Estate Planning 635 - Exam 3
True or False: It is the responsibility of the IRS to determine the value of contributed property.
False
True or False: Most individuals die with the cash necessary to cover all of the costs and taxes associated with their death.
False
True or False: Only a terminable interest that terminates at a certain period of time will qualify for the marital deduction.
False
True or False: Public charities are for the benefit of the public, without a specific cause or beneficiary class.
False
True or False: If a parent disclaims the property bequeathed to them, then the predeceased parent rule will apply if the assets are transferred to the children instead.
False
True or False: Section 2032A allows the executor to extend the payment of the estate tax over a maximum of 14 years.
False
True or False: Selling an estate's assets is the best way to generate the cash necessary to cover the administration expenses of the estate.
False
True or False: The 2018 lifetime GST exemption is $4,417,800.
False
True or False: The GSTT only applies to transfers after October 22, 1986.
False
True or False: The administration of an estate is usually quick and easy.
False
Chapter 10 - The Unlimited Marital Deduction
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Chapter 11: Life Insurance in Estate Planning
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Chapter 12 - Special Elections & Post-Mortem Planning
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Chapter 13: Generation-Skipping Transfers
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Chapter 9 - Charitable Giving
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True or False: The beneficiaries of a trust are liable for the GSTT on a taxable termination.
False
True or False: The number of policies for 5 equal partners in an entity approach to buy/sell is 20.
False
True or False: The surrender value of a term life insurance policy increases each year the premium is paid.
False
True or False: If the death benefit of a life insurance policy payable to a beneficiary is left on deposit with the insurance company, the beneficiary will receive tax-exempt interest on the policy proceeds.
False
Which of the following charitable trusts allow investments in securities that are exempt from taxes? CRATs Pooled income fund CRUTs
CRATs and CRUTs Pooled income funds are prohibited from investing in tax-exempt securities.
Which of the following charitable trusts allow both term certain less than or equal to 20 years and life annuities? Pooled Income Funds CRATs CRUTs
CRATs and CRUTs Pooled income funds do not allow a term other than the actual life of the beneficiary.
Which of the following charitable trusts allow sprinkling provisions? Pooled Income Funds CRATs CRUTs
CRATs and CRUTs Pooled income funds do not allow sprinkling provisions.
Which of the following charitable techniques allow the grantor/transferor to manage the transferred assets? Check all that apply. CRATs CRUTs Pooled Income Funds
CRATs and CRUTs Statement 1 is correct. The grantor can act as the trustee of the CRAT, controlling the assets within the trust. Statement 2 is correct. The grantor can act as the trustee of the CRUT, controlling the assets within the trust. Statement 3 is incorrect. The charity manages the assets in a pooled income fund.
Which of the following charitable trusts allow for additional inter vivos contributions to be made after the inception of the trust? CRUTs CRATs
CRUTs CRATs specifically preclude additions to trust property post-inception.
True or False: Dynasty trusts are against the law and subject to penalties.
False
True or False: Estate planning should always ensure that the decedent owns his life insurance policy.
False
True or False: For gift tax purposes, the value of a life insurance policy in pay status is the replacement cost of the policy plus the present value of any outstanding premiums.
False
True or False: Gifts of services are fully deductible for the person performing the service.
False
True or False: A QTIP trust will allow a transfer to a non-U.S. citizen spouse to qualify for the unlimited marital deduction.
False
True or False: A bypass trust is created to receive the property that does not transfer free from estate tax under the applicable estate tax credit.
False
True or False: A decedent's last medical expenses can-not be deducted on the estate tax return unless they exceed 7.5 percent of the adjusted gross estate.
False
True or False: A disclaimer filed 15 months after the decedent's date of death is valid.
False
True or False: A disclaimer must be filed within six months of the decedent's date of death.
False
True or False: A gift tax return must be filed whenever a gift is made to a public charity.
False
True or False: A pot trust is a pool of many trusts for different individuals.
False
True or False: A surviving spouse must file as a qualifying widow for the tax year of her husband's death.
False
True or False: A transfer to a surviving spouse as trustee of a trust for the benefit of her children will qualify for the unlimited marital deduction.
False
True or False: A whole life insurance policy is a life insurance contract that does not accumulate cash value and states that if the insured dies within the term of the contract, the insurance company will pay the stated death benefit.
False
True or False: An estate may not take a loan to pay its estate tax.
False
True or False: An executor must file a fiduciary income tax return (1040) for the estate on a calendar year basis.
False
True or False: An individual will always choose to deduct the fair market value of the contributed property.
False
True or False: Any distribution from a trust to a skip person other than a direct skip is a tax-able termination.
False
True or False: Anyone who is less than two generations younger than the transferor is a skip person.
False
True or False: Because a surviving spouse's interest in a QTIP Trust is a terminable interest, the surviving spouse's estate will not include the value of the trust property at her date of death.
False
True or False: By creating an ILIT, the insured eliminates any risk created by the three-year rule.
False
True or False: Dividends issued on life insurance policies are distributions of the earnings and profits of the insurance company.
False
True or False: The transfer-for-value rule subjecting the death benefit of a life insurance pol-icy to income taxation can be avoided by having the parties cancel the transaction at a later point in time.
False
True or False: Transfers to a divorced spouse qualify for the unlimited marital deduction. The only requirement is that the individuals were married within the last three years.
False
True or False: When a GSTT is reported on a Form 709, the form is due within three months of the date of transfer.
False
True or False: When a disclaimer is used, the property will pass to the person chosen by the disclaiming party.
False
True or False: When the owner of a life insurance policy designates the beneficiary of the policy, he has made a taxable gift equal to the present value of the expected future death benefit to the beneficiary.
False
True or False: If a product or service is rendered in return for the charitable contribution, no portion of the contribution is deductible.
False
True or False: The beneficiary of a life insurance pol-icy can take a loan for an amount up to the cash value of the life insurance policy.
False
True or False: A will cannot create a CRAT.
False
True or False: Tax-exempt securities are prohibited investments for CRUTs.
False
True or False: The remainderman of a pooled income fund is the grantor.
False
Which type(s) of charitable remainder arrangements permit additional contributions after inception? Check all that apply. Pooled Income Funds CRATs CRUTs
Pooled Income Funds and CRUTs Only CRUTs and pooled income funds permit additional contributions after inception.
True or False: A term life insurance policy is more appropriate for short-term needs than a whole life insurance policy.
True
True or False: A terminable interest in a general power of appointment trust will qualify for the unlimited marital deduction.
