CFP Book 6 QBank Questions

A

A decedent is a U.S. citizen who owned a farm immediately prior to the date of his death. Which of the following conditions must be met before special use valuation is allowed for estate tax purposes? I. The value of the farm must constitute at least 75% of the decedent's gross estate. II. The farm must pass to a qualified heir. III. The decedent or a member of his family must have materially participated in the operation of the farm for at least five out of the eight years prior to his death. IV. The farm must continue to be used as a qualified use for at least 10 years after the decedent's death. A) II, III, and IV B) III and IV C) I and II D) I and III

A

A grandfather is considering making gifts to his grandchildren in 2023. Assuming the grandfather has made no previous generation-skipping transfers, the generation-skipping transfer tax (GSTT) lifetime exemption amount available to him in 2023 is A) $12,920,000. B) $1,000,000. C) $17,000. D) $5,113,800.

C

A grandfather wants to transfer commercial real estate to a trust and retain an income interest from the property for 10 years. He wants to ensure that the income interest from the trust will provide a potential hedge against inflation. At the end of the 10 years, he wants the real estate to pass to his three grandchildren equally. Which of the following trusts would satisfy the grandfather's objectives? I. Grantor retained annuity trust (GRAT) II. Grantor retained unitrust (GRUT) A) I only B) Neither I nor II C) II only D) Both I and II

D

A pre-marital agreement should not be considered by individuals contemplating marriage in which one of the following situations? (CFP® Certification Examination, released 12/96) A) when there is a significant difference in the wealth of each party. B) when one or both parties have ongoing obligations, rights and/or children from a previous marriage. C) when each party has significant wealth and wishes to protect his/her financial independence. D) when one or both parties are unwilling to make a full disclosure of all their income and assets to the other party.

C

A springing power of attorney A) springs back to the principal upon revocation. B) authorizes only one of two named agents to act, depending on the power to be exercised. C) springs into existence upon the principal's incapacity. D) springs from a first agent to a second agent after the first agent resigns.

A

A transfer where a nonslip party has a current interest in the transferred property after completion of the transfer is known as A) an indirect skip B) a taxable distribution C) a taxable termination D) a direct skip

D

A transfer where at least one nonskip party has a current interest in the transferred property after completion of the transfer is known as A) a direct skip. B) a taxable termination C) a taxable distribution D) an indirect skip.

C

A will that is entered into probate in the testator's own handwriting and is not witnessed is A) a simple will. B) a complex will. C) a holographic will. D) a nuncupative will.

C

A woman purchases a life insurance policy on her husband's life with her own funds. She is both the owner and beneficiary of the policy. Do the proceeds of the policy qualify for the marital deduction in the husband's estate, if he predeceases his wife? A) Yes, because the proceeds of the policy are excluded from the husband's gross estate. B) Yes, because the proceeds represent a terminable interest. C) No, because the proceeds of the policy are not included in the husband's gross estate. D) No, because the marital deduction is not available for proceeds of life insurance policies.

C

ABC stock does not trade on a regular basis. John Smith made a gift of ABC stock on Thursday, June 5. The most recent trades for ABC stock are as follows: Date - High, Low, Close 6/2 - 27, 25, 25 6/4 - 25, 23, 24 6/5 - 27, 23, 24 6/9 - 28, 25, 25 6/10 - 29, 27, 28 What is the date of gift value that should be used for the federal gift tax return, Form 709? A) $26.5 B) $26 C) $25 D) $27

D

Abby is a businessowner, and she wants to provide her key employee with an additional benefit in light of her stellar work performance. Abby is interested in securing a life insurance policy for her key employee. Which type of policy should Abby give to her employee? A) A first-to-die life insurance policy B) A key-person life insurance policy C) A second-to-die life insurance policy D) A split-dollar life insurance policy

D

Adam, age 72, is in the final stages of a terminal illness and wants to ensure that he has a continued fixed income to take care of his medical needs. He also wants to receive a lifetime charitable income tax deduction. Adam is considering making a charitable gift to the American Kidney Fund, so long as his stated objectives are met. As his financial planner, which of the following charitable gifting techniques should you recommend? A) A charitable lead trust B) An outright charitable gift C) A charitable remainder unitrust (CRUT) D) A charitable remainder annuity trust (CRAT)

D

Alan created and funded an irrevocable trust with $150,000 for the benefit of his two minor children with income to be accumulated for five years, at which time the trust will terminate and all the income and corpus are to be distributed equally between the two children. Which of the following is a CORRECT statement about the impact of this lifetime transfer on any subsequent lifetime transfers Alan might make? A) Any annual exclusions that Alan applies to the transfer creating the trust will decrease the annual exclusions available for transfers to the same children in the future. B) Alan could not take any annual exclusions in the year he created the trust, but he will be able to do so at the time the trust is distributed to the children. C) This transfer will have no impact on any subsequent transfers. D) Any subsequent taxable lifetime transfers will be taxed at a higher rate.

A

Alex and Megan need to have their wills updated; however, they would like to avoid the expense of writing entirely new wills. Which one of the following techniques would best meet their needs? A) Execute codicils B) Elect against their wills C) File will contests D) File qualified disclaimers

B

Alice Greenlee, a widow, would like to reduce the value of her probate estate. She is retired and needs to retain all the income from her assets. She wants all of her estate to go to her daughter, Bonnie, and son, Charles, in equal shares, while minimizing the legal and administrative costs. She currently has the following property: - a personal residence, valued at $130,000 - rental real estate, valued at $105,000 - a stock portfolio, valued at $70,000 - pension benefits, valued at $270,000 Given Alice's situation and objectives, which one of the following will substitutes would not be appropriate? A) Naming Bonnie and Charles equal beneficiaries of her pension benefits at her death B) Changing the title of the rental real estate so that Alice, Bonnie, and Charles are joint tenants C) A retained life estate in the personal residence, with the remainder to Bonnie and Charles D) Placing the stock portfolio in a living revocable trust with Bonnie and Charles as remainder beneficiaries

C

Alice is interested in making deductible charitable contributions, but she does not want to incur the expense of drafting a private trust agreement. Which of the following planning techniques will meet her needs? I. Charitable remainder trust II. Charitable gift annuity III. Charitable lead trust IV. Pooled income fund A) II and III B) I, II, and IV C) II and IV D) I and IV

C

All of the following are correct pairings of an intrafamily planning technique with one of its characteristics except A) gift-leaseback: the donor leases the property back from the donee at a reasonable rental value. B) installment sale: reporting gain on an installment basis is automatic if a payment is made in any year other than the year of the sale, unless the seller elects not to have it apply. C) private annuity: payments from the transferee to the annuitants are paid for a stated term certain. D) sale-leaseback: the transferor continues to have the right to use business-related property that she previously owned.

D

All of the following are parties that may be involved in a court-ordered guardianship except A) a ward or protected person. B) the state. C) a guardian or conservator. D) a trustee.

C

All of the following intrafamily transfers involve the use of a trust except A) GRUTs. B) GRATs. C) FLPs. D) QPRTs.

D

All of the following items of property would be considered community property in a community property state except A) a business in which both spouses participate and which is formed during the marriage. B) salary earned by one spouse during marriage. C) stock purchased during marriage by one spouse using her self-employment earnings. D) real estate received by one spouse during marriage as an inheritance from her mother.

A

All of the following statements about fee simple ownership are correct EXCEPT: A) Property owned at death is not eligible for a step-up in basis to fair market value. B) Property owned at death is subject to probate administration. C) The owner in fee simple has complete control and dominion over the property. Property owned in fee simple is entitled to a step-up in basis to fair market value at death. D) Property owned at death is 100% includible in the gross estate.

C

All of the following statements about the major forms of property ownership are correct EXCEPT: A) Property held as joint tenant with right of survivorship is partitionable without the consent of the other joint tenant. B) A tenants in common interest is subject to probate. C) A community property interest is not subject to probate. D) A tenancy by the entireties is only available to married spouses.

B

All of the following statements regarding corporate recapitalizations are correct except A) they are used to transfer ownership of family-owned C corporations to junior family members. B) they are not subject to the special Chapter 14 zero valuation rules. C) the senior family member gifts nonvoting common stock interests to junior family members. D) the senior family member retains operating control of the corporation through the ownership of voting preferred stock.

D

All of the following statements regarding incapacity planning are correct EXCEPT A) a durable power of attorney for health care (DPOAHC) is always a springing power. B) a durable power of attorney for health care (DPOAHC) appoints a surrogate decision maker to act when the principal is unable to give informed consent. C) a living will addresses only the situation of a terminal illness. D) a living will appoints a surrogate decision maker to act in the event of the drafter's terminal illness.

B

All of the following statements regarding joint tenancies with right of survivorship are CORRECT except A) in joint tenancy the ownership percentages must be equal. B) jointly held property can be transferred by will. C) joint tenancy with right of survivorship is similar to tenancies in common in that there may be two or more joint tenants who may or may not be related to each other. D) jointly held property passes to the surviving joint owners when one of the joint owner dies.

B

All of the following statements regarding powers of appointment are correct except A) A power of appointment is a right given to designate the disposition of property subject to the power. B) A special power of appointment held at death must be included in the holder's gross estate. C) A special power of appointment, does not give the holder the right to appoint property to himself, his creditors, his estate, or the creditors of his estate. D) A general power of appointment gives the holder the unlimited right to appoint property to: himself, his creditors, his estate, or the creditors of his estate.

C

All of the following statements regarding self-canceling installment notes (SCINs) are correct except A) the purchaser's basis in the asset purchased is equal to the purchase price if a SCIN premium has been paid. B) if the self-canceling provisions of a SCIN never become operative, the tax consequences of a SCIN are identical to those of a regular installment sale. C) the purchaser's basis in the asset purchased is limited to the payments that are actually made to the seller before death. D) if the purchaser has paid a premium to obtain the cancelation provision in the SCIN, the seller may not have to include any payments canceled at death in his gross estate.

C

All of the following statements regarding step-up in basis at death are CORRECT except A) if the fiduciary of the decedent's estate elects the alternate valuation date (six months after the date of death) for the valuation of property for federal estate tax purposes, then the taxpayer takes a basis equal to the FMV of the property at the alternate valuation date. B) if the property is includable in the gross estate of the decedent for federal estate tax purposes, the taxpayer receiving the property takes a basis in the property equal to its FMV as of the date of the decedent's death. C) if the decedent acquired property as a gift within one year of death, and if the donor of the gift to the decedent is the same person (or that person's spouse) to whom the property passes from the decedent's estate, the property receives a stepped-up basis at the decedent's death. D) the property's appreciation will escape taxation because of the step-up in basis to the property's current FMV.

B

All of the following statements regarding trusts are correct except A) a trust that can be amended or rescinded by the grantor is a revocable trust. B) a testamentary trust is a trust that is made effective during the grantor's lifetime. C) depending on the type of trust, trust income may be taxable to the trust, to the grantor, or to the beneficiaries. D) a trust that can accumulate income is a complex trust.

A

All of these statements regarding charitable gift annuities (CGAs) are correct EXCEPT A) a CGA presents no risk to the donor-annuitant because the agreement is secured. B) the donor of a CGA is eligible for an immediate income tax deduction for the full amount transferred, reduced by the present value of the future payments to the annuitant(s). C) with a CGA, the donor transfers cash or appreciated property to a charity in return for the charity's promise to pay an annuity to the donor or other designated annuitant. D) the annuity payable under a CGA may be for one or two lives using a joint and survivor payment.

C

All of these statements regarding direct skips for purpose of the generation-skipping transfer tax (GSTT) are correct EXCEPT A) an annual exclusion of $17,000 is available in 2023 for lifetime direct skips. B) the transferor or the transferor's estate is liable for any GSTT that is due on a direct skip. C) gift-splitting by spouses is not permitted for direct skips. D) a direct skip is an outright transfer to a skip person or a transfer of property to a trust exclusively for the benefit of one or more skip persons.

C

An insured purchases a life insurance policy on her own life. Which of the following conditions must be met to exclude the death benefits from the insured's gross estate? I. The insured's estate is not the beneficiary. II. The insured has no incidents of ownership in the policy on the date of death. III. The insured did not transfer ownership of the policy within three years of death. A) III only B) I and II C) I, II, and III D) I and III

C

An older couple, who both have children from prior marriages, is contemplating marriage. They disagree about how to handle their finances after their marriage, and their children are concerned about receiving their inheritances. Which of the following strategies would you recommend to address these issues? A) Have the families enter into a family settlement agreement B) Have the couple title all of their assets as JTWROS after they get married C) Have the couple execute a marital (prenuptial) property agreement D) Have each spouse draft a will disinheriting the othe

C

Andy, age 68, has a gross estate currently valued at $2,500,000 that consists primarily of highly appreciated growth securities. Within the last six months, Andy transferred $500,000 worth of these securities to his wife, Harriet. His cost in these securities was $200,000. Harriet recently died. The fair market value of the transferred securities at the time of her death was $500,000. The securities passed to Andy under the terms of Harriet's will. Which one of the following is an income tax implication of the transfer of stock? A) If Andy sells the stock he received from Harriet immediately after her death, his gain, if any, will be deemed to be short-term capital gain. B) Andy's basis in the stock is $500,000. C) Andy's basis in the stock is $200,000. D) Andy must recognize $300,000 in capital gain on the stock as of Harriet's death

A

Arnie attended a recent seminar about the importance of liquidity and asset protection in a sound estate plan. Which of these might be reasonable recommendations to address these concerns? A) All of the above B) Placing assets in an entity like a corporation or LLC C) Placing assets in trust with a spendthrift clause D) Creating a buy-sell agreement funded with life insurance

D

Arthur and Tasha are a married couple with two children. If they begin making gifts to their children in 2023, which of these gifts would require the filing of a gift tax return for tax year 2023, knowing the gift tax annual exclusion is $17,000 for 2023? I. Arthur gives each child $17,000, for a total of $34,000 in gifts. II. Arthur gives each child $17,000, for a total of $34,000 in gifts, and he and Tasha elect gift splitting. III. Tasha gives a future interest gift worth $5,000 to one child. A) I, II, and III B) I and II C) III only D) II and III

A

Arthur's nephew, Tom, has always been Arthur's favorite. Arthur has always thought of him as a son. Tom has worked closely with Arthur at Bell's Animal Care Center and is considered by Arthur to be a top-notch veterinarian. Assume Arthur is considering retirement and has decided to transfer Bell's Animal Care Center to Tom using a self-canceling installment note (SCIN). All of the following statements regarding SCINs are correct except A) any remaining gain on the transaction is not included in Arthur's estate income tax return. B) installment payments cease upon Arthur's death. C) Arthur is able to bargain for a higher price or higher interest rate. D) SCINs can be secured by collateral.

A

As a financial planner, what would be the most appropriate function to perform as a member of the estate planning team of a client? A) Gathering data as part of the effort to identify and understand client objectives B) Drafting a power of attorney for a client C) Advising a client to change from sole ownership of property to joint tenancy with right of survivorship (JTWROS) D) Advising a client to conduct business as a partnership rather than a corporation

B

As part of their retirement plan, Stefon and his spouse, Addy, jointly purchased a commercial deferred annuity. This annuity paid income to Stefon and Addy on a joint and survivor basis. Stefon has now died. Which of the following statements regarding this commercial annuity is CORRECT? A) The amount of the annuity includible in Stefon's estate is the amount of the original investment that had not been fully recovered at his death. B) The amount of the annuity includible in Stefon's estate is half of the replacement cost of a single life annuity on Addy at the time of Stefon's death. C) Stefon's estate must include half of the present value of the survivorship benefits. D) Since this annuity had a spousal survivorship feature, none of the benefits qualify for the marital deduction.

B

Assume that in 2023, Marleen incurs substantial medical bills at the local hospital and Tasha pays $100,000 directly to the hospital in payment of Marleen's medical expenses. What is the amount of Tasha's taxable gift as a result of this transaction? A) $83,000 B) $0 C) $100,000 D) $64,000

C

Assuming that a decedent left no valid last will and testament, which of the following assets will pass by the laws of intestate succession? A) An asset gifted by the decedent during his lifetime B) Property held by the decedent and his spouse as joint tenants with right of survivorship C) A life insurance policy owned by the decedent with his wife as the insured D) Assets placed in the decedent's revocable living trust

B

Assuming that a decedent left no valid last will and testament, which of the following assets will pass by the laws of intestate succession? A) Property in which decedent had a life estate in a vacation home with the remainder to decedent's sister. B) Property held by the decedent and his spouse as traditional community property C) Property held by the decedent and his spouse as tenants by the entirety D) Property held by decedent and his brother as joint tenants with right of survivorship.

A

Assuming that a decedent left no valid last will and testament, which one of the following assets will pass by the laws of intestate succession? A) Assets held by the decedent and his spouse as community property in a community property state that were designated community property by a nuptial agreement B) A money market account at his bank that was held in the decedent's name that was payable on death (P.O.D.) in favor of his spouse C) Assets placed in an inter vivos irrevocable trust in which the decedent/grantor was the sole income beneficiary and the decedent's children were the remainder beneficiaries D) A life insurance policy on the decedent/grantor's life placed into an irrevocable life insurance trust (ILIT) for the benefit of the decedent's children two years before the decedent's death

A

Assuming that the special valuation rules under IRC Chapter 14 apply to each of the following situations, which one of the following statements is CORRECT? A) In a transfer of corporate or partnership interests, the retention of an interest that will pay a fixed cumulative dividend by the donor will constitute a qualified interest. B) In a transfer in trust, the grantor of the trust must pay gift tax on the entire value of the trust assets if she retains a qualified interest. C) In a transfer in trust, the retention of an annuity or unitrust interest by the grantor is deemed to be a nonqualified interest. D) The Chapter 14 special valuation rules negate the impact of IRC Code sections 2035-2038, otherwise known as the "three-year rule" and the "transfer sections."

C

Because of her financial stability and sizable net worth, Marleen intends to leave the funds in her IRA untouched. When she dies, she believes this asset will get a step-up in basis for her heirs. Which of the following statements regarding Marleen's IRA is CORRECT? I. She must receive minimum distributions after attaining age of 72, but any remaining amounts in the IRA at her death will receive a step-up in basis. II. She is correct in her belief, and this is a great strategy. III. The heirs will not receive a step-up in basis, and she will be penalized if she does not receive distributions when required by the Internal Revenue Code. A) I only B) I, II, and III C) III only D) I and III

A

Bill Martian would like to benefit the University of Florida at Orlando (the University), his alma mater. Due to a temporary cash flow problem, the only property Bill can use is a vacant lot (which he purchased six years ago for $5,000) located next to a site on which the University plans to build a new central library. The University would like to acquire this land for a parking lot at a reduced price. The present fair market value (FMV) of the lot is $25,000. Due to his cash flow problem, Bill would not only like to get any income tax benefits from a charitable contribution but also would like to receive some cash as soon as possible. Given Bill's objectives and the situation stated above, which one of the following is the most appropriate charitable giving technique for Bill to use? A) A charitable bargain sale B) A charitable remainder unitrust (CRUT) C) A charitable lead trust D) A charitable remainder annuity trust (CRAT)

B

Bill gifts his daughter bonds with a fair market value (FMV) of $1,000. Bill's basis in the bonds is $1,800. Bill's daughter subsequently sells the bonds for $2,000. What is her recognized gain or loss? A) $1,000 gain B) $200 gain C) No gain or loss D) $2,000 gain

A

Bob Daniels and his brother, Jack, own a parcel of rental real estate as tenants in common. They inherited the property from their grandmother, who specified in her will that Bob was to have a 60% ownership interest and Jack the remaining 40%. The property generated an income of $10,000 last year. Since Jack was unemployed, Bob let Jack keep the entire $10,000. The property was worth $100,000 when Bob and Jack inherited it and is now worth $120,000. Their grandmother's basis in the property was $30,000. Bob recently died. Which of the following are CORRECT statements concerning the income tax implications of this form of property ownership and these transactions? I. Jack's basis in the property after Bob's death is $100,000. II. Bob's fiduciary must report $6,000 of income from this property for last year. III. Jack must report $10,000 of income from this property for last year. IV. Jack's basis in the property after Bob's death is $40,000. A) II and IV B) I only C) II only D) III and IV

D

Bob, Frank, Hector, and Fermin are equal partners in a closely held business. Although the four partners work well together, their spouses and children do not. No partner is ready to quit the business and retire, but they are each worried about how the business would operate if this were to happen. Each partner is financially overextended and thus not able to pay a gift tax or capital gains tax, as they started the business from scratch and it has become very profitable. Which one of the following is the most appropriate business transfer technique for the partners to use considering these circumstances? A) A cross-purchase buy-sell agreement among the partners B) A private annuity agreement among the partners C) A preferred stock recapitalization of the business D) An entity buy-sell agreement between the business and each partner

B

Brielle, a widow, had been in poor health for several years prior to her death. In the two years preceding her death, Brielle took the following actions: - Made several lifetime cash gifts to her children - Exercised a special power of appointment over property included in a trust - Changed the designated beneficiary on a life insurance policy she owned on her life from her deceased spouse to her estate - Gave up a life estate in a vacation cabin inherited from her mother Which of the following is included in Brielle's gross estate? A) The cash gifts made to her children within three years of her death B) The life insurance proceeds payable to her estate C) The trust property over which she held a special power of appointment D) The full fair market value of the vacation cabin

B

Britney is establishing a trust agreement with her grandchildren as beneficiaries. She wants to give the trustee discretion to distribute trust income to whichever of the grandchildren and in whatever amounts the trustee deems appropriate. Which one of the following trust provisions will meet Britney's needs? A) Crummey provision B) Sprinkling (spray) provision C) Pour-over provision D) Spendthrift provision

C

Bruce, age 80, wants to ensure that he has a continued fixed income to take care of him for the rest of his life. Because Bruce is in a high income tax bracket he also wants to receive a lifetime charitable income tax deduction. He is considering making a charitable gift to the American Cancer Society as long as his stated objectives are met. As his financial planner, which of the following charitable gifting techniques do you recommend? A) Charitable remainder unitrust (CRUT) B) Charitable lead trust C) Charitable remainder annuity trust (CRAT) D) Outright charitable gift

A

Carlos executes a will that leaves his entire estate to a general power of appointment trust (a trust) in favor of his spouse, Margot. If Carlos dies before Margot, which of the following statements regarding this arrangement is CORRECT? I. Property in the A trust qualifies for the marital deduction in Carlos's estate. II. Property in the A trust will be excluded from Margot's gross estate when she dies. A) I only B) II only C) Both I and II D) Neither I nor II

B

Carmen is considering estate-planning options and wants to gift assets to her loved ones. All of the following are advantages to Carmen when gifting her assets except A) the future appreciation on Carmen's transferred assets will be removed from her gross estate. B) Carmen can take advantage of the annual exclusion for gifts of future interests. C) gift tax paid is excluded from Carmen's gross estate, except for those taxes paid on gifts made within three years before her death. D) the gifted assets will be removed from Carmen's gross estate.

A

Carrie is preparing her estate plan and wants to include instructions for her funeral. What method should she use? A) She should leave written instructions to one or more family members likely to survive her and be involved in funeral arrangements. B) She should include her instructions in her will because it will be the first thing that will be read after her death. C) She must include these instructions in a codicil to her will. D) She must include these instructions in a formal, notarized list of instructions drawn up by her attorney.

B

Catherine Rich established trusts under Internal Revenue Code Section 2503(c) for each of her eight grandchildren this year and funded each trust with $926,000. Earlier this year, Catherine also paid $25,000 to the local community hospital for medical bills incurred by her niece. Assuming that all of Catherine's children are living at the time of these transfers, which one of the following statements are CORRECT regarding application of the generation-skipping transfer tax (GSTT) to these transfers? A) The transfer to pay medical bills is an indirect skip. B) The transfers to the trusts are direct skips. C) The transfer to pay medical bills is a direct skip. D) The transfers to the trusts are indirect skips.

C

Cheryl has made the following lifetime gifts: 2000: $25,000 in cash to her brother 2001: a life estate valued at $80,000 in a vacation cabin to her spouse (assume no QTIP election was made) 2017: $22,000 to the Muscular Dystrophy Association 2023: $38,000 to each of her three children Cheryl's spouse has consented to split the gifts for 2023 and filed a timely gift splitting election for the 2000 gift. Cheryl's spouse made a gift of $30,000 to his brother in 2000. Which of these amounts most closely approximates Cheryl's gift tax liability for 2023 prior to application of any applicable credit amount? A) $3,310 B) $3,000 C) $1,630 D) $3,100

A

Chip and Pam, a married couple, are both 65 years old and live in a common-law property state. They have a total combined estate of $10 million, of which each owns half as their sole and separate property. They have three grown children, and Chip has one adult child from a prior marriage. Chip and Pam have these objectives: - To allow each estate to use some or all of its estate tax applicable credit amount - To allow part of the estate of the first spouse to die to qualify for the marital deduction - That, according to Chip's wishes, his children from his current marriage and his prior marriage share equally in his wealth after Pam's death, if he dies first - That, according to Pam's wishes, only her children from her current marriage will share equally in her wealth after Chip's death, if she dies first - To be assured that the surviving spouse will have a right to an annual income stream from at least part of the decedent spouse's assets Based on Chip and Pam's objectives, which of these is the most appropriate testamentary transfer technique or combination of techniques for them to use? Assume 2023 estate tax law in making your decision. A) Family bypass (B) trust and QTIP (C) trust B) Power of appointment (A) trust C) QTIP (C) trust and power of appointment (A) trust D) Family bypass (B) trust and power of appointment (A) trust

B

Cisero gifted 2,000 shares of his stock in a closely held corporation to his daughter. These shares constitute half of the total number of shares he owned in the corporation prior to the transfer. The value of Cisero's stock in this corporation prior to the transfer was $400,000. Which one of the following statements is CORRECT regarding the value of the stock transferred to his daughter? A) Cisero would be able to choose special use valuation when computing his gift tax for this transfer. B) Cisero would be able to claim a lack of marketability discount when computing his gift tax for this transfer. C) Cisero would be able to claim a blockage discount when computing his gift tax for this transfer. D) Cisero would have to compute his gift tax on $400,000 because of the Chapter 14 rules.

