Estate Final UVU
Elizabeth, who is not a licensed attorney, recently started her own financial planning practice. Which of the following activities would be considered the unauthorized practice of law? A. Preparing a last will and testament for her first client. B. Helping clients to identify their financial planning goals. C. Preparing financial statements for prospective clients. E. Referring clients to her brother, Jack, who happens to be a licensed attorney.
The correct answer is a. Only licensed attorneys should prepare last will and testaments for clients.
Of the following, which property transfers at death by contract? A. Roth IRAs. B. Property titled Joint Tenancy with Rights of Survivorship (JTWROS). C. An Irrevocable Living Trust. D. A Grantor Retained Annuity Trust (GRAT).
The correct answer is a. Only the Roth IRA transfers property at death by contract. The beneficiary designation is the contract, and at the death of the account owner, the account assets will be transferred to the beneficiary. All of the others transfer by state property titling law or by state trust law.
Curtis, who was married, recently died owning several assets. Given the assets below, determine whether each asset should be included in Curtis' probate estate. a)Yes, this item is included in the probate estate. b)No, this item is not included in the probate estate. 1) His personal residence worth $250,000 titled fee simple. 2) A $500,000 life insurance policy on his own life. His daughter Ann was the named beneficiary and received the proceeds 40 days after Curtis' death. 3) Curtis' portion of acreage owned as community property with his wife. 4) A car owned jointly with his son Kevin as JTWROS.
1) Yes 2) No 3) Yes 4) No Items owned fee simple and as community property are always included in the gross estate. The life insurance policy had a designated beneficiary who was alive at Curtis' death because she received the property, thus the proceeds are not included in Curtis'
Claude decides to prepare his will, but does not want to seek the help of an attorney. Claude handwrites all of the provisions of the will and does not have it witnessed by anyone. What type of will does Claude have, if any? A. Holographic. B. Nuncupative. C. Statutory. D. Claude does not have a will.
The correct answer is a. A holographic will is one that is handwritten. Answer b is incorrect because a nuncupative will, which is not valid in all states, is an oral will. Answer c is incorrect because a statutory will must generally be prepared by an attorney and must be witnessed.
Ben is interested in using a Qualified Personal Residence Trust (QPRT) as part of his estate plan. Which of the following are false regarding QPRTs? A. At the end of the trust term, the house will revert back to the grantor. B. With a QPRT, the grantor must survive the trust term to realize any estate tax savings. C. A QPRT can be used with either primary residences or vacation homes. D. The grantor will have made a taxable gift upon the creation of the QPRT
The correct answer is a. At the end of the trust term, ownership of the house is transferred to the beneficiaries of the QPRT. All of the other statements are true.
Bernard made a gift of $500,000 to his brother in 1997. At the time of the gift, the applicable gift tax credit was $192,800, but due to Bernard's prior taxable gifts he paid $200,000 of gift tax. When Bernard died in 2017, the applicable gift tax credit had increased to $2,141,800. At Bernard's death, what amount related to the $500,000 gift to his brother is included in his gross estate? A. $0. C. $153,000. D. $200,000. E. $500,000.
The correct answer is a. Gift tax paid on gifts made within three years of a decedent's date of death is included in the decedent's gross estate. In this case, Bernard made the gift more than three years before his death, so $0 is included in his gross estate related to this gift. The value of the gift, $500,000 is added to the decedent's taxable estate to determine the tentative tax base and Bernard will get credit for the gift tax paid of $200,000.
Which of the following is true concerning the 5/5 Lapse Rule? A. The 5/5 Lapse Rule deems that a taxable gift has been made where a power to withdraw in excess of $5,000 or five percent of the trust assets is lapsed by the powerholder. B. The 5/5 Lapse Rule only comes into play with a single beneficiary trust. C. Amounts that lapse under the 5/5 Lapse Rule qualify for the annual exclusion. D. Gifts under the 5/5 Lapse Rule do not have to be disclosed on a gift tax return.
The correct answer is a. Option a is the definition of the 5/5 Lapse Rule. Option b is incorrect because the 5/5 Lapse Rule does not come into play with a single beneficiary trust because a person cannot make a taxable gift to himself. Option c is incorrect because amounts that lapse under the 5/5 Lapse Rule do not qualify for the annual exclusion. Option d is incorrect because gifts under the 5/5 Lapse Rule do have to be disclosed on a gift tax return.