True
True or False: A properly created Irrevocable Life Insurance Trust (ILIT) will avoid inclusion in the decedent's gross estate and the surviving spouse's gross estate.
True
True or False: A QTIP Trust allows a decedent to qualify a transfer for the marital deduction at his death yet still control the ultimate disposition of the property.
True
True or False: A bypass trust can provide the surviving spouse with income for the rest of her life and avoid inclusion in the surviving spouse's gross estate.
True
True or False: A casualty loss, if permitted, may be deducted on the fiduciary income tax return (1041) or on the estate tax return (706).
True
True or False: A couple who elects to split gifts must agree to split all gifts made during the year.
True
True or False: A cross purchase agreement will increase the income tax basis of survivors/owners.
True
True or False: A decedent's assets are included in his gross estate at the fair market value at his date of death or the alternate valuation date.
True
True or False: A direct skip is a nontaxable gift for GSTT purposes to the extent the transfer is excluded from taxable gifts under the annual exclusion.
True
True or False: A distribution to a surviving spouse of the principal of a QDOT will be subjected to estate tax.
True
True or False: A terminable interest is any interest in property passing from the decedent to his surviving spouse where the surviving spouse's interest in that property will terminate at some point in the future.
True
True or False: Administrative expenses of an estate include the expense of the preparation of the estate tax return.
True
True or False: An estate is overqualified when too many assets pass to a surviving spouse in a qualifying way.
True
True or False: An executor may choose to waive his/ her executor's fee.
True
True or False: Any passive loss carry-forwards are deductible on the decedent's final income tax return.
True
True or False: Distributions from qualified plans are subject to ordinary income tax.
True
True or False: Dynasty trusts should always include spendthrift clauses.
True
True or False: For direct transfers from a decedent's estate to qualify for the marital deduction, the property must transfer to a surviving spouse who is a U.S. citizen.
True
True or False: Funerals are expensive and can be pre-funded to reduce the expense burden for the family and the estate.
True
True or False: Generally, as an individual gets older, the mortality cost of a term life insurance policy increases.
True
True or False: Gifts to the state of Texas qualify as deductible charitable gifts.
True
True or False: IRC Section 1035 allows the owner of a life insurance contract to exchange the contract for another life insurance contract, an endowment contract, or an annuity contract on the same insured without any tax consequences.
True
True or False: If a life insurance policy is determined to be a MEC, any loans against the policy are taxable to the extent that the owner has gain in the policy.
True
True or False: If a survival clause requires the surviving spouse to outlive the decedent by more than 8 months, the property will not qualify for the marital deduction, even if the surviving spouse lives for 20 years after the death of the decedent.
True
True or False: If a will includes a survival contingency longer than six months, the unlimited marital deduction will not apply to the transfer.
True
True or False: If an individual sells property to a charity at a bargain price, the individual will have a part sale and a part charitable contribution.
True
True or False: If the deceased spouse's will directs his executor to use property in the estate to purchase an annuity for the surviving spouse, the unlimited marital deduction is not available for that property.
True
True or False: In order for transfers to a QDOT to qualify for the unlimited marital deduction, the executor of a citizen spouse's estate must elect to have the marital deduction apply.
True
True or False: Irrevocable life insurance trusts are primarily designed to ensure that the death benefit is excludable from the insured's federal gross estate.
True
True or False: Life insurance is often used in educational funding plans.
True
True or False: Life insurance proceeds payable to the estate of a decedent are included in the decedent's federal gross estate.
True
True or False: Qualified transfers are not subject to GSTT.
True
True or False: Surrender payments from a life insurance contract to an insured individual who is chronically or terminally ill may be excluded from gross income.
True
True or False: The donor of a charitable annuity receives an income tax deduction equal to the difference between the value of the annuity and the value of the property contributed for the annuity.
True
True or False: The grantor of a dynasty trust often gives the trustee the authority to terminate the trust.
True
True or False: The inclusion ratio is determined by subtracting the applicable fraction from one.
True
True or False: The income from a lifetime QTIP Trust must be paid to the surviving spouse at least annually for the trust to qualify for the unlimited gift tax marital deduction.
True
True or False: The insured is the person whose life is covered by the life insurance policy.
True
True or False: The number of policies for 5 equal partners in cross-purchase arrangement to buy/sell is 20.
True
True or False: The owner of a life insurance policy can select the settlement option that will be payable to the beneficiary.
True
True or False: The owner of a life insurance policy will include the value of the life insurance policy in his federal gross estate if he dies before the insured.
True
True or False: The three-year rule does not apply to the sale of a life insurance policy.
True
True or False: The three-year rule requires inclusion of the death benefit of any life insurance policy transferred within three years of the death of the insured in the insured/ owner's federal gross estate.
True
True or False: To reap the full benefits of special use valuation, the heirs of the property must use the property in the same use as the decedent for at least ten years after the decedent's date of death.
True
True or False: U.S. savings bonds do not receive a step-to fair market value at the dece-dent's date of death. When redeemed, all interest is subject to ordinary income tax.
True
True or False: Unless the inherited property has been consumed, a second-to-die spouse must include the property in his gross estate if the first-to-die spouse elected the marital deduction on the property.
True
True or False: Use of the marital deduction will defer the payment of estate tax on property transferred to the surviving spouse until the surviving spouse's death.
True
True or False: When a life insurance policy is donated to a charity, the donor may deduct the fair market value of the policy as a charitable deduction on his income tax return (subject to income limitations)
True
True or False: A CLAT provides an annuity to a charity for a term defined by the grantor.
True
True or False: A CRAT provides an annuity to the grantor for a term defined by the grantor.
True
True or False: A bequest to a charitable organization based on a contingency is not eligible for the charitable deduction.
True
True or False: A pooled income fund is analogous to a mutual fund provided by a charity.
True
True or False: An individual may choose to gift a life insurance policy to a charity.
True
True or False: Charitable bequests in a will do not produce any income tax benefits.
True
Upon what form is a lifetime GST reported? a. Form 1040. b. Form 709. c. Form 706. d. Form 1041
b. Form 709. Any lifetime GST is reported on Form 709, the United States Gift and Generation-Skipping Transfer TaxReturn.
