Estate Planning

Chelsea graduated from the University of Alabama. Each year, football season tickets are sold only to those who make a contribution to the university of $2,000 or more. Chelsea contributes $2,000, so that she meets the requirements to purchase season tickets, and also spends $500 on the season tickets. How much is her deductible charitable contribution for the year?

$0 For a contribution to a university where the donor receives the right to purchase tickets to athletic events, none of the contribution will be allowed as a charitable contribution. The price of the actual tickets is not deductible.

Effective Transfers

Decedent's assets are transferred based on his wishes.

The Six Basic Steps in the Estate Planning Process Step 4

Develop a Comprehensive Plan - A comprehensive plan includes a written document outlining what deliverables are necessary as part of the plan. Deliverables include wills, trust documents, amount of life insurance, identifying property titling and beneficiary designation changes.

100% of value is always included in gross estate A. JTWROS and Tenancy by the Entirety B. Tenancy in Common and JTWROS C. Fee Simple D. Tenancy by the Entirety and Community Property

Fee Simple

The Six Basic Steps in the Estate Planning Process Step 5

Implement the Plan - Implementing the estate plan requires having an attorney write the wills and trust documents. Paying the premium to purchase life insurance, changing beneficiary designations.

The Six Basic Steps in the Estate Planning Process Step 6

Review and Update Plan When Necessary - After the plan has been implemented, the planner should meet with the client at least annually or more frequently if there is a major life change to revisit the estate plan. Major life events include new children, marriage, divorce, death in the family, purchasing or starting a new business and selling a business.

A donor wants to create a revocable trust, naming the donor as the income beneficiary and a charity as the remainder beneficiary. Which type of trust is appropriate?

Revocable Living Trust

Allows naming donor as income beneficiary and charity as remainder beneficiary

Revocable Living Trust

Disclaimer Rules

Rules to make an Effective Disclaimer - The disclaimer must be in writing. - The disclaimer must be delivered to executor within 9 months. - The disclaiming party cannot have benefited from the disclaimed assets (interest income). - The person disclaiming can't direct the disposition of the disclaimed property. (It's as if the disclaiming party is deceased.) - A disclaimer clause is when an heir or legatee refuses to accept a gift or bequest. The disclaimer allows assets to pass to other heirs or legatees without additional transfer tax.

Karen, age 58, recently visited her attorney to discuss the appropriate estate planning documents she needed to effectuate her estate planning goals. Which document is appropriate to effectuate the goal: To clarify Karen's burial wishes.

Side Instructional Letter. The side instructional letter is the appropriate place to identify Karen's burial wishes.

Automatic survivorship feature A. JTWROS and Tenancy by the Entirety B. Tenancy in Common and JTWROS C. Fee Simple D. Tenancy by the Entirety and Community Property

The correct answer is A.

Heir A. A person who inherits under state intestacy laws. B. 1(of a person)not having a will; die intestate 2(of things) not disposed of by will C. Having made and left a valid will. D. A person who inherits real property under a valid will. E. A person who inherits under a valid will.

The correct answer is A.

Sharon wants to make sure that she makes full use of the applicable estate tax credit upon her death, but also wants to make sure that her husband, Oswald, has access to the property. Which of the following would you recommend? A. Bypass Trust. B. Life Insurance Trust. C. Revocable Living Trust. D. Section 2503(b) Trust.

The correct answer is A. A Bypass, or Credit Shelter, Trust would be the best option to accomplish Sharon's goals.

Elizabeth has drafted her own will using the "EZ Wills" software that she purchased on the internet and sends it to you for a review. In your first review of the will, you look for which of the following most common provisions? A. A statement of the domicile of the testator B. A secondary clause C. A specific bequest of property owned tenancy by the entirety D. A disclosure clause

The correct answer is A. A statement of the domicile of the testator is a provision that is commonly found in a will. Neither a secondary clause nor a disclosure clause exist. Property owned tenancy by the entirety transfers by operation of law and is not disposed of through a will.

Sherri purchased a home many years ago for $40,000. She married Gary five years ago when the house was worth $150,000. Sherri and Gary live in a community property state. Assume Sherri died today and bequeathed her interest in the property to her son Casey. The property is currently valued at $200,000. What is Gary's basis in the home after Sherri's death?

$0 Gary does not own any interest in the property. Sherri purchased the home before she was married to Gary. At the time of marriage, the property remained Sherri's separate property. When Sherri died, her interest (100%) transferred to Casey. Thus, Gary does not own any of the property and does not have any basis in the property. Casey will have a basis of $200,000.

Sherri purchased a home many years ago for $40,000. She married Gary five years ago when the house was worth $150,000. Sherri and Gary live in a community property state. Assume Sherri died today and gave her interest in the property to her son Casey. The property is currently valued at $200,000. What is Gary's basis in the home after Sherri's death?

$0 Gary does not own any interest in the property. Sherri purchased the home before she was married to Gary. At the time of marriage, the property remained Sherri's separate property. When Sherri died, her interest (100%) transferred to Casey. Thus, Gary does not own any of the property and does not have any basis in the property. Casey will have a basis of $200,000.

In an attempt to exclude the death benefit of a paid up $500,000 face value whole life insurance policy from his gross estate, Jerry gifted the policy to his daughter. Six months prior to the gift, Jerry had been diagnosed with a terminal illness and given a 12 month life expectancy by his doctor. Jerry died 4 years after the gift of the life insurance policy. What amount is included in his federal gross estate related to this whole life insurance policy?