D

Corrine wants to donate money to an arrangement that will make income payments to a charity for a specified period of years, with the remainder passing to family members when that period has expired. Which of these charitable transfers will meet Corrine's needs? A) Charitable remainder annuity trust (CRAT) B) Pooled income fund C) Charitable remainder unitrust (CRUT) D) Charitable lead trust (CLT)

C

Darwin, age 60, has an estate valued at $15 million. Included in the valuation of his estate are the following: - A small U.S. Treasury note that is subject to changes in market value - One-half ownership in Coeur d'Alene Estates, a private real estate development owned as a joint tenant with rights of survivorship with his sister, Anne - 800,000 shares of Untell Inc., a public corporation traded on a major exchange; 50,000 shares of this stock are traded daily - A joint and last survivor annuity that names his daughter, Ruthie, as the surviving annuitant When Darwin dies, which one of the following valuation techniques would most effectively reduce the value of his gross estate, and why? A) The date-of-death fair market value for the U.S. Treasury note, because it would reflect the current market price if the value of the Treasury note decreases B) A co-ownership discount on the real estate development, because it would be difficult to find a buyer for the real estate six months after the date of Darwin's death C) A blockage discount on the publicly traded stock, because the stock is difficult to sell on a public exchange at one time and in such a large quantity D) The alternate valuation date on the joint and last survivor annuity, because the value of the annuity will be less in six months than it is on the date of Darwin's death

A

David Hendricks, age 55, and Jessica Hendricks, age 53, have been married for 22 years. They live in a community property state and have a son, Milton, age 17. David separately owns $50,000 in assets. He also possesses community property with Jessica in the amount of $25,000. David also owns a $300,000 life insurance policy for which his estate is the beneficiary. Upon David's death, which of the assets will be subject to probate? I. The death proceeds of David's life insurance policy II. David's separately owned assets III. David's half interest in the community property IV. Both David's and Jessica's interest in the community property A) I, II, and III B) I and II C) II and III D) II and IV

A

David wants to draft a document advising his physician that he does not want to receive life-sustaining medical care if he ever becomes terminally ill and is unable to make decisions for himself. Which of the following documents best meets David's needs? A) Living will B) Nuncupative will C) Letter of personal instruction (side letter) D) Nondurable power of attorney

B

Derik Levine recently established a revocable living trust and funded it with several parcels of income-producing real estate. The trust provides that the trustee has discretion to distribute all trust income at least annually in equal shares to Derik's three adult children, who are also to receive the remainder of the trust at Derik's death. Derik named his brother as trustee. Which of the following statements about the tax implications of this trust are CORRECT? I. Derik will not owe a gift tax on the value of the assets placed in the trust. II. Derik will be able to take three annual exclusions in computing the gift tax due from funding the trust. III. Derik will have to report all trust income on his personal income tax return. IV. The taxable value of the assets placed in trust will be included in Derik's estate tax calculation as an adjusted taxable gift. A) II and III B) I and III C) I, III, and IV D) I and II

A

Donna received a gift of rental real estate with an adjusted basis of $75,000 to the donor and a fair market value (FMV) of $50,000 on the date of gift. The donor paid gift tax of $3,000. Donna subsequently sold the property for $60,000. What is her recognized gain or loss? A) No gain or loss is recognized. B) $12,000 loss is recognized. C) $10,000 gain is recognized. D) $15,000 loss is recognized.

C

Dorothy gifts her vacation condo to her grandson but reserves the right to use the condo whenever she chooses for the rest of her life. The market value of the condo at the time of the gift is $300,000. When Dorothy dies, the condo has a market value of $350,000. What amount is included in Dorothy's gross estate for estate tax purposes? A) $300,000 B) $0 C) $350,000 D) $50,000

D

Duran had a gross estate of $13.5 million when he died. He and his wife, Florence, died from injuries sustained in an auto accident. She died two weeks before he did. Part of his gross estate was $6.5 million in stock in the closely held Ortiz Family Corporation, which purchases cargo containers for lease to large shippers. Due to a great increase in demand for the containers, the stock recently has experienced rapid appreciation. His estate had unsecured debts of $300,000 and administrative expenses of $50,000. Duran made $1 million in adjusted taxable gifts. His will leaves his property to his children in equal shares. Which of these postmortem techniques are available to provide liquidity to Duran's estate? I. QTIP election II. Section 303 stock redemption III. Alternate valuation date IV. Installment payment of federal estate taxes A) I only B) I, III, and IV C) II and III D) II and IV

B

Eduardo dies on March 15th of the current year. His gross estate consists mostly of publicly traded stocks having a market value of $15.25 million on his date of death. A severe bear market begins within a few weeks after he dies, and the value of his stocks declines to $14.25 million by September 1st. Which of these postmortem estate planning techniques might be useful to Eduardo's estate? A) QTIP election B) Alternate valuation date (AVD) election C) Qualified disclaimer D) Special use valuation

B

Eduardo has been a client of yours for many years. You met him shortly after he was married and continued to do so after his divorce. Recently he shared with you that he is getting remarried. You share that the two of you should review his documents to ensure they align with his goals now. This is an example of avoiding which of the following mistakes, pitfalls, or weaknesses? A) Improper titling of assets B) Failure to recommend necessary changes to a will C) Improperly arranged life insurance D) Lack of estate liquidity

D

Edward and Dennis are brothers who share the ownership of a farm they purchased together. Edward owns an undivided 40% interest in the property, and Dennis owns an undivided 60% interest. They both have the right to sell their interest in the farm or to leave their interest in the farm to anyone they choose under their will. Which this form of ownership do they have? A) Community property B) Joint tenancy with right of survivorship (JTWROS) C) Tenancy by the entirety D) Tenancy in common

B

Emmet's personal representative is computing his estate tax liability. Among other provisions, Emmet's will provides the following relating to his spouse, Nellie, who is still alive more than seven months after Emmet's death. I. It grants Nellie a life estate in his residence with the remainder at her death to go to Emmet's only son, John; the executor does not plan to make a qualified terminable interest property (QTIP) election for this property. II. It establishes Trust 1, on the condition that Nellie survive him by at least three months. This trust grants all income to Nellie for life (to be paid at least annually) and grants her a general power of appointment over the corpus. III. It establishes Trust 2, naming John and Nellie as income beneficiaries, to receive distributions of income at the trustee's discretion, with the remainder at Nellie's death to go to John. IV. Since Emmet's will did not contain a residuary clause, his remaining assets passed to Nellie pursuant to state intestacy laws. Which of these interests left to Nellie qualify for the marital deduction? A) I and IV B) II and IV C) I and III D) II and III

C

Erwin makes a gift of his vacation home to his friend, Winnie. Erwin paid $200,000 for the home 20 years ago, and the home has a fair market value of $1.5 million on the date of the gift. What is the value of the gift for gift tax purposes? A) $1.7 million B) $200,000 C) $1.5 million D) $1.3 million

A

Estate planners are often asked to assess whether a client's estate plan has adequate provisions to accomplish client objectives. Which of the following would be appropriate questions to ask and answer? A) All of the above. B) Competency of intended beneficiaries. C) How titles to property are held. D) Marital and family status of client.

D

Estate planning data for Harriet indicates the following: - She transferred income-producing real estate to a QTIP trust for the benefit of her spouse, George, four years ago, and she elected the marital deduction for all trust assets. - She made a series of present-interest gifts of securities for the maximum annual exclusion to each of her three children over the past five years. - Six years ago, she made gifts of twice the amount of the maximum annual exclusion to UTMA accounts for each of her four nieces and nephews, naming her brother, Fred, as custodian; George agreed to treat the gifts as split gifts. - When she became ill last year, she gave her interest in the family farm to Fred; she withdrew money from a bank account to pay the gift tax due that was in excess of the applicable credit amount. Which of the following statements about the impact of the gifts on her estate tax liability is NOT correct? A) The gift to her husband, George, will reduce her estate tax liability by deferring taxation until George dies and the value of the trust becomes part of his gross estate. B) By making the series of gifts to her children, Harriet has transferred assets without making them subject to any transfer tax. C) Harriet's gifts to her nieces and nephews reduced her estate tax liability by reducing her tax base. D) The gift tax paid by Harriet last year from her bank account will reduce the size of her gross estate, and thus, her estate tax liability, but only if she dies in the next two years.

D

Estates that contain closely held businesses may elect certain postmortem tax treatments. Which of the following statements about these treatments is CORRECT? I. The Section 6166 installment payment of estate tax requires that the decedent's closely held business interests constitute at least 50% of the decedent's adjusted gross estate. II. If property that has received special use valuation tax treatment loses its status as qualified property within 10 years of the decedent's death, a recapture tax is applied. III. A Section 303 stock redemption allows a partnership to make a distribution to redeem a portion of the stock of a decedent while avoiding dividend treatment on the amount paid for the stock. IV. The estate of a deceased owner of a closely held business that leases all of its property cannot qualify for special use valuation. A) III only B) I, II, and III C) I and IV D) II and IV

C

For purposes of the generation-skipping transfer tax (GSTT) all of the following are considered skip persons except A) an unrelated person who is younger than the transferor by 37½ years or more. B) the transferor's grandchild. C) the transferor's ex-spouse, who is 40 years younger than the transferor. D) a trust in which all of the beneficiaries are two or more generations below the transferor.

D

For purposes of the generation-skipping transfer tax, any payment of income or principal from a trust to a person two or more generations junior to the donor's generation is a A) taxable termination. B) qualified transfer. C) direct skip. D) taxable distribution.

C

For taxable distributions from a trust, the generation-skipping transfer tax is paid by A) both the transferor and transferee, jointly. B) the transferor or the transferor's estate. C) the transferee. D) the trustee.

D

Frank is a widower. He has a $17.2 million estate consisting primarily of undeveloped real estate and life insurance. His children are the beneficiaries of his life insurance. His will leaves $900,000 of probate assets to each of his three children, with the residue to his cousin, James. Frank learned that his estate may have liquidity problems when he dies. Which one of the following techniques is the most appropriate to increase liquidity in Frank's estate? A) Place the undeveloped real estate in a qualified terminable interest property (QTIP) trust and make the QTIP election B) Amend his will to place the undeveloped real estate in an estate trust C) Change the beneficiary on his life insurance to his estate D) Transfer existing life insurance policies to an irrevocable life insurance trust with his children as beneficiaries, which allows the trustee to purchase some of the hard-to-sell property from the estate and/or to loan funds to the estate

C

Fred and Ethel live in a California, a community property state. They acquired property during their marriage and classified it as separate property pursuant to a formal legal agreement. What is the effect of the formal legal agreement? A) The property is community property since property classification cannot be changed pursuant to a formal legal agreement. B) The property is separate property so long as the formal legal agreement is valid (i.e., recognized by California and federal law and entered into with the requisite intent). C) The property is separate property so long as the formal legal agreement is valid (i.e., recognized by California law and entered into with the requisite intent). D) The property is community property. In community property states, all property acquired during a marriage is considered community property without exception.

B

Gary and Georgeann Sutter have the following objectives: - For Gary to provide Georgeann exclusively with a mandatory stream of income from the assets included in his gross estate if he predeceases her - To ensure that Gary's children from his prior marriage will ultimately receive the income-producing assets upon Georgeann's death - To prevent assets used to provide income to Georgeann from being included in her gross estate Which of the following estate planning techniques would accomplish the Sutters' first objective of providing a mandatory stream of income? I. a power of appointment trust II. a QTIP trust, with an election III. a QTIP trust, without an election A) II only B) I, II, and III C) II and III D) I only

D

Gary and Georgeann have the following objectives: - If Gary predeceases Georgeann, to provide her exclusively with a mandatory stream of income from the assets included in his gross estate - To ensure that Gary's children from his prior marriage will ultimately receive the income-producing assets upon Georgeann's death - To prevent assets used to provide income to Georgeann from being included in her gross estate Which of the following estate planning techniques would accomplish the couple's second and third objectives simultaneously? I. A family bypass (B) trust II. A power of appointment (A) trust III. A QTIP (C) trust, with an election IV. A QTIP (C) trust, without an election A) I, II, and III B) II and III C) I only D) I and IV

D

George has a gross estate valued at $3.7 million. His estate consists almost entirely of publicly held stock owned solely by him. He owes no debts. George's only living relative is a nephew whom he hasn't seen or heard from for 30 years. George has not executed a valid will. If George were to die in the current year without change in any of the related facts, which one of the following is a disadvantage of the probate process for him? A) It will not allow George's estate to be subject to court supervision regarding payment of claims and distribution. B) It will not allow payment of a personal representative's fee to reduce his estate tax so that it can be covered by the applicable credit amount. C) It will not allow George's estate to claim a marital deduction to reduce the taxable estate. D) It will not allow distribution of his estate without incurring considerable cost in attempting to locate his nephew.

D

George is concerned that he will owe estate tax upon his death, and would like to make a transfer to reduce his gross estate. Which of the following transfer techniques would achieve his goal? A) Retitling his residence with his children as JTWROS. B) Creating and funding a revocable trust for the benefit of his children. C) Designating his children as payable on death beneficiaries of his bank accounts. D) Making annual gifts of an amount equal to, or in excess of, the annual exclusion.

A

Gideon owns the following solely owned assets: - A savings account at a bank - Commercial real estate that is located in a state other than his state of domicile and that has a sizeable mortgage - Gideon's will gives all of his property to his daughter. His will makes no mention of his son. Which of the following actions would have the potential to improve the liquidity of Gideon's estate? I. Executing a codicil to his will stating the reasons why he is leaving no property to his son by will II. Executing a codicil to his will placing the commercial property into a testamentary trust for the sole benefit of his daughter III. Executing a codicil to his will denying his daughter a right of exoneration for the mortgage on the commercial property IV. Establishing a transfer on death designation for the savings account naming his daughter as the beneficiary A) I, III, and IV B) I and III C) II and IV D) I and II

A

Gil and Tina are newlyweds who live in a community property state. Assuming no titling changes were made, which of the following assets would be separate property? I. A parcel of land owned by Gil prior to marriage II. An antique desk Tina inherits from her aunt during the marriage III. A money market account gifted to Gil before marriage A) I, II, and III B) I and III C) II only D) I and II

C

Ginger sells some antique jewelry with a fair market value of $52,000 to her daughter for $11,000. Ginger's basis in the jewelry is $5,000. What is the value of Ginger's gift for gift tax purposes? A) $25,000 B) $0; this is a sale, not a gift C) $42,000 D) $45,000

B

Grace Grubbs, your 76-year-old client, has the following objectives: - Shifting some of the future appreciation in her portfolio of marketable securities to other members of her family - Spreading income from the portfolio among her family without any preferential rights to income - Maintaining control over the entire portfolio for her lifetime - Reducing the size of her gross estate Grace is considering several techniques. Which one of the following would be most appropriate for accomplishing Grace's objectives? A) An installment sale B) A subchapter S corporation in which she retains most of the shares and distributes the remaining shares to family members C) A 20-year GRUT (grantor retained unitrust) D) A regular (C) corporation in which she retains all of the voting shares, and distributes nonvoting shares to family members

B

Greg died in 2022 and was survived by his wife and five children. At the time of his death, he owned these property interests: - Solely owned property valued at $16,000,000 - Property owned in joint tenancy with right of survivorship (JTWROS) with his spouse, with his share valued at $1,000,000 - Greg's will made no charitable bequests and provided that his entire estate go equally to his surviving children due to his wife having a large estate of her own. Other pertinent facts are: - Greg made $1,000,000 in post-1976 taxable gifts. - Greg's estate had $350,000 in allowable debts. - Greg's estate had funeral and administrative expenses of $150,000. - Greg's estate paid $60,000 in state death taxes. Which one of these amounts most closely approximates Greg's net federal estate tax due? Use the Unified Federal Estate and Gift Tax Rates table. A) $1,008,000 B) $1,408,000 C) $5,113,800 D) $6,521,800

A

Harold established and funded a generation-skipping trust for the benefit of his lineal descendants by a provision in his will. The trust had no termination date as the trust was settled in a state with no rule against perpetuities. He funded the trust with assets in the amount of the estate tax exclusion amount in the year of his death, and assigned all of his generation-skipping transfer tax (GSTT) exemption to this trust as he had not used any part of this exemption previously. Distributions to beneficiaries are at the discretion of the trustee. Harold was survived by his spouse, five children, and 12 grandchildren. All other estate assets were given to Harold's spouse. Which of the following statements regarding this trust are CORRECT? I. This is an example of an indirect generation-skipping transfer. II. Harold's spouse can become the transferor of this transfer if a reverse QTIP election is made. III. No GSTT will ever be due on this transfer if it is reported on Harold's estate tax return, and the deemed allocation rules are allowed to allocate his GSTT exemption. IV. The trust is considered to be a skip party for GSTT purposes. A) I and III B) III and IV C) I, II, and III D) I, II, III, and IV

B

Harry, a single man, recently transferred $1M in cash to a revocable trust for the exclusive benefit of his sister. Which of these statements is (are) CORRECT? A) Any assets in the revocable trust will be included in his probate estate. B) Any assets in the revocable trust will be included in the gross estate at their date of death value. C) All statements are correct. D) Harry may neither increase or decrease the interest his sister has in the trust.

B

Heirs with whom an individual shares a common ancestor but who are in a different line than the individual are known as A) lineal descendants. B) collateral heirs. C) lineal heirs. D) skip persons.

B

Henry dies on June 30 of the current year. His gross estate consists mostly of rental real estate with a market value of $20 million on his date of death. Within a few weeks after he dies, the real estate market takes a severe downturn, and the value of his property declines to $17 million by December 31. Which of the following postmortem estate planning techniques might be useful to Henry's estate? A) QTIP election B) Alternate valuation date (AVD) election C) Qualified disclaimer D) Special use valuation

B

Herbert Lawson, who lives in a common law state, has a will that gives his entire probate estate in equal shares to his three children. All of Herbert's $16.8 million gross estate is owned in his sole name except for his residence, which is owned as joint tenants with right of survivorship with his spouse. Herbert's interest in this residence is valued at $500,000. Despite having been married for 30 years, Herbert's spouse has no substantial estate of her own. Herbert has made $400,000 in adjusted taxable gifts since 1976. Herbert's spouse is named personal representative (PR) of his estate. Assuming Herbert is survived by his spouse and children, which one of the following is a disadvantage of the probate process for Herbert? A) Herbert's estate will have to pay estate tax because the marital deduction will be too small to eliminate all tax. B) Herbert's spouse will have the right to elect against the will even though she is named as the PR of the estate. C) The probate process will not allow Herbert's children to disclaim any part of his estate so that Herbert's spouse can receive more of his estate. D) Herbert's spouse will not be allowed to elect against the will unless she disclaims her right to receive Herbert's interest in the house.

B

Hilger Jantzen established and funded a charitable lead trust with a 10-year term; he designated his children as the remainder beneficiaries. What are the tax implications of this inter vivos intrafamily planning technique? I. Hilger's charitable gift tax deduction is determined by the present value of the charity's right to receive trust assets at the end of the 10-year term. II. Hilger is liable for gift tax based on the value of the gift to the children as discounted to the date of the gift. III. The entire value of the assets gifted to the trust will be removed from Hilger's gross estate only if he outlives the 10-year term. IV. Each year, as the trust pays income to the charity, Hilger receives a charitable income tax deduction for that amount. A) I and III B) II only C) I, II, and III D) I and IV

C

Holly Miller is in poor health and would like to make a gift to her nephew, Todd. Holly's main goal is to reduce administrative expenses and taxes on her estate. She also would like to keep both her and Todd's income tax liability as low as possible. Her will leaves everything to Todd when she dies. Todd does quite well financially, but Holly would like to give him something while she is alive. Based on her objectives, which one of the following transfers to Todd would be the most appropriate? A) Making Todd a joint tenant with right of survivorship in a one-acre tract of land she owns in a neighboring state; the land is valued at $35,000 B) Transferring a stock portfolio worth $45,000 to Todd; her basis in the portfolio is $5,000 C) Assigning to Todd all incidents of ownership in a life insurance policy that Holly currently owns on a friend's life; the policy names Todd as the primary beneficiary of a $100,000 death benefit; replacement cost of the policy is $44,000 D) Giving up her retained income interest in an irrevocable trust and accelerating Todd's remainder interest; the trust corpus is valued at $39,000

A

Hong's gross estate is $15.5 million. His estate taxes are $1.4 million, and his estate administration expenses are $500,000. Assuming his estate owns closely held stock and qualifies for a Section 303 stock redemption, what is the maximum dollar amount of stock that may be redeemed under Section 303? A) $1,900,000 B) $1,400,000 C) $500,000 D) $1,000,000

B

Humphrey recently gave his nephew several shares of ABC stock, a listed security. On the date of the gift, this stock closed at $12 per share and traded between a high of $14 per share and a low of $8 per share. In valuing ABC stock for gift tax purposes, what is its appropriate per share value? A) $12 B) $11 C) $14 D) $8

B

If Arthur Greene dies today, which one of the following assets will be included in his probate estate? A) His personal residence owned jointly with his spouse B) The family limited partnership (FLP) he has set up C) His profit-sharing plan D) His IRA

B

If Arthur died today, which of these estate tax features would not apply to his estate? A) The $12,920,000 exemption amount B) The carryover basis for most inherited assets C) The portability of unused exemption lifetime amount between spouses (subject to some restrictions) D) The 40% top estate tax rate

A

If a citizen or resident of the United States dies during 2023, an estate tax return must be filed if the tentative tax base (taxable estate plus adjusted taxable gifts) at the date of death was valued at more than A) $12,920,000. B) $1,000,000. C) $25,840,000. D) $17,000.

A

If a client's primary goal in making lifetime gifts to his children is to lower his estate taxes, he should make gifts of property that A) are expected to appreciate significantly in the future. B) have already depreciated significantly. C) are expected to depreciate significantly in the future. D) have already appreciated significantly.

C

If a decedent's property does not pass to someone by will substitute or by will, and there are no legal heirs under the applicable state intestate succession statute, the property will A) be donated to a charitable organization. B) be held by the court until a distant relative can be located and petitions the court for distribution. C) escheat to the state. D) be claimed by the IRS as a death tax.

B

If a decedent's property does not pass to someone by will substitute or by will, and there are no legal heirs under the applicable state intestate succession statute, the property will A) be donated to a charitable organization. B) escheat to the state. C) be claimed by the IRS as a death tax. D) be held by the court until a distant relative can be located and petitions the court for distribution.

B

If a trust is a grantor trust, the income from the trust is taxed to A) the trust beneficiaries. B) the grantor. C) the trust. D) the trustee.

B

If generations are determined by age, for the generation-skipping transfer tax (GSTT) to apply, the transferee must be A) 37½ years younger than the transferor. B) more than 37½ years younger than the transferor. C) more than 32½ years younger than the transferor. D) 32½ years younger than the transferor.

B

If included as part of your married client's gross estate, which of the following property interests qualify for the marital deduction? I. A life estate interest in, and a general power of appointment over, the family residence (titled in his name only) to his wife II. A trust with income distributable at least annually to his wife and his children, with the remainder to the children at his wife's death III. A life income interest in a testamentary charitable remainder trust to his wife as the only noncharitable beneficiary IV. A stock portfolio owned in joint tenancy with right of survivorship by the client and his brother A) II and III B) I and III C) I, II, and IV D) I, III, and IV

A

In 2018, Roland established an inter vivos irrevocable trust naming his wife as the sole income beneficiary of the trust. All income must be distributed annually. At his wife's death, the balance of the trust will be in her gross estate. The trust was funded with $3 million in cash and assets. Which one of the following most closely approximates Roland's taxable gift for this transfer? A) $0 B) $1,985,000 C) $3,000,000 D) $2,985,000

B

In 2023, George decided to begin a program of lifetime giving to his five grandchildren and three great- grandchildren. He wants to control the amount of annual gifts to avoid the imposition of federal gift tax, and he does not desire to use any of his or his spouse's applicable credit amount. However, his spouse is willing to split each gift over a period of 10 years. Over the 10-year period, George can give a total amount of gifts (ignoring future indexing of the annual exclusion), including the gift splitting, of A) $1,360,000. B) $2,720,000. C) $272,000. D) $136,000.

D

In 2023, Michael incurs substantial medical bills at the local clinic and Esteban pays $50,000 directly to the hospital in payment of Michael's medical expenses. What is the amount of Esteban's taxable gift as a result of this transaction? A) $16,000 B) $33,000 C) $25,000 D) $0

C

In 2023, Ron gives $21,000 in cash to each of his four children. What amount of taxable gifts, if any, must Ron report for 2023? A) $68,000 B) $82,000 C) $16,000 D) $8,000

C

In 2023, Walter gave his 20-year-old son, Rufus, stock valued at $322,000. Walter's spouse, Frances, consented to split this gift with Walter for gift tax purposes. What amount of taxable gift must Walter report on his gift tax return for 2023? A) $289,000 B) $161,000 C) $144,000 D) None of the above

A

In her will, Jessica left some farmland to George, her husband, for life. Her will provided that George could appoint the property only to their two daughters at his death. Which of the following statements is CORRECT? A) George has a special (limited) power of appointment. B) George has a general power of appointment. C) Only half of the value of the farmland will be included in George's gross estate. D) The full value of the farmland will be included in George's gross estate.