Fred, the founder and CEO of WonderCo, recently passed away. At his death, Fred owned 80% of the stock of WonderCo; and the WonderCo stock was his only asset. WonderCo is a publicly traded company. Which of the following discounts would be applicable to Fred's WonderCo stock? A. Key Person Discount. B. Minority Discount. C. Both a and b. D. Neither a nor b.
The correct answer is a. Option b is incorrect because Fred owns a controlling interest in WonderCo; therefore, a Minority Discount is not applicable. Therefore, option c is also incorrect. Option d is incorrect because answer a is correct; since Fred was both the founder and CEO of WonderCo, his stock is entitled to a Key Person Discount.
Which of the following applies to the income tax or estate tax treatment of life insurance policy proceeds? A. Benefits received under a periodic settlement option are partially subject to income tax. B. Death proceeds are includible in the gross estate of the decedent if the decedent was the insured regardless of ownership. C. Payments under a cashout settlement option are partially subject to income tax. D. For a personally owned life insurance policy premiums are deductible if made as part of a court ordered child or spousal support plan (QDRO).
The correct answer is a. Periodic annuity settlement benefits are not fully subject to income tax because the recipient has a tax basis equal to the original proceeds. Proceeds are includible in estate for tax purposes only if grantor retained an incident of ownership. Life insurance premiums are not deductible when personally owned, and the 3-year rule applies to a life insurance policy regardless of irre- vocability.
Paul would like to transfer a substantial portion of his net worth to his son, Chad. Paul believes that the assets will appreciate in value before his death, but Paul does not need any of the assets to sustain his current standard of living. However, Paul is concerned about Chad's ability to manage the assets and is afraid Chad may squander the assets. Of the following transfers, which would ensure that the assets are excluded from Paul's gross estate and could also ensure that Chad cannot squander the assets? A. An Irrevocable Trust. B. An Outright Transfer. C. An Installment Sale. D. A Grantor Retained Annuity Trust.
The correct answer is a. The assets transferred to the irrevocable trust would be excluded from Paul's gross estate, and would be subject to the management of the trustee as directed by Paul. As such, Chad would not be able to access the assets. An outright transfer (Option b) would not meet Paul's requirements because Chad would be able to access the assets immediately. Option c, an installment sale, would not meet Paul's requirements because Chad would be able to access the assets immediately, and any monies returned to Paul as installment payments would be included in Paul's gross estate. Option d does not meet Paul's requirements because if Paul dies during the term of the GRAT, the assets will be included in Paul's gross estate.
You are opening a new financial planning practice and you would like to put together a team of experts to help your clients. Which of the following groups represents the best team to help your clients? A. Financial planner, CPA, and attorney. B. CPA, psychiatrist, and insurance salesman. C. Financial planner, attorney, and real estate agent. D. Attorney, insurance salesman, and IRS agent.
The correct answer is a. The best team for your client would include a financial planner, CPA, and attorney. A licensed insurance specialist is also a good asset to an estate planning team, but the team described in option b is not as good of a team overall as the team in option a.
Kristi transferred $10,000,000 to the Kristi Family Trust. The trust is designed as an irrevocable grantor trust. Kristi retained a 5% annuity payout from the trust for the lesser of five years after the establishment of the trust or until her date of death, and she has named her only nephew, Alex, as the remainder beneficiary of the trust. Of the following statements regarding Kristi's transfer to this trust, which is true? A. Because Kristi retained the annuity interest from the trust, if she dies during the five years after the establishment of the trust, the full fair market value of the trust assets will be included in her gross estate. B. Because Kristi retained the annuity interest from the trust, she has not made a completed transfer (for gift tax purposes) to her nephew at the date she transferred $10,000,000 to the Kristi Family Trust. C. Any income within the Kristi Family Trust is taxed to the trust. D. The Kristi Family Trust is a testamentary trust because the term of the trust relates to her death.
The correct answer is a. The fact pattern describes a Grantor Retained Annuity Trust (GRAT) established by Kristi. If Kristi dies during the term of her annuity interest, the full fair market value of the trust assets will be included in her gross estate. Option b is false because the irrevocable transfer of the remainder interest in the trust is a completed transfer and therefore a gift. Option c is false because the income of a grantor trust is taxable to the grantor. Option d is false because the trust is an inter vivos trust (created during the grantor's life), not a testamentary trust (created in a decedent's will).
Melissa is a very generous single woman. Before this year, she had given $2,000,000 in taxable gifts over the years. In the current year, Melissa gave her daughter Riley $100,000 and promptly filed her gift tax return. Melissa did not make any other gifts this year. How much gift tax must Melissa pay the IRS because of this transaction? A. $0. B. $25,900. C. $30,450. D. $711,250.
