Estate planning Final
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?
At the end of the trust term, the house will revert back to the grantor.
Which of the following is not a requirement of the unlimited marital deduction?
The gross value of qualifying property left to the surviving spouse is included in the marital deduction.
Angelina contributed $25,000 in cash to a foreign charitable organization. Her AGI was $25,000. At the time of the contribution, the organization told her that her contribution was tax deductible for income tax purposes. Ignoring any income limitations, how much of the $25,000 contribution is deductible?
$0
Argo and his wife, who had made no previous gifts, gifted $125,000 in total present interest gifts to each of 6 grandchildren in separate accounts in the current year. They allocated their GST exemption to the accounts. How much GST tax do they each owe?
$0
Eric and Tawny gift $120,000 to an Irrevocable Life Insurance Trust with Crummey provisions. The trust has, as beneficiaries, their three children. A few weeks later, Eric dies in an auto accident. Tawny, with the assistance of her attorney and Financial Planner, is calculating Eric's gross estate. How much of the gift will be brought back into Eric's gross estate? The annual exclusion is $14,000 for 2014. Split gifts are available. The 5/5 lapse rule is in effect.
$0
Miguel and Jane have been married for 45 years. Miguel is a citizen of Mexico, where the couple has lived for the past 25 years. Given the following list of separate property owned by Jane, and considering Jane's will leaves everything to Miguel outright, what amount would qualify for the unlimited marital deduction? • A California home valued at $1,000,000. • Mexican property valued at $450,000. • The contents of the California home valued at $100,000. • An investment account held at a New York City bank valued at $500,000
$0
Chelsea graduated from the University of Alabama. Each year, football season tickets are sold only to those who make a contribution to the university of $2,000 or more. Chelsea contributes $2,000, so that she meets the requirements to purchase season tickets, and also spends $500 on the season tickets. How much is her deductible charitable contribution for the year?
$1,600
Big Mike, a very generous man, has given his granddaughter, Jordan, a gift equal to $5.34 million last year and paid any relevant taxes. He now wants to give his grandson, Colin, a gift of $5.34 million plus the annual exclusion of $14,000 on his birthday and wants to know what his total outflow will be for the gifts and any other related taxes. The amount of his cash flows related to the gift to Colin is?
$10.4804 million
Amanda has been married to Javier for 25 years. Javier is a Honduran citizen. Amanda would like to make an inter vivos transfer to Javier. What is the maximum amount that Amanda can transfer to Javier without incurring transfer taxes or utilizing any of her applicable credit during 2014?
$145,000
Mike sold his vacation home to the St. Edwards Church. The vacation home had a fair market value of $250,000. Mike inherited the vacation home from his father three years prior to the sale when the fair market value of the home was $120,000. Mike's father had an adjusted basis in the vacation home equal to $150,000. The full sales price paid by St. Edwards Church to Mike was $75,000. What amount of capital gain/loss would Mike report on his tax return for the year related to this sale?
$39,000 capital gain
Caroline transfers $87,000 of stock to a charitable organization in return for a life annuity on her life valued at $40,000. With regard to this transfer, how much is Caroline's charitable income tax deduction?
$47,000
The best life insurance policy for the payment of federal estate taxes for a 55-year-old couple with illiquid assets is:
* A joint and last-to-die life insurance policy owned by an irrevocable life insurance trust.
Which of the following statements accurately reflects the nature of buy-sell agreements?