Before his death in 2018, Melvin, age 66, incurred $65,000 in medical bills. Melvin's taxable estate at his death was $675,000 and his adjusted gross income for 2018 was $100,000. How much of Melvin's medical expenses will be deducted on his estate tax return? a. $0. b. $57,500. c. $65,000. d. $100,000
a. $0 In this situation, Melvin's executor would not elect to deduct any of the final expenses on Melvin's estate tax return because the medical expenses will not change the estate tax due on Melvin's estate tax return - Melvin's taxable estate is less than the applicable estate tax credit equivalency. Melvin's executor will deduct the expenses, to the extent they exceed 7.5% of Melvin's AGI, on Melvin's final income tax return.
Seth, a U.S. citizen, owns a life insurance policy on his own life. His latest statement from the life insurance company revealed the following: Death Benefit $1,000,000 Cash Value $200,000 Beneficiary Designation Sonia (his wife) If Seth died today, and the insurance proceeds were paid to his wife, Sonia (a resident alien), what amount will qualify for the estate tax marital deduction? a. $0. b. $200,000. c. $500,000. d. $1,000,000.
a. $0. Since the policy is owned by Seth, the $1,000,000 will be included in his gross estate. Since Sonia is not a U.S. citizen, she will NOT qualify for the unlimited marital deduction.
Terrence contributed $15,000 to a foreign charitable organization. At the time of the contribution, the organization told him that his contribution was tax deductible for income tax purposes. Ignoring any income limitations, how much of the $15,000 contribution is deductible? a. $0. b. $7,500. c. $10,000. d. $15,000.
a. $0. Foreign charitable organizations are not qualified charitable organizations and therefore contributions to such organizations do not qualify for a charitable deduction. It is always the responsibility of the donee to deter-mine the deductible status of his contribution.
Which of the following statements regarding the estate tax marital deduction is correct? a. A QTIP trust will qualify for the marital deduction, if the executor makes the appropriate election. b. If the decedent received a marital deduction, the property is excluded from the surviving spouse's gross estate upon the surviving spouse's death. c. The surviving spouse must be a U.S. citizen for the decedent to qualify for the marital deduction even using a QDOT. d. The marital deduction only applies in community property states.
a. A QTIP trust will qualify for the marital deduction, if the executor makes the appropriate election. The marital deduction applies in both community property and separate property states. There is no need for the surviving spouse to be a U.S. citizen if using a QDOT. The marital deduction property must be included in the surviving spouse's gross estate.
Maria is a citizen and resident of Mexico. She was married to Jose, a U.S. citizen, and is his sole survivor. Which of the following techniques or arrangements would be useful if his gross estate is $15,000,000? a. A Qualified Domestic Trust (QDOT). b. The unlimited marital deduction. c. A bypass trust. d. A Qualified Terminable Interest Property Trust (QTIP) for non residents.
a. A Qualified Domestic Trust (QDOT).
Only property that passes from the deceased spouse to the surviving spouse is eligible for the marital deduction. Which of the following will not qualify for the estate tax marital deduction? a. A terminal interest in property. b. Property passed under state intestacy laws. c. Life insurance proceeds. d. Property passed by will.
a. A terminal interest in property. Terminal interest in property is not eligible for the estate tax marital deduction (with the exception of certain survival clauses).
Which of the following is not a major type of insurance? a. Custodial life insurance. b. Indexed universal life insurance. c. Whole life insurance. d. Term life insurance. Custodial life insurance is not a classification of life insurance.
a. Custodial life insurance. Custodial life insurance is not a classification of life insurance.
A QTIP trust must: a. Give the surviving spouse the right to require only income producing assets be in the trust. b. Be in the form of a testamentary trust. c. Permit the trustee to use any amount of the trust principal for any purpose for the spouse. d. Give the surviving spouse a general power of appointment over the assets.
a. Give the surviving spouse the right to require only income producing assets be in the trust. the surviving spouse must be able to require only income producing assets be in the trust.
Which of the following statements is correct regarding buy-sell agreements? a. If the corporation is designated as the owner and irrevocable beneficiary of any life insurance policy used to fund the buy-sell agreement, the death benefit from the policy is not includible in the decedent shareholder's gross estate. b. With an entity-redemption buy-sell agreement, life insurance premiums paid by the entity are deductible by the corporation. c.The agreement must be funded with property or insurance. d. In a cross-purchase buy-sell agreement funded with life insurance, the entity purchases life insurance on the lives of each owner.
a. If the corporation is designated as the owner and irrevocable beneficiary of any life insurance policy used to fund the buy-sell agreement, the death benefit from the policy is not includible in the decedent shareholder's gross estate. Option a is incorrect, since a buy-sell agreement need not be funded with life insurance or property. Option b is incorrect, because life insurance premiums are not deductible. Option d is incorrect, because in a cross-purchase agreement, the owners purchase life insurance on the lives of the other owners.
Which of the following is not an advantage of the marital deduction? a. If the first spouse to die took full advantage of the marital deduction, all property in the surviving spouse's estate at his or her death is subject to the federal estate tax. b. With proper planning, it provides a way to minimize estate tax liability for both spouses. c. The surviving spouse receives a stepped up basis on property qualifying for the marital deduction. d. There is no estate tax at the first spouse's death.
a. If the first spouse to die took full advantage of the marital deduction, all property in the surviving spouse's estate at his or her death is subject to the federal estate tax. Having all property subject to estate tax in the surviving spouse's estate is not an advantage.
The generation-skipping transfer tax is imposed: a. In addition to gift and estate taxes. b. As an alternative to the estate tax. c. And is deductible from any gift tax. d. As a progressive tax like the estate tax.
a. In addition to gift and estate taxes. The GSTT is in addition to gift and estate tax and applies to transfers to donees who are at least two generations younger than the transferor (donor).
All of the following are subject to generation-skipping transfer tax except: a. Indirect skips. b. Taxable terminations. c. Direct skips. d. Taxable distributions.
a. Indirect skips.
The Organization to Prevent Cruelty to Animals receives contributions from the general public to fund programs to prevent cruelty to animals. Of its total support during the year, 75% of the funds are from contributions from supporting individuals. What type of charity is The Organization to Prevent Cruelty to Animals? a. Public Charity. b. Private Foundation. c. Private Operating Foundation. d. Public Non-operating Charity.
a. Public Charity. To be classified as a public charity, more than 33% of the organization's support must be from a combination of gifts, grants, contributions, membership fees, and gross receipts from sales in an activity which is not an unrelated trade or business. Also, to be a public charity, not more than 33% of an organization's support can come from the sum of gross investment income plus unrelated business taxable income. Because the information provided tells us that 75% of the organization's support is from individual contributions, The Organization to Prevent Cruelty to Animals passes the first requirement to be classified as a public charity, and the organization must pass the second requirement because we know less than 33% of the contributions are derived from investment income and unrelated business taxable income.
