Estate Planning Final Exam

A father deeded a house as a gift to his son in 1994 but retained the right to live in the house for the remainder of his life. the father died recently. the following are relevant facts: The father bought the property in 1980 for $60,000 The fair market value of the property at the time of the gift in 1994 was $110,000 The father filed a timely gift tax return but paid no gift tax because of the applicable credit amount. The fair market value of the property at the time of the fathers death was $245,000. The son sold the property 6 months after his fathers death for $245,000 When the son sold the property he had a gain of?

$5,000

Given the following information, which of the following values is the amount of your clients tentative tax base for federal estate tax purposes? Adjusted gross estate= $1,500,000 Funeral and estate administration expenses= $200,000 Marital Deduction=$1,100,000 Adjusted taxable gifts= $300,000

$700,000

Which of the following statements concerning income taxation of trust and estate is correct?

An estate is allowed an exemption of $600

All of the following statements concerning federal income taxation of estates are correct EXCEPT

An estate is taxed at a flat income tax rate

All of the following statements concerning estates and trusts are correct EXCEPT

Both estates and trusts come into being by operation of law

A decedent spouses one-half interest in community property is usually exempt from state death taxation

False

A decedents final tax year generally ends on December 31st of the year in which the decedent dies.

False

Although a trust is a private arrangement, it is supervised by the court until its termination

False

An inheritance tax is a tax imposed on a decedents right to transfer property to another at death

False

Property held jointly with the right of survivorship does not receive a step-up in basis at the death of a joint tenant because this kind of property is non probate property

False

The term Skip beneficiary pertains to individuals and is therefore limited to non trust transfers for GSTT purposes

False

a donees basis in gift property is increased by the full amount of gift taxes paid as a result of the gift

False

Which of the following statements concerning the generation-skipping transfer tax (GSTT) is (are) correct? I. the tax rate applied is the top federal estate tax rate II. Direct skip transfers are exempt from the tax

I only

Which of the following statements concerning complex trusts (are) correct? I. The trust must be required to accumulate trust income II. The trustee may be given the authority to make gifts of trust property to charity

II only

Which of the following statements concerning estates is (are) correct? I. the administration of a decedents estate should generally exist for an unlimited period of time II. an estate is considered a separate tax entity for federal income tax purposes

II only

Frank purchased property of $20,000 in 1990 that appreciated in value to $120,000 2 years ago. Which of the following statements concerning the taxation of property is correct?

If Frank left the property to his daughter by will and he died 2 years ago, the daughter would have a gain of $10,000 for income tax purposes when she later sold the property for $130,000

All the following statements concerning a Section 6166 installment payment of estate taxes attributable to the inclusion of a closely held business in a decedents gross estate are correct EXCEPT?

If the estate qualifies, both for tax payments attributable to the business and the payments of interest on the unpaid balance must be paid in equal installments for 15 years

All of the following statements concerning income taxation of estates and trusts are correct EXCEPT

Income distributed by a trust to an income beneficiary of a trust is taxable to the trust

Which of the following statements concerning the filing of the federal estate return is (are) correct? I. An estate tax return must be filed for all persons dying after 1987 II. There is an automatic 2-year extension for filing the federal estate tax return of a U.S. citizen who dies in a foreign country

Neither I. or II.

All of the following statements concerning the grantor- trust rules are correct EXCEPT

The Grantor-trust rules are avoided if the grantors spouse has the power to revoke the trust

Income earned but unpaid at the time of a decedents death is deemed to be income in respect of a decedent (IRD). Which of the following statements is correct?

The income is taxable to the person or entity receiving it

A decedents gross estate and adjusted taxable gifts must exceed the applicable credit amount for the filing of the federal estate tax return to be necessary

True

A redemption of stock qualifying for Sec. 303 treatment avoids treatment of the redemption as a dividend

True

Adjusted taxable gifts do not include gifts made to a spouse that qualified for the gift tax marital deduction

True

With respect to state death taxes, it is a decedent's closest blood relatives who have the lowest state death tax rate and the largest exemption

True

one of the primary functions of basis is to measure gain or loss when property is disposed of in taxable transaction

True

In which of the following situations would property transferred at death receive a fully stepped-up basis?

property that passes to another because the decedent exercised a general power of appointment over the property under his or her will