FIN 386 Exam 2

Jack created a Section 2503(c) trust for his son. He decided to be both the donor and trustee. If he dies while remaining the trustee the principal of the trust could be included in his or her gross estate. True False

True

The marital deduction allows a couple to avoid estate tax at the first spouse's death as long as the spouse is U.S. Citizen? True False

True

With an Intentionally Defective Grantor Trust (IDGT) the trust income will be taxed to the Grantor? True False

True

The marital deduction for transfers to a U.S. citizen spouse is: Unlimited Limited to $157,000 (for 2020 indexed for inflation) Unlimited except for lifetime gains Limited to $15,000 per year

Unlimited

Sara owns a home valued at $453,038 titled in tenancy by entirety with her husband Enrique. Sara dies. How much will be included in her probate estate?

0

Which of the following statements regarding a Grantor Retained Annuity Trust (GRAT) is/are true? 1. When the trust is established, a taxable gift is recognized based on the present value of the remainder interest in the trust. 2. For estate planning purposes, a Grantor Retained Unit Trust (GRUT) is preferable to a GRAT if the assets in the trust are expected to appreciate in value 3. The beneficiaries of the trust do not receive a step up in basis. 1 and 3 4 1,2 and 3 1

1 and 3

Which of the following statements regarding a Qualified Personal Residence Trust (QPRT) is/are true? 1. The grantor must survive the trust term to realize any estate tax savings. 2. After the trust term, the house will revert back to the grantor. 3. The grantor will have a taxable gift upon the creation of the QPRT. 4. A QPRT is generally inappropriate for vacation homes. 1,2,3 and 4 1 and 3 1 and 4 1

1 and 3

John and Jenny are married. They have 2 children. The 2020 estate tax credit equivalency is $11,580,000. John has assets of $20,000,000 and Jenny has assets of $2,000,000. John would like to minimize estate taxes at his death. How much should he put in a Bypass (Credit Shelter) trust?

11,580,000

John owns a boat valued at $41,344 held tenancy in common with Ashley. How much of the value of the boat if any will be included in John's probate estate if he dies?

20,672

When Jen dies this year her gross estate included the following: Cash $221,040 held in Jen's name Investments $2,645,874 title Tenants in Common with her husband Jake a U.S. Citizen Life Insurance $1,928,570 son is beneficiary House $1,790,186 owned solely by Jen Jen's will leaves $20,000 to her son and the remainder of her probate assets to Jake. Estate Administrative expenses are $25,000 for administrative expenses, $50,000 for funeral expenses and $200,000 for a mortgage. What is the amount of the marital deduction on Jen's estate tax return?

3,039,163

Sharon owns the following property: 1. A $535,154 life insurance policy on her own life. The beneficiary is Sharon's son John. 2. A car titled JTWROS with Sharon's dad. 3. A 401(k) plan valued at $300,000 with her mother Janice and her son John named as 50/50 beneficiaries. 4. A house titled in the name of Sharon valued at $627,520 What amount of money will be included in her probate estate?

627,520

Which of the following statements regarding the estate tax marital deduction is correct? the marital deduction only applies in community property states If the decedent received a marital deduction, the property is excluded from the surviving spouse's gross estate at death If using a QDOT the surviving spouse must be a U.S. Citizen A QTIP trust qualifies for the marital deduction if the executor makes the appropriate election

A QTIP trust qualifies for the marital deduction if the executor makes the appropriate election

Which of the following is includible in a person's probate estate? Lie Insurance with a named beneficiary Retirement assets with a named beneficiary Lifetime transfers made by the decedent A closely held business interest held by them individually

A closely held business interest held by them individually

A Family Limited Partnership offers all the following advantages EXCEPT: Significant discounts in valuing transfers of partnership interests A means of giving property while maintaining control Easy way to gift assets that are hard to divide A method to keep appreciation of FLP assets taxable to older generations

