Ult. Estate Exam II

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Perry's father sold the family business to him using a private annuity. The private annuity was structured such that Perry would pay his father $40,000 per year plus interest, for the remainder of his father's life. At the date of the sale, Perry's father's life expectancy was 20 years and Perry's father was in great health. After six years, Perry's father died of a heart attack and Perry sold the business for $2,000,000 six months after his father's death. What is Perry's capital gain/loss on the transaction? A) $240,000. B) $1,760,000. C) $1,960,000. D) $2,000,000.

$1,760,000. Rationale A buyer's adjusted basis of property purchased with a private annuity is equal to the sum of all annuity payments paid. In this scenario, Perry made six annuity payments of $40,000, or a total of $240,000. Since he sold the property for $2,000,000, his gain is calculated by subtracting his basis from the sales price to arrive at $1,760,000 ($2,000,000-$240,000).

For the year 2019, the GSTT exemption is?

$11,400,000 per donor

Kevin transferred $4,000,000 to a GRAT naming his four children as the remainder beneficiaries. Kevin retained an annuity from the GRAT valued at $1,500,000. If this is his only transfer during the year, what is Kevin's total taxable gifts for the year?

$2,500,000

Gene contributed $500,000 to an irrevocable trust and did not retain any right to the trust's assets. The income beneficiary of the irrevocable trust was Gene's sister, and the remainder beneficiary was Gene's niece. At the time of the transfer, Gene paid gift tax of $35,000. Gene died four years later, when the value of the irrevocable trust was $1,200,000. With regard to the irrevocable trust, how much is included in Gene's gross estate?

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?

Lois, an elderly, single woman, recently came to you to, an estate planning professional, to discuss her estate plan. After a lengthy discussion you determine that Lois completed several transactions last year that may be subject to gift tax. The transactions you uncovered include: 1) Lois had a bank account in the amount of $15,000 that was owned fee simple. She wanted to make sure her son, Ronnie, could access the money "just in case" so she changed the ownership of the account to JTWROS in her and Ronnie's name equally. Ronnie has not made any withdrawals. 2) Feeling guilty about retitling her checking account JTWROS with her son, Lois decided to change the titling of her vintage automobile as JTWROS with her daughter, Joyce. Lois purchased the property for $15,000 and the fair market value of the property on the date of retitling was $30,000. Due to a high demand for this particular vintage model the value of the car today is $40,000. 3) Lois received a beneficiary designation in the mail for her $1,000,000 life insurance policy. The policy never had a beneficiary, so she designated her son, Ronnie and daughter, Joyce, as joint beneficiaries. Lois's basis in the policy is $200,000. 4) Lois has two stock portfolio accounts with a local brokerage firm valued at $200,000. Upon her advisor's suggestion, she retitled the account as a Transfer on Death account to "save taxes." Upon her death, the assets will transfer equally to her son, Ronnie, and her daughter, Joyce. 5) Lois's daughter Joyce has always been a little poor with budgeting her money. So it was no surprise to Lois that Joyce couldn't afford her daughter Katelyn's braces. Feeling sorry for Katelyn, Lois gave Joyce $50,000 for the braces. Lois later found out that the braces only cost $15,000 and Joyce spent the remaining money on elective cosmetic surgery. 6) Lois was beginning to become very concerned because her son Ronnie had never married. She was so happy he finally got married she gave Ronnie and his new wife, Sam, $40,000 so they could take a two month trip to Australia. When you inform her that you are concerned about some of these transactions and that she may need to file a gift tax return she states, "you obviously must not be a very good planner because none of my other planners ever told me that, besides it would be ridiculous for me to pay tax on things I want to give to my family that I purchased with my hard earned money that was already taxed." After more discussion, Lois confesses to you that you are highly recommended and frankly, she has already used almost every planner in town and since they have all declined to represent her, she is confident that you will do the right things. Calculate the value of Lois's total qualified transfers for the current year. $0 $15,000 $35,000 $50,000

$0 Lois did not have any qualified transfers. A qualified transfer is a transfer directly to a medical provider for qualified expenses or to a qualified educational institution for tuition. While $50,000 was used for medical expenses, the money was not paid directly to the medical provider. In addition, the elective cosmetic surgery is not a qualified medical expense.

Nate owns the following property: A personal residence titled fee simple valued at $500,000. A $500,000 life insurance policy on his own life. The only named beneficiary is Nate's brother Jaime, who died 6 months ago leaving two children, Michael and Kristi. A car valued at $15,000 titled JTRWROS with Nate's mother. An IRA valued at $400,000 with Nate's mother as the named beneficiary. What is the current value of Nate's probate estate? $500,000 $1,000,000 $1,400,000 $1,415,000

$1,000,000 The probate estate will include the personal residence and the life insurance policy. The life insurance policy is included because the named beneficiary was already dead at Nate's death. The car is not included because of the JTWROS ownership, thus it transfers by operation of law. The IRA is not included because there is a living named beneficiary and thus will transfer via contract law.

Maxine agrees to purchase Jacob's property utilizing a private annuity. Jacob's table life expectancy is ten years at the date of agreement and the property has a FMV of $400,000. The private annuity payment is $45,000 a year, and Maxine dies after making two payments. At Maxine's death, what amount is included in her gross estate with regards to the private annuity and the transferred property?

$400,000

Bobby, a single man, owned a building with a FMV of $2,000,000. Bobby's adjusted basis in the building was $1,000,000. Bobby agreed to sell the building to his adult son, Robby for $1,300,000. What is the amount of Bobby's taxable gift?

$686,000

Mario's executor determined that the estate tax liability for Mario's estate is $600,000. However, Mario's executor forgot to file the estate tax return and filed and paid 65 days late. Calculate the penalties that Mario's estate will now have to pay.

$90,000

Cate owns the following property: • A personal residence titled as sole ownership fee simple valued at $400,000. • A $500,000 life insurance policy on her own life. The named beneficiary is Cate's brother James, who died 6 months ago leaving two children, Michael and Carol. • A car valued at $20,000 titled JTWROS with Cate's mother. • An IRA valued at $200,000 with Cate's mother as the named beneficiary. What is the current value of Cate's probate estate?

