Income, Estate, Donor's Tax Quiz

ATTY. EDWIN ABELLA, TAXATION 2 QUIZ, PLM-LAW SY 2008-2009 STATE THE KIND OF TAX/ES IMPOSABLE ON EACH OF THE FOLLOWING TRANSACTIONS INDICATING THE REASONS FOR YOUR ANSWER. 1. Rhett donated a house and lot to Scarlet. Rhett reserved the right to live in the house and lot until he dies. Estate tax – transfer at the contemplation of death; control does not end until the death of the person. 2. Stanley donated a commercial complex apartment to Wendy. Stanley reserved the right to the rentals for five years from the date of donation. Stanley died on the third year. Estate tax – transfer at the contemplation of death. 3. Angelica donated a mango farm to Sergio. Angelica reserved the right to the fruits for five years from the date of donation. Angelica died on the seventh year. Donor’s tax – control is relinquished at the expiration of 5 years, resulting to a completed gift. 4. Britney sold an Amorsolo painting to Madonna for P1 million. The fair market value of the said property at the time of sale is P2 million. The painting was previously purchased by Britney for P500,000. Income tax – sale of property more than its acquisition cost. Donor’s tax – deemed gift because it is sold for insufficient consideration at the time of sale. 5. Britney, from #4, reserved the right to enjoy the property until she dies because at the time of sale, she is suffering from full blown AIDS. Income tax – P1 million, sale of property more than its acquisition cost. Estate tax – transfer in contemplation of death. 6. Wilfredo died in 2001 leaving behind a valuable real property to his only son, Jhay-R, through Last Will and Testament (LWT). In the LWT, he gave Jhay-R the power to appoint Kat, Jhay-R’s wife, to succeed over the property in the event that Jhay-R dies. Jhay-R died in 2007 and Kat succeeded over the property. Estate tax – transfer from Wilfredo to Jhay-R, because inheritance was transferred. No tax – transfer from Jhay-R to Kat, because the property was transferred at the desire of the predecessor, Wilfredo. 7. George died in 1998 leaving behind a 10-hectare riceland to his son, Patrick, through Last Will and Testament (LWT). In the LWT, he gave Patrick the power to appoint anybody to succeed over the property in

the event that Patrick dies. Patrick died in 2004 and Honey, his wife, succeeded over the riceland. Estate tax – transfer from Patrick to Kat is a transfer from a general power of appointment, where transmission is in the control of the one given such power (successor). 8. Michael took a life insurance policy for his own life naming Prince, his son, as the irrevocable beneficiary. Donor’s tax – proceeds are actual value of the amount to be transferred inter vivos; proceeds of a life insurance deemed as complete gift. 9. Instead of Prince, from # 8, Michael designated Paris as beneficiary, subject to his right to revoke said designation. He did not exercise the right to revoke until he died. Estate tax – designation becomes complete when he dies. 10. Instead of Prince, from #8, the irrevocable beneficiary was Michael’s estate. Estate tax – should form part of the gross estate.