$0 Jerry's federal gross estate would not include any value related to this life insurance policy because he is not the owner or beneficiary of the life insurance policy at his death, and the gift was made more than three years prior to his death. An individual's federal gross estate only includes the death benefit of a life insurance policy on the insured, if the individual is the owner, the beneficiary, or if there was a gratuitous transfer of the life insurance within three years of the individual's death.

Carolyn made the following transfers during her life: I. The transfer of her home to an irrevocable trust for the benefit of her four children on January 1, 2017. Carolyn retained the right to live in the home for the remainder of her life. The fair market value of the home at the date of the transfer to the trust was $1,000,000. The fair market value of the home at Carolyn's date of death was $1,200,000. II. A transfer of $44,000 to an irrevocable trust for the benefit of her four children on January 2, 2016. Carolyn retained the right to a 4% annuity payment from the trust for the years 2017 and 2018. At Carolyn's date of death, the trust had a value of $62,000. If Carolyn died on July 13, 2021, with regard to the above transfers, how much is included in Carolyn's gross estate?

$1,200,000 Carolyn's gross estate would include the fair market value of the home at her date of death, but not the value of the trust listed in #2. The transfer listed as #1 would be included in Carolyn's gross estate because Carolyn retained an interest in the home that terminated at her death. Therefore, the full fair market value of the transferred property would be included in the transferor's gross estate at the time of the transferor's death. No amount related to the transfer listed as #2 would be included in Carolyn's gross estate because the annuity interest terminated before Carolyn's death.

During the year, Edward created a trust for the benefit of his five children. The terms of the trust declare that his children can only access the trust's assets after the trust has been in existence for 20 years and the trust does not include a Crummey provision. If Edward transfers $100,000 to the trust during the year, what is his total taxable gifts for the year?

$100,000 Because the trust does not include a Crummey provision, the transfer to the trust is a gift of a future interest and is not qualified to be offset by the annual exclusion. Therefore, the entire transfer to the trust is subject to gift tax.

Two years ago, Lori assigned a paid-up whole life insurance policy to an Irrevocable Life Insurance Trust (ILIT) for the benefit of her three children. The ILIT contained a Crummey provision for the benefit of each child. At the time of the transfer, the whole life insurance policy was valued at $200,000, and since Lori had not made any other taxable gifts during her lifetime, she did not owe any gift tax. Lori died in the current year, and the face value of the whole life insurance policy of $2,000,000 was paid to the ILIT. Regarding this transfer, how much is included in Lori's gross estate at her death?

$2,000,000 The death benefit of a life insurance policy transferred within three years of the decedent's date of death is included in the decedent's gross estate. In this case, Lori transferred the policy two years before her death, so the full death benefit of $2,000,000 is included in her gross estate.

Caroline transfers $87,000 of stock to a charitable organization in return for a life annuity on her life valued at $40,000. With regard to this transfer, how much is Caroline's charitable income tax deduction?

$47,000 When an individual transfers property in exchange for a charitable annuity, the value of the property less the value of the retained annuity is the value of the charitable deduction. In this case, $87,000 - $40,000 = $47,000.

In 2013, Price funded a bypass trust with $5,250,000, the applicable estate tax credit equivalency amount at that time. At Price's death in 2021, his will included a testamentary bypass trust and a residual bequest to his U.S. citizen wife. If Price's net worth at his death was $15,000,000, how much will be transferred to the bypass trust to maximize its benefits?

$6,450,000 Price's executor would fund the testamentary bypass trust with the difference between the applicable estate tax credit equivalency at Price's death (2021 - $11,700,000) and the funding amount of the inter vivos bypass trust ($5,250,000). In this case, the amount would be $6,450,000 ($11,700,000 - $5,250,000).

Natalie and Ashley own farm land as Joint Tenants with Rights of Survivorship. Natalie contributed $60,000 and Ashley contributed $40,000. The land is currently valued at $1,000,000 and each of them own 50% of the property. If Natalie died today, what amount of the value of the farm land is included in her gross estate?

$600,000 Property owned JTWROS follows the actual contribution rule for inclusion in the gross estate. Therefore, since Natalie contributed 60% of the property, her estate will include 60% of the Fair Market Value (60% × $1,000,000 = $600,000).

When Ronnie died seven months ago, he left his prize art collection to his daughter, Kate. Three months before his death, Ronnie purchased an enchanting oil painting for $4,000. Kate has been offered $100,000 for the painting. Kate is extremely excited because the painting was only valued at $15,000 when her father died. If Kate sold the painting today, what would her taxable gain be for income tax purposes.

$85,000 long term gain

Chris and Jenn, a married couple, made the following gifts this year: - Chris gave their son, Evan, a car worth $4,000 owned as community property. Chris also gave his son his stamp collection (separate property) valued at $60,000. - Chris gave his brother Stephen $20,000 of Chris' separate property so Stephen could purchase a new home. - Chris gave his sister Heather $4,000 in cash from his and Jenn's joint checking account which consists only of community property. He also gave Heather a piece of land he purchased before his marriage to Jenn, valued at $49,000. Assuming Jenn did not want to split gifts, what is Chris' total taxable gifts after taking into account any available deductions or exclusions and ignoring the $11.7 million (2021) exemption equivalent.