$900,000

Under what circumstances would property be subject to ancillary probate? a) If the decedent is a resident of one state and owns real property in another state. b) If the decedent is a tenant in common with an unrelated person. c) If the decedent was a resident of a community property state. d) If the decedent owns a life estate in real property located in a state other than his state of residence.

(a) If the decedent was a resident of a community property state.

What is a Bypass Trust?

-Bypass Spouse -Spouse income and HEMS beneficiary -Not included in spouse's estate

When is a QTIP appropriate?

-Complex marriages

What is a GRAT?

-Grantor Retained Annuity Trust -Grantor establishes trust, retains fixed annuity -Gift is PV of remainder interest (future interest)

joint owned property (2040)

-JTWROS -tenancy by the entirety

QTIP property goes where/when?

-Surviving spouse, when alive, to parties chosen by first-to-die spouse when surviving spouse dies

three-year lookback (2035)

-any gift tax paid on gifts made within three years of death (not the actual amount of the gifts) -gifts given within the last three years if the gift was a : -transfer with life estate -transfer taking effect at death -revocable transfer -transfer of life insurance on the life of the decedent

powers of appointment (2041)

-general power of appointment -except if the power is subject to an ascertainable standard (HEMS) -Health -Education -Maintenance -Support

proceeds of life insurance (2042)

-proceeds receivable by the decedent's executor -decedent possessed an incidence of ownership in the policy

Tax Advantages of "Qualified" Plans

1. employer's and employee's contribution are deductible 2. emlpoyer's contribution is taxable to EE only on distribution 3. investment earnings accumulate tax free

Robbie transferred $100,000 to an irrevocable trust for the benefit of his minor child, Dominic. The transfer was eligible for the annual exclusion. The trust permits the trustee to accumulate the trust income within the trust, and only make distributions to Dominic based upon an ascertainable standard until Dominic is 21 years old. When Dominic attains the age of 21, the trust must terminate and the trust assets must be distributed to Dominic. What type of trust has Robbie created?

2503(c) trust

Ch 7: John Jenkins, a widower, made the following gifts in 2013: -50,000 in cash to his son -15,000 in cash to the American Cancer society -Stock worth 20,000 to his grandson (originally purchased for 10,000) -bonds worth 90,000 to the university of Penn development fund (orig. purchased for 100,000) What is the total amount of taxable gifts made by John?

42,000 For tax purposes, gifts are valued at their current market value. In addition, each gift will qualify for the 14,000 annual exclusion (2013), and the remainder of the gifts to the American Cancer society and University of Penn will qualify for the charitable deduction. Therefore, only 36,000 of the gift to his son and 6,000 of the gift to his grandson will be taxable gifts

The alternate valuation date is exactly ____ month(s) following the date of death?

Several years ago, Bill and his sister, Joy, purchased a tract of real property as joint tenants with right of survivorship (JTWROS). Bill contributed $50,000 toward the $200,000 purchase price and Joy contributed the remaining $150,000. Joy died in the current year, and her will provided that all of her assets pass to her daughter, Cate. The real property was worth $1,000,000 on the date of Joy's death. The value of Joy's interest in the property includible in her gross estate is:

950,000 OR 750,000

In which of the following situations would a QDOT be appropriate? a) Tom dies and is survived by his wife, Tina, who is not a US Citizen b) Regina dies and is survived by her husband Raul, who becomes a US Citizen two months after Regina's death c) Harold dies and does not have a surviving spouse d) Franz, who is not a US Citizen, dies and is survived by his wife Francine, who is a US Citizen

Which of the following is NOT a requirement for a testamentary charitable bequest to qualify for the unlimited marital deduction? a) The bequest must be contingent upon some other event occurring b) The amount of the bequest must be determinable at the decedent's date of death c) The FMV of the assets must be included in the decedent's gross estate d) The bequest must be payable to a qualifying charitable organization

Ch 8: Which of the following statements concerning executors is correct? A) An executor can be given broad and discretionary powers with respect to the management of estate assets. B) An executor is chosen by the beneficiary of a will shortly after the decedents death. C) An executor must be an individual rather an entity or institution D) An executor is answerable only to the beneficiary and not the court having jurisdiction over the probate of the asset.

A B is incorrect because the executor is named in the last will of the testator and is not named by the beneficiary C is incorrect because an executor may be an individual but is often a corporate trust institution D is incorrect because the probate court has control over the probate proceedings and the executor is answerable to it, not the beneficiary

Which of the following statements regarding the estate tax marital deduction is correct?

A QTIP trust will qualify for the marital deduction, if the executor makes the appropriate election.

Harold, a non attorney, prepares his own will. Harold handwrites all of the provisions of the will and signs and dates it but fails to have it witnessed by anyone. What type of will does Harold have, if any?

A holographic will.

What can a grantor use to fund a QPRT?

A home or vacation home.

A FLP offers all of the following advantages except:

A method of keeping appreciation of the FLP assets taxable to the older generation rather than heirs

A minority interest discount may be available when all of the following conditions apply to the holder of a limited partnership interest except:

A minor management role in the limited partnership.

The best definition of estate planning is:

A plan for managing property during lifetime and at death.

Which of the following property or property interests would be excluded from the decedent's gross estate for federal estate tax purposes?

A property interest that the descendent had no right to transfer to another at death no matter how great the decedents interest were during the lifetime

Which of the following statements concerning trusts is correct?

A sole trustee can also be a beneficiary in the same trust

22. QPRT know the first three description sentence

A special form of a GRIT in which the grantor transfers his home to the QPRT (qualified personal residence trust) and receives "use" of the personal residence as the annuity. The remainder interest of the trust passes to a non-charitable beneficiary.

When Ron died, he held a power of appointment over a piece of property under which he could only appoint the property to someone other than himself, his creditors, his estate or its creditors. What type of power is this?

A special power of appointment.

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 terminal interest in property.

All the following statements concerning powers of appointment are correct EXCEPT

A testamentary power must be exercised before the death of the donee

If a trust receives assets passing under the will from life insurance proceeds, the trust is called a __________. A) Pourover trust B) Bypass trust C) QPRT D) GRAT

A) Pourover trust

Given the information below, which of the following values is the amount of your client's tentative tax base for federal estate tax purposes?

