2. Assume that G, age 60, transfers $400,000 to a trust. The income is payable to C,...

2. Assume that G, age 60, transfers $400,000 to a trust. The income is payable to C, age 60, for life and then the remainder is distributable to C’s children. At nearly the same time, C transfers $300,000 of her own assets to a trust. The income from that trust is payable to G for life and the remainder is distributable to G’s children.

a. What are the gift tax consequences to C and G on creating their respective trusts?

b. Is either trust included in G’s gross estate upon his death?

c. Assume further that at G’s death, the trust created by C is valued at $500,000, and at C’s death the trust created by G is valued at $700,000. How much should be included in each estate?

Solutions

Expert Solution

a) Tax consequences of to C & G on creating their respective trusts.

Answer : This is a clear case of cross transfer since the transfers are so intimately connected to form part of a single transaction and each trasaction constitues consideration for the other by being mutual or otherwise.

In the given scenario, G has trasnferred his assets worth $400000 to a trust. However since the same is payable to C for his remaining life, and being payable to his children afterwards, clearly states the intention of G to transfer income/asset to C without having to attract the tax consequences of gift.

Similarly, nearly the same time, C creates a trust worth $300000, whereas the income from the trust is payable to G for life and remainder being payable to his children, highlghting his intention to transfer income without having to pay in tax on it by way of Gift Tax.

Therefore, it is a clear tax on tax evasion through cross transfer which will fall within the purview of clubbing of income and gift tax shall arise on amount of $300000 being the amount for which actual cross transfer is being done.

b) Yes, G's gross estate will include trust worth $400000, since tax has already been paid on the same. Since, uplifitng the intention behind the transaction, tax has already been levied on amount of cross trasnfer of $300000, the estate shall include the trust.

c) G's estate shall include trust at the current value of $500000 and C's estate shall include trust at current value of $700000 created by G.

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

1. S, age 60, transferred $100,000 to a trust. The income is payable to A, age 60,...

1. S, age 60, transferred $100,000 to a trust. The income is payable to A, age 60, during the life of S. The corpus is payable to B on S’s death. S retained the power to name a new remainderman. When S dies ten years later, what are the estate tax consequences of this trust?

2. The Alright Trust is a simple trust. The annual accounting income is to be distributed...

2. The Alright Trust is a simple trust. The annual accounting income is to be distributed equally to Ben and Sarah. The Trust reports the following: Dividend income Long-term capital gain (allocable to corpus) Trustee allocable to corpus $100,000 30,000 5,000 Compute the following: a. Trust accounting income: b. Total taxable income c.Trust DNI d. Distribution deduction e. Trust taxable income f . Amount and character of income reported by each benefiicary

Disability Before Retirement: Jack, age 60, was planning on retirement at 67. He currently has $400,000...

Disability Before Retirement: Jack, age 60, was planning on retirement at 67. He currently has $400,000 in his retirement accounts and would likely have doubled that by the time he retired. However, he has become permanently disabled after getting into a vehicle accident a few months ago. If his average earnings were $65,000, what would his Social Security disability benefit be? Social Security Disability benefits end at age 65, and he will switch over to Social Security Retirement benefits. What...

For the initial scenario, assume your current age, zero current savings, a retirement age of 60,...

For the initial scenario, assume your current age, zero current savings, a retirement age of 60, a life expectancy of 95 years, an inflation rate of 3.5%, an investment portfolio return of 9% and current purchasing power of income of $75,000. Set up your worksheet to compute and show the user: (a) How much they will need to have the day they retire in order to fund their retirement with no additional contributions, (b) How much they will need to...

Assume that Income Tax Expense was $250,000, and that Income Taxes payable decreased by $14,000 and...

Assume that Income Tax Expense was $250,000, and that Income Taxes payable decreased by $14,000 and Deferred Tax Liability increased by $29,000. What amount of cash was paid for Income Taxes?

Lenny, age 12, has $5,500 interest income from a trust established by his uncle. This is...

Lenny, age 12, has $5,500 interest income from a trust established by his uncle. This is Lenny’s only source of income for 2018. a. What is Lenny’s taxable income and how much income tax does he owe? b. How would your answers change if Lenny were age 24?

Consider the reaction A(g)+B(g)->C(g) For which Kc=1.30*102 Assume that .406 mole C(g) is placed in a...

Consider the reaction A(g)+B(g)->C(g) For which Kc=1.30*102 Assume that .406 mole C(g) is placed in a cylinder. The temperature is 300 K and the barometirc pressure on the piston (which is assumed to be massless and frictionless) is constant at 1.00 atm. The original volume (before the C(g) begins to decompose) is 10.00 L. What is the volume of the container at equilibrium?

Assume the following year 2 income statement for Johnstone Corporation, which was a C corporation in...

Assume the following year 2 income statement for Johnstone Corporation, which was a C corporation in year 1 and elected to be taxed as an S corporation beginning in year 2. Johnstone’s earnings and profits at the end of year 1 were $10,650. Marcus is Johnstone’s sole shareholder, and he has a stock basis of $42,500 at the end of year Johnstone Corporation Income Statement December 31, Year 2 Year 2 (S Corporation) Sales revenue $ 160,000 Cost of goods...

Assume the following year 2 income statement for Johnstone Corporation, which was a C corporation in...

Assume the following year 2 income statement for Johnstone Corporation, which was a C corporation in year 1 and elected to be taxed as an S corporation beginning in year 2. Johnstone’s earnings and profits at the end of year 1 were $10,780. Marcus is Johnstone’s sole shareholder, and he has a stock basis of $43,000 at the end of year 1. Johnstone Corporation Income Statement December 31, Year 2 Year 2 (S Corporation) Sales revenue $ 162,000 Cost of...

Determine ΔH°rxn at 25 °C for the reaction 2 HCN(g) → 2 C(graphite) + H2(g) +...

Determine ΔH°rxn at 25 °C for the reaction 2 HCN(g) → 2 C(graphite) + H2(g) + N2(g) given that the standard heat of formation (ΔH°f) of HCN(g) is 135.1 kJ/mol

Subjects