The correct answer is a. The problem states that she has given over two million dollars in taxable gifts therefore she has an unused amount of her $5,490,000 (2017) exclusion remains. The calculation is as follows: $100,000 - $14,000 = $86,000 + $2,000,000 = $2,086,000 total taxable gifts (no gift tax due at this time).
Chad and Ross (both males) have been involved in an intimate relationship for the past 25 years. Chad's family is quite wealthy, and has provided Chad with every "extra" in life. Unfortunately, Chad's family is also very conservative and they do not approve of Chad's relationship with Ross. Chad was diagnosed with cancer last year and given only 12-15 months to live. Chad plans to leave the substantial wealth he has inherited over the years to Ross. After a few too many glasses of wine last Christmas, Chad's mother proclaimed, "Chad, I hope you have a great estate planning attorney, because I will spend every penny I have to keep Ross from inheriting a dime from you!" In a fit of rage, Chad has come to you, an estate planning attorney, and asks you to recommend ways he can ensure that Ross will receive his assets. Which of the following would you be least likely to recommend to Chad to meet his objectives? A. A well-drafted will leaving everything to Ross with a no-contest clause. B. A revocable living trust created and funded now with Ross as the beneficiary at Chad's death. C. An irrevocable trust created and funded with Chad as the income beneficiary and Ross as the remainder beneficiary. D. Retitling all assets as JTWROS.
The correct answer is a. While all of these options may seem to accomplish Chad's goal, option a has the most inherent risk. The trust options and titling option are much less likely to be susceptible to fraud and undue influence claims. The use of a will in this situation is very susceptible to a contest. The no-contest clause is irrelevant because Chad did not leave anything to anyone else to encourage them not to contest. Chad and Ross could get married.
Natalie and her younger sister Kate purchased a beach-front condominium together 15 years ago. They own the property as a joint tenancy with rights of survivorship. At the time of the purchase, Natalie, being the older sister, was in a better financial position. Therefore, Natalie contributed $300,000 and Kate contributed $100,000 to the purchase price. The property is now worth $800,000. Which of the following statements is correct? A. Natalie and Kate each own 50% of the condo. B. If Natalie were to die today, her share of the condo would transfer to her husband Brian. C. If Kate were to die today, Natalie's new basis in the property would be $400,000. D. If Natalie and Kate were to disagree on how the property was being managed, the only way they could partition their share of the property would be to find a willing buyer that would purchase both of their interests.
The correct answer is a. Because the property is owned JTWROS they automatically own 50% each. Answer b is incorrect because if Natalie were to die today, then her share of the condominium would transfer to Kate. Answer c is incorrect because if Kate died today, then Natalie's new basis would be $500,000 (Natalie's original $300,000 basis and Kate's step-to fair market value basis of $200,000 based on the contribution rule). Answer d is incorrect because if they disagree on how the property is being managed then either one can easily sell their share to any person. They do not need the consent of the other party.
Alton would like to transfer the ownership of his Picasso painting to his son Edgar, but Alton would like to continue to have the painting hanging in his house. Which of the following would you recommend to Alton? A. TPPT. B. CRAT. C. QPRT. D. FLP.
The correct answer is a. Option b is incorrect because Alton's son Edgar is not a charity. Option c is incorrect because a QPRT, or Qualified Personal Residence Trust, is a special form of a GRAT to which the grantor contributes his personal residence. Option d is incorrect because a FLP would be more appropriate for transferring ownership of a family business than ownership of a paint- ing. Option a is correct because TPPTs or Tangible Personal Property Trusts are funded with personal property and the grantor retains the right to use the property that has been trans- ferred to the trust.
Which of the following is NOT a terminable interest? A. An ownership interest in a life insurance policy. B. A life estate in a home. C. An interest in a patent. D. An interest in property for a term equal to an individual's life.
The correct answer is a. (Chapter 10) The ownership interest of a life insurance policy is not a terminable interest. The ownership interest does not terminate. All of the other interests listed are terminable interests. A life estate is a terminable interest because the interest in the property terminates at the individual's death. An interest in a patent is a terminable interest because a patent right terminates after a certain period of time. Option d describes a life estate, so it is also a terminable interest.
Jaime, a wealthy doctor, wrote a will many years ago after his first child was born. His will leaves his home on Drury Lane to his daughter, Taylor. Jaime sold the home on Drury Lane last year and purchased a new home on Mulberry Lane. The extinction of Taylor's legacy is called what? A. Abatement. B. Ademption. C. Surety. D. Letters testamentary.