$88,000

Basic Documents in an Estate Plan

- Wills - Side Letters of Instruction - Powers of Attorney for Property - Durable Powers of Attorney for Healthcare - Living Wills or Advance Medical Directives - Do Not Resuscitate Orders (DNRs)

Making arrangements to deal with the possibility of physical or mental incapacity is an important area of estate planning. Which of the following arrangements may be used to deal with unexpected incapacity? 1. Springing durable power of attorney 2. Revocable living trust 3. Fee simple 4. Living will

1, 2 & 4 Fee simple ownership is not an arrangement that helps to deal with unexpected incapacity. All of the other arrangements are methods of dealing with unexpected incapacity.

Which of the following is/are considered a disadvantage(s) of probate? 1. The process can result in delays. 2. The process may be expensive. 3. The process provides clear title to heirs and legatees. 4. The process is open to public scrutiny.

1, 2, and 4 The fact that probate provides clear title to heirs and legatees is an advantage, not a disadvantage, of the process. All of the other options are disadvantages of the probate process.

Sylvia and Rachel are friends that own a townhouse together. Rachel contributed 40% of the purchase price and Sylvia contributed 60% of the purchase price. Each of them own 50% of the property. Which of the following are permissible ways they could title the property? 1. Fee Simple 2. Tenancy in Common 3. Joint Tenancy with Rights of Survivorship 4. Tenancy by the Entirety 5. Community Property

2 and 3 The property could be titled either as Tenancy in Common or Joint Tenancy with Rights of Survivorship. The property could not be owned at Tenancy by the entirety or Community Property because Sylvia and Rachel are not married. Fee Simple is not an option either because there is more than one owner.

Which of the following techniques can be used to lower the value of an individual's gross estate? 1. Totten Trust 2. Qualified Personal Residence Trust 3. Family Limited Partnership 4. Irrevocable Life Insurance Trust

2, 3 and 4. Totten trusts are used to avoid probate, not to lower the value of the gross estate. All of the other techniques can be used to lower the value of an individual's gross estate.

Kate and her brother, Rustin, own a piece of property in Dallas as tenants in common valued at $50,000. Kate owns 75% and Rustin owns 25%. Rustin also owns a home in New Orleans, but the home is too expensive and Rustin defaulted on the loan. Even after the bank seized Rustin's home in New Orleans, there was a $50,000 debt remaining. Assuming the bank received a default judgment against Rustin and could seize the Dallas property, what portion of the property could be seized to satisfy Rustin's debt?

25% Co-owners of tenancy in common property are not liable for the debts of their co-owners. Thus, the bank can only seize Rustin's portion of the property to satisfy his debt.

Robbie transferred $100,000 to an irrevocable trust for the benefit of his minor child, Dominic. The transfer was eligible for the annual exclusion. The trust permits the trustee to accumulate the trust income within the trust, and only make distributions to Dominic based upon an ascertainable standard until Dominic is 21 years old. When Dominic attains the age of 21, the trust must terminate and the trust assets must be distributed to Dominic. Which type of trust has Robbie created? A. 2503(b) Trust. B. 2503(c) Trust. C. Totten Trust. D. Intentionally Defective Grantor Trust (IDGT).

2503(c) Trust. Robbie has created a 2503(c) trust. A 2503(c) trust allows income to be accumulated within the trust until the minor beneficiary attains the age of majority and the transfer of property to the trust qualifies for the annual exclusion. A 2503(b) trust requires the trustee to make annual income distributions to the minor beneficiary. A Totten Trust is a bank account which includes a payable on death clause. An IDGT is a grantor trust which requires the grantor to pay the income tax on the income of the trust.

Jaime, a wealthy doctor, wrote a will many years ago after his first child was born. His will leaves his home on Drury Lane to his daughter, Taylor. Jaime sold the home on Drury Lane last year and purchased a new home on Mulberry Lane. The extinction of Taylor's legacy is called what?

Ademption Abatement is the reduction in an estate when there is insufficient assets to satisfy all legatee provisions. A surety bond is a bond posted by the administrator of the probate process. Letters testamentary is the document given to the executor from the probate court authorizing the executor to act on behalf of the estate.

Title held by the beneficiaries

Beneficial title

Allows the donor to make an additional contributions during the year

CRUT

Which type of charitable remainder trust permits additional contributions to the trust after its inception?

CRUTs Only CRUTs permit additional contributions to the trust after its inception. CRATs do not permit additional contributions.

Charity receives the income and the remainder is left to a non charity

CLT

Trust pays fixed annuity to donor based on the initial fair mkt value of trust

CRAT

The Six Basic Steps in the Estate Planning Process Step 2

Collecting Client Information - Current financial statements - Family information - List of assets and liabilities - Copies of policies (i.e., medical, disability, & life) - Annuity contracts - Wills and trusts - Identification of powers of attorney and general powers of appointment - Previously filed returns (i.e., income & gift tax) - Assets transferred to loved ones - Other pertinent information

The Six Basic Steps in the Estate Planning Process Step 3

Common Transfer Objectives: - Transfer property to desired beneficiaries - Minimize taxes, maximize assets to heirs - Avoid probate process - Use lifetime transfers - gifts - Meet liquidity needs at death - Plan for children - Plan for incapacity of transferor - Provide for needs of surviving spouse - Fulfill charitable intentions of transferor

Joe gives his sports car with the title to his brother Frank. What type of gift is this?