Adjusted gross estate= $5,500,000 Funeral and estate administration expenses=$200,000 Marital deduction=$2,100,000 Adjusted taxable gifts=$300,000 → $3,700,000

Per the will, a payment to Daryl's friend John

After extensive hospital stay, Daryl died of heart failure in August of the current year. In computing Daryl's taxable estate, which of the following is not deductible?

2240000

After reading an estate planning article in a popular magazine, Vaughn has decided to take action to reduce his gross estate by making annual gifts to his 4 kids, 8 grandchildren, and 4 great-grandchildren. Vaughn has discussed the gifting strategy with his wife, Rebecca, and provided it does not result in use of any of her applicable gif tax credit, she has agreed to split each gift. Vaughn dies not want to use his applicable gift tax credit either. If Vaughn carries the plan out for 5 years, how much can he gift in total while meeting rebecca's requirement? Assume the 2017 exclusion amounts.

All of the following statements concerning tenancy by the entirely are correct EXCEPT

All states have this type of property interest

Suppose in a year when the annual exclusion is $13,000, Jim gives present-interest gifts of $30,000 to his son and $50,000 to his wife, who is a US citizen. If Jim and his wife elect to split gifts, which of the following statements concerning calculations of Jim's gifts is correct?

Allowable annual exclusions equal $26,000

An intentionally defective grantor trust does all of the following except:

Allows the grantor to make changes to the trust.

5490000

An estate tax return must be filed for a US resident or a US citizen dying during 2017 if the total value of is gross estate plus post - 1976 adjusted taxable gift on his date of death is greater than:

All the following statements concerning the filling of the federal estate tax return and the payment of federal estate tax are the correct EXCEPT

An extension of time to file the estate tax return both extends the time for payment of the taxes due and delays the date interest begins to accrue on any unpaid taxes

Which of the following gifts permanently removes the property from the donor's gross estate?

An outright gift

A partial interest gift includes all of the following except:

An outright gift.

All of the following transfers made within 3 years of death cause property to be included in the decedents gross estate EXCEPT

An outright transfer of stock to the decedent's son

Ch 11: All of the following are advantages of a buy-sell agreement EXCEPT: A) It binds the IRS to accept the value of the decedents business interest B) It can provide liquidity to a decedent-shareholders estate C) It provides for the continuation of the business D) It makes the business more attractive to creditors

Answer is A. -Although a properly drafted buy-sell agreement can be used to peg the estate tax value of a decedent's business interest, the IRS is not necessarily or absolutely bound to except the value of a decedent's business interest established in such an agreement.

As a financial planner, you are preparing for a meeting with a new client, Jorge. What would you most likely ask Jorge to bring to the meeting?

Any will, trust, or other legal document

The full proceeds of a life insurance policy would be included in the decedent's gross estate in all the following situations EXCEPT

At the time of death, the descendent owned a premium-paying whole life policy on the life of another person

Name one advantage of a revocable living trust?

Avoidance of probate

Colby is actively involved with supporting his alma mater. In 2017, Colby contributed $11,000 of highly appreciated securities and $20,000 cash to an Endowment Appeal, and spent about 100 hours of his time normally billed at $200/hour helping them to raise funds. If no further charitable contributions are made in 2017, what is the total value of Colby's haritable contributions for the year?

B $31,000

Which of the following items is not an allowable deduction from the gross estate?

B A bequest to charity

If an estate pays the funeral expenses of the decedent, on which tax return are these expenses deducted? A) The decedent's final return (Form 1040). B) The decedent's estate tax return (Form 706). C) The income tax return of the decedent's estate (Form 1041). D) The surviving spouse's income tax return (Form 1040).

B) The decedent's estate tax return (Form 706). Rationale If the funeral expenses are paid by the decedent's estate, the expenses are deducted on the federal estate tax return. If the expenses are paid by anyone else (or any other entity), the expenses are not deductible.

2. How does gifting work for spouse

Because husband and wife have a joint interest in the things they have together, there are no limits on how much you can give to a spouse if they are a citizen- no gift tax. If they are noncitizens gifts as large as $148k annually can be made When talking about gift splitting the couple is allowed to give 30k a year to each person.

In which of the following situations would part of the value of Bill's vacation home (other than any unconsumed payments received and related interest earned prior to his death) be included in Bill's gross estate upon his death?

Bill makes a regular installment sale of his vacation home to his son, and Bill dies during the term of the installment note

Bill has a general power of appointment over all of his father's assets. Which of the following is not true regarding such a power?

Bill must only appoint money using an ascertainable standard

The proceeds of a life insurance policy on the life of a decedent would be included in the decedent's gross estate in which of the following situations? I. If the decedent possessed incidents of ownership in the policy at death, but it was impossible for him or her to exercise the rights at death. II. If the descendent posses incidents of ownership in the policy at death but could not exercise the rights without the consent of some other person

Both I and II

Which of the following is (are) included in the gross estate? I. What the estate owner actually owned at the date of death II. What the estate owner is deemed to have owned at the date of death

Both I and II

Which of the following statements concerning a durable power of attorney is (are) correct? I. A competent principal may revoke the instrument establishing a durable power of attorney at any time II. A durable power of attorney that expressly authorizes the agent to make gifts on behalf of the principal can provide numerous gift and estate tax benefits

Both I and II

Which of the following statements concerning the martial deduction and bypass planning is (are) correct? I. Generally, the testator's will set up two trusts-a martial trust to hold the assets that qualify for the martial deduction and non- martial (bypass) trust that, ideally, should be funded with assets equivalent to the testator's basic exclusion amount (credit equivalent) II. Bypass planning avoids stacking assets into the surviving spouse's estate and thus provides the opportunity for significant estate tax savings

Both I and II

Which of the following statements concerning the sale of trust assets to the trustee is (are) correct? I. The sale is voidable (reversible) by the beneficiaries unless they are fully devised of all pertinent facts and consent. II. If any of the beneficiaries are minors, they do not have the capacity to consent to a sale, and thus is not binding on them.

Both I and II

Sharon wants to make sure that she makes full use of the applicable estate tax credit upon her death, but also wants to make sure that her husband, Oswald, has access to the property. What trust would you recommend?