C

In light of the multiple possible estate goals which of the following would be plausible candidates for estate planning? A) A client whose wealth is concentrated in a real estate business. B) A Pennsylvania domiciled client with a condo in Vail, Colorado. C) All of these D) A recently married couple expecting their first child.

D

In which of the following situations is a qualified domestic trust (QDOT) necessary for the donor to receive an unlimited gift tax marital deduction? I. The donor is a resident alien and the donee spouse is also a resident alien. II. The donor is a resident U.S. citizen and the donee spouse is a resident alien. III. The donor is a nonresident U.S. citizen and the donee spouse is also a nonresident U.S. citizen. IV. The donor is a nonresident alien and the donee spouse is a resident U.S. citizen. A) I and III B) II and IV C) III and IV D) II and III

C

In which of the following situations must the donor file a federal gift tax return? I. The donor makes a gift of a present interest valued at $10,000 to one donee. II. The donor makes a gift of a future interest valued at $1,000 to one donee. III. The donor makes a gift of $10,000 to one donee and the donor's spouse agrees to gift splitting. A) I and II B) I only C) II and III D) I, II, and III

A

In which of the following situations will the holder's power to appoint property on behalf of himself be considered a general power of appointment for federal estate tax purposes? I. The holder can exercise the power only for the holder's health, education, maintenance, or support (HEMS). II. The holder's right to exercise the power each year is limited to the greater of $5,000 or 5% of the total property subject to the power at the holder's death. A) Neither I nor II B) II only C) Both I and II D) I only

C

In which of the following situations would ancillary probate be necessary? I. Thomas dies a resident of Virginia; he owns a ranch in Texas. II. Melba dies without a valid will. III. Earl dies and his spouse elects against his will. IV. Stanley dies a resident of Louisiana; he owns furniture in a vacation home he rented in Florida. A) II and III B) I, II, III, and IV C) I only D) I and IV

A

In which one of the following situations would a state's intestate succession laws be applied? A) The decedent owned a residence that is community property in a community property state, and the decedent died without a will. B) The decedent transferred all of his property to an inter vivos revocable trust, and died without a will. C) The decedent owned real estate in fee simple, and left a valid holographic will that leaves his property to his sister. D) The decedent owned property as a tenant in common, and the decedent's will contains a residuary clause naming his son as beneficiary.

D

In which type of charitable transfer does the remainder interest pass to a noncharitable beneficiary? A) Charitable remainder annuity trust (CRAT) B) Charitable remainder unitrust (CRUT) C) Pooled income fund D) Charitable lead trust (CLT)

C

Jack created an irrevocable trust in 2014 for the benefit of his son, Bill, and his granddaughter, Karen. This year, the trustee distributes $40,000 in trust income to Karen. For purposes of the generation-skipping transfer tax (GSTT) the $40,000 distribution to Karen is a A) direct skip. B) taxable termination. C) taxable distribution. D) qualified transfer.

D

Jackie and Carmen are sisters who own real estate together. Jackie owns an undivided 35% interest in the property and Carmen owns an undivided 65% interest. Jackie and Carmen both have the right to sell their interest in the property or to leave their interest to anyone they choose under their wills. Which of the following describes this form of concurrent ownership? A) Community property B) Tenancy by the entirety C) Joint tenancy with right of survivorship (JTWROS) D) Tenancy in common

A

Jacob and Wendy have been married for nine years and live in a common law state. They have two children, ages 4 and 2. In the same year they were married, Wendy insisted that they should each have wills. Since they had no children at the time, the wills they executed gave everything to the survivor, or if there was no survivor, to that person's brothers and sisters. Recently, the state in which Jacob and Wendy live has passed a statute allowing wills to be self-proved if they include language specified in the statute. Which of the following correctly state why Jacob and Wendy's current wills do or do not need to be amended? I. Their wills need to be amended to provide for their minor children's personal care if there is no survivor. II. Their wills do not need to be amended to provide for the children because of intestacy statutes. III. Their wills do not need to be amended to be self-proving, as they will be grandfathered since they were already validly executed. IV. Their wills need to be amended to provide for the financial care of their children if there is no survivor. A) I and IV B) I, III, and IV C) I and III D) II, III, and IV

B

Jaleel is concerned that there will not be sufficient liquid assets in his estate to cover the necessary expenses at his death. Which of the following is NOT a way to improve the liquidity position of his estate? A) Selling his art collection prior to death B) Assuring that any real estate purchased in another state is titled solely in his name C) Eliminating specific cash bequests from his will D) Placing a nonexoneration clause in his will

D

James leases an office building for use in his business. The lease gives James the right to use the building for 10 years in exchange for annual lease payments of $100,000. What type of ownership interest does James have in this building? A) Future interest B) Remainder C) Life estate D) Term of years

D

James was gifted a house during the current year. At the date of the gift, the house had a fair market value (FMV) of $175,000, and the donor's adjusted basis was $105,000. The donor paid a gift tax of $12,000 on the gift. The donor did not have the annual exclusion available for this gift because of a gift earlier that year worth $18,000. What is James's basis in the house? A) $175,000 B) $187,000 C) $117,000 D) $109,800

B

Jane has a gross estate estimated at $18 million. Approximately 75% of her estate is attributable to the value of personal property and collectible items. Jane is married but has no children. Her husband does not have a large estate because he spends money freely and foolishly. Because she is much older than her husband, Jane would like for him to benefit from her wealth after her death without giving him control over the principal either while he is alive or at his death. Jane wants as little of her estate assets as possible to go toward payment of estate taxes on either of their estates. She currently has no will but has come to you for advice regarding provisions she should put in a will. Which provision, if placed in her will, would be best to increase the liquidity of her estate and accomplish her other goals? A) Establish a power of appointment trust naming her husband as the income beneficiary and a qualified charity as the remainder beneficiary B) Establish a charitable remainder trust naming her husband as the income beneficiary and a qualified charity as the remainder beneficiary C) Establish an testamentary trust naming her husband as the sole beneficiary and trustee D) Establish a qualified terminable interest property (QTIP) trust naming her husband as the income beneficiary and a friend or other relative as the remainder beneficiary

A

Janelle wants to draft a power of attorney that will allow her daughter to manage Janelle's property if Janelle ever becomes incapacitated. Which of the following powers of attorney will meet Janelle's needs? I. Nondurable power of attorney II. Durable power of attorney A) II only B) I only C) Neither I nor II D) Both I and II

D

Janis owns the Pretty Little Celluloid Shop as a sole proprietor. Janis is now 63 years old and is ready to retire. She has a gross estate estimated at $3.9 million, and the value of the business constitutes $2.45 million of that amount. Janis would like to transfer the business to her daughter and remove all future appreciation of it from her estate. In addition, she would like to receive an income stream from the business for the rest of her life. Which one of the following is the most appropriate form of business transfer for Janis to use to best achieve her objectives? A) A recapitalization of the business with her daughter as co-shareholder B) A family partnership of the business with her daughter as co-partner C) An installment sale of the business to her daughter D) A pure life private annuity sale of the business to her daughter

D

Jason and Julie are married. It is a second marriage for both spouses, and Jason has a son from his previous marriage. Jason owns assets valued at $20 million, which are all titled in his separate name. In planning his estate, Jason wants to ensure that his entire estate qualifies for the marital deduction, but he also wants to ensure that his assets will pass to his son after Julie dies. Which of the following recommendations will meet Jason's objectives? A) Retitle his assets as JTWROS with Julie B) Leave his assets to a B trust C) Leave his assets to an A trust D) Leave his assets to a C (QTIP) trust

D

Jason wants to contribute $10 million to a charitable trust. He expects to receive a large inheritance in a few years, so he wants to receive an income interest from the trust for only 15 years and not for life. Which of the following charitable trusts will meet his needs? I. Pooled income fund II. Charitable remainder annuity trust (CRAT) III. Charitable remainder unitrust (CRUT) A) III only B) I only C) I, II, and III D) II and III

D

Jean died in a common-law state in 2023 and was survived by her spouse, Loren, and three adult children. Jean's gross estate, all of which was owned solely in her name, was composed of the following assets and date-of-death fair market values: Assets - Values Common stock - $2,900,000 Residence - $750,000 Personal property - $60,000 IRAs1 - $450,000 Hummel figurines - $175,000 Total assets - $5,335,000 Jean's only liabilities, together with their date-of-death balance, were as follows: Liabilities - Balance Mortgage on residence - $175,000 Car loan - $8,000 Total - $183,000 The following is a list of all of the gratuitous transfers that Jean made during her lifetime: 2000:Jean placed the common stock listed above in an irrevocable trust in which she retained the right to a 5% distribution of the trust account revalued annually for 25 years, with the remainder to her children at her death. The date-of-gift fair market value of the stock was $190,000; the value of Jean's retained interest on the date the gift became complete was $90,000.2001:She made a cash gift to her niece of $30,000, which Loren agreed to split.2005:She paid the University of Iowa $11,000 for her youngest child's tuition.2023:She gave her brother $74,000 in cash, which Loren agreed to split. Jean's will, executed in 2000, gave the residence and personal property to Loren and the Hummel figurines to a qualified charity. Jean's three children were designated as equal beneficiaries of her IRAs. Each beneficiary of Jean's estate was to pay any transfer tax due on the portions of the estate received. Her will also stipulated that any real property was to be received without a right of exoneration. Further, her will stipulated that funeral and administrative expenses were to be paid equally by her spouse and three children. These funeral and administrative expenses amounted to $60,000 for Jean's estate. Jean's estate paid state death taxes in the amount of $4,184 and will pay off the car loan. Which of these amounts most closely approximates Jean's gift tax liability, prior to application of the applicable credit amount, for the 2023 gift? A) $25,300 B) $31,300 C) $0 D) $6,000

C

Jerry creates a charitable remainder annuity trust (CRAT) and funds it with property having a fair market value (FMV) of $5 million. For Jerry to be eligible for an income tax charitable deduction, the present value of the charity's remainder interest at the trust's inception must be at least A) $1,000,000. B) $250,000. C) $500,000. D) $50,000.

D

Jill died this year owning 1,000 shares of ABC stock, which is traded on a public exchange. On Jill's date of death, ABC stock traded at a high of $14 per share and a low of $9 per share and closed at $12 per share. What value should be placed on the ABC stock on Jill's federal estate tax return? A) $12 per share B) $9 per share C) $14 per share D) $11.50 per share

A

Jill, Sherry, and Peggy are each one-third owners of a closely held business and they have executed a buy-sell agreement. The agreement requires that Jill, Sherry, and Peggy each purchase and pay the premiums on an insurance policy that insures each co-owner and names the policyowner as the beneficiary. Which of the following correctly states an advantage or disadvantage of this buy-sell agreement? A) The premiums paid are not deductible by the policyowner. B) The premiums paid are income to the insured under the policy. C) The premiums are considered a gift from the owner to the insured. D) The replacement cost of the policy must be included in the owner's gross estate.

D

Joaquim is contemplating the sale of his solely owned business to his son in the form of a private annuity transaction. Which one of the following statements is CORRECT regarding the disadvantages of this type of transaction? A) This transaction would be subject to the IRC Chapter 14 rules. B) The son's obligation to make the annuity payments will cease when Joaquim reaches his actuarial life expectancy. C) The son must pay a premium for the right to cease making payments whenever his father dies. D) The transaction will not allow Joaquim to realize the full value of the business if he dies prior to his actuarial life expectancy.

D

Jocelyn dies owning a large block of stock in a closely held corporation. Her estate is short of liquid assets, and the executor needs to sell the stock to pay estate expenses. The only potential buyer for the stock is the corporation itself, but Jocelyn's executor is afraid that if she sells the stock back to the corporation, the money received will be taxable as a dividend. Which of the following postmortem estate planning techniques would be most useful to Jocelyn's estate? A) Special use valuation (Section 2032A) B) Reverse QTIP election C) QTIP election D) Section 303 stock redemption

D

Joe made a gift of property to his niece in the amount of $50,000 on the condition that his niece pay any gift tax due. Joe has previously made prior taxable gifts in the amount of the applicable exclusion amount. His niece, however, has never made a taxable gift. Which of the following are CORRECT statements about the tax implications of making this gift? I. The net amount of the gift (value of the gift minus gift taxes paid) minus the maximum annual exclusion amount will be included in Joe's estate tax calculation as an adjusted taxable gift. II. Joe will have taxable income to the extent that the gift tax paid by his niece exceeds Joe's adjusted basis in the property. III. Joe's niece will have a basis in the property equal to Joe's basis in the property as adjusted for gift taxes paid by her. IV. If Joe's niece accepts this gift, she will have to pay a gift tax out of pocket. A) I and IV B) I and III C) II and III D) I, II, III, and IV

A

John Cie, before he was sworn in as governor of his state, established a trust to manage his property through a corporate trustee, without his direction or input, for an irrevocable period of six years—the length of his term of office. As he intends to live solely from his salary as governor, none of the trust income is to be distributed to him. At the end of the six-year term, the principal of the trust will revert to John, but all accrued income is to be distributed equally to John's spouse and to his children, who are currently five and nine years of age. Which one of the following is a correct statement regarding this trust? A) At least one-third of the income of this trust will be taxable to John even though he will never receive it. B) The income will be taxed to the trust until distributed, and to the recipients upon distribution. C) The income of this trust will be taxable to John because he has retained the power to revoke the trust. D) The income of this trust will be taxable to John, as his spouse has retained a reversionary interest that exceeds 5% of the value of the trust at its creation.

A

Jon and Bob own a house as tenants in common. Jon owns 30% and Bob owns 70%. They purchased the house 10 years ago for $125,000 and today the house is valued at $200,000. If Jon dies today, what amount is included in Jon's gross estate? A) $60,000 B) $100,000 C) $140,000 D) $37,500

B

Jorge is in the highest current marginal income tax bracket. He owns several thousand shares of rapidly appreciating growth stock that he wants to transfer to his three minor children. Income will not be used for legal support obligations. He wants to have some control over the distribution of income from this stock while affording himself the gift tax annual exclusion for the total value of this and subsequent transfers to the maximum amount allowed. He also wants this stock to be available to his children when they reach age 21. Jorge does not want income from the stock to be taxed to him. Which one of the following is the most appropriate lifetime transfer technique for Jorge to use to best achieve his objectives? A) Outright gifts of equal amounts to the children B) Irrevocable trusts structured under the provisions of Internal Revenue Code Section 2503(c) C) Net gifts to each child D) Irrevocable trusts structured under the provisions of Internal Revenue Code Section 2503(b)

C

Jose and Maria have been married for 50 years. They have three children and seven grandchildren. Their estate is $30 million. They do not want to rely on the deceased spouse's unused exemption (DSUE) because they have seen a lot of tax law changes through the years. They would like to arrange their assets so there are no estate taxes when the first spouse dies. Maria wants to be sure their son, Fred, receives their vacation home when the second of them passes away. Jose wants to ensure their daughter Amelia eventually takes possession of their family home upon the second of the couple to die. Other than these assets, they are fine with allowing the survivor to control the remaining property. Which of the following will best allow them to accomplish all three goals? A) A Type C qualified terminable interest property (QTIP) trust B) A Type B bypass trust C) A combination of an A trust and a B trust D) A Type A power of appointment trust

B

Juan Valentino's will leaves his half of his probate estate to a testamentary trust in which his spouse and children are income beneficiaries, and his children the remainder beneficiaries. The will gives the remainder of his probate estate outright to his children. Juan wanted to be assured that both his spouse and children will receive some part of his estate while incurring minimal estate administration fees. Juan has a gross estate of $2 million. Since the will was drafted, Juan has had second thoughts about the way he decided to distribute the assets of his estate. Does Juan need to consider amending his will? A) No, because there will be no estate tax to be paid out-of-pocket by his estate. B) Yes, because the existing will does not include a residuary clause and thus could be subject to the intestacy statutes. C) Yes, because if his spouse predeceases him, her portion of the estate will pass through intestacy at Juan's death and be distributed to unintended beneficiaries. D) No, because the spousal elective share given to his spouse by state statute will permit her to take all of Juan's estate in any event.

A

Jud and Harry are equal partners in a small but thriving business. They recently signed a cross-purchase buy-sell agreement. They wish to use life insurance to fund their respective obligations in this agreement but want to do so with the least possible cost. Which one of the following types of insurance products is the most appropriate for Jud and Harry's situation? A) A "first-to-die" joint lives policy B) Key person policies C) A joint and last survivor policy D) Split dollar policies

A

Juniper and her spouse purchased a home for $1M when they were first married. Juniper contributed 75% of the purchase price. They titled the property as joint title with right of survivorship (JTWROS). If Juniper died today, how much of the residence would be included in the gross estate? A) $500,000 B) $1,000,000 C) $0 D) $750,000

D

Katie, who is unmarried, made these gifts in 2023: Cash to her sister, Kellie, in the amount of $18,000 Stocks valued at $28,000 to her cousin, Lawrence An automobile (valued at $19,000) to her uncle, Burt $24,000 to the Compassion Center, a charitable organization Certificates of deposit worth $10,000 to her childhood friend, Marjorie What is the amount of Katie's taxable gifts in 2023? A) $69,000 B) $45,000 C) $93,000 D) $14,000

B

Kent, a widower, has made lifetime gifts to his two children in an effort to reduce the size of his gross estate. In 2014, Kent made a $300,000 taxable gift, and in 2016, he made another taxable gift of $100,000. He used his gift tax applicable credit amount to offset any gift tax liability for all gifts. What amount of the gift tax applicable credit, if any, remains available to Kent for gifts he may desire to make in 2023? A) $12,782,200 B) $4,992,000 C) $5,113,800 D) $4,769,800

A

Kris dies, leaving an adjusted gross estate of $20 million, which includes several hundred shares of closely held stock. For Kris's estate to qualify for a Section 303 stock redemption, the value of the closely held stock must exceed what amount? A) $7 million B) $5 million C) $10 million D) $2 million

A

Larry died intestate. This means that Larry died A) without a valid will. B) without heirs. C) owning real estate in more than one state. D) with a will leaving all of his property to his surviving spouse.

B

Last year, Julie Poppins sold to her daughter, Mary, a daycare business for $180,000, which was its fair market value. Julie's basis in the business was $90,000. Mary gave Julie an unsecured promissory note in which she promised to pay the purchase price in 15 annual installments composed of only interest at the prevailing rate for the first five years, with each of the remaining 10 annual payments to be composed of $18,000 principal, plus interest at the same rate. At Mary's request, the note also contained a provision that if Julie died while any part of the note was not yet due, the payments not yet due would be canceled. Which of the following statements correctly describe the tax implications of the intrafamily sale that Julie has made to Mary? I. If Julie dies while any part of the note remains outstanding, her gross estate must include the fair market value of the daycare business. II. If any annual installments under the terms of the note are canceled, the present value of the canceled installments will be included in Julie's gross estate. III. Cancelation of any annual installments by Julie's estate under the terms of the note will cause her estate to realize a taxable gain on the forgiven installments. IV. If Mary closes the daycare business before Julie dies, and Julie cancels the entire note, Julie will be subject to both income taxes and gift taxes. A) I and IV B) II, III, and IV C) II and III D) I, II, III, and IV

A

Lauren and Roger are spouses. Lauren has assets with a market value of $50 million titled in her name alone. Roger has assets valued at less than $1 million. Lauren drafts a will making an outright bequest of all of her assets to Roger. Which of the following are potential disadvantages of Lauren's approach? I. Lauren will not use her estate tax applicable exclusion amount when she dies. II. Roger may become legally incapacitated and not be able to manage the property. III. When Roger dies, the property must be included in Roger's gross estate to the extent Roger has not spent it or consumed it during his lifetime. IV. The DSUE amount may not be available in some circumstances. A) I, II, III, and IV B) II and III C) I and IV D) I and II

D

Lela was a widow at her death in 2023. She died with a gross estate of $13,185,000, consisting entirely of publicly traded income-producing stock. Her debts were $75,000, and her estate administrative expenses were $200,000. Lela made no lifetime taxable gifts. She left her entire estate to her daughter. Which one of these postmortem planning techniques will help meet the liquidity needs of Lela's estate? A) Application to pay estate taxes under Section 6166 B) Use of the alternate valuation date C) Special use valuation D) Use of the election to take the estate administrative expenses as a deduction on the estate's fiduciary income tax return

A

Leon Brown has consulted a CFP® professional for estate planning advice. One of the CFP® professional's recommendations is that Leon take steps to avoid probate when he dies. In communicating this recommendation to Leon, which of the following statements made by the CFP® professional would be CORRECT? I. Probate will not be necessary if Leon dies testate. II. Avoiding probate will help keep Leon's affairs private after he dies. III. Probate might delay the distribution of Leon's assets to his heirs. A) II and III B) I and III C) I, II, and III D) II only

A

Linda Plantier wants to establish a trust for her three grandchildren that will accomplish all of the following objectives: - Exclude all assets transferred to the trust from her gross estate - Protect the trust assets before distribution from the creditors of any beneficiary - Keep the trust assets from disqualifying a beneficiary for public assistance benefits such as Medicaid - Which of the following trust provisions would NOT help to achieve one or more of these objectives? A) A provision granting each beneficiary a Crummey power B) A provision making the trust irrevocable C) A provision making all distributions from the trust—of both principal and income—subject to the absolute discretion of a corporate trustee D) A provision that once the trust is established, Linda cannot change any of the provisions

A

Lonnie wants to execute a power of attorney naming his son, Brad, as attorney-in-fact. Lonnie wants Brad's authority to terminate if Lonnie ever becomes legally incapacitated. Which of the following types of power of attorney will meet Lonnie's wishes? I. Durable power of attorney II. Nondurable power of attorney A) II only B) Both I and II C) I only D) Neither I nor II

C

Lucinda took all of the following actions within three years of her death: - She made a gift to her children by releasing a life interest in a condominium that she had previously placed in an irrevocable trust for her children. - She gave $16,000 in cash to her nephew. - She assigned all incidents of ownership in a life insurance policy on her life to an irrevocable life insurance trust (ILIT) for the benefit of her children. - She released the right to exercise a general power of appointment over assets in a trust established by her father in which she had no other interest. Which of the following assets are included in Lucinda's gross estate? I. The condominium placed in trust II. The cash given to her nephew III. The life insurance policy given to the ILIT IV. The trust assets over which Lucinda held the general power of appointment A) III only B) I, III, and IV C) I and III D) II and IV

B

Marco has become charitably inclined since suffering serious health issues. He wants to establish a charitable trust that will provide him with an annual income for life with the remainder to charity. He also wants to be able to make additional contributions to the trust on an ongoing basis. Which of the following charitable trusts will meet his needs? I. Charitable lead trust (CLT) II. Charitable remainder annuity trust (CRAT) III. Charitable remainder unitrust (CRUT) A) I only B) III only C) I and II D) II and III

A

Marie and Elsa are nonspouse domestic partners. They currently own all of their property in their individual names. They both have qualified retirement plans and IRAs but have not named beneficiaries for them. Each wants to ensure that the other receives her assets when she dies. Which of the following estate planning techniques would be useful to Marie and Elsa? I. Convert their individually owned property into JTWROS. II. Establish a revocable living trust naming the other partner as beneficiary at death. III. Rely on intestate succession laws to pass property to the other partner at death. IV. Name the other partner as beneficiary of their qualified retirement plans and IRAs. A) I, II, and IV B) II and IV C) III only D) I, II, III, and IV

C

Mario has accumulated significant wealth over his lifetime, and he is currently implementing gifting techniques. He would like to take advantage of the annual exclusion. Transfers to which of the following trusts/accounts permit Mario to utilize the gift tax annual exclusion? I. Uniform Gift to Minors Account (UGMA) II. Grantor retained annuity trust (GRAT) III. Qualified tuition plan IV. Section 2503(c) trust A) II and III B) I and IV C) I, III, and IV D) I, II, and IV

B

Marleen Harris died and her daughter Tasha Harris decided to disclaim part but not all of her inheritance. Which of these statements describe reasons for Tasha disclaiming the inheritance? I. Tasha does not need the disclaimed asset(s). II. Tasha desires another beneficiary to receive the disclaimed asset(s). III. Neither I nor II are reasons for disclaiming an inheritance. IV. Both I and II are reasons for disclaiming an inheritance. A) I only B) IV C) III only D) II only

A

Matt gives Jim securities in the current year. Matt's adjusted basis for the securities is $48,000, and the fair market value (FMV) is $40,000. Matt pays gift tax of $16,000. What is Jim's basis in the stock for gain and for loss? A) $48,000 for gain and $40,000 for loss B) $0 for gain and $0 for loss C) $50,000 for gain and $42,000 for loss D) $40,000 for gain and $40,000 for loss

C

Max McFly owns one-third of the shares of Future Past, Inc., a closely held corporation. Max, together with all remaining shareholders of the corporation, has executed a stock redemption agreement obligating the corporation to purchase all the shares of a deceased shareholder, or of a shareholder who withdraws—voluntarily or involuntarily—from the corporation for any reason. The agreement is funded by a cash value life insurance policy on each shareholder with all premiums paid by the corporation, which is the named beneficiary of each policy. The agreement states that the purchase price—under all circumstances—is to be the fair market value of the shares as established by competent appraisal. Which of the following statements is CORRECT concerning the tax implications of this business transfer technique? I. A deceased shareholder's estate would not receive a stepped-up basis on the decedent's shares because a value has already been agreed upon in the redemption agreement. II. The life insurance proceeds would be included in a deceased shareholder's gross estate. III. Premium payments made by the corporation are not taxable income to any shareholder. IV. Policy proceeds would be received income tax free by the corporation. A) II only B) I, II, and III C) III and IV D) I and IV