A method to keep appreciation of FLP assets taxable to older generations

Rosemary and Dean, both in their sixties, recently got married. This is their second marriage. Rosemary is wealthy and has a large portfolio with high capital gains. Rosemary wants to ensure a comfortable lifestyle for Dean but wants the inheritance to go to her children in the event he dies or remarries. To achieve her objectives and minimize taxes at death, Rosemary should leave Dean: Combination of Bypass and QTIP trust depending on how wealthy she is QTIP trust for the benefit of Dean Bypass trust (Credit Shelter Trust) with access to only trust income for him and on his death trust capital will be distributed to her chldren

Combination of Bypass and QTIP trust depending on how wealthy she is

Another name for a bypass trust is: Credit Shelter Trust QTIP trust Charitable remainder trust Marital trust

Credit Shelter Trust

An intentionally defective grantor trust allows the grantor to make changes to the trust. True False

False

Maria is married to Rafael a non U.S. citizen. Maria died and left a gross estate of $15,000,000. Rafael has asked the trustee to make him the sole trustee of the trust. This trust will be able to get the unlimited marital deduction? True False

False

The unlimited marital deduction is available for non U.S. citizen spouses? True False

False

With an Intentionally Defective Grantor Trust (IDGT) if the grantor dies during the term of the trust, the full value of the trust is included in his or her gross estate. True False

False

Which of the following will qualify for the unlimited marital deduction assuming that the executor does not make a QTIP election? Harry leaves his spouse, a U.S. Citizen , an income interest in a charitable remainder trust. The remainder beneficiary is a charity. Keri leaves $80,000,000 in trust for her spouse, a U.S. Citizen, so long as the spouse does not remarry Sherri's spouse , a US citizen, has the right to live in the home for life after which it passes to Sheri's daughter John leaves everything to Joan his wife as long as she survives him by 8 months

Harry leaves his spouse, a U.S. Citizen , an income interest in a charitable remainder trust. The remainder beneficiary is a charity.

Pierre appointed his daughter Grace , age 50, as his power of attorney for all property. Pierre recently passed away leaving a $20 million dollar estate with business interests, investment accounts and real estate. Hi will names his wife Gigi as the sole executrix and calls for an outright distribution to her. Gigi in not sure if she wants this responsibility. What options are available to Gigi? let Grace manage the property under her power of attorney Appoint Grace as the executrix Petition the court to waive probate since the executrix does not want to act Hire professional advisors to help Gigi administer the estate

Hire professional advisors to help Gigi administer the estate

You are reviewing the beneficiary designation for 403(b) plans of your married clients Dick and Jane. Dick's 403(b) plan names Jane as his sole beneficiary. Jane's 403(b) plan names Dick as her sole beneficiary. There are no contingent beneficiaries named. Will these assets be subject to probate? If both Dick and Jane die simultaneously, each of their probate estates will include their respective 403(b) plan assets The 403(b) plan assets are subject to ancillary probate The 403(b) assets are subject to probate as soon as Dick or Jane die

If both Dick and Jane die simultaneously, each of their probate estates will include their respective 403(b) plan assets

Which of the following statement regarding a Grantor Retained Annuity Trust (GRAT) is/are true? At the end of the GRAT term, a taxable gift will occur when trust assets are transferred to the beneficiary Interest and Dvidends earned by assets in the GRAT are taxed to the grantor If the grantor dies during the trust term, a pro rata share of the trust assets will be included in the grantor's estate

Interest and Dvidends earned by assets in the GRAT are taxed to the grantor

Alex wishes to leave money to each of his 7 minor grandchildren. He wants the income to support them until they finish their education. He wants the income to be taxed at as low a tax rate as possible. He does not want them to have access to the money until age 45. How should Alex leave money to his children? Irrevocable trust with his children as beneficiaries so they can give the money to their children Direct gift to the grandchild Inter vivos trust established for each grandchild Irrevocable trust or testamentary trust with grandchildren as beneficiaries