Bypass Trust

Identify the situation in which an estate tax marital deduction cannot be taken

C A husband gave his non-citizen wife $2 million

Bonnie is an attorney and has won a large case. She will have income of $500,000 this year. Bonnie wishes to make a gift of $100,000 to the American Red Cross. Which of the following assets should she gift during her lifetime?

C Google stock that she purchased two years ago for $10,000. It is currently worth $100,000

CRATs and CRUTs share all of the following requirements except:

C III only Additional contributions of property may be made into the trust

Curtis established an irrevocable trust six years ago which he funded with dividend-paying securities worth $3 million....

C The $3.7 million trust is added to Curtis's gross estate.

Which statement does not correctly pertain to transfers to a non-U.S. citizen spouse?

C The trustee of the QDOT can be a trust company in a foreign country

Darleen and Leon live in Arizona and acquired all of their property interests while living there. They own a primary residence worth $2.2 million as tenants by entirety......

C 1.8 Million

Georgette bequeathed $4 million to her son. Which of the following statements is correct?

C A unified credit of 2,141,800 is available to offset Georgette's estate tax payable

Ch 7: Which of the following is a gift for federal tax purposes? A) without compensation a carpenter builds a chicken shed for a neighbor B) a valuable oil painting owned by a father is delivered to his son to be displayed at the son's residence with a provision that the painting is to be returned to the father on demand C) a father tells his son that he need not pay interest on a 50,000 interest-bearing note evidencing a loan that the father made to his son D) a mother promises to give her son her new car as soon as the odometer reads 50,000 miles

C -Forgiveness of money owed is considered a gift unless it is in a business context. -A, B, D are incorrect because they do not constitute gifts for federal gift tax purposes

Which of the following entities does not have the benefit of pass-through taxation?

C Corporation

In 2009, Maria funded a bypass trust with $3,500,000, the applicable estate tax credit amount at the time. At Maria's death in 2019, her will included a testamentary bypass trust and a residual bequest to her U.S. citizen husband. If Maria's net worth at her death was $11,400,000, how much will be transferred to the bypass trust to maximize its benefits? A) $0. B) $3,500,000. C) $7,900,000 D) $11,400,000.

C) $7,900,000

Which of the following statements regarding a Qualified Personal Residence Trust (QPRT) is/are true? 1. With a QPRT, the grantor must survive the trust term to realize any estate tax savings 2. After the trust term, the house will revert back to the grantor 3. The grantor will have a taxable gift upon the creation of the QPRT 4. A QPRT is generally inappropriate for vacation homes A) 2 and 3 only B) 1 and 2 only C) 1 and 3 only D) 2 and 4 only

C) 1 and 3 only

The alternate valuation date is exactly _______ month(s) following the date of death. A) 1 B) 3 C) 6 D) 12

C) 6

What can a grantor use to fund a QPRT? A) Assets that are expected to increase in value faster than the 7520 rate B) An interest in a closely held business C) A home or vacation home D) A home or vacation home and furnishings

C) A home or vacation home

Which of the following is not a deduction from the gross estate? A) Estate tax marital deduction B) Estate tax charitable deduction C) Gift tax deduction D) State death tax deduction

C) Gift tax deduction

Angela and Barry, both in their late sixties, recently got married. Angela is wealthy and has a large portfolio of investments and real estate, with significant accrued gains. On her death, Angela wants to ensure a comfortable lifestyle for Barry and she also wants to protect the balance of her children's inheritance in the event that Barry remarries. In order to achieve these objectives and minimize tax on her death, Angela should leave her estate to Barry ______________. A) And the children in trust, with access to income and capital available to all beneficiaries on her death. B) In trust, and in the event of his remarriage, trust assets would be distributed to her children. C) In trusts, with access to only trust income for him, and on his death, trust capital would be distributed to her children. D) In trust, with access to only trust income for him and, if required, for her children, and on his death, trust capital would be distributed to her children.

C) In trusts, with access to only trust income for him, and on his death, trust capital would be distributed to her children.

Medicaid is primarily for those people who meet the following eligibility requirements: A) Disabled. B) Children. C) Low Income. D) Elderly.

C) Low Income. Rationale Medicaid is primarily for those with low incomes.

CH 8: Which of the following statement concerning wills is (are) correct? 1. A will may be revoked by the testator prior to his or her death. 2. An adult child may be disinherited entirely by a parent in most states A) 1 B) 2 C) both D) neither

C) both are correct

David would like to fund a charitable trust and name himself as the income beneficiary. He would like for his payout from the trust each year to be stable. Given David's desires, which type of charitable trust should David fund?

CRAT

Which of the following charitable techniques allow the grantor/transferor to manage the transferred assets?

CRATs and CRUTs

Which of the following charitable trusts allow investments in securities that are exempt from taxes?

CRATs and CRUTs

Which of the following charitable trusts allow sprinkling provisions?

CRATs and CRUTs

Which of the following charitable trusts allow for additional inter vivos contributions to be made after the inception of the trust?

CRUTs

20. For used items like cars and homes- what would be in someone's gross estate? Gross estate assets in IRC section 2033

Cash, stocks and bonds, retirement accounts, notes receivables, personal residences, other real estate, household goods, automobiles, business interests, life insurance on someone else's life, collectibles- art wine jewelry, vested future rights, outstanding loans due from others, income tax refunds to the decedent, patents/copyrights, pain and suffering award, damages owed to decedent, dividend declared and payable, income in respect to the decedent, and any other tangible personal property

11036000

Celeste and Raymond have been married for 29 years. Last year, Raymond sold his extremely successful autmotive repair shop and his net worth now exceeds $10 millions dollars. Celeste and Raymond have twin daughters, Kelly and Shelly, who will be 35 next month. Celeste and Raymond, neither of whom have given any gifts in the past, would like to give their daughters thee maximm amount of cash possible without paying any gift tax. How much can Celeste and Raymond give to Kelly and Shelly during 2017

Charitable Remainder UniTrust

Consider alternatives to the 2503(c) trust because full distribution at age 21 is a required part of the trust.

A bypass trust is also known as a:

Credit equivalency trust.

Abigail died and transferred the following property interests to her husband John through her will. Which bequest did not qualify for a marital deduction in her estate?