Failure to make an installment payment under Section 6166 could result in: 1. Acceleration of all unpaid tax. 2. Loss of the special 2% interest rate. a. Neither 1 nor 2. b. 1 only. c. 2 only. d. Both 1 and 2.
d. Both 1 and 2.
Bob and Ted are married and live in California, a community property state. Their community property consists of real property with an adjusted basis of $300,000 and a fair market value of $750,000 and other property with an adjusted basis of $100,000 and a fair market value of $75,000. Bob dies and leaves his entire estate to Ted. What is Ted's adjusted basis in the real property and other property after Bob's death? a. Real Property: $750,000. Other Property: $75,000. b. Real Property: $300,000. Other Property: $50,000. c. Real Property: $375,000. Other Property: $100,000. d. Real Property: $150,000. Other Property: $37,500.
a. Real Property: $750,000. Other Property: $75,000. Both the decedent's and survivor's interest in the community property receive a basis adjustment to the fair market value on the date of Bob's death.
Which of the following statements regarding term life insurance is correct? a. The premium on a term life insurance policy reflects the actuarial risk that the insured will die during the term of the contract. b. The cash accumulation account of a term life insurance policy is invested in the bond portfolios of the insurer. c. The cash accumulation account of a term life insurance policy is invested in individual stocks selected by the insured. d. The premium of a term life insurance policy will decrease as the pure cost of life insurance increases.
a. The premium on a term life insurance policy reflects the actuarial risk that the insured will die during the term of the contract. The premium on a term life insurance policy reflects the actuarial risk that the insured will die during the term of the contract. Options b and c are incorrect because a term life insurance policy does not have a cash accumulation account. Option d is incorrect because the premium of a term life insurance policy increases as the pure cost of life insurance increases.
Which statement about the gift tax marital deduction is incorrect? a. The regular annual exclusion available to all donees is available for gifts to non-citizen spouses. b. Non-citizen spouses may receive survivor benefits under a joint-and-survivor annuity. c. The unlimited gift tax marital deduction is not available to non-citizen spouses. d. One spouse may gift any amount to the other spouse without gift tax as long as the gift is not terminal interest property.
a. The regular annual exclusion available to all donees is available for gifts to non-citizen spouses. There is a special annual exclusion available for marital gifts to non-citizen spouses which is approximately 10 times the normal exclusion and the amount of the exclusion is indexed annually for inflation.
On January 15th, Linus transfers property to a trust over which he retains a right to revoke one-fourth of the trust. The trust is to pay Patti 5% of the trust assets valued annually for her life with the remainder to be paid to a qualified charity. On September 1st, Linus dies and the trust becomes irrevocable. Which of the following statements is/are correct? Check all that apply. a. The trust is created January 15th b. The trust is created when it becomes irrevocable at September 1st. c. Linus receives a charitable deduction equal to the present value of 25% of the remainder interest. d. Linus receives a charitable deduction equal to the present value of 75% of the remainder interest.
a. The trust is created January 15th The trust is created when funded, but because of the right to revoke, it does not qualify for any charitable deduction.
The marital deduction is: a. Unlimited. b. Unlimited except for lifetime gifts. c. Limited to $152,000 (as indexed for inflation). d. Limited to $15,000 per year of marriage.
a. Unlimited.
For the year 2019, the GSTT exemption was: a. $11,400,000 per donee. b. $11,400,000 per donor. c. Separated from the estate exemption and therefore additive. d. Deducted from the gift tax exemption.
b. $11,400,000 per donor.
Which of the following gifts made by Tristan, age 49, is subject to the generation-skipping transfer tax? a. $15,000 to his grandson. b. $20,000 to the daughter (age 6) of Tristan's former college roommate. c. $20,000 to his niece, age 6. d. Payment to a medical school for tuition of $50,000 for the granddaughter of Joe, Tristan's best friend.
b. $20,000 to the daughter (age 6) of Tristan's former college roommate. - $15K to his grandson is exempted by the annual exclusion - His niece is not a skip person - Payment of medical school tuition directly to the school is not subject to GST - The 6 year old daughter of his former college roommate is a skip person because a nonlinear descendant is a skip person if more than 37.5 years younger than the transferor
Four years ago, Walter created a charitable remainder trust with himself as the income beneficiary and a charity as the remainder beneficiary. In the current year, Walter would like to make an additional contribution to the trust. Which of the following charitable trusts would allow Walter to make an additional contribution during the year? a. CRAT. b. CRUT. c. CRET. d. CRIT.
b. CRUT. Only a CRUT allows additional contributions. A CR AT does not allow additional contributions. A CRET and CRIT do not exist.
Nine months ago, Bonnie gave land to Ron. At the date of gift, the land had a fair market value of $400,000 and an adjusted taxable basis to Bonnie of $250,000. Ron died bequeathing all of his property to Bonnie. If the land had a fair market value of $450,000 on the date of Ron's death, what is Bonnie's adjusted taxable basis in the land? a. $0. b. $250,000. c. $400,000. d. $450,000.
b. $250,000. If a heir or legatee receives property from a decedent that the decedent acquired by gift from the heir/legatee within one year of the decedent's death, the heir/legatee takes the decedent's basis (which will be the donor's basis). There is no stepped-up basis. Since Ron died within one year of the gift, and bequeathed the property to the original donor (Bonnie), Bonnie's basis in the property will not be stepped up. Bonnie's basis will be $250,000.
Jim purchased a yacht from Ronald for $200,000 seven years ago. The terms of the sale included a note of $50,000 and cash for the remaining amount. Ronald had a zero basis in the yacht. Immediately after purchasing the yacht, Jim's business began to fail and Jim could no longer make the payments. In exchange for the note, Jim gave Ronald a life insurance policy on his life with a face value of $50,000. This year, Jim died and Ronald received the death benefit as the designated beneficiary of the policy. How much of this death benefit is taxable to Ronald? a. $0. b. $50,000. c. $150,000. d. $200,000
b. $50,000. The transfer of the life insurance policy for the note is a transfer for valuable consideration. If a life insurance policy is transferred for valuable consideration, the death benefit in excess of the transferee's adjusted basis will be subject to income tax. Ronald did not have any basis in the boat, so correspondingly, he does not have any basis in the note and must recognize gain to the extent any value is received. As such, the $50,000 death benefit received is taxable income to Ronald.