Complete Gift An outright gift with no limitations or future requirements directed to a specific named donee is considered a completed gift.

Brandon opens a joint checking account with his brother Shane. Brandon deposits $30,000 into the account and Shane deposits nothing. Three months later, Shane withdraws $15,000. What type of gift is this?

Complete Gift Until Shane removed funds, this was an incomplete gift, once Shane removed money, the gift was complete, to the extent he took funds.

The Six Basic Steps in the Estate Planning Process Step 1

Establishing Client/Planner Relationship - Talk to your existing clients. - Detail your services. - Send an Engagement Letter.

Chris and Jenn, a married couple, made the following gifts this year: Chris gave their son, Evan, a car worth $4,000 owned as community property. Chris also gave his son his stamp collection (separate property) valued at $60,000. Chris gave his brother, Stephen, $20,000 of Chris' separate property so Stephen could purchase a new home. Chris gave his sister, Heather, $4,000 in cash from his and Jenn's joint checking account which consists only of community property. He also gave Heather a piece of land he purchased before his marriage to Jenn, valued at $49,000. After the gift, how is Evan's ownership of the car classified?

Fee Simple The car is owned by Evan as fee simple. There is no indication that Chris or Jenn retained any interest in the car after the gift. Even though Evan is married, a gift to an individual would not be community property.

You are opening a new financial planning practice and you would like to put together a team of experts to help your clients. Which of the following groups represents the best team to help your clients?

Financial planner, CPA, and attorney The best team for your client would include a financial planner, CPA, and attorney. A licensed insurance specialist is also a good asset to an estate planning team, but the team described in option b is not as good of a team overall as the team in option a.

Karen, age 58, recently visited her attorney to discuss the appropriate estate planning documents she needed to effectuate her estate planning goals. Which document is appropriate to effectuate the goal: To give Karen's husband, Teddy, the ability to gift Karen's assets to himself after her death.

General Power of Appointment. The general power of appointment will give Teddy the power to gift Karen's assets to himself after her death. A power of attorney will not survive Karen's death.

The person who creates and initially funds the trust

Grantor

Claude decides to prepare his will, but does not want to seek the help of an attorney. Claude handwrites all of the provisions of the will and does not have it witnessed by anyone. What type of will does Claude have, if any?

Holographic A holographic will is one that is handwritten. Answer b is incorrect because a nuncupative will, which is not valid in all states, is an oral will. Answer c is incorrect because a statutory will must generally be prepared by an attorney and must be witnessed.

Maxwell and Jim have resided together for several years, but are not married. They cannot rely on the state intestacy laws to transfer assets to each other at the death of either. Additionally, Maxwell is concerned that if he dies first, his family may contest the transfer of his assets to Jim through his will so he wants to avoid any transfers through his will. Of the following options, which transfer arrangements would ensure that Maxwell's assets will be transferred to Jim at Maxwell's death? I. Qualified Personal Residence Trust (QPRT). II. Irrevocable Trust. III. Revocable Living Trust. IV. Testamentary Trust.

I, II and III only. The QPRT, Irrevocable Trust, and Revocable Living Trust would ensure that Jim would receive Maxwell's assets at Maxwell's death because the assets will transfer per the trust document. A testamentary trust will not ensure that Jim will receive Maxwell's assets because a testamentary trust would be created in Maxwell's will and therefore transferred via probate. The family could contest the will and block the transfer to the testamentary trust. In such a case, Jim would not receive the assets.

Which of the following is/are considered a disadvantage(s) of probate? I. The process can result in delays. II. The process may be expensive. III. The process provides clear title to heirs and legatees. IV. The process is open to public scrutiny.

I, II and IV only. The fact that probate provides clear title to heirs and legatees is an advantage, not a disadvantage, of the process. All of the other options are disadvantages of the probate process.

Tom died owning the following property. Which would not be included in Tom's probate estate? I. A certificate of deposit, in Tom's name, at the local bank. II. An interest in commercial investment real estate held tenancy in common with his son. III. Retirement plan proceeds made payable to Tom's daughter. IV. A mountain vacation home Tom owns jointly (JTWROS) with his wife.

III and IV only. Items 3 and 4 are not included in Tom's probate estate. Retirement plan proceeds payable to a listed living beneficiary transfer by contract law, and property owned JTWROS transfers by operation of state law to the surviving joint tenants. Items 1 and 2 are included in Tom's probate estate. A certificate of deposit in Tom's name would be included in Tom's probate estate. Interest in property held as a tenancy in common does not have an automatic right of survivorship and thus must transfer through the probate process for retitling.

Brandon opens a joint checking account with his brother Shane. Brandon deposits $30,000 into the account and Shane deposits nothing. What type of gift is this?

Incomplete Gift There is no gift to Shane until Shane withdraws funds, as a result this is an incomplete gift.

Ivan pays tuition for his nephew William. Ivan makes the payment directly to the university. What type of gift is this?

Indirect Gift

Jill lends $25,000 to her sister for cosmetic surgery. The note calls for repayment over 5 years at 6% interest. One year later, Jill forgives the debt. What type of gift is this?

Indirect Gift This is an indirect gift since the donor is forgiving an obligation of the donee.

Karen, age 58, recently visited her attorney to discuss the appropriate estate planning documents she needed to effectuate her estate planning goals. Which document is appropriate to effectuate the goal: To direct and provide for the future care of her minor child, Josh, in the event of her death.