D She bequeathed John the right to receive all income from the orchard for life with the orchard passing to Quincy at John's death

An estate tax marital deduction is available in all of the following situations, except:

D A testamentary trust was created by will that gave the surviving spouse income for life with a limited power of appointment over trust corpus. No QTIP election was made.

An estate tax return must be filed for a U.S. resident or a U.S. citizen dying during 2018 if the total value of his gross estate plus post-1976 adjusted taxable gifts on his date of death is greater than: A) $1,000,000. B) $4,417,800. C) $3,500,000. D) $11,180,000.

D) $11,180,000. Rationale This question is asking for the applicable estate tax credit equivalency for 2018, or the fair market value of property that can transfer with an estate tax less than or equal to the applicable estate tax credit. For 2018, the applicable estate tax credit equivalency is $11,180,000.

Justin's grandfather contributed $350,000 to a simple irrevocable trust naming Justin as the income beneficiary and his brother, Ryan, as the remainder beneficiary. At the time of the transfer Justin's grandfather paid $12,000 of gift tax. This year, the trust generated $14,000 of taxable dividend income and $3,000 of capital gains. What amount of taxable income will Justin include on his federal Form 1040 from this trust this year? A) $0. B) $3,000. C) $12,000. D) $14,000.

D) $14,000. Rationale Since Justin is the income beneficiary of a simple irrevocable trust, he is taxed on the current year income of the trust. This year, Justin will include $14,000 on his federal Form 1040. Justin is not taxed on the capital gains unless they are distributed to him.

Todd purchased his mother's home through use of a SCIN. Under the terms of the SCIN, Todd was to pay his mother $20,000, plus interest, and a SCIN premium, per year for 10 years. If Todd's mother died after 4 payments were made, what would be Todd's adjusted basis in the home? A) $0. B) $80,000. C) $160,000. D) $200,000.

D) $200,000. Rationale The buyer's adjusted basis in property transferred in exchange for a SCIN is the fair market value of the property at the date of the sale regardless of the number of payments made by the seller. In this case, the fair market value of the property must have been the annual principal payment times the expected term of the SCIN, or $200,000 ($20,000 x 10).

During the year, Johnson created a trust for the benefit of his five children. The terms of the trust declare that his children can only access the trust's assets after the trust has been in existence for 15 years and the trust does not include a Crummey provision. If Johnson transfers $85,000 to the trust during the year, what is his total taxable gifts for the year? A) $0. B) $10,000. C) $60,000. D) $85,000.

D) $85,000. Rationale Because the trust does not include a Crummey provision, the transfer to the trust is a gift of a future interest not available to be offset by the annual exclusion. As such, the entire transfer to the trust for the year is subject to gift tax.

All of the following are characteristics of revocable trust except: A) The grantor can take the property back from the trust. B) The income of the trust is always payable to the grantor. C) At the grantor's date of death, the fair market value of the trust's assets are included in his federal gross estate. D) At the grantor's date of death, the fair market value of the trust's assets are included in his probate estate.

D) At the grantor's date of death, the fair market value of the trust's assets are included in his probate estate. Rationale At the grantor's date of death, the fair market value of the revocable trust's assets are not included in the grantor's probate estate. Property within a revocable trust transfers per the trust document. All of the other statements are characteristics of revocable trusts.

A donor with reservations about a child's financial and emotional sophistication at the time they receive an outright distribution of all property from a 2503(c) trust at age 21 can do which of the following? A) Delay the distribution by up to 10 years. B) Dictate that the distribution be split into 5 equal parts spread over 5 years. C) Make a decision at the time the minor turns 21 on whether to go ahead with the distribution or whether to allow the trust property to revert back to the donor's estate. D) Consider alternatives to the 2503(c) trust because full distribution at age 21 is a required part of the trust.

D) Consider alternatives to the 2503(c) trust because full distribution at age 21 is a required part of the trust.

Medicare is primarily for those people who meet the following eligibility requirements: A) Disabled. B) Children. C) Low Income. D) Elderly.

D) Elderly. Rationale Medicare is primarily for the elderly, age 65 and above, but it can cover the disabled.

Which of the following statements concerning trusts is false? A) A trust can provide asset protection for a beneficiary. B) A trust can provide the grantor with a yearly payment. C) Property held within a trust will avoid probate. D) Income within a trust is not taxed until the beneficiary receives a distribution.

D) Income within a trust is not taxed until the beneficiary receives a distribution. Rationale Answer d is a false statement. A trust will be subject to income tax on any income that is not distributed during the year. The income that is distributed is taxed to the beneficiary. All of the other statements are true statements.

The executor elects to use the alternate valuation date. Which of the following statements is incorrect? A) This election is irrevocable B) This election applies to all property included in the estate C) The executor makes this election to decrease the value of the gross estate D) The executor makes this election in order to obtain a higher stepped-up basis for income tax purposes

D) The executor makes this election in order to obtain a higher stepped-up basis for income tax purposes

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? A. $5.354 million B. $7.476 million C. $9.626 million D. $10.4804 million

D. $10.4804 million

Payment to her grandmother of 20000 to help her with her medical bills

Deborah provides the following list to her CPA who is preparing her gift tax return. Which of the following will Deborah's CPA include as a taxable gift on Deborah's gift tax return?

Donald should give his nephews the right to remove some or all of the annual contribution from the trust for a limited period of time.

Donald has created a trust for the benefit of his three nephews, Huey, Dewey, and Louie, who are all minors. Donald plans on making annual contributions to the trust. Donald would like his annual contributions to the trust to qualify for the annual exclusion. What would be the best way to accomplish this goal?

23. How does a basis work when you gift when you die? What happens when you have dual a basis? - Ch 6

Double Basis or Bifurcated Basis Rule- when the fair market value of the property at the date of the gift is less than the donor's adjusted basis.in this case, the donee will have one basis for gains and one for losses.

April 15th

Due date for filing a gift tax return

6500

During the year, Sean made the following gifts to his daughter: 1. An interest-free loan of 6000 to purchase an SUV. The applicable federal rate was 6%. The loan has been outstanding for two years. 2. A corporate bond with an adjusted basis of 14000 and a fair market value of 16000 3. A portfolio of stock with an adjusted basis of 10000 and a fair market value of 25000 Sean's wife agrees to elect gift splitting for the year, but she did not make any gifts of her own. What is the amount of total taxable gifts made by Sean during the year?