The correct answer is b. Abatement is the reduction in an estate when there are insufficient assets to satisfy all legatee provisions. A surety bond is a bond posted by the administrator of the probate process. Letters testamentary is the document given to the executor from the probate court authorizing the executor to act on behalf of the estate.
Which of the following statements is false? A. The unlimited marital deduction is a deduction from a decedent's adjusted gross estate to arrive at the decedent's taxable estate. The unlimited marital deduction is limited to the value of the assets included in the decedent's gross estate which are transferred to the decedent's surviving spouse. B. The credit for tax paid on prior transfers was repealed in 2005. At that time, the credit became a deduction. C. If the sum of a decedent's gross estate and lifetime adjusted taxable gifts is less than the applicable estate tax credit equivalency amount for the year of the decedent's death, the executor of the decedent's estate does not have to file an estate tax return. D. Jesse gave his mom property valued at $100,000 six months before her death. Jesse's adjusted basis in the property was $45,000. Jesse was the sole heir of his mother's estate, and the same property was distributed from his mother's estate to him. At his mom's date of death, the property had a fair market of $105,000. Jesse's adjusted basis in this property is $45,000.
The correct answer is b. Option b is a false statement. The credit for tax paid on prior transfers was NOT repealed in 2005. The state death tax credit was repealed in 2005 and was replaced with a deduction. All of the other statements are true statements.
Which of the following is an advantage of a revocable living trust? A. Reduction in federal estate taxes. B. Avoidance of probate. C. Removal of asset appreciation from the grantor's gross estate. D. Distribution of the trust assets according to the terms of the grantor's will.
The correct answer is b. Option b is an advantage of using a revocable living trust. Option a is incorrect because use of a revocable living trust does not reduce the grantor's federal estate taxes because the full fair market value of the trust assets are included in the grantor's gross estate. Option c is incorrect for the same reason. Option d is incorrect because the trust agreement, not the grantor's will, controls the distribution of the trust assets.
Which of the following accurately describes a life estate? A. An interest in property for a specified number of years. B. An interest in property that ceases upon the death of the owner of the life estate. C. An undivided interest in property held by two or more related or unrelated persons. D. A complete interest in property with all the rights associated with outright ownership.
The correct answer is b. Option b is the definition of a life estate. Option a is the definition of an interest for a term. Option c is the definition of tenancy in common. Option d is the definition of fee simple.
Brett died recently leaving all his assets in a trust for his wife Greer. Brett was concerned that Greer would not be able to manage her money adequately to maintain her standard of living for the rest of her life. Therefore, he placed the assets into a spendthrift trust and gave Greer the right to receive a certain amount of income each year. Brett appointed his good friend Paul to be the trustee of the trust. How is Paul's ownership classified? A. Paul holds a life estate over the property. B. Paul holds the legal title to the property. C. Paul holds the equitable title to the property. D. Paul does not hold an interest in the property.
The correct answer is b. Paul holds the legal title to the property as trustee for the trust. Greer as the beneficiary holds the equitable title. A life estate identifies the person who has a current beneficial right in the property, which in this case would be Greer.
Bobby, a single man, owned a building with a fair market value of $2,000,000. Bobby's adjusted basis in the building was $1,000,000. In 2017 Bobby agreed to sell the building to his adult son, Robby for $1,300,000. What is the amount of Bobby's taxable gift? A. Bobby has made a taxable gift of $300,000. B. Bobby has made a taxable gift of $686,000. C. Bobby has made a taxable gift of $700,000. D. Bobby has made a taxable gift of $2,000,000.
The correct answer is b. The discount of $700,000 ($2,000,000 - $1,300,000) is treated as a gift eligible for the annual exclusion, thus creating a taxable gift of $686,000 for 2017.
Sylvia and Rachel own a townhouse together and are not married. Rachel contributed 40% of the purchase price and Sylvia contributed 60% of the purchase price. Each of them has an equal interest in the property. Which of the following are permissible ways they could title the property? Sole Ownership. Tenancy in Common. Joint Tenancy with Rights of Survivorship. Tenancy by the Entirety. Community Property. A. 2 only. B. 2 and 3. C. 1, 3 and 4. D. 2, 3 and 4. E. 2, 3, 4 and 5.
The correct answer is b. The property could be titled either as Tenancy in Common or Joint Tenancy with Rights of Survivorship. The property could not be owned at Tenancy by the entirety or Community Property because Sylvia and Rachel are not married. Fee simple sole ownership is not an option either because there is more than one owner.