B

Michael and Marie, spouses, bought a three-bedroom town house 20 years ago for $175,000 and titled it as joint tenants with right of survivorship (JTWROS). Michael furnished all of the funds used to purchase the property. When Marie died last month, the property was valued at $500,000. What amount will be included in Marie's gross estate? A) $500,000 B) $250,000 C) $175,000 D) $0

B

Mike and Jane, a married couple, bought a condominium 15 years ago for $200,000 as joint tenants with right of survivorship (JTWROS). When Jane died, the condominium was valued at $500,000. Four years after Jane's death, Mike sells the condominium for $600,000. What is the amount of Mike's capital gain? A) $300,000 B) $250,000 C) $100,000 D) $0

C

Mohammed and his spouse, Fatema, own $13 million worth of property as equal joint tenants with right of survivorship. Neither has made any lifetime taxable gifts. Assuming death in 2023, Mohammed's estate tax liability would be zero, but Fatema's would be $322,4000, assuming Mohammed's DSUE amount is not available. Mohammed and Fatema may revise their estate plan in the following ways: - Transferring $6.5 million into Mohammed's name as sole owner and $6.5 million into Fatema's name as sole owner - Amending their wills to provide that their solely owned property shall be placed in a trust that gives the trustee the right to pay as much income to the surviving spouse as the institutional trustee, in its sole discretion, determines appropriate, with the the remainder going to their children. The surviving spouse has a right of invasion of trust corpus based on receiving the children's consent. If the plan is implemented, and both spouses died in 2023, which of these amounts best describes the family's estate tax savings? A) $322,400, only if Fatema dies first B) $322,400, only if Mohammed dies first C) $322,400, regardless who dies first D) $0, since no estate taxes would be owed even if their plan is not revised

D

Nancy is a widow with four children and nine grandchildren. In preparing her will, she wants to leave her entire estate to her children equally. If any of her children are not living when she dies, she wants that child's share of her estate to be split equally among that child's living children. Which one of the following will provisions best meets Nancy's needs? A) A simultaneous death provision B) A survivorship provision C) A provision calling a per capita distribution D) A provision calling for a per stirpes distribution

A

Naomi Fez, age 82, has a multimillion-dollar estate. Her investments have done exceptionally well this year, and she will be in the highest marginal income tax bracket. She has two financial planning goals: (1) to reduce the size of her potential gross estate by as much as possible, and (2) to obtain the largest possible income tax charitable deduction for the current tax year. She would like to make a gift to the Motion Picture Guild Museum, a 50% qualified charity. Her current year AGI is $300,000. Which one of the following assets would be most appropriate to gift to the museum to simultaneously achieve Naomi's two financial planning goals? A) A collection of old movie scripts, which she purchased eight years ago for $150,000, now worth $225,000 B) A real estate parcel with a fair market value of $200,000; she paid $151,000 for the real estate seven years ago C) A stamp collection currently worth $230,000, inherited 25 years ago with a basis of $95,000 D) Bonds purchased eight months ago for $145,000, with a current fair market value of $140,000

D

Odell is the income beneficiary of a trust currently valued at $1 million. He also has a noncumulative general power of appointment with respect to the trust principal of $50,000 (5% of the total value) per year. If Odell dies in the current year without exercising his power over the trust principal and before the power lapses, what amount will be included in his gross estate? A) $500,000 B) $0 C) $1 million D) $50,000

D

Of the following actions taken last year by Joan, which transfers must be included in calculating her total gifts for last year? I. Purchase of a certificate of deposit (CD) that is payable to her daughter on Joan's death II. Writing a check to her mother for $3,600 to assist her in paying for recent surgery III. Placement of her brother's name jointly with her own on the deed to a commercial office building that she purchased IV. Cancellation of an $25,000 debt owed to her by her best friend A) I and IV B) I only C) II and III D) II, III, and IV

D

On January 1st of this year, Paul gifts a piece of land (basis of $100,000, FMV of $300,000) to his father. Which of these statements is CORRECT? A) If Paul dies, the property will be included in his gross estate at the date-of-death value. B) If Paul's father dies later in the year on December 1st and leaves the land to Paul, Paul will receive a stepped-up basis in the property. C) If Paul had sold the land to his father for $50,000 instead of gifting it, he would have had a deductible loss of $50,000. D) Paul's father's basis in the property will be $100,000.

A

Owning property in joint tenancy with right of survivorship (JTWROS) is a will substitute because A) the property passes outside of probate. B) this form of ownership eliminates the need for a will. C) the property may be owned by more than two owners. D) the property is subject to probate.

C

Paul and Cheryl are husband and wife who initially lived in a community property state. Soon after their marriage they began establishing an emergency fund using money that each earned from their respective jobs. This fund was used to meet unexpected expenses as they arose. Three years ago, Cheryl liquidated stock that she had purchased prior to her marriage, and placed the proceeds in the emergency fund. There have been many deposits and withdrawals from the fund since that time. Last year, Paul filed for divorce. Cheryl is seeking to recover the full value of the stock proceeds that she placed in the emergency fund as her sole and separate property, and half of the remaining emergency fund. Paul claims he is entitled to half of the entire emergency fund. Which one of the following statements is CORRECT regarding Paul's and Cheryl's rights in the emergency fund? A) The stock proceeds are Cheryl's separate property, and she should be entitled to recover these funds in full as well as one-half of the remaining emergency fund. B) The entire emergency fund is community property, and Cheryl and Paul are each entitled to a percentage of the total emergency fund equal to their respective contributions. C) The stock proceeds are community property, and Cheryl and Paul are each entitled to one-half of the total emergency fund. D) The entire emergency fund is separate property, and Cheryl and Paul are each entitled to a percentage of the total emergency fund equal to their respective contributions.

D

Peter Jenkins recently remarried after divorcing his first spouse last year. He has asked you for advice on updating his estate plan to reflect his new marital status. His existing will leaves all of his property to his first spouse. He does not want to leave any of his property to his new spouse and he wants all of his property to pass to his children from his first marriage when he dies. Which of the following recommendations would you make to Peter? I. Peter should redo his will to reflect his new marital status. II. If Peter's new will disinherits his second spouse, she may still be able to claim a share of his estate when he dies by electing against the will. A) II only B) Neither I nor II C) I only D) Both I and II

D

Peter and Ann are married, and each has children from a prior marriage. Most of their assets are solely owned. Peter's solely owned assets are worth $12.92 million, and Ann's are worth $10.92 million. Peter and Ann also hold their residence, automobiles, and other personal property (valued at $1 million) as joint tenants. Peter, 68, is in good health and has made no lifetime taxable gifts. Ann, 63, is in poor health and has made taxable gifts of $1 million (all of which were more than three years ago). Peter willed his solely owned assets to his children from his prior marriage, and Ann did the same to her children. Some friends have suggested that they modify their estate plan by placing their solely owned assets in QTIP trusts and having their personal representative elect the marital deduction for all assets placed in the trust. Their respective children will still receive the assets eventually under the QTIP arrangements. Which of these statements correctly describes the federal estate tax implications of establishing the QTIP trusts and making the election, assuming both deaths occur in 2023 and the estate of the first to die allows the surviving spouse to use his or her deceased spousal unused exclusion (DSUE) amount under the existing or proposed plan? A) Regardless of who dies first, the tax on their combined estates would be less if they implement the proposed QTIP trusts and elect the marital deduction. B) If Peter dies first, both his estate and Ann's estate would have to pay less estate tax if the proposed QTIP strategy is elected than they would under their existing plan. C) If Ann dies first, her estate tax would be less under the existing plan than under the proposed QTIP trust plan, but Peter's estate tax would be more. D) Implementing the QTIP trusts as proposed would cost Peter and Ann the same amount in federal estate tax on their combined estates as it would under their existing plan.

D

Placing assets in joint tenancy with right of survivorship (JTWROS) with a spouse will assure the original owner that A) such assets will be distributed pursuant to the provisions of his will. B) such assets will be available for current living expenses, if necessary. C) he will retain complete control over the asset. D) the assets will avoid probate upon the original owner's death, so long as the joint tenant is still living.

D

Preventing a surviving spouse from being left destitute upon the death of his spouse is NOT a purpose of which of the following? A) Election against the will statutes B) Community property laws C) Laws of intestate succession D) Advancement statutes

C

Prior to his death on January 1, 2023, Garth took these actions in the years indicated: 2021: He gave a cash gift of $52,000 to his brother, on which he paid $14,400 in gift tax out of pocket. 2015: He released a general power of appointment over assets in a trust established by his mother; Garth is not the trustee or a beneficiary of this trust. 2012: He relinquished to his three children a life estate in a condominium that he had retained when he transferred title to them in 2004; the life estate had a value of $56,000 at the time of the gift in 2004 and a value of $52,000 at the time of transfer in 2012. 2010: He established an irrevocable trust for the benefit of his grandchildren, naming himself as trustee and providing that the trustee could distribute income and principal from the trust at his sole discretion; the assets used to fund the trust had a date of gift value of $100,000 and a date of death value of $105,000. Which of these statements regarding the impact of these lifetime transfers on Garth's estate tax liability are CORRECT? I. Garth's estate will have to include the $14,400 paid in gift tax in the gross estate and $35,000 in adjusted taxable gifts as a result of the 2021 gift. II. Release of the power of appointment in 2015 will not be in his gross estate at death. III. Garth's estate tax liability will not be affected by the transfer in 2012 since it occurred more than three years prior to death. IV. Garth's estate will have to include the date of death value of the assets of the trust established in 2010 in his gross estate, but it will not have to include the amount taxable for gift tax purposes in his adjusted taxable gifts amount. A) II and IV B) I and II C) I, II, and IV D) I, II, and III

C

Purchasing an individually owned cash value life insurance policy addresses which of the following weaknesses? A) Failure to give advice on funeral arrangements B) Improper titling of assets C) Lack of estate liquidity D) Failure to make necessary changes to a will

C

Regina establishes a funded irrevocable life insurance trust (ILIT) as part of her estate plan. Which of the following statements regarding this trust is CORRECT? I. The trust holds title to a life insurance policy on Regina's life and also income-producing assets that may be used to pay the policy premiums. II. Income from the ILIT assets is taxed to Regina as grantor of the trust. A) II only B) I only C) Both I and II D) Neither I nor II

B

Rex would like to begin reducing the size of his gross estate by initiating a gifting program to his minor son. He would like to receive the maximum annual exclusion for such gifts. He does not want his son to have an absolute right to any portion of the gifted property until he reaches the age of majority—which is age 21 in his state. However, he would like at least a portion of the gifted property to be available to his son for worthy expenses such as college tuition. Rex's brother, Philo, is willing to act as trustee should one be needed. Given Rex's objectives, which one of the following is the most appropriate personal gifting technique for him to use? A) A Section 2503(b) mandatory income trust B) A Section 2503(c) minor's trust C) A revocable living trust D) A Crummey trust

D

Rhonda owns the following assets: - A solely owned closely held business that comprises one-half of the value of her estate - A collection of antique figurines that forms a substantial part of her remaining estate - A residence owned with her husband as tenants by the entirety Rhonda's will bequests $10,000 to her only niece and leaves the balance of her estate to her husband if he survives her. Rhonda is looking for methods to provide the liquidity needed for her estate. Which one of the following actions would have the potential to improve the liquidity of Rhonda's estate? A) Entering into a cross-purchase buy-sell agreement with her husband regarding the business B) Amending her will to place the antique figurines in a testamentary estate trust C) Retitling the residence she owns with her husband as joint tenants with right of survivorship D) Eliminating the bequest in her will to her niece

D

Robert Williams is thinking of retitling a brokerage account that is currently solely in his name to add a provision that the account be transferred on his death to his daughter. Which of the following statements is CORRECT regarding an advantage or a disadvantage of retitling the account in this manner? A) A disadvantage is that Robert will no longer be able to retitle the account without his daughter's consent. B) An advantage is that Robert has reduced his gross estate. C) A disadvantage is that Robert will no longer be able to control the account. D) An advantage is that Robert has reduced his probate estate.

C

Robert gifted a duplex to his brother Harold, who is terminally ill. Harold is not married and has no children. Robert purchased the duplex 20 years ago for $175,000. Today, the property is worth $450,000. Harold's will leaves his entire estate to Robert upon his death. This means that the duplex may ultimately be passed back to Robert. This type of transfer is called A) a bargain sale. B) a split gift. C) a reverse gift. D) a net gift.

B

Robert is the sole income beneficiary of a charitable remainder unitrust (CRUT) established by his recently deceased wife in her will. A qualified public charity will receive the trust remainder at Robert's death. Which one of the following is a CORRECT statement regarding the effect of this trust on the potential liquidity of Robert's estate at his death? A) The trust does not represent a potential cash requirement, but does represent a potential source of liquidity because of the charitable deduction. B) The trust represents neither a potential cash requirement nor a potential source of liquidity for Robert's estate. C) The trust represents a potential cash requirement since the estate of Robert's spouse did not pay estate tax at the time of funding. D) The trust represents both a potential cash requirement and a potential source of liquidity for Robert's estate.

B

Roberta Graham drafts a will that does not involve any estate tax planning and leaves all of her property to her surviving spouse. Which type of will is this? A) Nuncupative B) Simple C) Complex D) Holographic

C

Roger has made the following gratuitous lifetime transfers: $30,000 in 2000 to his mother and father; $30,000 to each of his three children in 2001 (these amounts were placed in three separate Section 2503[c] minor's trusts); and $90,000 in 2011 to a revocable trust that gives the corporate trustee the discretion to make disbursements of income or principal for the health, education, maintenance, and support of Roger's brother. Through the end of 2011, the trustee made disbursements of $14,000 from the trust to Roger's brother. Roger's spouse passed away in 1999. What amount of gift tax applicable credit does Roger have available in 2023 for subsequent lifetime transfers after reporting these transfers for gift tax purposes? A) $5,113,800 B) $11,970,140 C) $5,097,940 D) $12,920,000

D

Roland was the sole owner of a toy manufacturing company with a fiscal year ending on January 31. Approximately 50% of the company's income is received in the month of January, with expenses incurred evenly over the year. Roland died on January 1, leaving his entire estate, including his interest in the company, to his daughter, Penney. Penney is in the lowest marginal income tax bracket. Roland named his brother, Buck, a contingent beneficiary of the estate. Buck is in the highest marginal income tax bracket. Which of the following postmortem elections would best minimize the income tax liability for Roland's estate and its beneficiaries? A) The executor should elect a fiscal year ending January 31 for the estate. B) The executor should elect a fiscal year for the estate that ends 13 months after Roland's death. C) Penney should make a qualified disclaimer of the interest left to her in the toy company. D) The executor should use the calendar year as the tax year for the estate.

D

Rolando owned a parcel of real estate as an equal tenant in common (TIC) with his wife, Liz, and his brother, Sam. Rolando and Liz each contributed $50,000 to the original purchase price, and Sam contributed $20,000. Rolando recently died and is survived by Liz and Sam. Which of the following statements are CORRECT concerning a tax implication of this form of property ownership? I. Rolando's estate must include one-third of the property's fair market value (FMV) as of the date of death. II. When they took title as TIC, both Rolando and Liz made a gift to Sam. III. Rolando's estate must include 41.66% of the property's FMV at the date of death, unless his personal representative can prove contribution by Sam. IV. After Rolando's death, Liz will be entitled to receive 83.33% of the income from the property because she will receive Rolando's interest by right of survivorship. A) II and IV B) III only C) I, II, III, and IV D) I and II

C

Rollie plans on purchasing some U.S. savings bonds with his son, Steven. He has been told that he can title the bonds either as "Rollie or Steven" or "Rollie payable on death to Steven." Which of the following statements are CORRECT regarding advantages and disadvantages of these two methods of titling? I. "Rollie or Steven" would not avoid probate of the bonds. II;. "Rollie payable on death to Steven" would give Rollie sole control of the bonds during his life. III. "Rollie payable on death to Steven" would allow Rollie to remove Steven as beneficiary. IV. "Rollie or Steven" would allow the survivor to become the sole owner of the bonds without the bonds going through probate. A) II and IV B) I, III, and IV C) II, III, and IV D) I and III

B

Ronald and Karen are spouses. Karen is a U.S. citizen, and Ronald is a citizen of Scotland. Karen has a sizable estate, and when she dies she wants to leave it all to Ronald in a way that qualifies for the estate tax marital deduction. Which of the following marital trusts can Karen use to accomplish her goal? A) Qualified terminable interest property (QTIP) trust B) Qualified domestic trust (QDOT) C) Bypass (B) trust D) Disclaimer trust

B

Roxanne, a widow, has a gross estate valued at $999,000. One-fourth of her estate is in raw land held for speculation, and another large portion is in a closely held partnership, valued at $380,000. Roxanne's will leaves all property to her son, with all debts, expenses, and taxes to be paid from the residue. She has employer benefits of about $200,000, payable to her son. Five years ago, she created an irrevocable life insurance trust, which is the owner and beneficiary of a $150,000 life insurance policy on her life; her son is the only beneficiary of the trust. She has made prior taxable gifts of $600,000. Which of the following postmortem techniques are available and advisable to increase liquidity in Roxanne's estate if she were to die today? I. A Section 6166 extension and installment payment of taxes II. An election of special use valuation for the raw land III. A request to the trustee of the irrevocable insurance trust to purchase some of the hard-to-sell property from her estate IV. A Section 303 stock redemption A) I, II, and IV B) III only C) II and III D) I, III, and IV

B

Ruby made the following payments this year. Which one would be a taxable gift? A) $35,000 to State University to pay her grandson's college tuition B) $21,000 to her granddaughter so she could pay her college tuition C) $25,000 to Lakeside Hospital to pay for her neighbor's surgery D) $9,000 to her son so he could purchase a boat

C

Rupert's gross estate is valued at $13.6 million using fair market valuations. His largest asset is a chicken breeding business, with real estate valued at $10.81 million and equipment valued at $1.4 million. Which of these facts would Rupert's executor need to know to determine whether the real estate used in the chicken breeding business will qualify for special use valuation under Code Section 2032A? I. To whom the real estate will go according to Rupert's will II. How long Rupert or a member of his family has owned the real estate and how it has been used in the business III. The amount and types of gifts Rupert made within three years of his death IV. The amount of all secured debts on the business property A) II, III, and IV B) I and II C) I, II, III, and IV D) I and IV

D

Ruth established a Section 2503(c) minor's trust for her 5-year-old granddaughter, Frances, and funded it with $20,000 of income-producing real estate. Ruth named herself as trustee. Which one of the following statements is CORRECT regarding this transfer? A) This trust will allow Ruth to determine when Frances will be entitled to receive the corpus. B) This type of trust cannot be funded with real estate. C) This transfer will assure Ruth that the trust property will not be included in her gross estate. D) This trust will allow Ruth to determine when Frances will be entitled to receive income from the trust.

D

Ruth establishes a simple trust and funds it with $500,000 in cash. Which of the following actions is Ruth's trust permitted to take? I. Accumulate trust income II. Pay out all of its income to trust beneficiaries at least annually III. Make charitable distributions IV. Make distributions in excess of its income A) II and IV B) I, III, and IV C) I, II, III, and IV D) II only

D

Sam Cahill died this year. His revocable living trust provided that after his death, the trustee was given discretion to distribute trust income among his spouse, children, and grandchildren for their health, education, maintenance, and support. The corpus and any undistributed income are to be distributed in equal shares to his grandchildren when Sam's youngest child reaches age 45. Sam was survived by his spouse, three children, and eight grandchildren. Which of the following are CORRECT statements regarding the application of the generation-skipping transfer tax (GSTT) to this trust? I. Sam's trust is an example of an indirect skip. II. If the trustee distributes any income to Sam's spouse, for GSTT purposes a taxable distribution will have occurred. III. No generation-skipping transfer from this trust can take place until the youngest of Sam's children reaches age 45. IV. When Sam's grandchildren receive the corpus and undistributed income, a taxable termination will occur. A) III and IV B) I and II C) II and III D) I and IV

A

Sam wants to leave some real estate to his wife, Inez, outside of probate when he dies. He would also like her to receive some interest in the real estate while he is alive. Sam does not want Inez to be able to transfer or encumber her interest in the real estate without his consent. Which one of the following is the most appropriate form of will substitute for Sam to use? A) Place the property in tenancy by the entirety B) Place the property in joint tenancy with right of survivorship (JTWROS) C) Place the property in tenants in common D) Give Inez a remainder interest in the property while retaining a life estate

B

Sandra dies owning a family farm. The value of the acreage as farmland is $2,500 per acre. Many adjoining farms have been converted to tract housing and have sold for as much as $10,000 an acre. Sandra's will leaves the farm to her daughter, who intends to use it as farmland for the rest of her life and then pass it to her children. Which of the following postmortem estate planning techniques will be most useful to Sandra's estate? A) Election against the will B) Special use valuation (Section 2032A) C) Alternate valuation date (AVD) D) QTIP election

D

Sarah, an unmarried woman, creates the will substitutes listed below. Which beneficiary should be most confident in receiving their interest? A) A TOD for the benefit of Niece Nancy. B) A life insurance beneficiary form naming Uncle Roger the sole beneficiary. C) A POD for the benefit of Nephew Nelson. D) A governmental savings bond titled "Sarah or Aunt Mary".

D

Several of the steps involved in the estate planning process are I. Understanding the client's personal and financial circumstances II. Implement the recommendation(s) III. Identify and select goals IV. Develop the recommendation(s) Which one of the following lists the sequence of these steps correctly? A) I, IV, II, III B) I, III, II, IV C) III, I, IV, II D) I, III, IV, II

A

Several of the steps involved in the estate planning process are I. identify and select goals, II. monitoring progress and updating, III. develop the appropriate technique, and IV. analyze potential alternate courses of action. Which one of the following lists the sequence of these steps correctly? A) I, IV, III, II B) I, IV, II, III C) I, II, III, IV D) III, I, IV, II

B

Since undergoing a quadruple bypass operation, Robert has become concerned that future heart problems may leave him incapacitated. He wants to grant his brother the right to make crucial medical decisions for him in the event he ever becomes unable to make decisions for himself. Which of the following documents best meets Robert's needs? A) Springing power of attorney for property B) Durable power of attorney for health care (DPOAHC) C) Living will D) Nondurable power of attorney

C

Stella transferred a residence that was in her sole name to her and her four children as joint tenants with right of survivorship to avoid probate of this asset. No child provided any consideration for this transfer. When Stella dies, what percentage of the fair market value of this asset must be included in her gross estate? A) 10% B) 20% C) 100% D) 50%

B

Svetlana has a large estate. She and her spouse, Igor, are childless. Svetlana has promised her favorite brother, Max, a portion of her wealth. Svetlana recently updated her will. Which of the following provisions of Svetlana's will qualify assets placed in the cited trusts for the marital deduction? I. A trust that must pay all income to Igor at least annually during his lifetime. He has a lifetime, or testamentary, right to designate anyone, including himself, as an appointee of trust property. II. A trust in which all income is distributed annually to Igor for his life. The corpus passes to a qualified charity at his death. III. A trust that gives the trustee the discretion to pay income to Igor and Max until one of them dies. Then, the trust assets are to be distributed to the survivor. A) II and III B) I only C) I and II D) I, II, and III

D

Sylvia, 67, is a widow with an estimated gross estate of $4.8 million. Some of her assets are listed as follows: - A one-third partnership interest in the Mountain Home Ranch (which she, her brother, and sister have operated for the past 30 years). The partnership assets are valued at $8 million, with 40% allocated to the real estate and the remainder to livestock, machinery, et cetera. The ranch has mortgages and secured debts of $3.3 million, divided equally between the ranch real estate and the ranch personal property. She has willed her interest to her son, Simpson. - 1,000 shares of closely held stock in the Cowpoke Cafe and Emporium valued at $1.25 million. Real estate owned by the corporation is valued at $400,000. Her will names her son as the beneficiary of the stock. Her financial planner has estimated her unsecured debts at $280,000, her administrative expenses at $220,000, and combined state and federal death taxes at $1 million. Sylvia has made $9 million of adjusted taxable gifts, all of which occurred more than three years ago. Which of the following postmortem techniques can Sylvia's estate use to decrease its need for liquid resources and/or increase its liquidity? I. Special use valuation for Sylvia's interest in the Mountain Home Ranch II. Section 303 stock redemption for Sylvia's interest in the Mountain Home Ranch III. Section 6166 installment payment of estate taxes for Sylvia's interest in the Mountain Home Ranch IV. Section 303 stock redemption for Sylvia's interest in the Cowpoke Cafe and Emporium A) II and III B) I and IV C) II and IV D) III and IV

B

Tasha and her mother, Marleen, meet with a financial advisor to get a better understanding of Marleen's estate and financial planning. Marleen has recently updated her will but Tasha fears there may be gaps in her mother's planning. If Marleen is in poor health, which of the following estate planning devices should Marleen include in her overall estate planning? I. Springing durable power of attorney for health care II. Advance medical directive III. Special needs trust IV. Qualified domestic trust (QDOT) A) I, III, and IV B) I and II C) I only D) II, III, and IV

B

Ted and Betty are spouses. In 2023, Betty makes a gift of $25,000 to her mother, and Ted agrees to treat the gift as a split gift. Who must file a gift tax return for 2023 if this is their only gift? A) Both Betty and Ted B) Betty C) Ted D) Neither Betty nor Ted

D

Tess Thomas lives in a common law state. She "wrote out" a will in her own handwriting and signed it. In the will, she left everything to her sister, Kate, because she and her spouse separated last month. Since executing the will, Tess has become concerned about its adequacy. You should refer her to an attorney after informing her that A) this is a nuncupative will, which is invalid and allows all her property to avoid probate. B) the fact that she drafted her own will creates a presumption that she was not of sound mind when it was drafted, which causes the will to be invalid. C) her will is valid and will result in all her solely owned property going to her sister. D) if she has not met the state's will requirements, her will is unenforceable, and probate property interests will pass according to the intestate succession statute.