All of the following statements concerning the inclusion of property held in joint tenancy with right of survivorship in the estate of the first tenant to die are correct EXCEPT

Even if the decedent's estate can prove that the descendent did not contribute to the purchase of the joint tenancy with persons other than spouse alone, the decedent's fractional share of the property is included in the decedent's estate

Overqualification means that the decedent used too much of their applicable estate tax credit.

False

Private operating foundations usually receive their support from the general public.

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

At the end of the trust term, the ownership of a residence held by a QPRT automatically reverts back to the grantor.

False, move out or pay rent.

Property disclaimed by a surviving spouse will still qualify for the unlimited marital deduction. True False

False. If the surviving spouse properly disclaims certain property, that property will not qualify for the unlimited marital deduction.

False. In order to qualify for the unlimited marital deduction, the survivorship clause may not exceed six months and the surviving spouse must actually survive the survivorship period.

Overqualification means that the decedent used too much of his applicable estate tax credit. True False

False. Overqualification occurs when too many assets pass to the surviving spouse and the decedent fails to take advantage of his applicable estate tax credit.

The valuation of property included in the decedent's gross estate is either the FMV at the date of death or, if properly elected, the value at the alternate valuation date (9 months from date of death)

False; 6 months from date of death

Tax basis for SCIN?

Full purchase price

A rolling GRAT is actually a series of:

GRATs with short terms

Annuities in different trusts?

GRUT: Fixed percentage annuity QPRT: Right to live in house TPPT: Right to use property

Which of the following is not a deduction from the gross estate?

Gift tax deduction.

Give the following information for your client, what is the amount of gift tax payable for 2011?

Gift tax on all prior taxable gifts=$25,000 Gift tax on all taxable gifts regardless of when made=$100,000 Gift tax credit=$1,730,800 Current annual exclusion=$13,000 →$0

Which of the following statements about gift tax annual exclusion is incorrect?

Gifts to Section 2503(c) trusts for minors are ineligible for the gift tax annual exclusion because they are future interest gifts.

A QTIP trust must:

Give the surviving spouse the right to require only income producing assets be in the trust.

Grandmother Jones contributed $2500000 to a revocable trust. She has a life expectancy of 24 years and she will receive an 8% per year annuity from the trust. At her death, the corpus will be paid to her granddaughter, Lisa. What is Grandmother Jone's taxable gift?

Property in a GRAT goes where when?

Grantor retains annuity for term, then moves to beneficiaries based on trust terms

Which of the following assets would pass through probate? A life insurance policy with a named beneficiary. Assets held in trust. A pay-on-death account with a named beneficiary. Household goods.

Household goods All of the other options describe assets that do not pass through probate.

Which of the following assets will pass through probate?

Household goods left to family members via a side letter.

If a trust that is required to pay out, "all the income" to the beneficiaries received $5,000 in capital gains from the sale of assets and $3,000 from dividends on the stock it held, which of the following statements concerning this income is (are) correct? I. $3,000 (the amount of the dividends) would be distributed and taxed to the beneficiaries. II. $5,000 would be retained in the trust and not taxed until it is eventually distributed to the beneficiaries

I only

If the redemption of stock to pay death taxes qualifies for Sec. 303 treatment, which of the following statements is (are) correct? I. If the stock was held as a capital asset in the hands of the decedent at the treatment, rather than being treated as a divided. II. If the value of the stock increased prior to the decedent's death, the estate realizes a taxable gain from the redemption

I only

Suppose Jessie places income-producing property in a trust with the income to be paid annually to her father for lie and at her father's death, the remainder payable to her daughter. The annual exclusion would be allowed for which of these gifts? I. The gift of the trust income to be paid annually to her father for life II. The gift of the remainder interest to her daughter.

I only

Which of the following statements concerning an estate freeze as an effective estate planning technique is (are) correct? I. With an estate freeze, the appreciation in property subject to the freeze accrues to someone other than the original owner. II. With an estate freeze, the owner transfers all interests in the property during his or her lifetime

I only

Which of the following statements concerning the inclusion of the value of property in a decedent's gross estate for federal estate tax purpose is (are) correct? I. A descendent spouse's gross estate includes only the decedent's half interest in community property even if the community property is titled solely in the decedent's name. II. In a common-law state, the descendent spouse's gross estate would include the value of the entire property, regardless of how the martial property was titled

I only

64. Which of the following statements concerning the tax treatment of a grantor-retained annuity trust (GRAT) and a grantor-retained unitrust (GRUT) is (are) correct? I. The gift of the remainder interest in a GRAT or a GRUT qualifies for the annual exclusion. II. If the grantor survives the retained interest term in a qualified GRAT or GRUT, the corpus, including any post transfer appreciation, is excluded from the grantor's gross estate.

II only

If a closely held business interest is more than 35% of the decedent's adjusted gross estate, which of the following statements concerning the deferral of payment of estate tax attributable to that business interest under Sec. 6166 is (are) correct? I. Payments of tax attributable to the business interest may be deferred for up to approximately 15 years from the due date and then be paid in installments II. If a payment is late (more than 6 months overdue), all remaining unpaid estate tax becomes due and payable immediately upon notice and demand of the Internal Revenue Service

II only

Which of the following gratuitous transfers is (are) excluded from taxable gifts? I. $20,000 given to the donor's son to pay his college tuition for the year II. $25,000 paid to a hospital for treatment of the donor's adult son

II only

Which of the following statements concerning the activities of a fiduciary/ trustee is (are) correct? I. A trustee may sell trust property to himself or herself as an individual as long as the property is acquired at fair market value. II. A trustee should not personally sell his or her property to the trust if there is any appearance of self-dealing or personal profit to be gained by the trustee through the transaction

II only

Which of the following statements concerning the inclusion of property or property interests in a decedent's gross estate is (are) correct? I. If a shareholder dies after a dividend is declared but before the record date, the value of the dividend is included in the decedent's gross estate. II. The gross estate includes any amount to which the decedent was entitled before he or she died

II only

Which of the following statements concerning the valuation of stock of a closely held corporation for federal estate tax purposes is (are) correct? I. Revenue regulations establish a fixed formula of valuation that must be used in all closely held corporation situations. II. When assets are valued at cost on the corporations books, adjustments are necessary to reflect the difference between true market value and cost when determining the value of the closely held corporation's stock

II only

beneficiary dies subsequently & before 9/30

IRA goes to deceased beneficiary's estate

Frank purchased property for $20,000 in 1996 that appreciated in value to $120,000 2 years ago. Which of the following statements concerning the taxation of the property is correct?