Irrevocable trust or testamentary trust with grandchildren as beneficiaries

All of the following are parts of the probate process EXCEPT: Assets much be inventoried and valued Producing the will An executor or administrators appointment Life Insurance is transferred to named beneficiaries

Life Insurance is transferred to named beneficiaries

Which of the following asset will pass through probate? Money in a checking account in the decedent's sole name Assets in a revocable (living) trust IRA assets with named beneficiary Assets in an irrevocable trust

Money in a checking account in the decedent's sole name

John and Jenny are married. They have 2 children. The 2020 estate tax credit equivalency is $11,580,000. John has assets of $20,000,000 and Jenny has assets of $2,000,000. John would like to minimize estate taxes at his death. How much should he put in a QTIP trust?

NOT 22,000,000 NOT 20,000,000

John wants to set up a 10 year GRAT and does not want to have a taxable gift. He wants to transfer $2,491,279 to the GRAT on 9/31/2020 when the 7520 interest rate is .4%. What annuity payment does he need to receive for there to be no taxable gift? (Round your answer to 2 decimal places)

NOT 255,016.84

Which of the following type of property do not qualify for the unlimited estate tax marital deduction? Property passed by will Terminable Interest Property Property that passes based on intestacy laws Life insurance proceeds

NOT Property passed by will NOT Property that passes based on intestacy laws

The following are the key advantage of probate is: Probate is a public process Attorney's fees and court costs increase costs Probate takes time and assets cannot be distributed until probate is complete Probate Protects creditors

Probate Protects creditors

The estate of a person who dies without a will is distributed according to: State intestacy law Federal intestacy law their codicile

State intestacy law

What type of assets can be put in a QPRT? Assets that are expected to grow faster than the 7520 rate a home or vacation home An interest in a closely held business Commercial property

a home or vacation home

Terminal interests to a surviving spouse do not qualify for the marital deduction unless the meet one of the exceptions. Which of the following are NOT one of the exceptions? Charitable Remainder Trust where spouse in the only non charitable beneficiary a trust where the executor did not make the QTIP election terminal interest over which the surviving spouse has a general power of appointment survival contingency of no more than 6 months QTIP trust

a trust where the executor did not make the QTIP election

Which of the following statements is correct regarding a self-canceling installment notes (SCINs) ? At the seller's death, the present value of any remaining SCIN balance is excluded from the seller's gross estate. a SCIN must reflect a premium interest rate to compensate the seller for the possibility of cancellation The SCIN debt extinguishes at the seller's death all of the above

all of the above

A QTIP trust: gives the surviving spouse a general power of appointment over the assets gives the surviving spouse the right to require only income producing assets in the trust permits the trustee to use any amount of the trust principal for any purpose for the spouse must be a testamentary trust

gives the surviving spouse the right to require only income producing assets in the trust

The purpose of a life insurance trust is prevent insured from having incidents of ownership in the life insurance policy on his life to create a revocable trust for the insured's policy to provide a mechanism for the insured to borrow life insurance proceeds

prevent insured from having incidents of ownership in the life insurance policy on his life

Shili contributed $300,000 to an irrevocable trust. Income is distributed to her daughter for life. Her daughter is taxed on the income distributed annually. When her daughter dies the remaining trust are distributed to her granddaughter. What type of trust did Shili create? simple trust pourover trust grantor trust complex trust

simple trust

In a Family Limited Partnership, there can be special valuation discounts available to enable wealth to pass to younger generations at lower tax costs. One of these discounts is the "lack of marketability" discount. The other is: the "minority interest" discount the "marital deduction" the "general partner" discount the "limited partner" discount

the "minority interest" discount

In a typical family limited partnership: the owners of the closely held business transfer general partner interests to their children the children or grandchildren receive limited partnership interests a discount is allowed only if the children's interest is below 50% the assets transferred are not allowed to appreciate faster than the 7520 rate

the children or grandchildren receive limited partnership interests