* A stock redemption plan must have a corporation as a party to the contractual arrangement
A client asks you to explain the statement, "Life insurance proceeds are tax-free." You answer that the general rule(s), subject to some exceptions, is/are that death benefits received from a life insurance policy due to the death of the insured are income tax free to the beneficiary, but which of the following are also correct: 1. The proceeds are subject to estate taxes in the estate of the insured if the insured is the owner. 2. The proceeds may be subject to income taxes if the policy was sold to a third party. 3. The proceeds are not subject to income tax, even if sold to a third party if the contract is a modified endowment contract
1 and 2
Death benefit proceeds from a life insurance policy are included in a decedent's gross estate in which of the following circumstances: 1. The decedent gave the policy to his father four years ago but retained the right to change the name of the beneficiary. 2. The policy beneficiary is a grantor trust of the decedent, but the policy is owned by a closely-held corporation. 3. The decedent gave the policy to a charity seven years ago. 4. The decedent transferred the policy to an irrevocable life insurance trust five years ago with no retained incidents of ownership.
1 and 2
Federal estate and gift taxes are determined by the fair market value of the property transferred. Which of the following statements are true? 1. Asset values are based upon the fair market value on the date of death or six months after the date of death for the gross estate. 2. Taxes are progressively higher as more assets are transferred during life. 3. Value is determined on the date of the transfer of the assets for lifetime transfers. 4. Special use valuation is always available for special use property.
1, 2 and 3
Which of the following accurately reflects the use of split-dollar life insurance in a business setting? 1. It can be a fringe benefit to an employee. 2. The insurance premiums are usually split between the employer and the employee (insured). 3. It may be used to fund a buy-sell stock redemption agreement.
1, 2 and 3
Which of the following describes joint and survivorship life insurance? 1. It is generally not includible in any insured's gross estate, if owned in an ILIT. 2. It can provide liquidity to pay estate taxes at the death of the second insured. 3. It pays a partial benefit at the death of the first to die (administrative and estate taxes) with the remainder paid in full at the second death. 4. Premiums are usually less expensive than for individual policies on each of the two insureds for the same face amount.
1, 2 and 4
Use of an Irrevocable Life Insurance Trust can accomplish which of the following? 1. Create a vehicle to avoid Generation Skipping Transfer Tax. 2. Make proceeds available to the surviving spouse. 3. Ensure that proceeds will be excluded from the probate of both spouses. 4. Shelters cash contributed for premiums from taxation up to the annual exclusion amount.
1, 2, 3 and 4
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.
1, 2, 3 and 4
Which of the following constitute incidences of ownership in an insurance policy: 1. The right to name or change the name of the beneficiary. 2. The right to surrender the policy. 3. The right to assign the policy. 4. The right to borrow cash from the policy.
1, 2, 3 and 4
Some reasons to use life insurance to fund business continuation agreements include which of the following: 1. It provides sufficient assets for the buyer to perform on the contract. 2. Insurance protects the company and its shareholder because the IRS cannot challenge the value of stock if provided for in a Shareholders Agreement (SHA). 3. The insurance gives the agreement efficacy. No money . . . No deal. 4. The insurance strengthens the commitment of the buyer when it must follow through on the agreement.
1, 3 and 4
Which statement(s) is/are true for Generation Skipping Transfer Tax (GSTT)? 1. Applies to transfers to persons who are two generations or more lower than the transferor. 2. There are no exceptions. 3. There is a $5,340,000 lifetime exemption in 2014 for GSTT. 4. Transfers qualifying for gift tax annual exclusion are also excluded from GSTT Choose the answer(s) which is/are most correct:
1, 3, and 4
Jack and his wife, Carol, were in an auto accident. Carol died three weeks before Jack did. His gross estate was $6.2 million. One of the major assets in his estate was closely held stock in an equipment leasing firm (C corporation) with which rapidly appreciating equipment was purchased. His estate had unsecured debts of $400,000 and administrative expenses of $75,000. His will allocates his estate to his children in equal shares. Which post mortem planning techniques might benefit Jack's estate? 1. The alternative valuation date. 2. A Section 303 stock redemption. 3. The QTIP election. 4. Special use valuation. 5. Installment payment of estate taxes
2 and 5
The Generation Skipping Transfer Tax (GSTT) has all the following characteristics, except:
A "skip person" is a person who is one or more generations younger than the transferor.