Last Will and Testament. The will is the appropriate place to direct and provide for a minor child. The non-Will documents or powers listed will not assist in providing for the child.

Title held by the trustee

Legal title

Which of the following statements concerning trusts is correct? A. A trust can have several beneficiaries, including different classes and individuals. B. When a grantor contributes property to a trust, he must recognize any unrealized capital gain or loss he has in the contributed property. C. A trust can only have one trustee. D. The gift of a remainder interest in a trust is a gift of a present interest.

The correct answer is A. A trust can have several beneficiaries. A trust may have income beneficiaries or remainder beneficiaries, and within each class can have several individuals of each type. Answer b is incorrect as a grantor does not recognize any unrealized gain in property transferred to a trust. Answer c is incorrect because a trust can have one or several trustees. Answer d is incorrect because the gift of a remainder interest in a trust is a gift of a future interest, which is not eligible for the annual exclusion.

A trustee is subject to which of the following? A. Prudent Man Rule. B. Trustee's Ethical Code. C. Uniform Trustee Provisions. D. Fiduciary Responsibilities Doctrine.

The correct answer is A. A trust fiduciary must follow the Prudent Man Rule demonstrating a duty of loyalty and duty of care on behalf of the trust's beneficiaries. The Prudent Man Rule specifically states that the trustee, as fiduciary, must act in the same manner that a prudent person would act if the prudent person was acting for his own benefit after considering all of the facts and circumstances surrounding the decision. None of the other options are existing codes, provisions, or doctrines.

Alton would like to transfer the ownership of his Picasso painting to his son Edgar, but Alton would like to continue to have the painting hanging in his house. Which of the following would you recommend to Alton? A. TPPT B. CRAT C. QPRT D. FLP

The correct answer is A. Answer b is incorrect because Alton's son Edgar is not a charity. Answer c is incorrect because a QPRT, or Qualified Personal Residence Trust, is a special form of a GRAT to which the grantor contributes his personal residence. Answer d is incorrect because a FLP would be more appropriate for transferring ownership of a family business than ownership of a painting. Answer a is correct because TPPTs or Tangible Personal Property Trusts are funded with personal property and the grantor retains the right to use the property that has been transferred to the trust.

Ben is interested in using a Qualified Personal Residence Trust (QPRT) as part of his estate plan. Which of the following are false regarding QPRTs? A. At the end of the trust term, the house will revert back to the grantor. B. With a QPRT, the grantor must survive the trust term to realize any estate tax savings. C. A QPRT can be used with either primary residences or vacation homes. D. The grantor will have a taxable gift upon the creation of the QPRT.

The correct answer is A. At the end of the trust term, ownership of the house is transferred to the beneficiaries of the QPRT. All of the other statements are true.

In which of the following situations would the use of a QDOT be appropriate? A. Tom dies and is survived by his wife, Tina, who is not a U.S. citizen. B. Regina dies and is survived by her husband, Raul, who becomes a U.S. citizen two months after Regina's death. C. Harold dies as a widower. D. Franz, who is not a U.S. citizen, dies and is survived by his wife, Francine, who is a U.S. citizen.

The correct answer is A. Option B does not describe a situation in which the use of a QDOT would be appropriate because Raul became a U.S. citizen prior to the due date of the estate tax return and therefore, any property transfers to Raul would qualify for the unlimited marital deduction. Answer c is not correct because there is not reason to use a QDOT if Harold does not have a surviving spouse. Answer d is not correct because a QDOT is used when the surviving spouse is not a U.S. citizen.

Which of the following assets will pass through probate? A. A house subject to a mortgage and owned fee simple by the decedent. B. Property held tenancy by the entirety. C. Bank accounts with POD. D. None of the above will pass through probate.

The correct answer is A. Options B & C will not pass through probate because they pass by operation of law or state contract law. Option A will pass through probate because it is owned fee simple by the decedent. The fact that the house is subject to a mortgage does not affect whether it passes through probate.

Julie recently hit it big at the casino. Because of her good fortune, Julie would like to begin a gifting program in which she will give her family and friends yearly gifts equal to the annual exclusion. She would like to learn more about the gift tax system and how gifts are valued. All of the following statements regarding the valuation of a gift are true, except: A. Publicly traded securities are valued at the average of the opening and closing market price for the day of the gift. B. Real estate is generally valued utilizing an appraisal. C. The value of a bond is the present value of the expected future payments. D. Certain valuation discounts may be available due to lack of marketability, lack of liquidity, and lack of control.

The correct answer is A. Publicly traded securities are valued at the average of the high and the low trading price for the day of the gift.

George is considering transferring his life insurance policy to an ILIT. Which of the following statements is true? A. If George included a clause that said, "George can change the beneficiary of the trust at any time to any person other than himself" then the assets would be included in George's gross estate when he died. B. If the trust allows the trustee to lend money to the George's estate at George's death, then the proceeds of the life insurance policy will be included in George's gross estate. C. Transferring the policy to the ILIT will eliminate the chance that the proceeds will be included in George's gross estate at George's death. D. If George continues to pay the trustee an amount needed to pay the premiums on the policy, the proceeds will be included in his gross estate when he dies.

The correct answer is A. Retaining the right to determine the ultimate beneficiary will cause inclusion in George's gross estate. The trust may be allowed to lend money to George's estate. Inclusion will occur when the trust is required to lend money. George must survive for three years before the asset will not be included in his gross estate. George can still pay the premiums on the policy without causing inclusion in his gross estate.

