services were provided. To re
qualify for this election, the medical expenses 'must be paid ga
Within the one-year period after the decedent's death, and rd
the executor must attach a waiver to the decedent's to
Form 1040 indicating that the expenses will not be the
claimed gr
as a deduction on the decedent's estate tax return. Here, os
since Bell died during 2008, and the medical services were s
est
provided and paid for by Bell's estate during 2008, the ate
medical expenses are deductible on Bell's final income tax of
the
return for 2008 provided that the executor attaches the ap- fir
propriate waiver. st
sp
12. (c) If the executor of a decedent's estate elects the
ou
alternate valuation date and none of the assets have been
se
sold or distributed, the estate assets must be included in the
to
die
decedent's gross estate at their FMV as of six months after
wh
the decedent's death.
en
13. (d) The requirement is to determine the amount of a pr
decedent's taxable estate that is effectively tax-free if the op
maximum applicable estate tax credit is taken. The maxi- ert
mum estate tax credit is $1,455,800 for 2009. Due to the y
. graduated structure of the tax, this credit is the equivalent is
of ow
an exemption of $3,500,000 and effectively permits ne
$3,500,000 of taxable estate to be free of tax. d
by
14. (d) The requirement is to determine which of the the
credits may be offset against the gross estate tax in deter- m
mining the net estate tax of a US citizen for 2009. In com- as
puting the net estate tax of a US citizen, the gross estate tax . ten
ant
may be offset by the applicable tax credit, and credits for s
foreign death taxes, and prior transfer taxes. For-2009, the by
applicable tax credit of $1,455,800 is allowed against estate the
taxes and is equivalent to an exemption of the first
$3,500,000'of taxable gifts or taxable estate from the unified ent
ire
ty or as joint tenants with right of survivorship. Under
the general rule for joint tenancies, 100% of the value of
jointly held property is included in a deceased tenant's gross
estate except to the extent that the surviving tenants can
prove that they contributed to the cost of the property.
However, under a special rule applicable to spouses who
own property as tenants by the entirety or as joint tenants
with right of survivorship, the gross estate of the first spouse
to die automatically includes 50% of the value of the jointly
held property, regardless of which spouse furnished the
original consideration for the purchase of the property.
16. (d) The requirement is to determine the amount of
insurance proceeds included in Burr's gross estate with re-
gard to a policy on Burr's life purchased by Adam in con-
nection with a "buy-sell" agreement funded by a cross-
purchase insurance arrangement. The gross estate of a
decedent includes the proceeds of life insurance on the
decedent's life if (1) the insurance proceeds are payable to
the estate, (2) the proceeds are payable to another for the
benefit of the estate, or (3) the decedent possessed an
incident of ownership in the policy. An "incident of
ownership" not only means ownership of the policy in a
legal sense, but also includes the power to change
beneficiaries, to revoke an-assignment, to pledge the policy
for a loan', or to surrender or cancel the policy. Here, since
the policy owned by Adam on Burr's life was not payable to
or for the benefit of Burr's estate, and Burr had no incident
of ownership in the policy, the full amount of insurance
proceeds would be excluded from Burr's gross estate.
, Lew. For a decedent dying during 2009, a federal estate tax
17. (d) The requirement is to determine the amount
includible as Wald's gross estate for federal estate tax pur-
poses. If an executor does not elect the alternate valuation
date, all property in which the decedent possessed an owner-
ship interest at time of death is included in the decedent's
gross estate at its fair market value at date of death. If prop-
erty was held in joint tenancy and was acquired by purchase
by other than spouses, the property's total fair market value
will be included in the decedent's gross estate except to the
extent that the surviving tenant can prove that he/she con-
tributed toward the purchase. Since Wald purchased the
land with his own funds, the land's total fair market value
($2,800,000) must be included in Wald's gross estate to-
gether with Wald' s personal effects and jewelry ($750,000),
resulting in a gross estate of $3,550,000.
18. (d) The requirement is to determine the item that is
deductible from a decedent's gross estate. Unpaid income
taxes on income received by the decedent before death
would be a liability of the estate and would be deductible
from the gross estate. Foreign death taxes, income tax paid
on income earned and received after the decedent's death,
and federal estate taxes are not deductible in computing a
decedent's taxable estate. Note that although foreign death
taxes are not deductible in computing a decedent's taxable
estate, a limited tax credit is allowed for foreign death
taxes
in computing the net estate tax payable.
19. (a) The requirement is to determine whether federal
estate tax returns must be filed for the estates of Eng and'
return (Form 706) must be filed if the decedent's gross estate