Darleen lives in Arizona and acquired all of her property interests while living there. She owns a primary residence worth $12.2 million. She owns a condo near a Colorado ski resort worth $800,000. Mortgages on the two homes equal $600,000. Darleen inherited money from her father which she deposited in a separate account. She used this money to acquire commercial property for an art gallery. The FMV of the commercial property is $1 million and has a mortgage of $400,000.

1. Assume Darleen's sister discovered that Darleen had given away a $20 million rental property to a secret lover 5 years ago. Keeping all the same information as the previous question, what is Darleen's new net federal estate tax payable?

a. $8.5 mill

b. $8.1 mill

c. $7.1 mill

d. $8.7 mill

2. Darleen established an irrevocable trust six years ago which she funded with dividend-paying securities worth $3 million. Her former partner, Owen, was the remainder beneficiary of the trust and Darleen was the income beneficiary. Darleen filed IRS Form 709 for the remainder interest gift of $850,000 in the year the gift was made. Darleen died last week when the trust was valued at $3.7 million. Which statement correctly identifies the consequences of this transfer?

a. Darleen cannot use a full unified credit of 4,417,800 on her estate tax return to offset her estate tax because she used a portion of the credit six years ago against the taxable gift.

b. $850,000 is included as an adjusted taxable gift on Darleen's estate tax return.

c. The $3.7 million trust is added to Darleen's gross estate.

d. The tax paid on the remainder interest gift is included in Darleen's gross estate under the gross-up rule.

3. Which of the following items is not an allowable deduction for the sister from Darleen's gross estate?

a. The cost of a grave marker

b. Credit card debt

c. A bequest to charity

d. Executor's commission

4. Why are adjusted taxable gifts added to the taxable estate?

a. To reach the exemption amount of $5,490,000

b. Because the two transfer systems (tax and estate) are unified

c. To apply a partial unified credit to lifetime gifts

d. To decrease the tentative tax base