Fred is an architect.  He and his partner, Ethel, started the business 35 years ago.  About 15 years ago, you advised Fred and Ethel that because the success of their business was very dependent on the skills and reputation of each of them, that they were essentially financially dependent on each other, and that they should each acquire life insurance on the other's life to provide.  As a result, Fred acquired a Whole Life Policy on Ethel's life.  As part of a plan to reduce the size of Fred's estate for estate tax purposes, you advised Fred to transfer ownership of the policy on Ethel's life to Steve and Debbie then use his annual gift tax exclusion to give Steve and Debbie enough money to pay the premiums each year to keep the policy alive.  

 

1. He made the gift at your suggestion in 2015. As of the date of the gift, the face amount of the policy was $10,000,000 and the cash value was $4,000,000. Which amount was properly used to determine the value of the gift on Fred's 709 for 2015? 

 

1. Assume the same facts as above, except that the policy has been paid in full, and there is no need for Steve and Debbie to pay anymore annual premiums to keep the policy alive.  How was the value of the policy on the date of the gift determined?

Answer rating: 100% (QA)

Question 1 The cash value of the policy 4000000 was properly used to determine the value of the gift ... View the full answer