Josh was a majority owner in a closely held business. He had an adjusted basis in his interest of $400,000, and at his death this year, the fair market value reported on his estate tax return was $6,000,000. Like most majority owner's in closely held businesses, Josh did not have much liquidity in his estate and his executor was forced to redeem some of his interest in the business. If Josh's executor redeemed 30% of Josh's interest for $2,500,000 to pay the estate tax and administration fees, how much is subject to capital gains tax? a. $0. b. $700,000. c. $2,100,000. d. $2,500,000.
b. $700,000. Josh's estate would have an adjusted basis in the 30% interest equal to 30% of the fair market value at Josh's date of death, or $1,800,000. If the executor of Josh's estate sold the interest for $2,500,000, the gain of $700,000 ($2,500,000-$1,800,000) would be subject to capital gains tax under Section 303 (only available at the death of the owner). Ordinarily, unless a redemption is a complete redemption, the redemption is treated as a dividend.
Carol and Joe, unrelated business partners, began operating a drug store in southern Florida. They funded a buy/sell agreement with a cross-purchase life insurance arrangement. Carol purchased a life insurance policy with Joe as the insured, and Joe purchased a life insurance policy with Carol as the insured. If Carol dies, which of the following is/are true? 1. The death benefit of the life insurance policy on Carol's life, owned by Joe, is excluded from Carol's federal gross estate. 2. The death benefit of the life insurance policy on Carol's life, owned by Joe, is included in Carol's federal gross estate if Carol owns 50% or more of the stock of the drug store. 3. The value of the life insurance policy on Joe's life, owned by Carol, is included in Carol's federal gross estate. 4. The death benefit of the life insurance policy on Carol's life, owned by Joe, is included in Carol's federal gross estate. a. 1 only. b. 1 and 3. c. 1, 2, and 3. d. 1, 2, 3, and 4
b. 1 and 3. Option 1 is correct because Carol's federal gross estate will not include the death benefit of the life insurance policy on her life owned by Joe because Carol does not possess any incidents of ownership in the policy. Option 3 is correct because when an individual dies owning a life insurance policy on the life of another person, the value of the life insurance policy will be included in her federal gross estate. Option 2 is incorrect because Carol's ownership in the drug store does not change the fact that Carol does not possess any incidents of ownership in the life insurance policy on her life, owned by Joe. The death benefit of a life insurance policy on Carol's life would only be included in Carol's federal gross estate if she possessed any incidents of ownership in the life insurance policy. Option 4 is incorrect because the death benefit of a life insurance policy is only payable at the death of the insured. In this case, Joe has not died, and as such, the death benefit of the policy is not payable to Carol and would not be included in Carol's federal gross estate.
An executor may elect the unlimited marital deduction for which of the following transfers? 1. Decedent's will directs the creation of a CRAT and the decedent's nonresident alien spouse is the income beneficiary. The trustee of the CRAT is a citizen of the United Kingdom. 2. Bequest to U.S. citizen spouse of the right to use property for the remainder of her life. Executor has elected QTIP on the property. 3. A payment of $650,000 to fulfill a specific bequest to decedent's U.S. citizen spouse. Decedent's spouse became a U.S. citizen two months before the filing of the decedent's estate tax return. 4. A payment of $250,000 to fulfill a specific bequest to decedent's resident alien spouse. a. 2 only. b. 2 and 3. c. 3 and 4. d. 1, 2, and 3.
b. 2 and 3. Statement 2 is eligible for the marital deduction because the executor made a QTIP election on the property. Statement 3 is eligible for the marital deduction because at the time of the distribution, the spouse was a U.S. citizen. Statements 1 and 4 are not eligible for the marital deduction because if the spouse is a nonresident or non-citizen, a QDOT must be used for a transfer to qualify for the marital deduction. The CRAT in statement 1 does not qualify as a QDOT because the trustee is not a U.S. citizen.
Kyrie dies and leaves his son, LeBron, the family farm. The value of the farm as used is $3,000,000. The fair market value of the farm at its highest and best use (supermarket and shopping mall) is $6,000,000. Which of the following statement(s) is/are true regarding a proper 2032A election? 1. The value of the land in the gross estate will be less than $3,000,000. 2. LeBron will have to use the farm for 10 years to avoid recapture of the 2032A benefit. a. 1 only. b. 2 only. c. Neither 1 nor 2. d. Both 1 and 2.
b. 2 only.
Justin transfers $2,000,000 in 2018 to an irrevocable trust providing that income is to be accumulated for 22 years. At the end of 22 years, the accumulated income is to be distributed to Justin's child, Chip, and the trust principal is to be paid to Justin's grandchild, Beau. Justin allocates $800,000 of his GST exemption to the trust on a timely filed gift tax return. What is the GSTT rate applicable to the trust? a. 20.00%. b. 24.00%. c. 40.00%. d. 60.00%
b. 24.00%. The applicable fraction of the trust is 0.40 ($800,000 / $2,000,000) and the inclusion ratio is 1 - 40% = 60%.If the maximum federal transfer tax rate is 40% (in 2018), the GSTT rate applicable to the trust is 24% (0.40x 0.60).
How many insurance policies are required under a LLC entity buy-sell agreement if the LLC has five members? a. 25. b. 5. c. 1. d. 20.
b. 5. The LLC would purchase one policy for each member's life.
Which of the following statements regarding life insurance is true? a. When an individual designates a charitable organization as the beneficiary of his life insurance policy, the individual can deduct the face value of the policy as a charitable contribution on his income tax return. b. If an individual designates a charitable organization as the beneficiary of his life insurance policy, but retains the right to change the beneficiary designation, the death proceeds of the life insurance policy will be included in his gross estate. c. If an individual designates a charitable organization as the beneficiary of his life insurance policy, and then dies without changing the beneficiary designation, the death proceeds of the life insurance policy will be included in his taxable estate. d. Transferring ownership of a life insurance policy to a charitable organization does not qualify for an income tax charitable deduction.
b. If an individual designates a charitable organization as the beneficiary of his life insurance policy, but retains the right to change the beneficiary designation, the death proceeds of the life insurance policy will be included in his gross estate. Option b is a correct statement. Option a is incorrect as only a transfer of the ownership of a life insurance policy qualifies as a charitable deduction. A simple beneficiary designation will not create a charitable deduction. Option c is incorrect as the life insurance death benefit will be included in the gross estate, but if the decedent dies and the charitable organization is the listed beneficiary, the estate will receive a deduction from the gross estate to arrive at the taxable estate. Option d is incorrect because a transfer of the ownership of a life insurance policy to a charitable organization will qualify for an income tax charitable deduction.