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 Charitable Remainder Unitrust
Which one of the following transfers made this year by 85-year old Jennifer is not sooner or later subject to the Generation Skipping Transfer Tax?
A gift of a remainder interest in a trust just established which is paying an income interest to Jennifer. The remainderman is a grandson whose parents died in an auto accident earlier this year before the inception of the trust.
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 trust that Albert had established 3 years ago for Albert's favorite employee, Sam, who has just turned 20.
Which of the following statements about split-dollar life insurance and its uses is incorrect?
All policy values and benefits of a split-dollar life insurance policy are subject to the claims of company general creditors.
Which of the following qualifies for the unlimited marital deduction?
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 return was filed, became a U.S. citizen.
Which of the following is NOT a terminable interest?
An ownership interest in a life insurance policy
Anne recently died. Anne is survived by her husband, Edward, and daughter, Catherine. Which of the following would be a qualifying property transfer for the purposes of the unlimited marital deduction?
Anne leaves ownership of certain copyrights to Edward.
Prairie Dog Corporation (PDC), an oil drilling company, has a "key-person" variable universal life policy on Digger Phelps, its vice-president of drilling operations. The owner and beneficiary of the policy are the corporation. Which of the following is correct?
Any death benefit paid will be nontaxable to PDC.
Raymond's net worth is $10,000,000, consisting entirely of his separate property. His wife's net worth is $200,000, consisting entirely of her separate property. As part of Raymond's estate plan, he would like to transfer as much to his wife as possible, while making the most of his applicable estate tax credit. He would also like to ensure that his wife has access to all of his net worth for the rest of her life. It is his wish that at his wife's death, the children will inherit whatever is left, with the least possible transfer taxes owed. Which of the following estate plans would fulfill Raymond's goals? Assume that Raymond dies in 2014, and that he has not used any of his exemption amount.
At Raymond's death, $5,340,000 should be transferred to a bypass trust for the benefit of Raymond's children. Raymond's wife should be given the power to invade the bypass trust for an ascertainable standard. The remaining assets should be given outright to Raymond's wife.
Which of the following applies to the income tax or estate tax treatment of life insurance policy proceeds?
Benefits received under a periodic settlement option are partially subject to income tax.
Which type of charitable remainder trust permits additional contributions to the trust after its inception?
CRUTs
Cheryl, age 58, is the owner of a closely-held partnership business which makes up 65% of her adjusted gross estate. More than half the assets of the corporation are real estate holdings. Cheryl wants to undertake a transfer of some sort to her son, Roger, to reduce her potential income tax obligations and possible future estate tax liability. Such a transfer would accomplish both of these goals and reduce Cheryl's interest in the business by 35%, meaning the business would make up only 30% of her adjusted gross estate. Cheryl will also be bequeathing $50,000 to her favorite public charity and the balance to her husband upon her death. In light of these activities and transfers, which of the following elections does Cheryl lose?
Cheryl gives up the right to use the 6166 election.
Hazel, a widow, died. She had made no previous lifetime taxable gifts and she died with a gross estate of $5,250,000, consisting solely of a diversified portfolio of publicly traded, income-producing stocks. Her debts were $75,000 and estate administrative expenses amounted to $50,000. Which of the following post-mortem techniques should Hazel's executor consider electing?
Deduct estate administrative expenses on the estate's fiduciary income tax return.
Donna has AGI of $100,000. Donna owns a rare antique in which she has an adjusted basis of $200,000. The antique is currently worth $2,000,000. Assuming that Donna's AGI will remain at $100,000 for the next six years, which of the following would you recommend to her if she donates the antique to a museum this year?
Donna should deduct $50,000 this year.
Mrs. Riley dies in 2014 leaving her entire $7.2 million estate through her will to her penniless husband, John. His estate goes to their children at his death. He has terminal cancer with a life expectancy of only 1 to 2 years. The alternative valuation date value of Mrs. Riley's entire estate is equal to $7,000,000. Select the post mortem technique John should utilize to reduce the overall estate tax liability of both estates:
Elect Portability
Overqualification means that the decedent used too much of his applicable estate tax credit.
