Fundamentals of Estate Planning test: HS330

When the owner of a closely held business dies, the payment of a portion of the federal estate tax may be deferred for a period of several years if the estate otherwise qualifies under the provisions of IRC Section 6166. Which of the following statements concerning this deferral of federal estate tax is correct?

A. Under certain circumstances, the estate will forfeit its right to tax deferral, and all the remaining unpaid estate tax will become due and payable immediately.

B. The interest rate on the deferred tax is determined by the prime rate in effect on the date of death.

C. To qualify for the tax deferral, the closely held business must represent more than 50 percent of the value of the decedent's adjusted gross estate.

D. The interest on the unpaid estate tax is payable over the first 10 years, after which the tax plus interest on the balance is payable in equal installments for the last 5 years.

All the following statements concerning a complex trust are correct EXCEPT:

A. The trustee may make distributions of principal to trust beneficiaries.

B. Beneficiaries must receive all distributable net income in the year received by the trust.

C. Beneficiaries are taxed on their share of distributable net income when received by them.

D. A complex trust may make gifts to charity.

Believing that his death was imminent, a widower gave his son some real estate two years ago, and filed a timely gift tax return. The widower died on January 1st of this year. Additional facts are:

-Widower's basis in the real estate $200,000

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Value of real estate when gifted 510,000

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Value of real estate on date of death 1,000,000

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Amount of gift tax paid by widower 159,500

A.

The gift of the real estate is included in the calculation of the widower's federal estate tax as an adjusted taxable gift.

B.

The gift tax paid is brought back into the widower's gross estate at $159,500.

C.

The widower recognized no capital gain for income tax purposes at the time the gift was made.

D.

The son's income tax basis in the real estate is $1,000,000.