Gina, age 79, recently had a stroke. Afraid that she may not live long enough to see her family enjoy her beach house, she would like to transfer it to her daughter, Taylor. Gina does not want to pay any gift tax or utilize any of her lifetime credit amount. Which of the following techniques, if used by Gina to transfer the beach house to Taylor, will not result in a taxable gift? A. GRAT. B. QPRT. C. SCIN. D. GRUT.
The correct answer is c. A SCIN is a note with a self-cancelling premium payment attached so that the note will cancel at the transferor's death. The GRAT, QPRT and the GRUT are irrevocable trusts and will result in a current taxable gift.
John has a general power of appointment over his father's assets. Which of the following is not true regarding such a power? A. John can appoint his father's money to pay for the needs of his father. B. John can appoint money to John's creditors. C. John must only appoint money using an ascertainable standard. D. If John predeceases his father, John's gross estate would include his father's assets even though they had not been previously appointed to John.
The correct answer is c. Answers a, b, and d are all true. Because John has a general power of appointment over his father's assets, John may appoint those assets to anyone for any reason and is not limited by an ascertainable standard such as health, education, maintenance, or support.
Carolyn made the following transfers during her life: The transfer of her home to an irrevocable trust for the benefit of her four children on January 1, 2017. Carolyn retained the right to live in the home for the remainder of her life. The fair market value of the home at the date of the transfer to the trust was $1,000,000. The fair market value of the home at Carolyn's date of death was $1,200,000. A transfer of $44,000 to an irrevocable trust for the benefit of her four children on January 2, 2012. Carolyn retained the right to a 4% annuity payment from the trust for the years 2012 and 2013. At Carolyn's date of death, the trust had a value of $62,000. If Carolyn died on July 13, 2017, with regard to the above transfers, how much is included in Carolyn's gross estate? A. $0. B. $1,044,000. C. $1,200,000. D. $1,262,000.
The correct answer is c. Carolyn's gross estate would include the fair market value of the home at her date of death, but not the value of the trust listed in #2. The transfer listed as #1 would be included in Car- olyn's gross estate because Carolyn retained an interest in the home that terminated at her death. Therefore, the full fair market value of the transferred property would be included in the transferor's gross estate at the time of the transferor's death. No amount related to the transfer listed as #2 would be included in Carolyn's gross estate because the annuity interest terminated before Carolyn's death.
Nellie recently executed a power of attorney giving Jessie the power to perform certain tasks. Which of the following powers given to Jessie would cause the power to be deemed a general power of appointment? A. Nellie gave Jessie the power to use Nellie's money to pay Nellie's creditors. B. Nellie gave Jessie the power to sell and buy property on Nellie's behalf. C. Nellie gave Jessie the power to use Nellie's money to pay Jessie's creditors. D. Nellie gave Jessie the power to make gifts to Nellie's heirs and charities.
The correct answer is c. Giving Jessie the power to pay his own creditors creates a general power of appointment over the assets. The other powers do not benefit Jessie and thus do not create a general power of appointment.
Which of the following statements is false regarding a bargain sale? A. The difference between the fair market value of the asset and the consideration received in exchange for the asset is considered a gift. B. The gift portion of a bargain sale will qualify for the annual exclusion. C. A bargain sale is generally inappropriate if the buyer of the property is a family member. D. If the property is sold by the seller for more than the seller's basis in the property, a taxable gain will result.
The correct answer is c. Option c is a false statement because bargain sales usually occur among related parties. All of the other options are true.
Brody and Tanya recently sold some land they owned for $150,000. They received the land five years ago as a wedding gift from Brody's Aunt Jeanette. Aunt Jeanette purchased the land many years ago when the property was worth $20,000. At the date of the gift, the property was worth $100,000 and Aunt Jeanette paid $47,000 in gift tax. What is the long term capital gain on the sale of the property? A. $42,400. B. $50,000. C. $92,400. D. $130,000.
The correct answer is c. In general, when a donor makes a gift of property other than cash to a donee, the donee will take the property at the donor's adjusted basis. The holding period of the donee will include the holding period of the donor for purposes of subsequent transfers and the determination of long or short-term capital gains. An exception to the general basis rule occurs when the donor gives property with a fair market value in excess of his adjusted basis and the donor pays gift tax. The gift tax associated with the appreciation is added to the donor's original adjusted basis to determine the donee's basis. Thus, the basis would be: $20k + ($47k * $80k/$100k) = $57,600. The gain on the asset would be $150,000 - $57,600 = $92,400.