D

Thatcher is concerned because he has a significant amount of secured debt and does not want his personal representative (PR) to have to use his liquid assets to pay off these debts. Which of the following is a premortem strategy that Thatcher can use to achieve his goals? A) Thatcher's PR can use the alternate valuation date. B) Thatcher's PR can sell the secured property. C) Thatcher can make a qualified disclaimer of the secured property. D) Thatcher can use a nonexoneration clause.

D

The Bells have decided to establish a charitable trust. Their goal is to receive an annual income from the trust during their lives, with the trust assets passing to charity when they die. Because they both expect to live a long time, they want the income from the trust to provide them with a potential hedge against inflation. Which of the following charitable trusts will best meet the Bells' objectives? A) Charitable lead unitrust (CLUT) B) Charitable lead annuity trust (CLAT) C) Charitable remainder annuity trust (CRAT) D) Charitable remainder unitrust (CRUT)

B

The Chapter 14 valuation rules of the Internal Revenue Code apply to which of the following types of techniques between family members? I. Corporate recapitalizations II. Partnership capital freezes III. Grantor retained trusts IV. Buy-sell agreements A) III only B) I, II, III, and IV C) IV only D) I and II

B

The alternate payee's interest in retirement plan benefits subject to a qualified domestic relations order (QDRO) may be distributed in all of the following ways except A) to a qualified plan in which the alternate payee is a participant. B) directly to the alternate payee before the plan participant is eligible for withdrawals from the plan. C) in periodic payments to the alternate payee after the plan participant reaches retirement age. D) to an IRA owned by the alternate payee.

A

The financial planner may have to which all of the following obstacles to preplanning for incapacity? I. Client procrastination in setting up appointments with planners and attorneys II. Belief that court-appointed fiduciaries will be accepted by third parties more readily than self-appointed fiduciaries III. The influence of potential conflicts of interest on decision making for an individual fiduciary A) I, II, and III B) I and III C) II and III D) I and II

D

The following is a complete list of the lifetime gifts made by Julie: - $50,000 to her mother in 1972 before Julie was married - $600,000 to her brother in 2001. Her husband, Hank, agreed to split this gift; Hank did not make any taxable gifts in this year. - $350,000 to an irrevocable trust in 2012. Julie and Hank were income beneficiaries at a corporate trustee's discretion, and their children were equal remainder beneficiaries at the death of the last parent. Hank did not split this gift. - $5,000,000 outright to her cousin late in December 2019 after - Hank had died the year before. Julie paid $264,000 in gift tax when she filed her gift tax return in 2020. Julie died in early February 2023. What is the correct amount of adjusted taxable gifts that Julie's personal representative should add to her taxable estate when computing her federal estate tax? A) $2,776,000 B) $3,619,000 C) $4,155,080 D) $5,275,000

D

The preliminary computation of assets in the Hugh Campbell Estate indicates the following: Farm land: $6,000,000 Farm machinery: $3,000,000 Residue of Campbell estate: $11,000,000 Total gross estate: $20,000,000 Administrative expenses: ($300,000) Debts of decedent (mortgage on farm land only)>($900,000) Other Deductions: ($1,200,000) Adjusted gross estate: $18,800,000 Taxable estate: $18,800,000 Hugh, a U.S. citizen, purchased the farm land six years before his death and personally farmed the land throughout this same period. Hugh's will leaves the land and farm machinery to his son, Hobart, who hopes to continue farming the land. Why is the Campbell estate NOT entitled to use special use valuation in the calculation of estate tax due? A) Because the farm property has not been in a qualified use for the required number of years B) Because the land was not used by any of Hugh's family members prior to his death C) Because the decedent's son is not a qualified heir for purposes of special use valuation D) Because the combined value of the farm land and farm machinery, less secured debts, does not exceed 50% of the gross estate as adjusted for secured debts

A

The provisions of all of the following types of state statutes can be altered by express provisions in a will except A) elective share statutes. B) abatement statutes. C) after-born child statutes. D) simultaneous death statutes.

D

The purpose of including Crummey powers in a trust is to A) protect trust assets against claims by the grantor's creditors. B) prevent the trust from having to pay tax on the trust income. C) allow the grantor to revoke the trust upon 30 days' notice. D) ensure that gifts to the trust qualify for the gift tax annual exclusion.

A

This year, Rhonda makes present interest gifts to five different donees and makes future interest gifts to three other donees. Rhonda is entitled to how many gift tax annual exclusions this year? A) Five B) Three C) Eight D) One

D

Thomas owns as joint tenant with right of survivorship an office building with his sister Sally? His will makes a specific bequest of the office building to his son, Winston. If Thomas predeceases Sally, who will own the property? A) Winston B) Estate of Thomas C) Ownership will be equally split between Winston and Sally. D) Sally

B

To qualify for the marital deduction, property must pass to the surviving spouse. How can property pass and still qualify for the deduction? I. By will II. By survivorship III. By intestacy IV. By power of appointment A) I and II B) I, II, III, and IV C) I and IV D) I and III

D

Trusts are one method often used to leave property to care for a minor child from a prior marriage. Which of the following are correct statements about the advantages and disadvantages of such a technique? I. Such trusts can be either inter vivos or testamentary trusts. II. A conservator must be appointed for the minor child. III. The trust will be subject to the continuing supervision of a local court. IV. Such trusts can continue for the minor child's benefit after he or she reaches the age of majority. A) I, II, and IV B) II, III, and IV C) II and III D) I and IV

B

Two sisters, Donna and Mary, own a home as joint tenants with right of survivorship (JTWROS). They purchased the home 10 years ago for $100,000. Donna contributed $40,000 and Mary contributed $60,000. Today, the home is valued at $180,000. If Donna died today, what amount would be included in her gross estate? A) $40,000 B) $72,000 C) $80,000 D) $90,000

B

Use of the generation-skipping transfer tax (GSTT) exemption for lifetime skips is A) allowed only for the wealthy. B) not mandatory. C) only applicable in $17,000 increments. D) mandatory.

B

Using a family member or friend as a personal representative (PR) of an estate rather than an institutional PR is advantageous because the family member or friend is more likely to do which of the following? I. Waive the PR's fee II. Be concerned about the needs of individual beneficiaries III. Be free from any conflicts of interest with the other beneficiaries IV. Have the specialized knowledge and expertise required of a PR A) I and IV B) I and II C) II and III D) III and IV

D

Vince died during the current year. His estate consisted of the following assets: I. Traditional IRA invested in a global stock fund and a balanced mutual fund—Vince's cousin, who died two years ago, was the designated beneficiary. This beneficiary designation was never changed by Vince. II. Life insurance policy with a cash value of $55,000 and death benefit of $500,000—the policy is on the life of Vince's sister. Vince's daughter is the named beneficiary. III. An installment note receivable, with a 9% interest rate and a remaining term of seven years. IV. Land held as tenancy by the entirety with Vince's spouse. Which assets will be included in Vince's probate estate? A) III and IV B) I and II C) I, II, and IV D) I, II, and III

C

Wanda Skaggs would like to avoid the time, expense, and inconvenience of probate. She also would like to reduce the size of her gross estate. Which one of the following strategies would be most likely to meet all of Wanda's goals? A) Changing the deed to her personal residence so that she has a retained life estate, with the remainder going to her children B) Retitling all of her solely owned property with her children and herself as tenants in common C) Transferring property to her son, Chauncy, in return for his promise to pay her a fixed annuity for the rest of her life based on the value of the property D) Converting her bank accounts to payable on death (P.O.D.) accounts

C

What is an adjusted taxable gift? I. Life insurance death benefits from a policy in which the deceased was the original owner and is also the insured. The policy was gifted to a relative within three years of the death of the insured. II. A taxable gift made by the decedent after December 31, 1976 III. An addition to the taxable estate to determine the total estate tax base IV. A pre-1976 gift A) II, III, and IV B) I, II, and III C) II and III D) I and II

A

What is the gift tax lifetime exemption amount for 2023? A) $12,920,000 B) $5,113,800 C) $1,000,000 D) $17,000

B

When Alex dies, his will leaves his entire estate to his widow, Grace. The will provides that if Grace does not survive him by 60 days, the estate will pass to their children. Grace has substantial assets of her own and would prefer that Alex's property pass directly to their children now instead of to her. Which of the following postmortem estate planning techniques would enable Grace to achieve her wishes? A) Election against the will B) Qualified disclaimer C) Reverse QTIP election D) Partial QTIP election

C

When Craig's Uncle Larry died, Craig inherited the right to live in Larry's home for as long as Craig lives. Larry's will also provides that when Craig dies, the home will pass to Craig's daughter, Monica. What type of interest does Monica have in the home at the uncle's death? A) Life estate B) Term of years C) Remainder D) A right of partition

C

When Marsha dies, her will leaves her entire estate to her surviving spouse, Daniel. Marsha's will provides that if Daniel does not survive Marsha by 90 days the estate will pass to their adult children. Daniel has sufficient assets of his own and would prefer that Marsha's property pass directly to their children now, instead of to him, but he wants to avoid making a taxable gift to them. Which of the following postmortem estate planning techniques would enable Daniel to achieve his objective? A) Reverse QTIP election B) Election against the will C) Qualified disclaimer D) Partial qualified terminable interest property (QTIP) election

D

When a married couple divorces, one estate planning issue that may arise is allowing one spouse access to retirement benefits earned by the other spouse. This goal can be achieved by use of a qualified domestic relations order (QDRO). Which of the following statements correctly identifies an advantage or a disadvantage of a QDRO? I. An advantage of using a QDRO is that it can be used to satisfy the plan participant's obligation to pay child support, alimony, or marital property rights. II. An advantage of using a QDRO is that it can force the plan administrator to accelerate the distribution of benefits to the alternate payee. III. A disadvantage of using a QDRO is that distributions to an alternate payee who is the participant's spouse are taxable to him or her to the same extent they would have been to the participant. IV. An advantage of using a QDRO is that if the participant's spouse is the alternate payee, his or her interest may be distributed to an IRA owned by the spouse. A) II and IV only B) II, III, and IV only C) I and III only D) I, III, and IV only

D

When she died, Roberta and her spouse, Patrick, owned a condo as joint tenants with right of survivorship (JTWROS). Their basis in the condo was $500,000, and the fair market value on the date of Roberta's death was $1,200,000. What is Patrick's basis in the home following Roberta's death? A) $1,200,000 B) $250,000 C) $600,000 D) $850,000

`A

When the owner-grantor transfers property and has the right to have all or part of the transferred property returned after an intervening interest, the owner-grantor's interest is known as a A) reversion. B) fee simple estate. C) remainder. D) life estate.

D

Which of the following actions should an executor take when developing a cash flow plan for an estate? I. Determine which assets are the best candidates for sale if it appears necessary to sell estate property II. Begin planning a strategy to make up any projected cash deficit III. Account for the possibility of unexpected expenses IV. Explore ways of reducing the estate's cash needs by making special elections under the estate tax laws A) I and III B) I, III, and IV C) II only D) I, II, III, and IV

D

Which of the following are CORRECT statements about the filing requirements and/or the responsibility for payment as they relate to federal transfer taxes? I. A donee can be held responsible for paying the gift tax on a transfer that she has received if the IRS cannot collect from the donor. II. A federal estate tax return need not be filed unless an estate owes estate taxes in excess of the unified credit. III. The beneficiary is responsible for paying the generation-skipping transfer tax on a distribution from a trust and must file a tax form. IV. A federal gift tax return need not be filed for a gift that is split with the donor's spouse. A) III only B) II and III C) I, II, and IV D) I and III

C

Which of the following are CORRECT statements about the nontax characteristics of a gift to a custodial account under the Uniform Transfers to Minors Act (UTMA)? I. UTMA places no restrictions on the type of property that may be gifted. II. UTMA allows both lifetime and testamentary gifts. III. Both income and principal in an UTMA account may be used for the benefit of the minor during his period of minority. IV. A UTMA account is established by irrevocably registering the gifted property in the custodian's name for the benefit of the named minor. A) I and III B) I, III, and IV C) I, II, III, and IV D) I, II, and III

B

Which of the following are CORRECT statements about the nontax characteristics of a pooled income fund? I. It involves a trust created by the grantor solely for the benefit of that grantor and the charity. II. It must pay a fixed dollar amount to the noncharitable beneficiary annually. III. The principal is distributed to the charitable beneficiary at the end of the noncharitable beneficiary's life. IV. The income that can be paid to the noncharitable beneficiary is limited to 10% of the original principal unless the beneficiary is older than a specified age. A) I and III B) III only C) I and II D) III and IV

A

Which of the following are CORRECT statements about the responsibility for payment of the federal generation-skipping transfer tax? I. When a taxable termination occurs, the beneficiaries receiving distributions from the trust are responsible for paying any generation-skipping transfer tax that may be due. II. The estate of a decedent is responsible for paying any generation-skipping transfer tax due on a direct skip transfer made by the decedent's will. III. When a taxable distribution occurs, the trustee of the trust making the distribution is responsible for paying any generation-skipping transfer tax that may be due. IV. The donor is responsible for paying any generation-skipping transfer tax due on a direct skip made during life. A) II and IV B) III and IV C) I, II, and III D) I and III

A

Which of the following are CORRECT statements concerning a buy-sell (business continuation) agreement funded with life insurance? I. The business is a party to the contract if a stock (entity) redemption plan is used. II. With a cross-purchase plan, the surviving shareholder's new cost basis is equivalent to his or her old cost basis plus the life insurance proceeds used to purchase the deceased shareholder's interest at the price established by the agreement. III. A cross-purchase plan is preferable to a stock (entity) redemption plan when all shareholders are in a higher income tax bracket than the corporation. IV. With a stock (entity) redemption plan, premiums paid by the corporation on life insurance to fund the purchase are taxable income to the shareholders because they will eventually benefit. V. Under a stock (entity) redemption plan, the value of the deceased's business interest is included in his or her gross estate, while the life insurance proceeds used to purchase his or her business interest are excluded. A) I, II, and V B) I and III C) II and IV D) II, III, and IV

C

Which of the following are CORRECT statements regarding the characteristics and purpose of a "no contest" clause? I. This type of clause is used when a close family member is disinherited in a will. II. This type of clause imposes a penalty for contesting the validity of provisions in a will. III. This type of clause prohibits contesting the validity of provisions in a will. IV. This type of clause prevents a person from contesting a will if he or she has feloniously caused the death of the testator. A) I, III, and IV B) III and IV C) I and II D) II and IV

A

Which of the following are advantages of using an individual fiduciary rather than an institutional fiduciary? I. An individual fiduciary is less likely to charge a fee for his or her services. II. An individual fiduciary usually will have more knowledge of, and sensitivity to, the beneficiaries. III. An individual fiduciary is likely to be more impartial and have fewer conflicts of interest with the beneficiaries. IV. An individual fiduciary is more likely to be able to serve for an extended period of time. A) I and II only B) III and IV only C) I, II, and IV only D) II and III only

B

Which of the following are characteristics of a gift-leaseback? I. The property involved in the transaction usually is a business-related asset. II. The property involved in the transaction usually is gifted to a donee in a lower marginal income tax bracket. III. The donor retains security in the gifted property. IV. The lease payments made by the donor to the donee are considered additional gifts. A) II and III B) I and II C) III and IV D) I and IV

A

Which of the following are characteristics of a qualified disclaimer of assets from a decedent's estate? I. It must be irrevocable and stated in writing. II. It must direct the bequest to another person selected by the disclaimant. III. It must be received by the estate's personal representative. IV. The disclaimant may refuse the bequest after accepting its benefits. A) I and III B) III and IV C) I, II, and III D) I only

A

Which of the following are characteristics of the probate process? I. It facilitates the administration of an estate without publicity. II. It provides for distribution of property through a judicially supervised process. III. It results in reduced administrative costs and expenses to the estate. IV. It establishes a method for an orderly filing and paying of creditor claims against the estate. A) II and IV B) II and III C) I and IV D) I and III

A

Which of the following are characteristics of the probate process? I. It provides for the orderly distribution of property that passes by will or intestate succession to the ultimate beneficiary. II. It usually provides a longer time period for the filing of claims than if assets were to pass outside of probate. III. It provides for systematic administration of the decedent's estate. IV. It provides for administration of all of the decedent's gross estate. A) I and III B) I and II C) II and IV D) III and IV

B

Which of the following are effective method(s) of limiting or avoiding federal estate taxes? I. Use the annual gift tax exclusion II. Create an irrevocable life insurance trust III. Use qualified transfers to pay tuition and medical expenses directly to the provider IV. Use the unlimited marital deduction A) II and III B) I, II, III, and IV C) I, III, and IV D) I, II, and IV

B

Which of the following are essential in establishing and defining the client and planner relationship? A) Determine how the planner is compensated. B) All of the above. C) Determine what the planner is to do or not do. D) Understanding the personal and financial circumstances of the client.

A

Which of the following are estate planning issues that face persons in nontraditional family relationships such as cohabitation? I. the reduction or elimination of transfer taxes without benefit of certain tax deductions that are available in traditional families II. ensuring that nonrelatives who are significant to them are included in medical decisions in the event of incapacity III. ensuring that nonrelatives who are significant to them are able to receive a family allowance IV. clarifying the responsibility for debts and the ownership of specific assets for all involved parties and their heirs A) I, II, and IV B) I and III C) II and III D) II and IV

B

Which of the following are factors that a financial planner should monitor for every client? I. Changes in the client's objectives II. Changes in the client's marital status III. Changes in property laws IV. Changes in the amount of lifetime gifts made by the client A) I, III, and IV B) I, II, III, and IV C) I and II D) II, III, and IV

A

Which of the following are factors that should be considered in selecting a trustee for a trust that will last for an extended period of time? I. Appointing of co-trustees II. Appointing a contingent trustee III. Providing a method for the appointment of a successor trustee IV. The age of the potential trustee A) I, II, III, and IV B) I and III C) II and IV D) I, II, and IV

A

Which of the following are fiduciary relationships created by law to enable one person to manage the property of another? I. Conservatorships II. Guardianships A) I only B) II only C) Neither I nor II D) Both I and II

B

Which of the following are important characteristics of the gift tax marital deduction? I. It enables the donor to avoid gift tax liability by transferring the entire liability for gift taxes to the donee spouse. II. It allows the donor to avoid gift tax liability on up to one-half of the value of the gifted property that is received by the donee spouse. III. It allows the donor to avoid gift tax liability on the amount of the gift in excess of the annual exclusion amount. IV. It allows the donor to avoid gift tax liability on a gift to a donee spouse. A) I and II B) III and IV C) II and IV D) I and III

D

Which of the following are included as adjusted taxable gifts in calculating a decedent's tentative tax base? A) Post-1976 gifts that are less than the annual exclusion amount B) Gifts made to a spouse that qualified for the gift tax marital deduction C) Gifts that qualified for the gift tax charitable deduction D) Taxable gifts made after 1976 that are not included in the decedent's gross estate

B

Which of the following are interests that must go through probate? I. A residence that the decedent held in tenancy by the entirety with his spouse II. An automobile that passes according to state intestacy laws III. Securities held by the decedent with a T.O.D. designation IV. Real property, located in the state of the decedent's domicile, that is held solely in the decedent's name but that is considered to be community property A) I and III B) II and IV C) II, III, and IV D) I, III, and IV

B

Which of the following are prerequisites for application of the generation-skipping transfer tax (GSTT)? I. A gratuitous completed transfer II. Transferee deemed to be two or more generations younger than the transferor III. Transfer qualifies as a direct skip transfer IV. No exceptions or exemptions from the normal rules apply A) II and III B) I, II, and IV C) III and IV D) I and II

B

Which of the following are property interests that must go through the probate process? I. A car that passes to the decedent's spouse by the state's intestate succession statute. II. A government savings bond that is titled in the name of the decedent payable on death to the decedent's daughter. III. Life insurance proceeds payable to the decedent's estate. IV. Assets in a revocable trust that pass to the decedent's children at the decedent's death. A) II and IV B) I and III C) II, III, and IV D) I, III, and IV

D

Which of the following are reasons business succession planning is complex and challenging? I. Determining the value of the business may be difficult. II. It may be difficult to find a buyer who has the resources necessary to purchase the business. III. Family issues may be involved if the business is closely-held or family owned. IV. A new owner may have difficulty adapting to the idiosyncrasies of the owner's business. A) I and II B) II and IV C) III and IV D) I, II, III, and IV

C

Which of the following are requirements that must generally be met for property to qualify for the estate tax marital deduction? I. The property must be included in the decedent's gross estate. II. The property must pass to the decedent's surviving spouse. III. The value of the property must not exceed $1 million. IV. The property must not be a terminable interest or must qualify under one of the exceptions to the terminable interest rule. A) I, II, III, and IV B) II and IV C) I, II, and IV D) I and III

C

Which of the following are the tax implications of a 10-year term charitable lead trust with the donor's children as the remainder beneficiaries? I. The donor's charitable gift tax deduction is determined by the present value of the charity's right to receive trust assets at the end of the 10-year term. II. The donor is liable for gift tax based on the entire value of the gift to the children as discounted to the date of the gift. III. The entire value of the assets gifted to the trust will be removed from the donor's gross estate only if he or she outlives the 10-year term. IV. Each year, as the trust pays income to the charity, the donor receives a charitable income tax deduction for that amount. A) I and IV B) I and III C) II only D) I, II, and III

A

Which of the following are valid concerns when an applicant for long-term nursing home benefits under Medicaid transfers title to his or her personal residence to his or her community spouse? I. The possibility the parties may divorce II. Whom the community spouse may leave the residence to when he or she dies III. The community spouse's creditors IV. The terms of an existing mortgage on the residence A) I, II, III, and IV B) II and III C) I, III, and IV D) I and IV

B

Which of the following arrangements is created under a will? A) Totten trust B) Testamentary trust C) Revocable living trust (RLT) D) Inter vivos trust

C

Which of the following assets must be listed at their date of death value on the federal estate tax return, even if the estate elects the alternate valuation date (AVD)? A) Real estate B) Mutual funds C) Joint and survivor annuities D) Publicly traded securities

B

Which of the following assets will pass through probate? ` I. Survivors' interests in a joint and survivor annuity contract, payable to named beneficiaries II. Solely owned real estate III. Veterans' survivor benefits payable to named beneficiaries IV. A vacation home owned by spouses as a joint tenancy with right of survivorship A) I, II, III, and IV B) II only C) III and IV D) I and II

C

Which of the following characteristics are required for a power of appointment trust ("A" trust) to qualify for the marital deduction? I. Authorization to the trustee to split trust income between the surviving spouse and other family members II. Mandatory distribution of all income earned by the trust to the surviving spouse at least annually III. Control by the surviving spouse over the ultimate disposition of the trust assets IV. Inclusion of the trust corpus in the surviving spouse's gross estate A) II and IV B) I and IV C) II, III, and IV D) I, II, and III

D

Which of the following charitable remainder trusts permit additional contributions of property after inception? I. Charitable remainder annuity trusts (CRATs) II. Charitable remainder unitrusts (CRUTs) A) Neither I nor II B) Both I and II C) I only D) II only

B

Which of the following charitable trusts may NOT invest in tax-exempt securities? I. Pooled income fund (PIF) II. Charitable remainder annuity trust (CRAT) III. Charitable remainder unitrust (CRUT) A) II and III B) I only C) I, II, and III D) III only

A

Which of the following concepts associated with liquidity planning, matched with its description, is NOT correct? A) Estate liquidity—the decrease in the value of a decedent's estate from the time of the decedent's death until the time of the ultimate distribution to the decedent's devisees, legatees, and heirs B) Estate administrative expenses—the money that the decedent's personal representative must spend to collect the decedent's assets; pay claims of the estate; and distribute the remaining assets to the decedent's devisees, legatees, or heirs. C) Estate debts—the money that the decedent's personal representative must spend to pay the decedent's lifetime obligations that had not been paid at the time of the decedent's death. D) Forced liquidation—estate shrinkage that occurs when the decedent's personal representative must sell estate assets, usually at less than market value, to make up for a cash deficiency.

B

Which of the following constitutes a direct skip for purposes of the generation-skipping transfer tax (GSTT)? A) A testamentary bequest from father to son B) A lifetime gift from grandmother to granddaughter C) A transfer in trust granting a life estate to daughter, remainder to grandson D) A transfer in trust benefiting the remainder person (granddaughter) after the death of the life tenant (son)

B

Which of the following correctly identify a premortem technique that can be used to reduce the cash needs of an estate? I. Retitling property as joint tenants with right of survivorship (JTWROS). II. Executing a will that includes a self-proving clause and meets all legal formalities required by state law. III. Investing in real estate, such as rental properties, and retaining closely held business interests. IV. Purchasing real property in multiple states for investment purposes. A) I, III, and IV B) I and II C) II and IV D) I, II, III, and IV

C

Which of the following correctly states a requirement that must be met for a disclaimer to be qualified for federal tax purposes? A) The person making the disclaimer must be a qualified heir, defined as the decedent's surviving spouse or lineal descendants. B) The disclaimer must be made before the end of the calendar year in which the transfer creating the interest occurred (or in which a disclaimant becomes 21 years of age). C) The disclaimant may not name the person who is to receive the property as a result of the disclaimer. D) The disclaimant can accept and enjoy the property for a time but can decide to return, as long as they do so within six months.