For the year 2019, $11,400,000 is the: a. Unified credit shelter exemption equivalent. b. The GSTT aggregate lifetime exemption. c. Aggregate lifetime exemption from gift tax, for annual exclusion of gifts. d. Maximum marital deduction for non-QTIP transfers.
b. The GSTT aggregate lifetime exemption.
Gifts of life insurance policies valued at $15,000 may qualify for the annual gift tax exclusion. Which of the following statements correctly describes a requirement to qualify for the exclusion? a. The gift must be made within three years of the insured's death or be included in the gross estate. b. The donee must have the unrestricted right to use, posses, or enjoy the donated property after the gift is received. c. The donor must use a Crummey provision. d. The donee must survive for three years after the gift.
b. The donee must have the unrestricted right to use, posses, or enjoy the donated property after the gift is received. All gifts require unrestricted right to use, posses, enjoy, etc.
Justin is the grantor of an ILIT. When he dies, his estate needs cash for funeral costs, final medical expenses, death taxes, etc. How can the proceeds of the life insurance policy in the ILIT be made available to the executor? a. The trust terms may only authorize the purchase of assets from the estate b. The trust terms may authorize the purchase of assets from the estate, or authorize loans to the estate. c. The trust terms may require that all proceeds be paid to the estate. d. The trust terms may only authorize loans to the estate.
b. The trust terms may authorize the purchase of assets from the estate, or authorize loans to the estate. While the proceeds may not go directly into the estate, the trust terms have either of these two options for making cash available to the executor. However, the trust must not require the trustee to make the cash available, or else the trust assets will end up being included in the grantor's estate.
Zack died on November 15th. The assets in his estate were valued at the date of death and on the alternate valuation date, respectively, as follows: Asset: Home. Date of Death Value: $500,000. Alternate Valuation Date Value: $550,000. Asset: Investments. Date of Death Value: $1,000,000. Alternate Valuation Date Value: $800,000. Asset: IRAs. Date of Death Value: $600,000. Alternate Valuation Date Value: $650,000. Asset: Copyrights. Date of Death Value: $400,000. Alternate Valuation Date Value: $300,000. The executor sold the home on December 15th for $525,000. If Zack's executor properly elects the alternate valuation date method, what is the value of Zack's gross estate? a. $2,225,000. b. $2,250,000. c. $2,375,000. d. $2,500,000.
c. $2,375,000. ($525,000 + 800,000 + 650,000 + 400,000) = $2,375,000. Generally, all assets are valued on the alternate valuation date. Any asset disposed of between the date of death and the alternate valuation date is valued as of the date of disposition. All wasting assets (leases, installment notes, annuities, patents, and copyrights), which decline in value due to time are valued as of the date of death.
Connie cooks and delivers meals for the homeless and the elderly at Thanksgiving. Connie spends $200 on food, she drives 300 miles, and she spends 15 hours of her time (valued at $10/hour) completing the charitable service each year. Of these expenses, how much will Connie deduct on her income tax return for the year? a. $0. b. $200. c. $242. d. $392.
c. $242. Only the actual money spent on the food and the mile age are deductible expenses. The mileage is deductible at $0.14/mile. The value of Connie's services are not deductible. So, the total deduction for Connie's income tax return is $242 ($200 + 300(0.14)).
Jeff died in the current year. He had inherited the following property from his wife in 1999: Asset FMV at Wife's DOD FMV at Jeff's DOD Life Estate* $240,000 $600,000 in Home (*No QTIP election.) Cash $450,000 $250,000 1991 Chevrolet $14,000 Sold in 2000 IRA $380,000 $500,000 Considering only the property listed above, what is the value of the property included in Jeff's gross estate? a. $250,000. b. $704,000. c. $750,000. d. $1,350,00
c. $750,000. Property inherited by a surviving spouse is only included in his gross estate to the extent the asset has not been consumed. It is included at the fair market value at his date of death. If a surviving spouse inherits terminable interest property and the QTIP election was made on the property, the surviving spouse must also include the fair market value of the QTIP property. Accordingly, Jeff's gross estate will include the value of the cash at his date of death and the value of the IRA at his date of death. $250,000 + $500,000 = $750,000. The life estate in the home is a terminable interest, and the QTIP election was not made so the value of the property is not included in Jeff's gross estate, and Jeff did not own the Chevrolet at his date of death.
The alternate valuation date: a. If elected, may be revoked in an amended return provided that the first return was filed on time. b. Must be used for valuation of all of the estate's assets (with no exceptions) if such date is selected. c. Is optional if the fair market value of the estate's assets has decreased. d. Can be elected only if it reduces the value of the gross estate and the estate tax liability.
d. Can be elected only if it reduces the value of the gross estate and the estate tax liability.
Prior to his death, Ashton owned a closely held business. The total business is valued at $5,000,000, the real estate used in the business is valued at $4,000,000, and Ashton's total adjusted gross estate was $13,000,000. Which of the following postmortem estate planning techniques can Ashton's executor elect? a. 2032A. b. 1033. c. 6166. d. 1031.
c. 6166. the closely held business will qualify for 6166. The corporation is 38.5% of Ashton's AGE. Section 2032A requires the value of the closely held corporation to be at least 50% of the AGE. Section 1031 and Section 1033 are tax free exchange provisions and do not apply.
Which of the following terms describes an insurance policy that covers the lives of two people and is payable only after both have died? a. A variable life insurance policy. b. A split-dollar life insurance policy. c. A second to die life insurance policy. d. An indexed universal life insurance policy.
c. A second to die life insurance policy. A second to die policy pays on the death of the second to die insured.
Many grandparents name their grandchildren as the beneficiaries of their life insurance policies. How should the life insurance policies for the benefit of grandchildren be held? a. A revocable life insurance trust should be established and funded with a transfer of the life insurance policy. b. The grandparent should be the owner with the grandchild as the listed beneficiary. c. An irrevocable life insurance trust should be created for the benefit of the grandchild. d. The ownership of the policy should be transferred to the grandchild.
c. An irrevocable life insurance trust should be created for the benefit of the grandchild. The policy should be transferred to an ILIT with the grandchild listed as the beneficiary. Ideally, the ILIT would be funded with cash contributions less than the annual exclusion and would pay the premiums of the life insurance policy on the grandparent's life. Answer a is incorrect because a revocable trust would still cause inclusion in the grandparent's gross estate and possible GSTT consequences. Answer b is incorrect because if the grandparent owns the policy, the death benefit will be included in the grandparent's gross estate and still subject to GSTT. Answer d is incorrect because the grandchild should not own the life insurance policy out-right since it would not place any limitations on the grandchild's ability to spend the funds.