Which of the following qualifies for the unlimited marital deduction? A An outright bequest to resident alien spouse. B Property passing to a noncitizen spouse in a QTIP. C An outright bequest to a resident spouse who, prior to the decedent's death was a noncitizen, but who after the decedent's death and before the estate tax eturn was filed, became a U.S. citizen. D An income beneficiary of a CRUT who is a nonresident alien spouse.
The correct answer is c. Of the options, only an outright bequest to a resident alien spouse who becomes a U.S. citizen before the estate return is filed qualifies for the unlimited marital deduction.
Tom loans $11,000 to his daughter Tina. Why would interest not be imputed on this loan? A. Interest would not be imputed because the loan is less than the amount of the annual exclusion. B. Interest would not be imputed because loans of $100,000 or less are exempt from both income tax and gift tax consequences. C. Interest would not be imputed because Tina has unearned income of $500. D. Interest would not be imputed because Tina's earned income is less than $1,000.
The correct answer is c. Option a is incorrect because gift loans do not qualify for the annual exclusion. Option b is incorrect; loans of less than $10,000 are exempt from both income tax and gift tax consequences. Option d is incorrect because whether interest is imputed on this loan is based on Tina's level of unearned income, not earned income.
Which of the following empowers an executor to act as the agent of a probate court? A. Surety Bond. B. Letters of Administration. C. Letters Testamentary. D. Intestacy Laws.
The correct answer is c. Option a is the bond that an administrator must generally post. Option b is what empowers an administrator to act as the agent of a probate court. Option d describes the state laws that govern the disposition of a decedent's estate if he has failed to prepare a valid will.
In 1999, Price funded a bypass trust with $675,000, the applicable estate tax credit equivalency amount at that time. At Price's death in 2017, his will included a testamentary bypass trust and a residual bequest to his U.S. citizen wife. If Price's taxable estate before prior gifts at his death was $5,490,000, how much will be transferred to the bypass trust to maximize its benefits? A. $1,325,000. B. $2,125,800. C. $4,815,000. D. $5,490,000.
The correct answer is c. Price's executor would fund the testamentary bypass trust with the difference between the applicable estate tax credit equivalency at Price's death (2017 - $5,490,000) and the funding amount of the inter vivos bypass trust ($675,000). In this case, the amount would be $4,775,000 ($5,490,000 - $675,000).
David would like to fund a charitable trust and name himself as the income beneficiary. He would like the payout from the trust each year to be constant. Given David's desires, which type of charitable trust should David fund? A. Charitable Lead Annuity Trust. B. Charitable Lead Unitrust. C. Charitable Remainder Annuity Trust. D. Charitable Remainder Unitrust.
The correct answer is c. The Charitable Remainder Annuity Trust would be the best option because the charity is the remainder beneficiary and David would be the income beneficiary. The CRAT is a better option than the CRUT because the payout from the CRAT would be a fixed dollar amount, rather than a fixed percentage. David wants a stable payout each year which would lead us to a fixed dollar amount, and thus the CRAT.
This year, Dottie donated $10,000 in cash to her church and she also donated medical supplies with a fair market value and adjusted basis of $20,000 to the Red Cross. Dottie's AGI for this year is $50,000. What is Dottie's charitable income tax contribution deduction for the year? A. $10,000. B. $20,000. C. $25,000. D. $30,000.
The correct answer is c. The deduction of charitable donations in the form of cash is limited to 50% of AGI. Dottie's AGI is $50,000, so the deduction of any cash donations to a public charity will be limited to $25,000. The deduction of charitable donations of ordinary income property is limited to the lesser of the adjusted basis or the fair market value of the property. Dottie has made a total donation of $30,000 this year, but her deduction will be limited to $25,000.
Although he has a vast fortune, Ricky has decided not to prepare an estate plan because he believes that his surviving family members will divide up his assets appropriately. Which of the following is not a risk associated with failing to plan an estate? A. Ricky's estate could incur excessive transfer taxes. B. Ricky's favorite Corvette may not be transferred to his ex-wife, Carla. C. Ricky's insurance policy on his own life may not be paid out to the named beneficiary. D. Ricky's current wife, Lucille, may not provide for Ricky's children from a previous marriage.
The correct answer is c. The proceeds of insurance policies with named beneficiaries pass outside of probate via state contract law. Ricky's failure to plan his estate will not affect his insurance policy.
Maxwell died August 8, 2017. Of the following transfers made during his life, which is included in his gross estate? A. The transfer of a whole life insurance policy on Maxwell's life to an ILIT on September 16, 2013. B. The sale of his term insurance policy to his brother, Donald, for fair market value on August 12, 2013. C. The transfer of a whole life insurance policy on Maxwell's life (face value $150,000) valued at $20,000 to his son on September 16, 2015. D. A gift of $14,000 to Maxwell's sister on August 7, 2017. No gift tax was due on the gift.