B

Which of the following credits may be applied to the estate tax payable to arrive at the net federal estate tax payable? I. The applicable credit amount II. The credit for foreign death taxes III. The credit for taxes on prior transfers A) I only B) I, II, and III C) I and II D) II and III

D

Which of the following describe(s) a reverse QTIP election? I. A special election made by an executor to treat qualified terminable interest property as if the QTIP election had not been made for generation-skipping transfer tax purposes. II. An election that allows better utilization of a decedent's GSTT exemption. A) Neither I nor II B) I only C) II only D) Both I and II

D

Which of the following estate planning arrangements can be used in planning for a client's unanticipated incapacity? I. Springing durable powers of attorney II. Revocable living trusts III. Joint tenancies IV. Living wills A) II, III, and IV B) I only C) II and IV D) I, II, III, and IV

B

Which of the following estate planning objectives can be accomplished through a will? I. Creating a presumption of survivorship II. Establishing a priority for eliminating or reducing bequests if the estate has insufficient assets III. Avoiding probate of estate assets IV. Naming a residuary beneficiary to take all assets that remain after specific bequests are allocated A) II and III B) I, II, and IV C) II and IV D) I and III

C

Which of the following estate planning techniques can be used by unmarried cohabitants to reduce estate tax due at the death of the first cohabitant to die? I. The gift tax annual exclusion II. The estate tax charitable deduction III. A qualified domestic trust (QDOT) IV. A qualified personal residence trust (QPRT) A) I and III B) II and IV C) I, II, and IV D) II, III, and IV

B

Which of the following estate planning tools would allow an attorney-in-fact to expedite the principal's Medicaid eligibility, arrange for in-home or nursing home care, hire necessary health care personnel, or employ companions? A) Irrevocable trust B) Durable power of attorney C) Living will D) Power of appointment

A

Which of the following features apply to both the federal gift tax model and the federal estate tax model? I. Unlimited marital deduction for qualifying transfers II. Unlimited charitable deduction for qualifying transfers III. Use of an applicable credit amount IV. Allowance of an annual exclusion A) I, II, and III B) III only C) I and II D) I, II, III, and IV

A

Which of the following forms of ownership pass through probate when an owner dies? I. Fee simple II. Tenancy by the entirety III. Community property IV. Joint tenancy with right of survivorship (JTWROS) A) I and III B) IV only C) I only D) I, III, and IV

C

Which of the following gifts made two years before the donor's death will be included in the gross estate at full date-of-death value? I. A gift of $50,000 cash split equally between a son and daughter-in-law II. A gift in which the donor retains an income interest for life III. Donor's residence transferred into joint tenancy with donor's daughter IV. Stock worth $30,000 given to a friend V. Life insurance policy (cash value $5,000) transferred by the deceased to an irrevocable trust A) I, II, and III B) III, IV, and V C) II, III, and V D) I, II, and V

B

Which of the following is CORRECT regarding gift splitting between spouses for federal gift tax purposes? A) When spouses split gifts, one spouse "loans" the other spouse their annual exclusion amount. B) If the gift is of a present interest, more of the total gift value can be shielded from gift tax because each spouse may use their annual exclusion to reduce the taxable gift amount for their one-half of the gift. C) Only one spouse must be a U.S. citizen or resident before gift splitting is allowed. D) If one spouse consents to gifts made by the second spouse in a particular calendar year, but the second spouse does not reciprocate, gift splitting is allowed as long as the second spouse has consented in one or more prior calendar years.

D

Which of the following is NOT a mistake, pitfall or weakness? A) Failure to recommend necessary changes to a will B) Improper titling of assets C) Lack of estate liquidity D) Proper disposition of assets

A

Which of the following is NOT a requirement of a qualified disclaimer for federal transfer tax purposes? A) The refusal must be written and received by the donor, the donor's legal representative, or the legal titleholder of the property within six months of the decedent's death or six months from the date of gift or, if later, within six months after the beneficiary becomes 21 years of age. B) The person making the disclaimer must not have accepted the interest or any of its benefits. C) The interest must then pass to someone other than the person making the disclaimer without the disclaimant's direction. D) There must be an unqualified refusal by the beneficiary to accept the bequest or the gift.

A

Which of the following is NOT a way that a person can voluntarily transfer estate assets to another person or entity at death? A) By gift B) By will substitute C) By testamentary trust D) By probate

D

Which of the following is NOT an advantage of making a lifetime gift? A) It diminishes the size of the gross estate. B) It shifts income from the gifted asset to the donee. C) It provides personal satisfaction. D) It excludes gift tax paid on the gift from the donor's gross estate regardless of how soon the donor dies after making the gift.

B

Which of the following is a characteristic of an installment sale? I. It requires the receipt of at least one payment in a taxable year following the year of sale. II. Reporting gain on an installment basis is automatic for qualifying sales unless the taxpayer elects not to have it apply. A) Neither I nor II B) Both I and II C) II only D) I only

D

Which of the following is a characteristic of gifts to a noncitizen spouse? A) Qualify for the unlimited marital deduction B) Must always be made in the form of a qualified domestic trust C) Can only be made when the noncitizen spouse becomes a US citizen before the death of the US citizen spouse D) Gifts exceeding super annual exclusion amount will reduce the donor spouse's lifetime applicable credit amount (unified credit) or result in a gift tax if this credit has already been used

D

Which of the following is a court-supervised arrangement in which a person is appointed to manage the personal care and well-being of another? A) Conservatorship B) Power of attorney C) Trust D) Guardianship

C

Which of the following is a fiduciary relationship concerned with the property management of a ward? A) Power of attorney B) Guardianship C) Conservatorship D) Trust

A

Which of the following is a method by which assets can be transferred both during life and at death? A) Irrevocable trust B) Testamentary trust C) Right of survivorship D) Beneficiary designation

B

Which of the following is a nontax-related financial goal? A) Leveraging the use of exclusions B) Maximizing flexibility C) Freezing or reducing the value of assets D) Shifting the receipt of income

D

Which of the following is a premortem technique to increase estate liquidity? A) Making a DSUE election B) Taking advantage of eligible deductions on the estate tax form 706 C) Use of the homestead exemption D) Sell illiquid assets

A

Which of the following is a requirement of a qualified disclaimer? A) It is an irrevocable and unqualified written refusal to accept the interest B) It is made either in writing or orally C) It can be made after the disclaimant has already accepted any interest in the benefits from the property D) It directs that the interest pass to someone else

A

Which of the following is a skip beneficiary for purposes of the generation-skipping transfer tax (GSTT)? I. A related person who is at least two generations below that of the transferor. II. A trust in which the beneficiaries are skip persons and from which no non-skip person will benefit. III. An unrelated person who is younger than the transferor by 37½ years or more. A) I, II, and III B) III only C) I and III D) I and II

C

Which of the following is a tax sensitive goal unrelated to income tax? A) Shifting receipt of income B) Deferring the recognition of income and gain C) Freezing or reducing the value of assets subject to tax D) Obtaining a stepped-up basis

A

Which of the following is a tax-related financial goal? A) Obtaining a stepped-up basis B) Maintaining liquidity C) Avoiding ancillary probate D) Maintaining a satisfactory standard of living

D

Which of the following is a true statement about the GSTT? A) Only that part of a gift will go to a nonskip parties is subject to the GSTT. B) GSTT due on an indirect skip is reported when the gift is given on Form 706 or Form 709. C) The transferor reports the GSTT due on an indirect skip and the federal gift tax or estate tax due on the transfer at the same time. D) GSTT on indirect skips cannot be immediately determined upon completion of the transfer.

C

Which of the following is an advantage of spouses holding property jointly with right of survivorship? I. Total administration expenses and attorney fees may be reduced because the property avoids probate at the death of the first spouse. II. The surviving spouse now has a basis equal to the fair market value of the property at death of first spouse. A) Both I and II B) Neither I nor II C) I only D) II only

B

Which of the following is an effective way for a client to remove the value of an asset from his estate? A) Placing the asset in his revocable trust B) Gifting the asset to another individual C) Placing the asset in his irrevocable trust in which he retains an income interest D) Placing the asset in a grantor trust

D

Which of the following is an estate liquidity need that cannot be completely eliminated by proper premortem planning? A) Miscellaneous cash needs, such as cash to pay the family allowance or to keep a business operating during the period of estate administration B) Cash bequests C) Death taxes D) Administrative expenses

D

Which of the following is not a broad category personal of financial planning goals? A) Financial nontax goals B) Financial tax goals C) Nonfinancial goals D) Funding the collegiate education of a grandchild

C

Which of the following is statements regarding a buy-sell agreement is CORRECT? I. It can fix the value for a business for estate tax purposes. II. It guarantees a market for the business after the business owner's or shareholder's death. III. If the potential buyers do not have sufficient liquidity to purchase the other owner's interests, then cash value life insurance on the owners can fund the agreement. IV. It does not provide liquidity for the deceased owner's estate. A) I and IV B) I only C) I, II, and III D) II and III

A

Which of the following is the only exception(s) to an estate transfer being subject to the generation-skipping transfer tax (GSTT) when a gratuitous completed inter vivos transfer is a generation-skipping transfer? I. The transferor makes payments directly to the recipient for medical expenses. II. The transferor makes direct payments of medical expenses on behalf of the recipient. III. The transferor makes payments directly to the recipient for educational expenses. IV. The transferor makes direct payments for tuition expenses on behalf of the recipient. A) II and IV B) I and IV C) I and III D) II only

B

Which of the following items is NOT deducted from the gross estate to arrive at the adjusted gross estate? A) Casualty losses incurred during the period of estate administration B) State death taxes C) Funeral expenses D) Administration expenses attributable to property subject to claims against the estat

A

Which of the following meet the basic requirements for a charitable gift to be deductible for income, gift or estate tax purposes? I. When Grandpa died, his estate tax was enormous. To lower his estate tax, his heirs decided to contribute $1 million in his name to the Red Cross. II. A qualified appraisal must generally accompany a tax return reflecting donations of property valued in excess of $3,500. III. Contributions are only deductible if they are made to a charity as defined by the Internal Revenue Code. IV. Contributions of a split interest must be made in the form of a specified trust or remainder interest. A) III and IV B) I and II C) I and IV D) II and III

A

Which of the following most likely describes the reason for including Crummey powers in a trust? A) To ensure that gifts to the trust qualify for the gift tax annual exclusion B) To relieve the trust of fiduciary obligations regarding the trust assets C) To protect the trust assets against claims by the beneficiaries' creditors D) To ensure that the trust complies with the rule against perpetuities

B

Which of the following objectives can be accomplished through the use of a buy-sell agreement? I. Fix the value of the business for estate tax purposes II. Provide liquidity for the decedent businessowner's estate III. Guarantee there will be a market or buyer for the business at the decedent's death IV. Provide for business continuation and goodwill among existing customers A) I and II B) I, II, III, and IV C) II and III D) IV only

C

Which of the following people is(are) legally incapacitated? I. George is 82 years old. He is confined to a wheelchair but is mentally alert. II. Edna is 78 years old. She suffers from advanced dementia and is no longer able to make reasoned decisions. A) I only B) Neither I nor II C) II only D) Both I and II

C

Which of the following planning techniques allow the donor to make deductible charitable contributions without drafting a private trust agreement? I. Charitable gift annuity II. Charitable remainder trust III. Charitable lead trust IV. Pooled income fund A) II and III B) I, II, and IV C) I and IV D) II and IV

B

Which of the following postmortem estate planning techniques permits certain types of terminable interests left to a surviving spouse to qualify for the estate tax marital deduction? A) Family settlement agreement B) Qualified terminable interest property (QTIP) election C) Qualified disclaimer D) Election against the will

A

Which of the following postmortem planning techniques require the decedent to have executed, prior to death, a document that is enforceable after death? I. An election that property in a QTIP trust qualify for the marital deduction II. A Section 303 stock redemption election III. A disclaimer trust that will allow a surviving spouse to disclaim property and give her an interest in the property as a beneficiary of the trust IV. An election to waive personal representative (executor) fees A) I and III B) I only C) I, II, and III D) III and IV

B

Which of the following powers of appointment must be included in the holder's gross estate for estate tax purposes? I. General power of appointment II. Special power of appointment A) II only B) I only C) Both I and II D) Neither I nor II

B

Which of the following property interests of a decedent will pass through probate? I. Pension plan assets with a named beneficiary other than the decedent's estate II. The decedent's half interest in community property III. Life insurance proceeds with the decedent's spouse as beneficiary IV. Property owned with the brother of the decedent as tenants in common A) II only B) II and IV C) I and III D) I, III, and IV

D

Which of the following property ownership arrangements are limited to spouses only? I. Tenancy in common II. Joint tenants with right of survivorship (JTWROS) III. Tenancy by the entirety IV. Community property A) II, III, and IV B) II and IV C) I and III D) III and IV

B

Which of the following property transfers between family members are subject to the special zero valuation rules under Chapter 14? I. Corporate recapitalizations II. Partnership capital freezes III. Buy-sell agreements A) II and III B) I, II, and III C) I and II D) III only

A

Which of the following questions would be appropriate in planning with life insurance? A) All of these B) How would a soon-to-be-issued policy be owned? C) How is the policy currently owned? D) Is the amount of insurance coverage adequate?

C

Which of the following regarding state property law elections and allowances are CORRECT? I. Family settlement agreements may require court approval. II. An election against the will can be made by the deceased's surviving children. III. A homestead exemption prevents surviving family members of the decedent from losing certain property due to the claim of an unsecured creditor. A) I, II, and III B) I and II C) I and III D) II and III

C

Which of the following results from Arthur creating a charitable remainder annuity trust (CRAT) or charitable remainder unitrust (CRUT) and donating his ownership of Arthur's Animal Care Center to such a trust, as opposed to a direct sale of the business? I. He avoids capital gains tax upon the transfer of the business to the trust. II. He gets an immediate charitable income tax deduction. III. He may select a joint life annuity. IV. He can receive annuity income. A) II and IV B) II only C) I, II, III, and IV D) I, II, and IV

B

Which of the following results from Arthur creating a charitable remainder annuity trust (CRAT) or charitable remainder unitrust (CRUT) and donating his ownership of Bell's Animal Care Center to such a trust, as opposed to a direct sale of the business? I. He avoids capital gains tax upon the transfer of the business to the trust. II. He gets an immediate charitable income tax deduction. III. He may select a joint life annuity. IV. He can receive annuity income. A) II and IV B) I, II, III, and IV C) II only D) I, II, and IV

A

Which of the following should be included in a will? I. Provision for guardians of minors II. Funeral instructions III. Beneficiaries for retirement accounts A) I only B) I and II C) II and III D) III only

A

Which of the following statements about analyzing the liquidity of an estate are correct: I. Payment of the decedent's debts must be considered. II. Payment of the estate's cost of administration such as appraisal fees must be considered. III. The ease of securing a death certificate must be determined to estimate how quickly survivorship benefits can be paid. A) I, II, and III B) I and II C) II and III D) I and III

A

Which of the following statements about how qualification for special use valuation increases liquidity for the estate of a decedent is CORRECT? A) It can lower the value of certain estate assets. B) Special use allows the estate tax attributable to certain estate assets to be paid in installments. C) It allows the estate to take a credit against the tentative tax. D) It provides the estate with a deduction from the value of the gross estate.

A

Which of the following statements about the federal gift tax are CORRECT? I. The federal gift tax applies to all gratuitous transfers. II. Gift splitting means that spouses may elect to file a joint gift tax return. III. The unlimited gift tax marital deduction has the effect of abolishing the terminable interest rule. IV. Taxable gifts for prior years must be added to taxable gifts for the current year to determine the tax bracket(s) applicable to the current year's taxable gifts. A) IV only B) I only C) I, II, and IV D) I and II

C

Which of the following statements about the gift tax charitable deduction is NOT correct? A) A charitable gift tax deduction is given only for the portion of the contribution in excess of any value the donor receives from the charity. B) To qualify for a charitable deduction, a gift must be of cash or property. C) The charitable gift tax deduction is limited by the type of property gifted, the type of charitable donee, and the donor's adjusted gross income (AGI). D) A gift of a partial interest will qualify for a charitable deduction only if it meets the requirements of the Internal Revenue Code and IRS regulations.

B

Which of the following statements about the importance of properly arranging the ownership and beneficiary designation are CORRECT? I. The identity of the beneficiary can affect whether the proceeds are available for the intended purpose. II. Life insurance could be a source of income replacement for a surviving spouse. A) Neither I nor II B) Both I and II C) II only D) I only

B

Which of the following statements about the nontax characteristics of a charitable remainder unitrust (CRUT) are CORRECT? I. A fixed percentage (but not less than 5%) of the trust assets, revalued annually, is paid to the charity. II. Assets can be added to a CRUT in subsequent years. III. If CRUT assets do not earn enough income to pay the specified income stream, the difference must be paid from the trust corpus. IV. At the end of the trust term, the remaining trust assets are paid to the charity. A) I and III B) II and IV C) II and III D) I and IV

C

Which of the following statements are correct about gratuitous transfers between spouses where one or both of the spouses is a non-U.S. citizen? I. If a spouse who is a resident alien makes a gratuitous transfer of property to his or her spouse who is a U.S. citizen, the rules for deciding whether the transfer is entitled to a marital deduction are the same as if both spouses were U.S. citizens. II. If a spouse who is a nonresident alien makes a gratuitous transfer of property located in the United States to his or her spouse who is a U.S. citizen, the rules for deciding whether the transfer is entitled to a marital deduction are the same as if both spouses were U.S. citizens. III. If a spouse who is a U.S. citizen makes a gratuitous transfer of property to his or her spouse who is a nonresident alien, the rules for deciding whether the transfer is entitled to a marital deduction are the same as if both spouses were U.S. citizens. IV. If a spouse who is a U.S. citizen makes a gratuitous transfer of property to his or her spouse who is a resident alien, the rules for deciding whether the transfer is entitled to a marital deduction are the same as if both spouses were U.S. citizens. A) III and IV B) I and IV C) I and II D) II and III

D

Which of the following statements best describe the potential for improper planning with life insurance? A) Insufficient coverage B) Lack of awareness of how the transfer for value rules work. C) Tax-inefficient ownership of the policy D) All of these

B

Which of the following statements concerning the calculation of the generation-skipping transfer tax (GSTT) is CORRECT? I. The GSTT is determined by multiplying the taxable amount by the applicable GSTT rate. II. The applicable GSTT rate is the highest federal estate and gift tax rate multiplied by an inclusion ratio. A) II only B) Both I and II C) I only D) Neither I nor II

B

Which of the following statements concerning titling of assets captures its importance in estate planning? I. Titling determines how the income of an asset as well as the proceeds from its sale would be split. II. The distribution of income or sales proceeds not in fact divided as title dictates likely will create unintended gift and income tax consequences. A) Neither I and II B) Both I and II C) II only D) I only

C

Which of the following statements correctly identify advantages or disadvantages of a living will? I. The provisions of a living will may apply only when the maker is in certain medical conditions. II. A living will must be re-executed periodically so that the medical care provider knows that it represents the maker's most current desires. III. A living will cannot be used in conjunction with a medical durable power of attorney for health care (DPOAHC) or a do not resuscitate (DNR) order. IV. A living will becomes invalid when the maker becomes incompetent unless it has certain language. A) I and IV B) II, III, and IV C) I only D) III only

A

Which of the following statements correctly identify an advantage or a disadvantage of a durable power of attorney for health care (DPOAHC)? I. A disadvantage is that the agent's authority can be exercised only when the principal is in a terminal or chronic condition. II. An advantage is that the authority of the agent can be revoked as long as the principal is competent. III. A disadvantage is that the agent's authority can be exercised even when the principal is competent and makes a contrary decision. IV. An advantage is that the agent can be given authority to do more than simply make decisions regarding medical treatment. A) II and IV B) I and II C) I, II, and III D) III and IV

B

Which of the following statements correctly identify estate planning activities that can be performed by a financial planner who is not also a licensed attorney? I. Advise a client as to who would receive property under the state intestacy statutes II. Estimate a client's potential federal gift tax liability III. Advise a client that he or she needs a new will IV. Draft a living will for a client to execute A) I and IV B) II and III C) I and III D) II, III, and IV

D

Which of the following statements is CORRECT about the income, gift, or estate tax implications of making a gift to a charity of a remainder interest in a farm or personal residence? I. A charitable gift tax deduction is not available because it is a gift of a partial interest. II. The farm or residence is included in the grantor's gross estate only if the grantor dies before his actuarially determined life expectancy as of the date of gift. III. The grantor gets a current income tax deduction for the present value of the remainder interest. IV. The grantor's estate will have to pay an estate tax on the value of the farm or personal residence according to the value used for estate tax purposes. A) II, III, and IV B) I only C) I, II, and IV D) III only

D

Which of the following statements is CORRECT regarding a payable on death (P.O.D.) account used as a will substitute? I. Use of a P.O.D. designation is a completed gift, but is entitled to an annual exclusion for each named beneficiary. II. The named beneficiary can transfer up to half of the assets in the account. III. The account assets will be included in the account owner's gross estate. IV. The account assets will be transferred outside of probate. A) I and III B) I, III, and IV C) II only D) III and IV

C

Which of the following statements is CORRECT regarding the purpose and characteristics of a nuncupative will? I. A nuncupative will is one whose material provisions are written entirely in the testator's handwriting. II. A nuncupative will requires at least one witness. III. State law may limit the types and amounts of property that may be distributed by this form of will. IV. This form of will is recognized in most states. A) III and IV B) I, II, and IV C) II and III D) I and II

A

Which of the following statements regarding Medicaid planning and eligibility is(are) CORRECT? I. There are 2 types of assets for determining Medicaid eligibility—countable assets and exempt assets. II. Exempt assets are not counted in determining a person's eligibility for Medicaid. III. A married couple's primary residence is considered to be an exempt asset. A) I, II, and III B) II and III C) I and II D) I only

C

Which of the following statements regarding a QTIP election is CORRECT? I. If the decedent's executor makes a QTIP election, the percentage of the trust property that is the subject of the election is included in the surviving spouse's gross estate when the surviving spouse dies. II. In determining whether to make a QTIP election, the executor should determine the best overall estate tax result for both the decedent's and the surviving spouse's gross estate. A) Neither I nor II B) I only C) Both I and II D) II only

C

Which of the following statements regarding a QTIP election is CORRECT? I. If the decedent's executor makes a QTIP election, the property that is the subject of the election is excluded from the surviving spouse's gross estate when the surviving spouse dies. II. In determining whether to make a QTIP election, the executor should determine the best overall estate tax result for both the decedent's and the surviving spouse's gross estate. A) Both I and II B) I only C) II only D) Neither I nor II

D

Which of the following statements regarding a QTIP election is CORRECT? I. The QTIP election by a decedent's executor is voluntary. II. If the executor makes a QTIP election, the estate tax is increased in the decedent's estate. A) Neither I nor II B) II only C) Both I and II D) I only

A

Which of the following statements regarding a family limited partnership (FLP) is CORRECT? I. The general partnership interests are transferred to the junior family members and will qualify for minority interest discounts. II. The transfer of the limited partnership interests to the junior family members is considered a future interest gift and is therefore not eligible for the gift tax annual exclusion. III. The transfer of the limited partnership interests to the junior family members may qualify for both a minority interest discount and a lack of marketability discount for federal gift tax purposes. A) III only B) II and III C) I and III D) II only

C

Which of the following statements regarding a family limited partnership (FLP) is CORRECT? A) The transfer of limited partnership interests to the junior family members is considered a future interest gift and is therefore not eligible for the gift tax annual exclusion. B) After the transfer to the junior family members, the senior family member will relinquish control of the business. C) The transfer of the limited partnership interests to the junior family members may qualify for both a minority interest discount and a lack of marketability discount for federal gift tax purposes. D) The senior family member transfers the general partnership interests to the junior family members.

D

Which of the following statements regarding a payable-on-death (POD) account is(are) CORRECT? I. A payable on death account is a bank or savings account controlled by the depositor so long as living, but with a provision that the account is payable to another if still open when the depositor dies. II. Payable-on-death accounts are included in the depositor's probate estate. III. Payable-on-death accounts are considered a will substitute. IV. Payable-on-death accounts could create guardian problems if paid to a minor beneficiary. A) I, II, and IV B) I and III C) III only D) I, III, and IV

C

Which of the following statements regarding a rental property owned jointly with right of survivorship (JTWROS) is CORRECT? I. A gift is made when the name of the noncontributing joint owner (the donee) is added to the deed. II. The gift tax consequences with JTWROS are identical regardless of whether the tenants are spouses. A) Neither I nor II B) II only C) I only D) Both I and II

C

Which of the following statements regarding a springing power of attorney is CORRECT? I. With a springing power of attorney, the attorney-in-fact's authority to act is delayed until the principal actually becomes incapacitated or incompetent. II. A springing power of attorney can be used in planning for the principal's possible incapacity. A) I only B) Neither I nor II C) Both I and II D) II only

A

Which of the following statements regarding a taxable termination is CORRECT? I. A taxable termination cannot occur as long as at least one nonskip beneficiary has an interest in the trust property. II. If a taxable termination occurs, the skip person is responsible for paying any generation-skipping transfer tax (GSTT) that may be due. III. A taxable termination occurs when an interest in a trust is terminated because of death or lapse of time, resulting in a skip beneficiary holding interests in the trust. A) I and III B) I, II, and III C) II and III D) I only

B

Which of the following statements regarding an estate's need for liquidity is NOT correct? A) Selling illiquid assets to increase estate liquidity can be undesirable. B) Real estate is a liquid asset. C) Savings and checking accounts owned by the decedent at death are possible sources of estate liquidity. D) Liquid assets are assets that can be quickly converted to cash without a significant loss of principal.