Which of the following is not a common estate planning goal? - Maximizing transfer costs. - Minimizing transfer taxes. - Providing for liquidity at death. - Fulfilling client's healthcare decisions.

The correct answer is A. The solution was looking for the false statement. Minimizing transfer costs, not maximizing transfer costs, is a common estate planning goal. B is a true statement - Minimizing transfer taxes is common estate planning goals to maximize what the heirs receive. C is a true statement - Estate planning factors in providing for liquidity at death to have funds available to pay administrative fees and/or estate taxes. D is a true statement - Proper estate planning allows the client's healthcare decisions to be known, allowing the burden to be lifted from the family in a difficult time.

Which of the following assets will pass through probate? A. A house subject to a mortgage and owned fee simple by the decedent. B. Property held tenancy by the entirety. C. Bank accounts with named beneficiaries. D. None of the above will pass through probate.

The correct answer is A. Answers B and C will not pass through probate because they pass by operation of law or state contract law. Answer A will pass through probate because it is owned fee simple by the decedent. The fact that the house is subject to a mortgage does not affect whether it passes through probate.

Of the following, which is not a benefit of the unlimited marital deduction? A. The use of the unlimited marital deduction can shelter future appreciation of an asset from estate taxes at the death of the second-to-die spouse. B. The estate tax on property can be deferred until the death of the second-to-die spouse. C. The unlimited marital deduction can fund the applicable estate tax credit of the surviving spouse. D. The unlimited marital deduction can ensure the surviving spouse has sufficient assets to support her lifestyle.

The correct answer is A. Property that transfers to the second-to-die spouse is eligible for the marital deduction and, to the extent that it is not consumed, will be included in the second-to-die spouse's gross estate at the fair market value at his date of death, including any appreciation that may have occurred since the first-to-die spouse's estate. Therefore, future appreciation of an asset is not sheltered by using the unlimited marital deduction.

Can partition property without consent A. JTWROS and Tenancy by the Entirety B. Tenancy in Common and JTWROS C. Fee Simple D. Tenancy by the Entirety and Community Property

The correct answer is B.

Intestate A. A person who inherits under state intestacy laws. B. 1(of a person)not having a will; die intestate 2(of things) not disposed of by will C. Having made and left a valid will. D. A person who inherits real property under a valid will. E. A person who inherits under a valid will.

The correct answer is B.

This trust pays a fixed annuity to the donor based on the initial fair market value of the trust. A. Revocable Living Trust B. CRAT C. CLT D. CRUT

The correct answer is B.

Which of the following statements relating to qualified transfers for gift tax purposes is not correct? A. A qualified transfer does not take the relationship between the donor and the donee into account. B. A payment made directly to an individual to reimburse him for medical expenses is a qualified transfer. C. The exclusion for a qualified transfer is in addition to the annual exclusion. D. A payment made to a qualified education institution for tuition costs is a qualified transfer

The correct answer is B. A payment made directly to an individual to reimburse him for medical expenses is not a qualified transfer. To be a qualified transfer, the payment must be made directly to the healthcare provider. All of the other options are true.

Jane transferred a piece of real estate to her son Christopher 6 months ago. Jane purchased the real estate for $90,000 six years ago and the property was valued at $65,000 on the date of transfer. Jane paid $26,000 in gift tax on the transfer. All of the following statements are true, except: A. If Christopher were to sell the property for $60,000 today, then the loss is a short term loss. B. Christopher's basis will be adjusted for a portion of the gift tax paid. C. Christopher will have a dual basis for income tax purposes. D. If Christopher sold the property for $120,000 after holding it for 5 years, then his gain would be $30,000.

The correct answer is B. Because Jane's basis in the property was greater than the FMV of the property on the date that she gifted the property, Christopher will be subject to the double basis rules. All but "B" are correct; it's important to remember that double basis gifts will NEVER be adjusted for gift tax paid since there was no appreciation on the transfer date.

Diana's will leaves all of her property to her husband, George. If he does not survive her by more than eight months, the property will transfer to Diana's only daughter. Diana dies on May 1 and George dies on the following December 1. Of the following statements, which is true? A. Diana's property will transfer to her daughter and the property will be eligible for the unlimited marital deduction in Diana's estate. B. Diana's property will transfer to her daughter and the property will not be eligible for the unlimited marital deduction in Diana's estate. C. Diana's property will transfer to George and the property will be eligible for the unlimited marital deduction in Diana's estate. D. Diana's property will transfer to George and the property will not be eligible for the unlimited marital deduction in Diana's estate.

The correct answer is B. Diana's property will not transfer to George because he failed to survive her for at least eight months. Therefore, both answer C and D are incorrect. Answer A is incorrect because the property that transfers to Diana's daughter will not be eligible for the unlimited marital deduction in Diana's estate.

Brett died recently leaving all his assets in a trust for his wife Greer. Brett was concerned that Greer would not be able to manage her money adequately to maintain her standard of living for the rest of her life. Therefore, he placed the assets into a spendthrift trust and gave Greer the right to receive a certain amount of property each year. Brett appointed his good friend Paul to be the trustee of the trust. How is Paul's ownership classified? A. Paul holds a life estate over the property. B. Paul holds the legal title to the property. C. Paul holds the equitable title to the property. D. Paul does not hold an interest in the property.