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

If Tom, Jerry, and Janet, three close friends, hold property in joint tenancy with right of survivorship and Tom dies first when the property is worth $300,000, which of the following statements concerning the amount included in Tom's gross estate is correct?

If Toms estate can prove that Jerry and Janet paid the entire purchase price of the property because Tom was out of work at the time, no amount of the joint tenancy would be included in Tom's estate at the time of his death

All of the following statements concerning the selection of a trustee are correct EXCEPT

If a beneficiary is also named as trustee, there is the opportunity to have greater flexibility in a trust as well as the most favorable tax consequences

The decedent's estate tax return

If an estate pays the funeral expenses of the decedent, on which tax return are these expenses deducted?

All the following statements concerning estate planning involving nontraditional living arrangements are correct EXCEPT

If nonmaritial partner dies without a will and without children, the surviving partner will receive a portion of the decedents estate under the state intestacy statues

Which of the following is not an advantage of the marital deduction?

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.

All the following statements concerning the valuation of life insurance gifts are correct EXCEPT

If the policy is in the premium-paying state at the time it is transferred, the value of the gift is the sum of the premiums paid to the date of transfer

Which of the following statements concerning intestate succession is correct? →

If there is no surviving spouse, surviving children may inherit the decedents entire estate

2000000

In 2008, Mary 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 Mary had not made any other taxable gifts during her lifetime, she did not owe any gift tax. Mary died in 2010, 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 Mary's gross estate at her death?

Mike has made a taxable gift to Dan of $42,000.

In 2016, Mike transferred property with a fair market value of $56,000 to his brother, Dan. Mike's adjusted basis in the property was $23,000. Of the following statements related to this transfer, which is correct?

A check from ABC corporation for dividends in the amount of 15000 declared September 23rd

The generation-skipping transfer tax is imposed:

In addition to gift and estate taxes.

In the current year, Jerry loaned his daughter, charisse, 15000 to purchase a new car. The loan was payable on demand, but there was no stated interest rate. The applicable federal rate for the current year was 10% and Charisse had $900 of net investment income for the year. For gift tax purposes with regards to this loan, how much has Jerry gifted Charisse during the current year?

In trusts, with access to only trust income for him, and on his death, trust capital would be distributed to her children.

A donor who serves as trustee of a Section 2503(c) trust risks having the principal of the trust:

Included in his or her own gross estate

To qualify for the charitable income tax deduction, a gift cannot be made to a(n):

Individual.

Jack gave 40000 to each of his three grandchildren two years ago. No gift tax was dues on the gifts

Jack has been working with an estate planner for several years prior to his death. Accordingly, Jack made many transfers during his life in an attempt to reduce his potential estate tax burden, and Jack's executor, Tom, is thoroughly confused. Tom comes to you for clarification of which assets to include in Jack's gross estate. Which of the following transactions will not be included in Jack's gross estate? 1. Jack gave 40000 to each of his three grandchildren two years ago. No gift tax was dues on the gifts 2. Jack purchased a life insurance policy on his life with a face value of 300000. Jack transferred the policy to his son two years ago. 3. Jack and his wife owned their own personal residence valued at 250000 as tenants by the entirety 4. After inheriting a mountain vacation home from his mother, jack gifted the vacation home to his daughter to remove it from his gross estate. Jack continued to use the property as a weekend getaway and continued all maintenance on the property.

In which of the following situations would property be included in Jane's gross estate?

Jane created an irrevocable trust providing income to her son for life with the remainder going to his children upon his death; but she retained the right to change the trust beneficiaries with the consent of her husband

Executors Fee

Johnny died eight months ago and his executor is finalizing his estate tax return. The executor has determined that Johnny"s gross estate includes 400000 of real estate, 750000 of cash and cash equivalents, and 300000 of qualified retirement plans. The total gross estate is 1450000. As the executor reviews the deductions, which of the following will he deduct from the total gross estate to arrive at the adjusted gross estate on his Form 706?

2141800

Jude begun some estate planning. What is the maximum amount of estate tax Jude can avoid by using the applicable estate tax credit during 2017?

Which of the following transfers would result in a taxable gift?

Kevin transfers $20,000 to his ex-wife, Cindy, to help support their kids. They were divorced five years ago.

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. What discount would be applicable to Fred's stock?

Key Person Discount

Which of the following documents empowers an administrator to act as the agent of a probate court?

Letters of Administration.

All of the following statements concerning fiduciary responsibilities are correct EXCEPT

Like a personal representative of an estate and a guardian, a trustee is required to make an accounting to the court

33,000

Marys taxable gifts for the current year?

All of the following statements concerning state death taxations are correct EXCEPT

Most states limit state death taxes to varying percentages of a decedent's federal gross estate

Daigne and Ohle have been in a long-term, non-married, non-traditional relationship. Daigne wants to make sure that if he dies first, Ohle will be provided for. Which of the following would you be likely to recommend to fulfill Daigne's goal of transferring assets to Ohle at Daigne's death?

Name Ohle as the beneficiary of Daigne's retirement plan.