A

Which of the following statements regarding bypass planning is CORRECT? I. One purpose of bypass planning is to take full advantage of the applicable credit amount when the first spouse dies. II. Assets in a bypass (B) trust are not included in the surviving spouse's gross estate. A) Both I and II B) I only C) Neither I nor II D) II only

C

Which of the following statements regarding charitable contributions is CORRECT? I. Charitable contributions may qualify for a charitable deduction if made during the donor's lifetime or at death. II. A decedent's estate qualifies for an estate tax charitable deduction if the decedent's beneficiaries make a contribution to a qualified charity. A) II only B) Neither I nor II C) I only D) Both I and II

A

Which of the following statements regarding charitable gift annuities (CGAs) is CORRECT? A) Either cash or appreciated property may be donated to charity in a CGA. B) A CGA is a contract between a donor and a qualified charity in which the donor pays an annuity to the charity in exchange for cash. C) The donor of a CGA is eligible for an income tax charitable deduction equal to the fair market value (FMV) of the donated property. D) A CGA is usually secured and presents no risk to the donor-annuitant.

B

Which of the following statements regarding charitable gifts is CORRECT? I. Gifts to qualified charities by U.S. citizens or residents are deductible for gift tax purposes. II. The gift tax charitable deduction is not limited to a percentage of the donor's adjusted gross income (AGI). A) Neither I nor II B) Both I and II C) I only D) II only

A

Which of the following statements regarding community property is CORRECT? I. Assets inherited by one spouse during marriage generally are not community property. II. Assets purchased with community assets by either spouse during marriage are community property. III. Community property avoids probate when the first spouse dies. IV. Assets acquired by either spouse before marriage generally become community property upon their marriage. A) I and II B) I, II, and III C) I only D) II and IV

A

Which of the following statements regarding community property is CORRECT? I. Community property can exist only between spouses. II. Community property includes a right of survivorship at the death of the first spouse. A) I only B) Both I and II C) Neither I nor II D) II only

C

Which of the following statements regarding cross-purchase buy-sell agreements funded with life insurance is CORRECT? I. The death benefits under the life insurance policies are generally received tax free. II. The increase in the basis of the surviving owner(s) in the purchased interest(s) will equal the purchase price paid. III. The number of policies required may become cumbersome if there are a large number of businessowners. A) III only B) I only C) I, II, and III D) I and III

A

Which of the following statements regarding cross-purchase buy-sell agreements funded with life insurance is CORRECT? I. The death benefits under the life insurance policies are generally subject to income tax. II. The increase of the basis of the surviving owner(s) in the purchased interest(s) will equal the purchase price paid under the cross-purchase buy-sell agreement. III. The number of policies required may become cumbersome as the number of businessowners increases. A) II and III B) I, II, and III C) III only D) I only

A

Which of the following statements regarding discharge of indebtedness is NOT correct? A) A discharge of indebtedness occurs when a legal indebtedness owned by an individual is discharged or satisfied, and the individual's gross earnings have been decreased the same as if the individual had earned income in the same amount. B) Discharge of indebtedness may be referred to as phantom income. C) Gain may be incurred when the discharge of indebtedness involves a net gift. D) Income from the discharge of indebtedness is included in the definition of gross income under Code Section 61.

D

Which of the following statements regarding durable powers of attorney is CORRECT? I. The principal must be at least age 18 and legally competent. II. The power may be general or limited in scope. III. The power may be immediately effective or springing. IV. The power does not survive the principal's death. A) III only B) I, II, and IV C) II and IV D) I, II, III, and IV

A

Which of the following statements regarding education planning trusts is CORRECT? I. The principal of a Section 2503(c) trust must be distributed or offer to be distributed to the minor when the minor attains age 21. II. The trustee of a Section 2503(b) trust may, at his discretion, distribute trust income each year. III. The corpus of a Section 2503(b) trust need not be distributed when the beneficiary attains age 21. A) I and III B) II and III C) II only D) III only

A

Which of the following statements regarding estate liquidity is CORRECT? I. An estate typically needs substantial amounts of cash or other liquid assets to meet its obligations following the decedent's death. II. An estate can manage its cash flows by developing a cash flow plan indicating when its cash inflows and outflows are expected to occur. III. An estate that lacks sufficient liquidity to pay its obligations when due may be forced to sell illiquid assets or borrow money at unfavorable terms. A) I, II, and III B) I and III C) II only D) I only

A

Which of the following statements regarding fee simple or absolute ownership of property is CORRECT? I. Fee simple ownership gives the owner only a lifetime right to use, possess or dispose of the property. II. Fee simple ownership gives the owner only a right at death to dispose of the property. A) Neither I nor II B) I only C) II only D) Both I and II

B

Which of the following statements regarding general powers of appointment is CORRECT? I. If a person owns a general power of appointment when she dies, the property that is subject to that power is not included in the holder's gross estate for federal estate tax purposes. II. The exercise, release, or lapse of a general power of appointment during the holder's lifetime is a gift to the person who receives the property. A) Neither I nor II B) II only C) I only D) Both I and II

B

Which of the following statements regarding gift leasebacks is CORRECT? I. A senior family member gives his fully depreciated business assets to a junior family member and leases the assets back for use in his business. II. The lease payments are not taxable income to the junior family member. A) Neither I nor II B) I only C) II only D) Both I and II

D

Which of the following statements regarding gift splitting is NOT correct? A) Gift splitting is available only to spouses. B) The gift tax annual exclusion may be doubled if gift splitting is elected. C) If a donor elects to split gifts, the election must be applied to all gifts made during that calendar year. D) Gifts of community property require a gift splitting election.

C

Which of the following statements regarding grantor retained income trusts (GRITs) is CORRECT? I. In a GRIT, the grantor transfers property into a trust for the eventual benefit of someone else, while retaining the right to the trust income during the term of the trust. II. If the grantor survives the income period of the GRIT, the value of the trust asset is removed from the grantor's gross estate. III. A GRIT is a defective grantor trust for income tax purposes as long as the grantor is receiving income. IV. To avoid the zero valuation rules of Chapter 14, the retained income interest in a GRIT must be a qualifying annuity or unitrust payment. A) III and IV B) II and III C) I, II, III, and IV D) I and IV

C

Which of the following statements regarding guardianships and conservatorships is(are) CORRECT? I. A guardianship is the same as a conservatorship. II. Guardianships and conservatorships are both fiduciary relationships. III. The same person may be both the guardian and conservator of a ward. A) I only B) II only C) II and III D) I, II, and III

C

Which of the following statements regarding income in respect of a decedent (IRD) is CORRECT? A) IRD is not included in the recipient's gross income. B) IRD is usually not included in a decedent's gross estate. C) IRD is gross income that a decedent was entitled to when alive but had not received. D) IRD receives a stepped-up basis at the decedent's death.

C

Which of the following statements regarding income in respect of a decedent (IRD) is CORRECT? I. IRD is considered an asset for estate tax purposes and is reported on IRS Form 706. II. IRD is income for income tax purposes and is reported on either Form 1040 or Form 1041. A) I only B) Neither I or II C) Both I and II D) II only

C

Which of the following statements regarding joint tenancy with right of survivorship is CORRECT? I. Property owned as a joint tenancy with right of survivorship avoids probate when the first owner dies. II. When a joint tenancy is created in real estate a joint tenant who contributes more than his or her share of the purchase price makes a gift to the other joint tenant. A) Neither I nor II B) I only C) Both I and II D) II only

B

Which of the following statements regarding lifetime gifts are CORRECT? I. Annual exclusion gifts will escape gift taxation and will not be included in the donor's gross estate. II. Future appreciation in the value of gifted property will escape estate taxation in the donor's estate. III. Income from gift property will generally be taxed to the donee for income tax purposes. IV. Generation-skipping transfer taxes do not apply to lifetime gifts. A) II, III, and IV B) I, II, and III C) I and III D) II and III

B

Which of the following statements regarding private foundations are CORRECT? I. The private foundation must distribute at least 5% of its assets annually for charitable purposes. II. Private foundations may be administratively expensive to operate because they are subject to strict IRS reporting requirements. III. Nonoperating private foundations engage in charitable activity directly. A) I, II, and III B) I and II C) III only D) II only

D

Which of the following statements regarding property held as joint tenants with right of survivorship (JTWROS) is CORRECT? I. Under a joint tenancy, each owner has an undivided interest in the property. II. Joint tenancies may only be established between spouses. III. All joint tenants have the right to sever their interest in the property without the consent of the other joint tenant(s). IV. A will is necessary to pass a joint tenant's interest in the property to the other joint tenant at death. A) II, III, and IV B) I only C) II and III D) I and III

D

Which of the following statements regarding property owned as joint tenancy with right of survivorship (JTWROS) is CORRECT? I. Each tenant owns an equal fractional share in the property. II. Joint tenants have the right to sever their interests in the property during life without the consent of the other joint tenant(s). IIII. Upon the death of one joint tenant, the property passes as directed by the decedent's will. IV. JTWROS property avoids probate. A) II, III, and IV B) I and IV C) I only D) I, II, and IV

D

Which of the following statements regarding property owned as joint tenants with right of survivorship (JTWROS) between spouses is CORRECT? I. The entire value of the property is included in the gross estate of the decedent spouse and the entire value of the property receives a stepped-up basis. II. One-half of the property is included in the gross estate of the decedent spouse and one-half of the property receives a stepped-up basis. A) Neither I nor II B) I only C) Both I and II D) II only

C

Which of the following statements regarding qualified personal residence trusts (QPRTs) is CORRECT? I. A QPRT may have an interest in more than one residence. II. There are no restrictions on who may occupy a residence that is owned by a QPRT. A) II only B) I only C) Neither I nor II D) Both I and II

A

Which of the following statements regarding qualified personal residence trusts (QPRTs) is CORRECT? I. A QPRT is likely to achieve estate tax savings for a donor likely to survive the term of the trust. II. Unlike other transfers with a retained interest, the grantor of the trust may continue to use the residence for the term of years described in the trust. A) Both I and II B) I only C) II only D) Neither I nor II

A

Which of the following statements regarding revocable living trusts in dealing with potential legal incapacity issues is(are) CORRECT? I. Revocable living trusts can be used to plan for the grantor's possible legal incapacity. II. A revocable living trust designed to address incapacity issues typically is not funded until the grantor becomes incapacitated. III. Assets in a revocable living trust do not avoid probate if the trust is funded during the grantor's lifetime. A) I and II B) II and III C) III only D) I, II, and III

A

Which of the following statements regarding sale-leasebacks is CORRECT? I. In a sale-leaseback, a senior family sells fully depreciated business property to a junior family member and then leases it back. II. The senior family member can deduct the lease payments made to the junior family member if there is a valid business purpose for the sale and an arm's-length rental payment. A) Both I and II B) II only C) Neither I nor II D) I only

D

Which of the following statements regarding tenancies in common are CORRECT? I. Property is owned concurrently by 2 or more people. II. Each tenant's share is an undivided part of the entire property. III. There are no survivorship rights. IV. The interests must be owned in equal percentages. A) III and IV B) I, II, III, and IV C) I and II D) I, II, and III

A

Which of the following statements regarding testamentary trusts is CORRECT? I. A testamentary trust is a trust that takes effect during a lifetime. II. A testamentary trust can be revoked by the testator any time before death. Assets transferred to a testamentary trust avoid probate. A) II only B) I, II, and III C) I only D) II and III

C

Which of the following statements regarding the basis of inherited assets is CORRECT? I. When spouses own property as community property, both halves of the community property receive a stepped-up basis when the first spouse dies. II. When spouses own property as joint tenants with right of survivorship (JTWROS), 50% of the property receives a stepped-up basis when the first spouse dies. III. Inherited property that is income in respect of a decedent (IRD) receives a stepped-up basis when the decedent dies. A) II only B) I, II, and III C) I and II D) I only

C

Which of the following statements regarding the complexities and challenges of business succession planning is CORRECT? I. It may be difficult to determine the value of the business. II. Finding a buyer who has the resources to purchase the business may be difficult. III. Family issues may be involved if the business is closely held or family owned. IV. A new owner may have difficulty adapting to the idiosyncrasies of the owner's business. A) II and IV B) I and II C) I, II, III, and IV D) III and IV

C

Which of the following statements regarding the concept of gift splitting in federal gift tax law is CORRECT? A) The gift splitting election may be made by any related party who joins in the making of the gift. B) Gifts of community property require a gift splitting election. C) In non-community property states, the donor spouse must file a gift tax return even if the split gift value is less than the annual exclusion. D) Spouses can elect to split some gifts but not split other gifts made within the same calendar year.

C

Which of the following statements regarding the consequences of holding property jointly is CORRECT? A) Joint tenancy with right of survivorship can exist between spouses only. B) The federal estate tax treatment of jointly held property is the same for spouses and nonspouses. C) When spouses are joint tenants with a right of survivorship, 50% of the value of the property will be included in the gross estate of the first spouse to die. D) A tenancy in common is treated the same as a joint tenancy with the right of survivorship when one owner dies.

A

Which of the following statements regarding the development of a cash flow plan to maintain an estate's liquidity is NOT correct? A) In developing a cash flow plan for an estate, it is generally not possible to reduce the estate's cash needs. B) The cash flow plan should be flexible enough to account for the possibility of unexpected expenses. C) The timing of some of the estate's cash outflows will be fairly predictable. D) The executor should anticipate that there may be a delay in receiving life insurance proceeds on the decedent's life.

D

Which of the following statements regarding the election to use the alternate valuation date (AVD) on the federal estate tax return is NOT correct? A) The AVD can be used only if it reduces the amount of federal estate tax owed by the estate. B) The AVD can be used only if it reduces the total value of the gross estate. C) The AVD cannot be used for wasting assets. D) The executor is allowed to select which assets will be valued at the AVD and which will be valued as of the decedent's date of death.

B

Which of the following statements regarding the generation-skipping transfer tax (GSTT) is CORRECT? I. An annual exclusion amount is allowed for lifetime direct skips. II. Gift splitting is allowed if both spouses elect it. A) II only B) Both I and II C) I only D) Neither I nor II

C

Which of the following statements regarding the generation-skipping transfer tax (GSTT) is CORRECT? I. The GSTT applies to both inter vivos and testamentary transfers. II. A transfer that is subject to the GSTT may also be subject to gift tax or estate tax. A) I only B) II only C) Both I and II D) Neither I and II

D

Which of the following statements regarding the group term life insurance provided by an employer are CORRECT? I. The employer can deduct the premiums paid as a necessary and reasonable business expense. II. No part of the premiums that the employer pays will be considered income to any of the employees. III. The death benefit of the policy will be included in the employee's gross estate. IV. The beneficiary of the death benefit will have taxable income to the extent that the death benefit exceeds the value of premiums paid by the employer. A) I and IV B) III and IV C) II and III D) I and III

A

Which of the following statements regarding the portability of the gift tax lifetime exemption amount is CORRECT? I. Portability means that a surviving spouse can use any portion of a predeceased spouse's lifetime exemption amount that remained unused when the predeceased spouse died. II. A surviving spouse may apply the predeceased spouse's unused lifetime exemption amount to gift taxes due on lifetime gifts but not to the estate tax due on transfers at death. A) I only B) II only C) Neither I nor II D) Both I and II

D

Which of the following statements regarding the relationship between a CFP certificant and a client are CORRECT? I. All CFP certificants must disclose to clients the compensation that any party to the agreement could receive under the agreement. II. All CFP certificants owe a client the duty of care of a fiduciary when providing financial planning to a client. III. A CFP certificant must disclose terms under which the agreement permits the certificant to offer proprietary products. IV. The CFP certificant should disclose their political affiliation. A) I and II B) II, III, and IV C) III and IV D) I, II, and III

B

Which of the following statements regarding the role of executors in estate administration is(are) CORRECT? I. An executor is considered to be a fiduciary. II. An executor's only role in estate administration is to locate and submit the decedent's will for probate. III. An executor should balance the needs of all beneficiaries. A) II and III B) I and III C) I and II D) I, II, and III

B

Which of the following statements regarding the role of guardians in estate planning is(are) CORRECT? I. A guardian manages the personal care and well-being of a ward. II. A guardian must account annually to the court until released from his fiduciary duties by the judge. III. Empathy and caretaking ability are the most important considerations when selecting a guardian. A) I and III B) I, II, and III C) II only D) I and II

C

Which of the following statements regarding the role of guardians in estate planning is(are) CORRECT? I. A guardian manages the personal care and well-being of the ward. II. A guardian manages the property of the ward. A) Both I and II B) II only C) I only D) Neither I nor II

B

Which of the following statements regarding the use of a cross-purchase buy-sell agreement as a premortem liquidity planning device is CORRECT? I. The purpose is to ensure that the owner of a closely held business interest will be able to sell her interest in specified circumstances. II. The business entity contracts to pay each owner an agreed-upon amount for his interest in the business under certain circumstances. III. If a business interest is sold under such an agreement at an owner's death, estate liquidity is enhanced because the estate will be liable for little or no capital gain. IV. If insurance is used to fund such an agreement, the owner of the policy used to accomplish the purchase will be the purchasing owner. A) II and IV B) I, III, and IV C) I and III D) I, II, and IV

A

Which of the following statements regarding the use of the alternate valuation date (AVD) for estate tax purposes is NOT correct? A) The executor is allowed to pick and choose which assets will be valued as of the decedent's date of death value and which will be valued at the AVD. B) The AVD election allows the executor to value estate assets at their fair market value six months after the decedent's date of death. C) Wasting assets must be valued at their date of death fair market value, even if the AVD election is made. D) The AVD election cannot be made unless it results in a reduction of the amount of federal estate tax owed by the decedent's estate.

B

Which of the following statements regarding trusts is CORRECT? I. The primary purpose is often asset management. II. An inter vivos trust is a trust created by a decedent's will and made effective at death. A) Both I and II B) I only C) Neither I nor II D) II only

B

Which of the following statements regarding trusts is(are) CORRECT? I. The trustee has a fiduciary responsibility to act on behalf of the trust beneficiaries. II. The trust assets held by the trust are known as the trust corpus. A) I only B) Both I and II C) II only D) Neither I nor II

B

Which of the following statements should be considered to minimize the probability of a successful will contest? I. Leaving every heir a bequest, even if it is small II. Executing a codicil that appoints a new executor of the estate III. Establishing a trust during lifetime to provide for testamentary disposition to the heirs IV. Including an in terrorem clause in the will if these clauses are generally enforced in the testator's state A) II and III B) I, III, and IV C) I and IV D) I, II, and III

A

Which of the following statements would avoid probate at the owner's death? I. Payable on death (P.O.D.) account II. Tenancy by entirety III. Funded inter vivos trust IV. Joint tenancy with right of survivorship (JTWROS) A) I, II, III, and IV B) I and II C) II, III, and IV D) I and III

D

Which of the following transactions are subject to the Chapter 14 valuation rules? I. Corporate recapitalizations II. Partnership capital freezes III. Grantor retained trusts, such as GRITs IV. Buy-sell agreements between non-family members A) IV only B) I and II C) I, II, and III D) I, II, III, and IV

A

Which of the following transfers are gifts for purposes of the gift tax statutes? I. Kurt creates an irrevocable trust providing that his son is to receive income for life and his grandson the remainder at his son's death. II. Kurt purchases real property and has the title conveyed to himself and to his brother as joint tenants. III. Kurt creates an irrevocable trust giving income for life to his spouse and providing that upon her death the corpus is to be distributed to his daughter. IV. Kurt purchases a U.S. savings bond made payable to himself and his spouse. The spouse later surrenders the bond for cash to be used for her benefit. A) I, II, III, and IV B) II and III C) I and II D) I, II, and IV

B

Which of the following types of property will be treated as separate property assuming the couple always has lived in a community property state? A) A coin collection purchased by one spouse during the marriage B) Real estate acquired by one spouse before the marriage C) A closely held business interest purchased by one spouse during the marriage D) A tax-exempt bond purchased by one spouse with the after-tax proceeds of her salary

D

Which of the following typically represent liquidity needs of a decedent's estate? I. The decedent's funeral and burial expenses II. The decedent's outstanding debts III. Taxes IV. Payment of cash bequests A) I, II, and III B) II and IV C) III only D) I, II, III, and IV

C

Which of the following will NOT pass according to the provisions in the decedent's will? I. Real estate owned as joint tenancy with right of survivorship (JTWROS) with a spouse II. Death benefits from a qualified pension plan with a designated beneficiary III. Property held as tenants in common IV. Life insurance benefits payable to a named beneficiary A) III and IV B) II, III, and IV C) I, II, and IV D) I and II

C

Which of the following would cause the proceeds of life insurance on the decedent's life to be included in the decedent's gross estate? I. The decedent possessed any incidents of ownership in the policy at the time of death. II. The proceeds are payable to the decedent's estate. III. The proceeds are payable to an ILIT and must be used to pay the estate tax on the decedent's estate. IV. The decedent gifted the policy more than three years before the decedent's death. A) I, II, III, and IV B) II, III, and IV C) I, II, and III D) I and III

B

Which of the following would not be a source of estate liquidity? A) Selling illiquid assets B) Restructuring a closely held business from a sole proprietorship to an LLC C) Increasing cash and cash equivalents D) Reducing hard-to-sell assets

B

Which of the following would result in the inclusion of life insurance policy proceeds in the insured's gross estate? A) The insured transfers the policy to an irrevocable life insurance trust (ILIT), names the trust as the beneficiary, and dies five years later. B) The insured is permitted to borrow against the policy. C) The insured pays the monthly premiums. D) The insured's son owns a policy on the insured, and the death benefit is payable to the insured's son.

C

Which of the statements about maintaining liquidity of an estate are correct? I. Premortem liquidity needs are not considered. II. Postmortem liquidity needs are met primarily with life insurance. A) Both I and II B) I only C) II only D) Neither I nor II

A

Which of these are instances where an institutional fiduciary, rather than a family member, should be appointed? I. When it is likely that the beneficiaries will contest the decedent's will or cause conflict II. When the assets in the estate are complex to manage III. When individual attention to the beneficiaries and the family dynamic is necessary IV. When familiarity with the extent and location of assets is necessary A) I and II B) I, III, and IV C) I and IV D) II and III

D

Which of these describe the advantage(s) of owning property as joint tenants with right of survivorship (JTWROS)? I. When one tenant dies, the property passes directly to the surviving joint tenant. II. Each joint tenant with a right of survivorship has a right to sever or partition the property without the consent of the joint tenant. III. JTWROS is convenient for certain types of assets, such as bank accounts, because either tenant has access to the account. A) II and III B) I only C) I and II D) I, II, and III

D

Which of these estates could use the alternate valuation date to value estate assets for federal estate tax purposes? I. An estate with an estate tax base of $1 million II. An estate valued at $20 million in which all assets pass to the surviving spouse and qualify for the marital deduction A) II only B) I only C) Both I and II D) Neither I nor II

A

Which of these is typically a reason for establishing a supplemental needs trust? A) To pay for the needs of a beneficiary who is receiving public assistance while protecting assets from government attachment B) To receive assets that are transferred under the grantor's will C) To make medical decisions on behalf of a beneficiary who is terminally ill D) To plan for the grantor's potential legal incapacity and avoid probate if the grantor dies

D

Which of these statements best describe either an advantage or a disadvantage of a will substitute? A) The cost to place a POD designation on a bank account will be substantial. B) The only type of trust avoiding probate is an irrevocable one C) None of the above correctly describe either an advantage or disadvantage of a will substitute. D) Any will substitute with the right to revoke means the asset will be in the gross estate of the decedent.

D

Which of these statements best describes a CFP® certificant's role in defining a client's financial goals, needs, and priorities? I. The role of the planner is to facilitate the goal-setting process. II. The role of the planner is to assist clients in recognizing the implications of unrealistic goals and objectives. III. The role of the planner is to make sure a client's goals and objectives are consistent with the client's values and attitudes. IV. The role of the planner in this process will involve exploring a client's expectations and time horizons. A) II, III, and IV B) III and IV C) I and II D) I, II, III, and IV

D

Which of these statements concerning the transfer of a life insurance policy is correct? I. The matured death benefit is always excluded from gross income. II. The matured death benefit may be only partially excludible from gross income and partially includible in gross income. A) Neither I nor II B) Both I and II C) I only D) II only

A

Which of these statements regarding gifts is not correct? A) If a gift is made within four years prior to the donor's death, the amount of any gift tax paid on the transfer is included in the donor's gross estate. B) An individual can give up to $17,000 gift tax free every year (for 2023) to an unlimited number of donees. C) When a gift is made during the donor's lifetime, any appreciation accruing between the time of the gift and the date of the donor's death escapes the estate tax. D) There may be income tax incentives for making an inter vivos gift, which can involve moving taxable income from a high-bracket donor to a lower-bracket donee.