The correct answer is c. The transfer would be included in Maxwell's gross estate because transfers of life insurance on the decedent's life within three years of the decedent's date of death are included in the decedent's gross estate. Option a is incorrect because the transfer is not included in Maxwell's gross estate because the transfer was completed more than three years prior to Maxwell's date of death. Option b is incorrect because the sale of an insurance policy for fair market value removes the asset from the gross estate. Option d is incorrect because gifts, other than life insurance, within three years of the decedent's date of death are not included in the decedent's gross estate. Gift tax paid within three years of the decedent's date of death is included in the decedent's gross estate, but in this case no gift tax was paid.
You are a financial planner and you are preparing for a meeting with your new client, Anne. What would you be most likely to ask Anne to bring to the meeting with her? A. Pictures of her children. B. Her parents. C. Any will. D. Sales records for her ex-husband's business.
The correct answer is c. You would be most likely to ask Anne to bring any will with her. In addition, you would be likely to request copies of any other estate planning documents as well as tax documents.
Which of the following are characteristics of a qualified disclaimer? 1) It may not direct the bequest to another person selected by the disclaimant. It must be received by the executor of the estate within 9 months of the death of the decedent. 2) It must be written and irrevocable. 3) The disclaimant may disclaim a part of an asset. A. 1 and 2. B. 1 C. 1 and 3 D. 1, 2, 3 D. 1, 2, 3
The correct answer is d. A qualified disclaimer must be written, irrevocable and received by the executor of the estate within 9 months. It must not direct the asset and can be for any interest partial or full.
Which of the following states is not a community property state? A. Arizona. B. Idaho. C. Wisconsin. D. Florida.
The correct answer is d. All of the other answers name states that are community property states.
Which of the following constitute incidences of ownership in an insurance policy: The right to name or change the name of the beneficiary. The right to surrender the policy. The right to assign the policy. The right to borrow cash from the policy. A. 3 and 4. B. 2 and 3. C. 1, 2 and 4. D. 1, 2, 3 and 4.
The correct answer is d. All of these rights are incidences of ownership.
Charlotte is getting ready for her first meeting with her new financial planner, Samantha. What information does Charlotte not need to bring to this meeting? A. Previously filed income tax and gift tax returns. B. A copy of her current will. C. A detailed list of Charlotte's assets and liabilities. D. Charlotte should bring all of the above information to her first meeting with Samantha.
The correct answer is d. Charlotte should bring all of this information with her.
Your client, Albert, is 68-years old. He is interested in establishing a trust with a value of $6,000,000 for his family. He is aware of the Generation Skipping Transfer Tax, and he has asked you for your advice as to which of the following would be considered a skip person. Which of the following is a skip person? A. Albert's son Patrick, who is age 17. B. Albert's grandson Connor, age 14, whose mother (Albert's daughter) died in an auto accident this year. C. Albert's mother Thelma. D. A trust that Albert had established 3 years ago for Albert's favorite employee, Sam, who has just turned 20.
The correct answer is d. Due to the age difference of more than 37½ years and the non-related party status, the trust for Sam is a skip person. The reason Patrick is not a skip person is because he is a first generation descendant. Connor is not a skip person because his mother's death moves him up a generation (predeceased parent rule).
Colin would like to use his recent inheritance of $200,000 to establish a charitable remainder trust. Colin would like to have the flexibility to make additional contributions to the charitable remainder trust in the future. Which of the following would you recommend for Colin? A. A Charitable Remainder Annuity Trust. B. A Charitable Gift Annuity. C. A Charitable Lead Unitrust. D. A Charitable Remainder Unitrust.
The correct answer is d. Option a is incorrect because additional contributions may not be made to a CRAT. Option c is incorrect because a CLUT is not a charitable remainder trust. Option b is incorrect because each donation is a separate annuity and the annuity it not a remainder trust.
Which of the following transfers would result in gift tax? A. Bob gifts $11,000 to his daughter Barbie. B. Elroy gifts $50,000 to his wife, Elizabeth, who is a U.S. citizen. C. Adam gives his favorite employee, Aaron, a new car at Aaron's retirement worth $20,000. D. Pete transfers $20,000 to his ex-wife, Patricia. Pete and Patricia were divorced five years ago.