The correct answer is B. Paul holds the legal title to the property as trustee for the trust. Greer as the beneficiary holds the equitable title. A life estate identifies the person who has a current beneficial right in the property, which in this case would be Greer.

Sarah, age 90, would like to spend the few years she has left enjoying her life. She is currently unable to eat and bathe without assistance. She would like to use her life insurance policy to fund the remainder of her life. Which of the following statements is correct? A. If Sarah surrenders her policy for accelerated death benefits, she will be subject to income tax on the gain because she is not terminally ill. B. Sarah could exchange the policy in a 1035 exchange for an annuity without being subject to income tax on the transfer. C. If Sarah borrows from the policy, then the loan will be considered a taxable distribution. D. If her son purchases the policy from Sarah at the fair market value, he will receive the insurance proceeds income tax free at Sarah's death.

The correct answer is B. Sarah can exchange the policy for an annuity income tax free. While Sarah is not terminally ill, she is chronically ill because she is unable to perform 2 of the 6 activities of daily living (eating and bathing). Thus, surrendering her policy for accelerated benefits will not cause her to be subject to income tax. The loan is not considered a taxable distribution because the policy is not a MEC. If her son purchases the policy then Sarah has transferred the policy for value. This will cause the policy to be taxed in the son's income when Sarah dies.

Which of the following is an advantage of a revocable living trust? A. Reduction in federal estate taxes. B. Avoidance of probate. C. Removal of asset appreciation from the grantor's gross estate. D. Distribution of the trust assets according to the terms of the grantor's will.

The correct answer is B. Option B is an advantage of using a revocable living trust. Option A is incorrect because use of a revocable living trust does not reduce the grantor's federal estate taxes because the full fair market value of the trust assets are included in the grantor's gross estate. Option C is incorrect for the same reason. Option D is incorrect because the trust agreement, not the grantor's will, controls the distribution of the trust assets.

Testate A. A person who inherits under state intestacy laws. B. 1(of a person)not having a will; die intestate 2(of things) not disposed of by will C. Having made and left a valid will. D. A person who inherits real property under a valid will. E. A person who inherits under a valid will.

The correct answer is C.

Gina, age 79, recently had a stroke. Afraid that she may not live long enough to see her family enjoy it, she would like to transfer the beach house she owns to her daughter, Taylor. While Gina is willing to make the transfer gratuitously in whole or part, Gina does not want to pay any gift tax or utilize any of her lifetime credit amount. Which of the following techniques, if used by Gina to transfer the beach house to Taylor, will not result in a taxable gift?

The correct answer is C. A SCIN is a note with a self canceling premium payment attached so that the note will cancel at the transferor's death. The GRAT, QPRT and the GRUT are irrevocable trusts and will result in a current taxable gift.

If Paula died with each of the following property interests, which one would not be included in her probate estate? A. Property owned as community property. B. Property held tenancy in common. C. Death proceeds of life insurance payable to a living stranger. D. Property owned fee simple.

The correct answer is C. All except C are included in a decedent's probate estate.

Which of the following is true regarding a Grantor Retained Annuity Trust (GRAT)? A. At the end of the GRAT term, a taxable gift occurs. B. If the grantor dies during the trust term, a pro rata portion of the trust assets will be included in the grantor's estate. C. Interest and dividend earned by assets in a GRAT are taxed to the grantor. D. If the grantor survives the trust term, all of the trust assets will be included in the grantor's estate.

The correct answer is C. Answer A is incorrect because a taxable gift occurs when the GRAT is established, not when the GRAT term ends. Answer B is incorrect because if the grantor dies during the trust term, all of the trust assets are included in his gross estate. Answer D is incorrect because if the grantor survives the trust term, none of the trust assets are included in his estate.

Which of the following statements is false regarding a bargain sale? A. The difference between the fair market value of the asset and the consideration received in exchange for the asset is considered a gift. B. The gift portion of a bargain sale will qualify for the annual exclusion. C. A bargain sale is generally inappropriate if the buyer of the property is a family member. D. If the property is sold for more than the seller's basis in the property, a taxable gain will result.

The correct answer is C. Answer C is a false statement because bargain sales usually occur among related parties. All of the other statements are true.

John has a general power of appointment over his father's assets. Which of the following is not true regarding the power? A. John can appoint his father's money to pay for the needs of his father. B. John can appoint money to John's creditors. C. John must only appoint money using an ascertainable standard. D. If John predeceases his father, John's gross estate would include his father's assets even though they had not been previously appointed to John.

The correct answer is C. Answers A, B, and D are all true. Because John has a general power of appointment over his father's assets, John may appoint those assets to anyone for any reason and is not limited by an ascertainable standard such as health, education, maintenance, or support.

You are a CFP and although you never went to law school, you consider yourself to be very good at reviewing wills. Your client, Catherine, asks you to prepare a will for her. Should you prepare a will for Catherine? - Yes, Catherine is your best client and you might lose her if you do not prepare the will. - Yes, it is permissible for a CFP to prepare a legal document. - No, preparing Catherine's will would be considered the unauthorized practice of law. - No, you should only prepare Catherine's will if you are going to prepare her husband's will as well.

The correct answer is C. Drafting legal documents, such a wills, is an activity reserved for licensed attorneys. If you are not a licensed attorney and you prepare a legal document, you have engaged in the unauthorized practice of law.