False
Property disclaimed by a surviving spouse will still qualify for the unlimited marital deduction.
False
Provided that a survivorship clause does not require the surviving spouse to survive the decedent for more than nine months, any transfers subject to the survivorship clause will qualify for the unlimited marital deduction.
False
Which of the following are included in the gross estate:
Gift taxes paid two years prior to the decedent's date of death for gifts made four years earlier
Elizabeth, a widow, has decided to set up trusts for each of her four grandchildren to take advantage of the generation skipping transfer tax exemption. In the current year, she gives each grandchild $280,000. If Elizabeth has not made any previous taxable gifts, on what amount will she owe gift tax?
None
XYZ Corporation is a closely held corporation. Martin McFly, along with the three other owners, set up a stock redemption agreement requiring the corporation to buy all shares of a deceased or disabled shareholder. The plan is funded by entity life insurance policies on each shareholder. Premiums are paid by the corporation. The agreement states that the share price of any budget will be established by an independent, competent third party appraiser. What are the tax implications of this plan? 1. A deceased shareholder's gross estate will be increased by the amount of the life insurance. 2. There is no step-up in basis for decedent's family on the shares of stock covered by the plan. 3. The corporation will owe income tax on the difference between the cash value of the policy and the death benefit amount
None of the above
Reese donated $100 to her church and $300 to the United Way. Which of the following is true with regard to her contribution to the charitable organizations?
Only the United Way is required to send a confirmation of the contribution to Reese
Which of the following apply to Section 303 redemptions?
Qualifying redemption amounts are limited by the payment of death taxes and estate administration taxes and costs.
Which of the following is not necessary to properly execute a Section 303 stock redemption?
The 303 redemption can be made without a positive earnings and profits account.
A transfer to which of the following organizations would NOT qualify for the gift and estate unlimited charitable deduction?
The Los Angeles Homeowner's Association.
Which of the following is NOT a requirement for a testamentary charitable bequest to qualify for the unlimited charitable deduction?
The bequest must be contingent upon some other event occurring
Of the following statements, which is false?
The death benefit of a life insurance policy included in a decedent's gross estate is not eligible for the unlimited marital deduction, even if the surviving spouse is the listed beneficiary and receives the proceeds.
Which of the following is not a reason that the death benefit of a life insurance policy would be included in a decedent's gross estate?
The decedent transferred the ownership of the policy to his partner four years ago.
Which of the following statements is incorrect?
The remainder beneficiary of a QTIP Trust is chosen by the surviving spouse.
Which of the following rights will not cause an insurance policy to be included in the gross estate of the owner/insured if retained within the three years prior to the death of the owner/insured assuming the policy was in an ILIT?
The right to change the name of a charitable beneficiary to another charitable beneficiary.
Which of the following accurately describes a QTIP Trust
The trust assets will be included in the gross estate of the surviving spouse.
Which of the following statements is incorrect? The ultimate beneficiary of a QTIP Trust is selected by the surviving spouse.
The ultimate beneficiary of a QTIP Trust is selected by the surviving spouse.
Which of the following statement(s) concerning the choice of a stock redemption (entity agreement) versus a cross-purchase partnership buy-sell agreement funded with insurance is FALSE?
The use of existing insurance to fund the agreement causes a transfer-for-value problem if an entity agreement is selected, but does NOT cause this problem if a cross-purchase approach is used.
Of the following, which is not a benefit of the unlimited marital deduction?
The use of the unlimited marital deduction can shelter future appreciation of an asset from estate taxes at the death of the second-to-die spouse.
In which of the following situations would the use of a QDOT be appropriate?
Tom dies and is survived by his wife, Tina, who is not a U.S. citizen.
One advantage of the unlimited marital deduction is that the payment of any estate taxes can be deferred until the death of the surviving spouse.
True