The correct answer is d. Option a would not result in gift tax because the gift does not exceed the annual exclusion. Option b is incorrect because a person can gift an unlimited amount to his or her spouse without incurring gift tax. Option c is incorrect because transfers in a business setting are presumed to be compensation. If Pete had transferred $20,000 to Patricia pursuant to a divorce decree, there would be no taxable gift, but transfers to an ex-spouse five years after the divorce was final are not considered "transfers pursuant to a divorce decree."
Which of the following statements is incorrect? A. When a decedent's taxable estate is less than the applicable estate tax credit equivalency because of the overuse of the marital deduction, the estate is said to be overqualified. B. When too few assets pass to a decedent's surviving spouse, and as such the decedent's taxable estate is greater than the applicable estate tax credit equivalency, the decedent's estate is said to be underqualified. C. An ABC Trust arrangement utilizes a General Power of Appointment Trust, a QTIP Trust. and a Bypass Trust to maximize the use of a decedent's applicable estate tax credit. D. The ultimate beneficiary of a QTIP Trust is selected by the surviving spouse.
The correct answer is d. Option d is incorrect because the ultimate beneficiary of a QTIP Trust is chosen by the grantor of the QTIP Trust. All of the other statements are correct.
The Generation Skipping Transfer Tax (GSTT) has all the following characteristics, except: A. GST gifts to direct skips qualifying for the annual exclusion are not subject to the tax. B. Assets transferred to a trust that has a grandchild as the sole beneficiary may be subject to both gift and generation skipping transfer tax. C. If all the children of a trust are grandchildren (whose parents are living) of the grantor then the trust is subject to GSTT. D. A 'skip person' is a person who is one or more generations younger than the transferor.
The correct answer is d. Options a, b, and c are true but in the case of option d, a grandchild whose parent has died has moved up a generation with regard to skip-person considerations. A skip beneficiary is generally a person who is two or more generations younger than grantor.
Kent, age 38, recently came to you for estate planning advice. He has never executed any estate planning documents. During the client interview, you learned that Kent has never been married and has a six-year-old daughter, Kerstin, with his previous girlfriend, Karen. Karen is Kerstin's custodial parent and Kent sees Kerstin every other weekend. While Kent and Karen are cordial, the relationship was recently strained when Karen began dating Kent's business partner, Bobby. Kent is in good health and participates regularly in automobile racing competitions. While Kent often wins in competitions, he has wrecked his car several times and has been seriously injured. Because Kent has had so many wrecks, he invested a majority of his $500,000 net worth in a closely held company to develop a revolutionary steel product that will not bend, crumble or catch fire. Kent and his business partner, Bobby, are sure that all race car companies will buy the steel product because their initial tests established that nine out of ten times a car made with the product that was in a wreck did not even get a dent. Although they plan to take their product to market in a few months, Kent and his partner have had several disagreements. Which of the following statements is true? A. If Kent died today, there would not be any liquidity issues because Kent's share of the closely held company could easily be sold for fair market value. B. Since the value of Kent's net worth is below $5,4910,000, there is no need for estate planning. C. Amounts given to Karen for Kerstin's support are deductible on Kent's income or gift tax return. D. If Kent were to die today, his assets would transfer via state intestacy laws with Kerstin being the most likely heir.
The correct answer is d. Since Kent has not executed any estate planning documents, his estate will transfer via state intestacy laws. When an individual is not married, their children are generally the next in line to inherit under state intestacy laws. Option a is incorrect because the ability to quickly sell a closely held business for fair market value is always questionable regardless of how good the products are. Option b is incorrect because Kent's net worth is irrelevant as to whether he needs estate planning. He has a child that needs to be cared for and assets that will need to be transferred, thus he needs estate planning. Option c is incorrect because the amounts given for Kerstin's support are not deductible on the income or gift tax return.
In 2016, Lori assigned a paid-up whole life insurance policy to an Irrevocable Life Insurance Trust (ILIT) for the benefit of her three children. The ILIT contained a Crummey provision for the benefit of each child. At the time of the transfer, the whole life insurance policy was valued at $200,000, and since Lori had not made any other taxable gifts during her lifetime, she did not owe any gift tax. Lori died in 2017, and the face value of the whole life insurance policy of $2,000,000 was paid to the ILIT. Regarding this transfer, how much is included in Lori's gross estate at her death? A. $0. B. $164,000. C. $964,000. D. $2,000,000.
The correct answer is d. The death benefit of a life insurance policy transferred within three years of the decedent's date of death is included in the decedent's gross estate. In this case, Lori transferred the policy one year before her death, so the full death benefit of $2,000,000 is included in her gross estate.