Which of the following qualifies for the unlimited marital deduction? A. Outright bequest to resident alien spouse. B. Property passing to noncitizen spouse in QTIP. C. Outright bequest to resident spouse who, prior to the decedent's death was a noncitizen, but who after the decedent's death and before the estate return was filed, became a U.S. citizen. D. Remainder beneficiary of a CLAT who is a nonresident alien spouse.

The correct answer is C. Of the options, only an outright bequest to a resident alien spouse who becomes a U.S. citizen before the estate return is filed qualifies for the unlimited marital deduction.

Which of the following accurately describes a QTIP Trust? A. A QTIP is sometimes called a "B" or "Q" Trust. B. Trust income must be paid to the spouse or other designated beneficiary at least annually. C. The trust assets will be included in the gross estate of the surviving spouse. D. The surviving spouse designates the remainder beneficiaries of the QTIP.

The correct answer is C. Option A is incorrect because a QTIP is not the same as a "B" trust. Option B is incorrect because the income of the trust must be paid to the spouse, not to any other beneficiary. Option D is incorrect because the surviving spouse does not choose the remainder beneficiaries of the QTIP.

Karen, age 58, recently visited her attorney to discuss the appropriate estate planning documents she needed to effectuate her estate planning goals. Which document is appropriate to effectuate the goal: To avoid being placed on an artificial breathing machine if Karen is terminally ill and meets the requirements of the state statute. A. Do Not Resuscitate Order. B. Last Will and Testament. C. Living Will. D. Power of Appointment. E. Power of Attorney for Health Care.

The correct answer is C. The living will allows Karen to avoid doctors using an artificial breathing machine if Karen is terminally ill. The power of attorney for health care does not generally cover life sustaining treatment and the DNR only covers the denial of CPR.

Which of the following are parties to a power of attorney? I. The principal's mother, even though she is not named as the principal's agent. II. The guardian ad litem. III. The principal, or person granting the power. IV. The attorney who prepares the power of attorney.

The correct answer is C. The parties to a power of attorney are the principal and the agent.

You are a financial planner and you are preparing for a meeting with your new client, Anne. What would you be most likely to ask Anne to bring to the meeting with her? A. Pictures of her children B. Her parents C. Any previous wills D. Sales records for her ex-husband's business

The correct answer is C. You would be most likely to ask Anne to bring any previous wills with her. In addition, you would be likely to request copies of any other estate planning documents as well as tax documents.

Devisee A. A person who inherits under state intestacy laws. B. 1(of a person)not having a will; die intestate 2(of things) not disposed of by will C. Having made and left a valid will. D. A person who inherits real property under a valid will. E. A person who inherits under a valid will.

The correct answer is D.

Value included in gross estate is 50% deemed contribution rule A. JTWROS and Tenancy by the Entirety B. Tenancy in Common and JTWROS C. Fee Simple D. Tenancy by the Entirety and Community Property

The correct answer is D.

Which of the following is not a transfer cost associated with estate planning? - Document preparation - Attorney's fees - CPA's fees - Insurance premiums

The correct answer is D. Insurance premiums are not a transfer cost associated with estate planning. All of the other answers are costs associated with estate planning.

Uncle Joe died recently. He is survived by two nieces, Rachel and Margaret. Uncle Joe owned the following property at his death. - A house he inherited from his parents. - A car owned by Uncle Joe. - A life insurance policy on his own life. Uncle Joe's two nieces are the beneficiaries of the policy. A 401(k) plan without a listed beneficiary. Uncle Joe's will left the house to his favorite niece, Rachel, and the car to his niece, Margaret. Which of the following statements is correct? A. All assets will be transferred via the will. B. All assets will be transferred via the state's intestate probate laws. C. Some assets will be transferred via the will and the remaining assets will transfer outside the probate process. D. Some assets will be transferred via the state's intestate probate laws, some assets will transfer via the will and some will transfer outside the probate process.

The correct answer is D. The house and the car will transfer under the will. The life insurance policy will transfer outside the probate process because of the named beneficiaries. The 401(k) plan will transfer to Uncle Joe's probate estate because there is no listed beneficiary. Since the will does not cover the 401(k) plan, the asset will transfer via the state's intestate succession laws.

Jennifer purchased her mother's home through the use of a SCIN. Under the terms of the SCIN, Jennifer was to pay her mother $22,000, plus interest and a SCIN premium, per year for 10 years. If Jennifer's mother died after six payments were made, what would be Jennifer's adjusted basis in the home?

The correct answer is D. Jennifer purchased her mother's home through the use of a SCIN. Under the terms of the SCIN, Jennifer was to pay her mother $22,000, plus interest and a SCIN premium, per year for 10 years. If Jennifer's mother died after six payments were made, what would be Jennifer's adjusted basis in the home?

Legatee A. A person who inherits under state intestacy laws. B. 1(of a person)not having a will; die intestate 2(of things) not disposed of by will C. Having made and left a valid will. D. A person who inherits real property under a valid will. E. A person who inherits under a valid will.

The correct answer is E.

Efficient Transfers

Transfer costs are minimized. Transfer costs include taxes, court costs and attorney fees.

Jose created a joint bank account for himself and his friend, Amparo. At what point has a gift been made to Amparo?

When Amparo withdraws money from the account for her own benefit. A completed gift does not occur until the donee withdraws money from the account for her own benefit.