Which of the following statements regarding selling an estate's assets to generate cash is not correct? a. The estate may have income tax consequences. b. The assets may not be sold at full, realizable fair market value. c. Any losses on the sale of the assets are deductible as losses on the estate tax return. d. Any selling expenses are deductible on the estate tax return.
c. Any losses on the sale of the assets are deductible as losses on the estate tax return. Any losses on the sale of the assets are income tax losses and are deductible on the estate's income tax return, not on the estate tax return. All of the other answers are true statements.
Louie gave a $1,000,000 life insurance policy on his own life to his brother. At the date of the gift, the life insurance policy was valued at $200,000. Which of the following statements regarding the gift of this life insurance policy is correct? a. If Louie dies two years after this gift, his federal gross estate will include $200,000. b. If Louie dies four years after this gift, his federal gross estate will include $200,000. c. If Louie dies two years after this gift, his federal gross estate will include $1,000,000. d. If Louie dies four years after this gift, his federal gross estate will include $1,000,000.
c. If Louie dies two years after this gift, his federal gross estate will include $1,000,000. The three-year rule (IRC Section 2035) states that if an individual gratuitously transfers ownership of a life insurance policy on his life, or any incident of ownership in a policy on his life within three years of death, the death benefit of the policy is included in his federal gross estate. In this case, only answer c provides the correct solution. If Louie dies two years after the gift, the gratuitous transfer of the policy falls within the three-year rule and the death benefit is included in Louie's federal gross estate. All of the other options are incorrect.
Which of the following is not a benefit of a charitable remainder trust? a. It reduces federal estate tax. b. It reduces income tax. c. It acts as a form of life insurance that benefits the grantor's children at death. d. It increases current income by providing life income for the grantor.
c. It acts as a form of life insurance that benefits the grantor's children at death. Generally, when the grantor dies, the money goes to charity.
Mary Jane's husband died in October of 2018. Which filing status will Mary Jane probably use on her 2018 income tax return? a. Single. b. Head of household. c. Married filing jointly. d. Qualifying widow.
c. Married filing jointly. In the year of death, the surviving spouse can file either married filing separate or married filing jointly.
Which one of the following provisions should NOT be included in a buy-sell agreement for an unincorporated business? a. Names of the parties to the agreement. b. Identifying the funding mechanism. c. Provisions allowing for Section 6166 relief. d. Modification or termination agreement.
c. Provisions allowing for Section 6166 relief. Section 6166 is for an illiquid estate.
Which of the following statements about insurance and annuities is incorrect? a. The beneficiary of a life insurance policy is the person who receives the proceeds of the policy after the insured's death. b. Term insurance does not have cash value. c. The cash surrender value of a life insurance policy is the amount payable by the insurance company to the beneficiary. d. Annuities are contracts that pay income to someone during their lifetime. term insurance has no cash value. The cash surrender value is paid to the owner not the beneficiary.
c. The cash surrender value of a life insurance policy is the amount payable by the insurance company to the beneficiary. term insurance has no cash value. The cash surrender value is paid to the owner not the beneficiary.
Which of the following is not a typical reason an estate will have liquidity concerns? a. To meet specific bequests. b. To pay taxes. c. To pay life insurance premiums on the decedent's life. d. To pay funeral and administrative expenses and the executor's fee.
c. To pay life insurance premiums on the decedent's life. Generally, an estate does not need cash to pay the premiums on a life insurance policy for the decedent since the decedent is dead. All of the other options are reasons an estate will have liquidity concerns.
If a deceased person has "incidents of ownership" in a life insurance policy at the time of his or her death, the death benefits are included in the decedent's gross estate. When would the decedent not have incidents of ownership? a. When the decedent is authorized to change beneficiaries. b. When the decedent can cancel the policy at any time during his lifetime. c. When the decedent paid none of the policy premiums. d. When the decedent assigned the policy proceeds as security for a loan.
c. When the decedent paid none of the policy premiums. All of the other options are incidents of ownership.
Mel has never made any gifts subject to GSTT. He is single and would like to transfer as much as he possibly can during the year to his grandchild without triggering any GSTT. How much can Mel transfer to his grandchild this year and meet his goal? a. $15,000. b. $4,417,800. c. $11,180,000. d. $11,195,000.
d. $11,195,000. Mel can transfer an amount up to the GST exemption, $11,180,000 and the annual exclusion for the year, $15,000. Utilizing both exclusions, Mel can transfer $11,195,000 for 2018 without being subject to theGSTT.
Of Pablo's $10,000,000 federal gross estate, his will includes one specific bequest of $7,500,000 to his wife, Ariana, and directs the debts and other expenses of $1,000,000 to be payable from the residuary of the estate. The residuary heirs are Pablo's children. What is the amount of the marital deduction included on Pablo's federal estate tax return? a. $0. b. $6,500,000. c. $8,500,000. d. $7,500,000.
d. $7,500,000. Since the debts and expenses are payable from the residuary of the estate, the marital deduction is equal to the specific bequest to the wife. An allocation of the debts, expenses and taxes only offsets the marital deduction when the wife is the residuary beneficiary or the will directs the bequest to the wife to bear the debts, expenses, and taxes attributable to her share.
Which of the following is/are correct regarding qualifying disclaimers? 1. They must be in writing. 2. The property must be disclaimed within 9 months the date of death. 3. The disclaiming party could not have previously benefited from the interest being disclaimed. 4. The disclaiming party cannot direct the interest to any other specific person. a. 1 only. b. 2 only. c. 1 and 2. d. 1, 2, 3, and 4.
d. 1, 2, 3, and 4.
Which of the following statements is/are correct regarding the GSTT for the year 2018? 1. The annual exclusion is allowed. 2. Gift splitting is permitted. 3. Qualified transfers are excluded from GSTT. 4. Each person is allowed a $11,400,000 lifetime exemption against all skips. a. 1 and 4. b. 1, 2 and 3. c. 1, 2, and 4. d. 1, 2, 3, and 4.
d. 1, 2, 3, and 4. All statements are correct. In addition, there is the predeceased parent rule which allows a generation to be skipped from grandparent to grandchild if the parent is deceased. The exception also extents to collateral heirs if a decedent has no living lineal descendants.