C

Which of these statements regarding qualified personal residence trusts (QPRTs) is CORRECT? I. A QPRT removes assets from the gross estate only if the grantor survives the term of years required in the trust. II. The remainder interest of the QPRT is ineligible for the annual exclusion. A) Neither I nor II B) I only C) Both I and II D) II only

B

Which of these statements regarding supplemental needs trusts is(are) CORRECT? I. A supplemental needs trust is typically used to help with the needs of a dependent who is developmentally disabled and who is receiving some form of government assistance. II. Supplemental needs trusts are not permitted in all states. A) Neither I nor II B) Both I and II C) II only D) I only

B

Which of these statements regarding supporting organizations is CORRECT? I. A supporting organization is usually formed to support the activities of another qualified public charity. II. A major disadvantage of a supporting organization is the donor and family can determine which affiliated charities will benefit from the supporting organization. A) Neither I nor II B) I only C) Both I and II D)

B

Which of these statements regarding the annual exclusion for purposes of generation-skipping transfer tax (GSTT) is CORRECT? I. The annual exclusion amount is $17,000 for 2023. II. The annual exclusion is allowed for lifetime direct skips. III. The annual exclusion is allowed for testamentary direct skips. A) I only B) I and II C) II and III D) I, II, and III

A

Which of these statements regarding the calculation of a trust's taxable income is CORRECT? I. A deduction for a simple and complex trust is available for distributions made to trust beneficiaries. II. A simple trust must distribute income during the year. III. The charitable deduction is available to simple trusts. A) I and II B) II and III C) I, II, and III D) I and III

C

Which of these statements regarding the estate tax lifetime exemption amount is CORRECT? I. The estate tax lifetime exemption amount is $12,920,000 for 2023. II. The estate tax lifetime exemption amount is not portable between spouses. A) Both I and II B) Neither I nor II C) I only D) II only

B

Which of these statements regarding the filing of an estate tax return is CORRECT? I. An estate tax return must be filed if the value of the gross estate plus adjusted taxable gifts on the date of death exceeds $12,920,000 in 2023. II. The estate tax return is due nine months after the decedent's date of death, although a six-month extension of time to file may be requested. A) II only B) Both I and II C) Neither I nor II D) I only

C

Which of these statements regarding the generation-skipping transfer tax (GSTT) for 2023 is CORRECT? I. The annual exclusion is allowed. II. Gift splitting is permitted. III. Qualified transfers are excluded from GSTT. IV. Each transferor is allowed a lifetime exemption of $12,920,000. A) I and IV B) II and IV C) I, II, III, and IV D) I, II, and III

C

Which of these statements regarding the gift tax lifetime exemption amount (applicable exclusion amount) and applicable credit amount are CORRECT? I. The gift tax lifetime exemption amount in 2023 is $12,920,000. II. The gift tax applicable credit amount in 2023 is $5,113,800. A) I only B) Neither I nor II C) Both I and II D) II only

A

Which of these statements regarding the income tax attributes of estates and trusts is CORRECT? I. An estate may elect a fiscal year. II. A trust qualifies for a larger exemption from income tax than does an estate. A) Both I and II B) I only C) II only D) Neither I nor II

A

Which one of following describes a person who dies intestate? A) A person who dies without a valid will B) A person who dies owning real estate in more than one state C) A person who dies without heirs D) A person who dies with a valid will

A

Which one of the following is NOT a correct pairing of a trust provision with its characteristics? A) Spendthrift provision: a clause in a trust that prevents a beneficiary from withdrawing more than the greater of $5,000 or 5% of the corpus. B) Discretionary provision: a trust clause that allows the trustee to use his or her sole judgment in determining how much of the trust income and principal will be paid to or on behalf of a beneficiary. C) Crummey provision: a trust clause that provides the beneficiary with a limited duration right to demand payment of contributions to a trust each year up to the annual gift tax exclusion from the trustee. D) Sprinkle (spray) provision: a trust clause that allows the trustee to distribute unequal amounts to the beneficiaries or to make no distribution at all.

D

Which one of the following is a CORRECT statement regarding the advantages and disadvantages of using a conservatorship to manage property left to a child? A) A conservator typically has a broader range of powers than does a trustee. B) The actions of the conservator are not subject to court supervision. C) A conservator must be the same person who makes decisions regarding the minor's day-to-day personal care. D) Establishing the conservatorship can be costly and time consuming

A

Which one of the following is a CORRECT statement regarding the characteristics of a salary increase or selective pension plan using life insurance under IRC Section 162? A) The premium payments are taxable income to the employee. B) The insured employee has no incidents of ownership in the policy. C) The employee pays part of the policy premium. D) Part of the death benefit will be paid to the employer.

D

Which one of the following is a characteristic of a revocable trust? A) It will not act as a will substitute because of the grantor's retained right to revoke. B) It will act as a will substitute because the grantor has given up control of the trust assets. C) It will remove the trust assets from the grantor's gross estate. D) It will act as a will substitute because it names the people to receive title to the trust assets after the grantor's death.

B

Which one of the following is a tax implication of assets transferred by a revocable will substitute? A) Assets transferred by a revocable will substitute are included in the probate estate. B) Assets transferred by a revocable will substitute may receive a stepped up basis. C) Assets transferred by a revocable will substitute cannot receive a stepped down basis. D) Assets transferred by a revocable will substitute cannot be included in the gross estate.

A

Which one of the following is an advantage of all will substitutes? A) They avoid the probate process. B) They are private and are not governed by state law. C) They can never be revoked. D) They permit you to pass any property by making a payable on death (P.O.D.) designation.

D

Which one of the following is an advantage of the probate process? A) The probate process is private. B) The probate process is public. C) The probate process is lengthy. D) The probate process is court supervised.

A

Which one of the following is an incorrect statement concerning tax implications of lifetime gifts? A) If a gift is gift taxable, it is ignored in calculating the donor's estate tax liability. B) Gifting loss property eliminates the possibility of using capital losses to offset capital gains. C) In an outright gift, gifting assets reduces estate tax liability by eliminating all tax on future appreciation that otherwise would be part of the donor's gross estate at death. D) The basis for income tax purposes is not stepped up on assets received as gifts.

D

Which one of the following objectives cannot be achieved with an unfunded irrevocable life insurance trust that does not have a Crummey power? A) Avoiding transfer tax on the death benefit, as long as the grantor is not the trustee B) Naming the trust as beneficiary of the policy with annual income payments to the grantor's spouse and children C) Avoiding probate of death benefits D) Sheltering premium payments gifted to the trust from gift tax with the annual exclusion

A

Which one of the following statements about the use of a split-dollar life insurance plan in a business setting is false? A) The entire value of the policy and its benefits are subject to claims of the employer's general creditors. B) The benefits from the policy are split between the employer and the employee/insured or the employee's beneficiary. C) The insurance can act as a fringe benefit to a valued employee. D) The insurance premiums are typically split between the employer and the employee/insured.

A

Which one of the following statements about the use of a springing durable power of attorney is correct? A) The attorney in fact generally must obtain a letter from the principal's physician prior to acting. B) The attorney in fact receives title to the principal's property. C) The attorney in fact's authority will survive the principal's death. D) The attorney in fact has immediate authority to act for the principal.

D

Which one of the following statements comparing the use of an institution rather than a family member as a fiduciary is correct? A) An institutional fiduciary is more likely than an individual fiduciary to be familiar with the individual beneficiaries involved. B) An individual fiduciary is likely to provide more continuity of management than is an institutional fiduciary. C) An institutional fiduciary is more likely than an individual fiduciary to be familiar with the desires of the testator or grantor of the trust. D) An institutional fiduciary often will have greater financial management expertise than will an individual fiduciary.

A

Which one of the following statements concerning will substitutes is CORRECT? A) A form of property ownership that has a right of survivorship feature is a form of will substitute. B) A will substitute requires a person to leave a written memorandum in their own handwriting that transfers property at death. C) Insurance is a form of will substitute because it has a right of survivorship feature. D) A document that is intended to act as a will substitute must be executed with the same formalities as those required for a valid will.

B

Which one of the following statements correctly describes the characteristics of an entity purchase buy-sell agreement? A) Each business interest owner purchases a life insurance policy on the life of every other business interest owner to be able to meet her obligation to purchase her share of the interest of the other owner or owners. B) The purchase price established for an owner's interest in the agreement will be accepted for transfer tax purposes by the IRS if more than 50% of the value of the property subject to the agreement is owned directly or indirectly by individuals who are not members of the transferor's family. C) The replacement cost of life insurance on the lives of the other owners used to fund the agreement will be included in the gross estate of the first owner to die. D) Each business interest owner (and/or her estate) has an obligation to sell or offer to sell her interest to the other business interest owners when specified events occur.

D

Which one of the following statements describes a basic feature of one of the special valuation rules under IRC Chapter 14? A) These rules will apply if the transferor transfers all of his or her interest in a closely held corporation to a son or a daughter. B) These rules will apply if the transferor sells some of his or her interest in a closely held corporation to a son or a daughter at fair market value. C) For a transfer in trust to be subject to these rules, the transferor must be related to the transferee in a specified manner. D) These rules cannot apply to a buy-sell agreement between two unrelated partners.

B

Which one of the following statements is CORRECT about the characteristics of a standby (contingent) trust? A) It is a type of testamentary trust. B) It is often used to manage the grantor's financial affairs when the grantor becomes incompetent. C) It is fully funded at the time it is created. D) The grantor acts as trustee once the trust is funded.

C

Which one of the following statements is CORRECT about the nontax characteristics of a reverse gift? A) A gift given anytime within three years of the donee's death will achieve the objective of the donor. B) Property with an income tax basis close to its fair market value is often the subject of the gift. C) The purpose of the gift is that the donor will get the gift back with a stepped-up basis. D) The donee does not have the right to sell the gifted property.

A

Which one of the following statements is CORRECT concerning income earned by spouses in a community property state? A) Income earned by each spouse after marriage is considered community property. B) Income earned by each spouse is considered separate property. C) Income earned by each spouse after marriage is considered community property only if it is commingled. D) Income earned by each spouse before and after marriage is considered community property.

B

Which one of the following statements is correct regarding the powers of a fiduciary? A) A fiduciary's powers may not be mandatory. B) A fiduciary's powers may be discretionary. C) A fiduciary's powers are determined solely by state statute. D) A fiduciary's powers may not be limited.

D

Which one of the following statements regarding Henry, who recently married for the first time, is CORRECT? A) In a community property state, any property Henry owns at death will go to his spouse by right of survivorship. B) In a community property state, Henry's spouse is deemed to have a vested 50% interest in all of the property Henry owned at the time of the marriage. C) In a community property state, Henry's earnings from his job both before and after the date of his marriage will be considered community property. D) In a community property state, Henry's earnings from his job subsequent to the date of his marriage will be considered community property.

D

Which one of the following statements regarding a charitable remainder trust (CRT) is CORRECT? A) The remainder interest in a CRT passes to a noncharitable beneficiary. B) A grantor who establishes a CRT is free to revoke the trust at any time. C) The annuity payment received from a charitable remainder annuity trust (CRAT) fluctuates each year with the value of the trust assets, providing a potential hedge against inflation. D) A grantor who establishes a charitable remainder unitrust (CRUT) is eligible for an income tax deduction in the year the trust is established.

A

Which one of the following statements regarding a conservatorship is not true? A) The conservator has authority to decide where the ward will live. B) The conservator will likely have to file reports with a court. C) The conservator may have to post a bond. D) The conservator is subject to the jurisdiction of a court.

D

Which one of the following statements regarding a general power of attorney is incorrect? A) The authority of the attorney-in-fact can vest certain circumstances occur. B) Actions taken by the attorney-in-fact pursuant to the terms of the instrument creating the power are legally binding on the principal. C) The authority of the attorney-in-fact can vest immediately, upon execution of the power of attorney. D) The authority of the attorney-in-fact will always survive the principal's incompetency.

C

Which one of the following statements regarding conservators is correct? A) A conservator and a guardian perform essentially the same role managing the ward's finances. B) A conservatorship is a court-ordered arrangement to provide for an incompetent person's personal care. C) A conservator is subject to the jurisdiction of the court and must make annual or more frequent reports and accountings to the court. D) In states that have adopted the Uniform Probate Code, a conservator does not have legal title to the ward's property.

A

Which one of the following statements regarding different forms of property co-ownership is CORRECT? A) Joint tenancy with right of survivorship (JTWROS), tenancy by the entirety (TBE), and community property (CP) are all forms of co-ownership that can be used by a husband and wife. B) Tenancy by the entirety (TBE) and tenancy in common are the only two forms of co-ownership specifically for spouses. C) Joint tenancy with right of survivorship (JTWROS), tenancy by the entirety (TBE), and tenancy in common are all forms of co-ownership that require the consent of other co-owners before an owner can sell his or her interest in the asset. D) Joint tenancy with right of survivorship (JTWROS), tenancy by the entirety (TBE), and community property (CP) are all forms of co-ownership that do not require a probate proceeding when one tenant dies.

B

Which one of the following statements regarding planning with a nonresident alien spouse is correct? A) A non-citizen spouse cannot gift property to a U.S. spouse. B) A gift to an alien spouse may qualify for a super annual gift tax exclusion. C) If a U.S. spouse transfers property to a nonresident alien spouse, he or she may use the unlimited federal marital deduction. D) Gift splitting is allowed if one spouse is a nonresident alien and the other spouse is a resident alien.

A

Which one of the following statements regarding the purpose and basic features of the generation-skipping transfer tax (GSTT) is CORRECT? A) The GSTT exemption allows each person to make generation-skipping transfers in the applicable amount, during life or at death, without having to pay a GSTT. B) A child of the transferor is known as a skip party in a direct skip transaction, since the child is in the generation that was skipped over in the transfer of wealth. C) The purpose of the GSTT is to take the place of the gift tax or estate tax with a tax at the highest estate tax rate at the time of transfer on the value of any wealth that is not transferred to the generation immediately below that of the transferor. D) If a transferor funds a trust that has more than one beneficiary, and at least one of the beneficiaries is a skip party, the transferor will be deemed to have made an indirect skip.

C

Which one of the following techniques should not be used if a person desires to leave property to his or her unmarried cohabitant, but wants to maintain control over the property until death? A) Property titled as T.O.D. B) A will C) An irrevocable trust D) A revocable living trust

B

Which one of the following types of statutes may give a replacement bequest to a beneficiary who was given a specific asset in a decedent's will when that asset is not available at the testator's death? A) Abatement statute B) Ademption statute C) Spousal elective share statute D) Advancement statute

C

Who owns equitable title to trust assets? A) The grantor B) The settlor C) The beneficiary D) The trustee

B

Wiley Willmaker lives in a common law state that has adopted the Uniform Probate Code. Wiley has been married to Jane for 28 years. All family assets are in Wiley's name only. His will, executed in 2001, is structured as follows: - It leaves specified tangible personal property and all real property, which amounts to 28% of his estate, to Jane. It leaves specified tangible and intangible personal property, which amounts to 45% of his estate, to "my children, Carrie and Maureen, in equal shares." - It leaves specified intangible personal property, which amounts to 25% of his estate, to a qualified charity. It is attested to and witnessed by his daughter, Maureen. - No other provisions disposing of property exist. Wiley has two children from his current marriage, Maureen and Chad, and a daughter, Carrie, from his prior marriage. Relations with Chad have become strained, and Wiley feels that Chad has been so disrespectful he should not receive any property from Wiley. Which of the following statements is CORRECT about why Wiley's will needs to be amended? I. The will needs to be properly witnessed by a disinterested party. II. Chad may still be able to receive a share of Wiley's property unless the current will is changed. III. The estate will not be subject to the intestacy statutes. IV. The will needs a residuary clause. A) I and III B) I, II, and IV C) II, III, and IV D) II and IV

D

With respect to the generation-skipping transfer tax (GSTT), which one of the following is an election that allows the donor or decedent's estate to be deemed the transferor of property that qualifies as an indirect skip? A) Gift tax election B) Marital deduction election C) QTIP election D) Reverse QTIP election

B

Within three years prior to her death, Himari established an irrevocable trust with her children as trust beneficiaries. She transferred ownership of a vacation cabin into it, and in the deed conveying the property to the trust, Himari reserved the right to use the vacation cabin when it is not occupied. Which of the following statements regarding whether the trust property would be included in Himari's gross estate is CORRECT? A) It is included because the transfer was made within three years prior to death. B) It is included because she retained the right to use the property. C) It is excluded because her use is dependent upon the implied consent of the children. D) It is excluded because she retained no administrative control over the trust.

D

You are a CFP® certificant. A client has come to you for assistance. You should inform the client of which of the following? I. You can provide the client with "fill-in-the-blank" durable power of attorney forms for both finances and health care, as well as living wills, and help the client complete and execute these documents. II. You can be involved in data gathering, identifying goals, and identifying possible weaknesses and problem areas in the client's current situation. III. Your primary role will be working with and coordinating other financial planning professionals. IV. You can review the client's current documents to interpret the contents and indicate what the legal implications of the document are for the client. A) III only B) I only C) II, III, and IV D) II and III

A

You are meeting with your client, Beatrice, to review her property and value it to estimate her potential gross estate. Included in her list of property owned are the following assets: - Fifty shares of AT&T stock - A whole life policy with her spouse as the insured and III. Beatrice as the primary beneficiary, which is still in premium pay status - A term life policy provided by her employer, with Beatrice as the insured and her spouse as the primary beneficiary - Five hundred shares of Rob Roy, Inc., a closely held corporation Of the following statements to make to Beatrice about the valuation of property includible in her gross estate, which would be CORRECT? I. The AT&T stock will be entitled to a minority discount. II. The whole life insurance policy will be valued at its replacement cost, as measured by its interpolated terminal reserve plus any unearned premiums. III. The term life policy will be valued at the cost of a policy from the issuing company based on her age at the time of her death. IV. The closely held stock may qualify for a lack of marketability discount. A) II and IV B) I, II, and IV C) II only D) I and III

B

Your client and his wife are residents of a community property state and recently have acquired a real estate tract there. They want to leave their respective interests in this tract to the surviving spouse when one of them dies. Also, they would like to minimize income taxes on this disposition when the tract is sold by the surviving spouse. If your client is the first spouse to die, which one of the following correctly states an advantage of holding the property as traditional community property? A) Your client's interest will pass to his wife by right of survivorship. B) The entire property will receive a step-up in basis upon his death. C) Your client's share of the property will receive a step-up in basis. D) Your client's interest will pass to his wife outside of probate.

A

Your client currently has a large gross estate that includes the following assets: - A payable on death (P.O.D.) bank account in favor of client's son at death - A residence owned as joint tenants with right of survivorship with his spouse - Stocks held in a revocable trust that continues after his death for the benefit of his surviving spouse and family Which one of the following is a CORRECT statement regarding the advantages or disadvantages for this client of using these will substitutes? A) An advantage of the way the bank account is titled is that it is more easily and inexpensively created than a revocable trust. B) A disadvantage of the way the bank account is titled is that the client no longer has exclusive control of the bank account. C) An advantage of owning the residence in joint tenancy with right of survivorship is that the client can control disposition of this asset at death. D) A disadvantage of the revocable trust is that its assets will not avoid probate because it is revocable.

D

Your client died recently with a gross estate valued at $425,000. Her estate tax bracket is 34%. Her husband has a gross estate of $155,000. Her will (1) placed $350,000 in a trust that gave her husband and her mother life income interests payable annually, with the trust remainder going to her son from a previous marriage when both have died; and (2) left the residue to her daughter. Her husband was named executor. Most of her estate is in certificates of deposit and securities that recently have shown only minimal growth. During the last six months of her life, she had uninsured medical expenses of $30,000. She and her husband were in the 24% marginal income tax bracket at the time of her death. If her husband, as executor, came to you for advice, you should inform him that the most appropriate postmortem election for his wife's estate is A) the use of the alternate valuation date (AVD) for her estate assets. B) the making of a qualified terminable interest property (QTIP) election by her executor. C) the waiver of executor fees charged to her estate. D) the claiming of medical expenses on her final income tax return.

D

Your client established a funded revocable life insurance trust and transferred a $500,000 face value whole life insurance policy on his life into it. Your client's father was named trustee. The client has made no other lifetime gifts. If the client dies 18 months after establishing the trust, one disadvantage of this life insurance planning technique is that A) the client will have a gift tax liability for the value of the policy. B) the premium payments will be considered taxable income to the beneficiary. C) the amount of gift tax paid will be includible in the client's gross estate under the gross-up rule. D) the face amount of the transferred policy will be includible in the client's gross estate.

A

Your client has an estate valued at $3 million. Two months ago, his wife died. He and his deceased wife did not have any children together, but she had two children from a prior marriage. His will, drafted in 2007, leaves everything to his wife. Nocontingent beneficiary is named in the will, and it does not contain a residuary clause. Included in the client's estate are real estate holdings in three other states. He wants to retain lifetime ownership of these properties because of the income they provide him. He would like the real estate holdings to pass to his wife's children in equal shares upon his death. He would like the remainder of his estate to go to his brother. Which of the following are serious estate planning pitfalls that can be avoided if your client amends his will to carry out his objectives? I. Having the estate pass under the laws of intestacy II. Having the estate assets distributed through probate III. Having the estate pay any estate tax IV. Having part of the estate pass to unintended beneficiaries A) I and IV B) I and II C) III and IV D) II and III

D

Your client is the sole depositor of $30,000 in a bank account. He is considering naming his girlfriend as the other joint tenant on the account. You should inform him that one consequence of creating the joint tenancy with right of survivorship bank account would be that A) the client's contributions to the account will be excluded from his gross estate. B) all funds can be withdrawn by either the client or his girlfriend without gift tax consequences. C) the other joint tenant, his girlfriend, may not withdraw the funds from the account without his consent. D) the client's contributions to the account will be excluded from his probate estate.

B

Your client's spouse died this year with a gross estate valued at $5.5 million, which included two solely owned apartment buildings, each valued at $2 million. Debts and expenses payable by her estate are estimated at $250,000. During the past three years, she gave most of the rents from the apartment buildings directly to her son's university to pay for his graduate school tuition. She and your client owned a personal residence worth $1 million as joint tenants with right of survivorship. Her will, which appoints her brother the executor, leaves all her solely owned property to her son, with the remainder to your client. If your client's major objective is to maximize his share of his spouse's estate, which of the following is the most advisable postmortem action for him to take? A) Ask the executor to make a QTIP election B) Make an election against his spouse's will as the surviving spouse C) Petition the executor to elect installment payment of estate taxes under IRC Section 6166 D) Consent to split gifts made by his spouse to her son during the past tax year

D

Your client, Cora Kortz, a 77-year-old widow, has heard about living revocable trusts. She has asked you to summarize some of their advantages and disadvantages. You would tell her all of the following except: A) the trust will provide management of her property during periods of incompetency. B) the entire value of assets in the trust at her death will be includible in her gross estate for federal estate tax purposes. C) a trust provides greater confidentiality than a will regarding what assets she owns and who will receive them when she dies. D) the trust is cumbersome and expensive because each year she will have to file two separate income tax returns—her personal return and a return for the trust.

A

Your client, a widow, has made these lifetime gifts to her son in an effort to reduce the size of her gross estate: Year - Gift - Taxable Gift 2012: $323,000 - $310,000 2016: $254,000 - $240,000 2023: $467,000 - $450,000 If she used her applicable credit to offset gift tax liability on the gifts, what amount of applicable credit remains available to your client for gifts in 2023? A) $4,768,000 B) $345,800 C) $0 D) $5,113,800

A

Your client, age 65, has a gross estate valued at $18.7 million. He and his second wife have two teenage children. In addition, your client has two children from his first marriage who are in their mid-30s. His objectives are to: - leave an income stream and a portion of his estate to his current wife; - leave a portion of his estate in trust for the teenage children from his current marriage; - ensure that the children from his first marriage receive a portion of his estate; and - reduce his federal estate tax liability. Which one of the following transfers is most appropriate for achieving the client's objectives? A) Combination A-B-C (power of appointment, family bypass, and QTIP) trust arrangement B) Outright gift of two-thirds of the estate to his current wife, with the remainder passing to the teenage children in a nonmarital trust C) Outright transfer of the entire estate into a power of appointment trust D) Family bypass trust equal to the applicable exclusion amount for the teenage children, with the remainder in a marital trust for his current wife

C

Your data-gathering meeting with Colin indicated the following about his property interests: - He has the right to decide, without limitation, who will receive the entire corpus of his uncle's trust. Colin's will does not exercise this right. - His spouse owns a paid-up life insurance policy that insures Colin's life, and his spouse, Lois, is the primary beneficiary. - Five years ago, he created the revocable CG Trust for his children and funded it with $80,000 worth of securities; two years ago, when the trust fund was worth $130,000, he made it irrevocable. - Two years ago, he had cumulative taxable transfers that exceeded the applicable exclusion amount and paid $32,000 in gift tax to the federal government. If Colin died in the current year, which of the following would be excluded from his gross estate? A) The date of death value of the CG Trust B) The value of the corpus of his uncle's trust C) The death benefit of the life insurance policy D) The $32,000 in gift taxes paid

D

Your deceased client's will gives some of his probate property outright to his spouse, who survived him. The will places the balance of the probate estate into a QTIP trust. Your client's spouse is also the designated beneficiary on all assets that pass by will substitute. No assets passed by intestacy. Which of the following statements about your client's estate are CORRECT? I. All assets passing either outright or in trust to the surviving spouse will qualify for the marital deduction only if your client's executor makes an election. II. Your client will have a taxable estate of zero if the QTIP election is made for the assets in the QTIP trust. III. Your client's estate will not be able to use any of his applicable credit amount, unless his spouse disclaims some estate assets. IV. Your client's spouse cannot disclaim the assets placed in the QTIP trust. A) I and III B) I, II, and III C) II and IV D) II only

A

Your unmarried client has made these lifetime cash gifts: Total Gifts to Daughter - Total Gifts to Son 2018: $35,000 - $75,000 2023: $92,000 - $57,000 How much of your client's applicable credit is gone on December 31, 2023? A) $53,200 B) $14,400 C) $38,800 D) $0

D

Zeke is 85 years old. He feels he will need nursing home care within the next 2 to 3 years. In an attempt to become eligible for Medicaid, Zeke gives his home and most of his assets to his grandchildren. Which of the following statements regarding these transfers is(are) CORRECT? I. The transfers are subject to a look-back period of 36 months. II. Because of the transfers, Zeke may be subject to a waiting period before he becomes eligible for Medicaid. A) I only B) Both I and II C) Neither I nor II D) II only

A

ll of the following statements regarding the election to use the alternate valuation date (AVD) on the federal estate tax return are correct except A) the executor is allowed to select which assets will be valued at the AVD and which will valued as of the decedent's date of death. B) the AVD can be used only if it reduces the total value of the gross estate. C) the AVD cannot be used for wasting assets. D) the AVD can be used only if it reduces the amount of federal estate tax owed by the estate.