If the executor of a decedent's estate elects the alternate valuation date, and none of the property included in the gross estate has been sold or distributed, the estate assets must be valued as of how many months after the decedent's death? a. 3. b. 12. c. 9. d. 6.
d. 6.
To which of the following transfers does the GSTT not apply? a. A taxable termination. b. A taxable distribution. c. A direct skip. d. A skip-over.
d. A skip-over. A skip-over does not exist. GSTT applies to the three other listed options.
Upon the death of the grantor of a revocable inter vivos trust, the trust assets receive: a. A carryover basis. b. A carryover basis with inclusion in the gross estate. c. A step to FMV basis with capital gain or loss income tax consequences. d. A step to FMV basis with inclusion in the gross estate.
d. A step to FMV basis with inclusion in the gross estate.
Jack purchased a life insurance policy on his own life and never designated a beneficiary. In this case, the life insurance policy death benefit is: a. Included in Jack's federal gross estate if Jack dies within three years of the initial premium payment. b. Included in Jack's federal gross estate if Jack paid the premiums until his death. c. Never included in Jack's federal gross estate. d. Always included in Jack's federal gross estate.
d. Always included in Jack's federal gross estate. Because Jack did not list a beneficiary, the death benefit is payable to Jack's estate and will be distributed per Jack's will or the intestacy laws of Jack's state of residency. There is no three-year rule with regard to the initial premium payment of the life insurance policy as listed in option a.
Which statement(s) regarding Section 6166 is correct?1. 6166 provides for a 2% loan.2. The first 4 years following the 6166 election requires interest only and no principal repayment. a. Neither 1 nor 2. b. 2 only. c. 1 only. d. Answer Both 1 and 2.
d. Answer Both 1 and 2.
If a decedent bequeaths the outright ownership of his house to his children subject to his wife's right to live in that house for the remainder of her life, which of the following statements is correct? a. If the wife disclaims her interest in the house, the house is not included in the decedent's taxable estate. b. If the children disclaim their interest in the house, the house will automatically transfer to the decedent's spouse as the life estate beneficiary. c. If the decedent's wife is a resident alien of the U.S., a QTIP election over the property will allow a marital deduction equal to the fair market value of the property. d. If the executor makes a QTIP election on the house, the house is not included in the decedent's taxable estate
d. If the executor makes a QTIP election on the house, the house is not included in the decedent's taxable estate. Option d is a true statement. Option a is a false statement. If the decedent's wife disclaims her interest in the property, the property will transfer to the children without being subject to the wife's life estate. In this case, the transfer would not be eligible for any deductions and would be fully included in the decedent's taxable estate. Option b is a false statement. If the children disclaim their outright ownership in the house, the outright ownership of the property will transfer according to the disclaimer clause in the will. If the will does not include a disclaimer clause, the outright ownership of the house will transfer according to the residuary heirs of the estate. Option c is a false statement. A QTIP election will not qualify a bequest to a non-U.S. citizen spouse for the unlimited marital deduction. Only a transfer to a qualifying QDOT will qualify a bequest to a non-U.S. citizen spouse for the unlimited marital deduction.
To qualify for the charitable income tax deduction, a gift cannot be made to a(n): a. Library b. Private School c. Religious Charity d. Individual
d. Individual
Who among the following would be skip persons for purposes of the GSTT? Phil is the transferor and is 82 years old. 1. John, the grandson of Phil whose mother, Donna, is living but whose father, Fred, is deceased (Fred is Phil's son). 2. Mary is the great-grandchild of Phil. Both Mary's parents and grandparents are living. 3. Paige is the 21-year-old wife of Phil's second son, Mike, age 65. a. Mary and Paige. b. John and Mary. c. John, Mary, and Paige. d. Mary only.
d. Mary only. John is not a skip person because of the predeceased parent rule. Paige is not a skip person because she is not in a skipped generation because she is a married relation.
Ron, a certifiable terminally ill patient, sold the ownership of his life insurance policy to a viatical settlement provider for $200,000. Which of the following statements is/are true with respect to the transfer? 1. Ron will be subject to income tax on this transaction if he lives beyond two years. 2. Ron will be subject to income tax on the sale proceeds less his cost basis. a. 1 only. b. 2 only. c. Both 1 and 2. d. Neither 1 nor 2.
d. Neither 1 nor 2. Statements 1 and 2 are incorrect. Ron is terminally ill, and as a result, the proceeds from the vatical settlement are excluded from his gross income for income tax purposes.
On January 15th, Mitch transfers property to a trust over which he retains a right to revoke one-fourth of the trust. The trust is to pay Jennifer 5% of the trust assets valued annually for her life with the remainder to be paid to a qualified charity. On September 1st, Mitch dies and the trust becomes irrevocable. Which of the following trusts does this qualify as? a. A CRUT b. A CRAT c. A pooled income fund d. None of these
d. None of these At the creation, the trust is revocable; therefore, it does not qualify as Options (a), (b), or (c).
Ordinary and necessary administration expenses paid by the fiduciary of an estate are deductible: a. Only on the fiduciary tax return Form 1041. b. Only on Form 706. c. On both the fiduciary tax return and the estate tax return. d. On the fiduciary tax return Form 1041 or the 706.
d. On the fiduciary tax return Form 1041 or the 706.
Jeremy and Rosa were married forty years ago after meeting on the beaches of Cozumel. Rosa moved to the U.S. with Jeremy, but she never applied for U.S. citizenship. If Jeremy is concerned about using the marital deduction for the fair market value of the property he bequeaths to Rosa, which of the following techniques could he use? a. Qualified Terminable Interest Trust (QTIP). b. Section 2503(b) Trust. c. Section 2503(c) Trust. d. Qualified Domestic Trust (QDOT)
d. Qualified Domestic Trust (QDOT) In order to use the unlimited marital deduction for any transfers to Rosa, Jeremy would have to create a Qualified Domestic Trust (QDOT). A QDOT will allow the U.S. government to subject any assets remaining at Rosa's death to estate taxation. In order to qualify the QDOT for the unlimited marital deduction, the following requirements must be met: 1. At least one of the QDOT trustees must be a U.S. citizen or U.S. domestic corporation. 2. The QDOT must prohibit a distribution of principal unless the U.S. citizen trustee has the right to with- hold estate tax on the distribution. 3. The trustee must keep a sufficient amount of the trust assets in the U.S. to ensure the payment of federal estate taxes, or the trustee must have a minimum net worth sufficient to assure the payment of estate taxes upon Rosa's death. 4. Jeremy's executor must elect to have the marital deduction apply to the trust.