Ken puts 10,000 shares of Wells Fargo stock selling at $47 per share into a revocable trust for his children and grandchildren. At the time Ken finally relinquished control over the trust, the stock was selling at $75 per share. Which of the following statements concerning the gift tax implications is (are) correct? I. The gift is complete at the time the stock is transferred to the trust II. The gift tax payable by Ken will be substantially reduced because he set up and funded the trust when the stock was selling for $47 per share, rather than waiting until the time it was selling for $75 per share

Neither I or II

Which of the following statements concerning a 5 and 5 power is (are) correct? I. With a 5 and 5 power, the donee's power is limited to a noncumulative right to withdraw the smaller of $5,000 or 5 percent of the aggregate value of the property each year. II. If the done with a 5 and 5 power repeatedly fails to exercise the power by not withdrawing the permitted amount annually, no property will be included in the donee's gross estate at death

Neither I or II

Which of the following statements concerning advance medical directives is (are) correct? I. In most states, a living will may provide direction in nonterminal, as well as terminal, medical situations. II. Medical durable powers of attorney are limited to decisions concerning artificial-life-support issues

Neither I or II

A payment to decedent's friend for 10000 to satisfy bequest

Of the following expenditures from an estate, which is not a deduction from the gross estate or adjusted gross estate to arrive at the taxable estate?

All of the following statements concerning situations in which certain items can be deducted either on the federal estate tax return or on income tax return are correct EXCEPT

Once a decision has been reached as to whether it is more advantageous to take the allowable deduction on the estate tax return or the estate's income tax return, all of the deductible items must be deducted from that one return

Which one of the following statements concerning Joint Tenancy with right of survivorship is correct?

Ownership Interest must be equal

If a trust receives assets passing under the will from life insurance proceeds, the trust is called a/an:

Pourover trust

Which of the following activities would be considered the unauthorized practice of law for a financial planner who is not a licensed attorney?

Preparing a will for a client.

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?

Real Property: $750,000. Other Property: $75,000.

In which of the following situations has a transfer been completed for gift tax purposes?

Sally calls her stockbroker and tells the broker to purchase 100 shares of Enron and title them jointly to her and her husband with rights of survivorship

Karen, age 58, recently visited her attorney to discuss the appropriate estate planning documents she needed to effectuate her estate planning goals. Given the following goals, which document is appropriate to clarify Karen's burial wishes? Do Not Resuscitate order. Last Will and Testament. Living Will Power of Appointment Power of Attourney for Health Care Power of Attorney Side Instructional Letter

Side Instructional Letter The side instructional letter is the appropriate place to identify Karen's burial wishes.

The alternate valuation date is exactly ____ month(s) following the date of death?

Six

The practice of gift splitting is available only as between:

Spouses

A tenancy by the entirety is a property titling regime that exists between?

Spouses only

Which of the following is not a method for transferring property outside of the probate process? State Contract Law State Intestacy Law State property titling law with survivorship feature State Trust Law

State Intestacy Law Property transferred via the state intestacy law will pass through probate.

The estate of a person who dies without a will is distributed according to:

State Law

In which of the following situations would the retained interest be valued at zero for purposed of valuing the gift of the remainder interest?

Stock is transferred to a grantor-retained income trust (GRIT)

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. What would you recommend to Alton?

TPPT

Which of the following types of transfers are subject to GSTT?

Terminations of trusts with skipped and non skipped persons leaving only skipped persons and Distributions to skipped persons.

Which of the following statements concerning the federal estate tax is correct?

The Estate subject to tax includes not only property actually owned by the estate owner at the time of death but also property deemed to have been owned at the date of death

For the year 2019, $11,400,000 is the:

The GSTT aggregate lifetime exemption.

If Kevin transfers a valuable piece of property that he owns to his grandson Paul, which of the following statements concerning the possible application of the generation skipping transfer tax (GSTT) is correct?

The GSTT would apply only if the transfer avoids estate or gift tax one generation below Kevin

Ch 8: All the following statements concerning a will are correct EXCEPT A) its irrevocable once executed B) it is a legal instrument C) it provides for the disposition of property at death D) it takes effect after death

The answer is A. A will may be revoked or amended anytime prior to death

All the following arrangements can be used to proved an income interest to a noncharitable beneficiary for life with the remainder going to a charitable organization and qualifying for the charitable deduction EXCEPT

The decedent's property is placed in a charitable lead trust

Which of the following statements concerning a general power of appointment is correct?

The gross estate includes the value of all property subject to a general power of appointment possessed by a descendent at the time of death

Life insurance can give rise to a taxable gift in all of the following circumstances EXCEPT

The insured purchases a policy on his or her life and names his or her daughter as the revocable beneficiary

Which of the following statements concerning the "kiddie tax" rules is correct?

The kiddie tax problem can be minimized by investing trust property in assets in which income will be deferred until the beneficiary reaches age 19 (or 24 if a full time student)

Which of the following adjustments is made in the amount of the adjusted gross state to calculate the taxable estate for federal estate tax purposes?

The marital and charitable deductions are subtracted from the adjusted gross estate

Which of the following statements concerning the income taxation of estates and their beneficiaries is correct?

The only beneficiaries who do not pay income tax on distributions of income from estates are those who receive specific bequests under the will that are to be paid in three installments or less

Which of the following powers given to anyone would cause the power to be deemed a general power of appointment?

The power to use your money to pay the power holder's creditors.

At the time of her death, Kathy owned an annuity with payments that will continue after her death to her beneficiary. What amount of the annuity, if any, will be included in Kathy's gross estate?

The present value any future payments.

In a year when the annual exclusion for gift taxes is $13,000, which of the following statements concerning the gift tax marital deduction is correct?

The recipient of the gift must be the donor's spouse at the time the gift is made and he or she must be a US citizen

Which statement about the gift tax marital deduction is incorrect?

The regular annual exclusion available to all donees is available for gifts to non-citizen spouses.

Which of the following statements concerning a charitable remainder annuity trust (CRAT) is correct?

The remainder interest will be paid to or held for the benefit of a qualified charitable organization either at the death of the last income beneficiary or after a term of years not greater than 20

Which of the following incidents of ownership, held during the three year period before death, will cause inclusion of life insurance proceeds in the gross estate?

The right to change the beneficiary.

Which of the following statements concerning the use of Crummy powers with an irrevocable life insurance trust is correct?

The right to exercise the crummy powers must exist for a reasonable period of time each year

All the following statements concerning qualifying terminable interest property (QTIP) are correct EXCEPT

The rules of QTIP permit the surviving spouse to be given the right to direct that the property will go to the surviving spouse's children during the surviving spouses lifetime

Sam owns 500 acres of farmland. All the following are requirements for the farmland to qualify for and retain special-use (current use) valuation upon Sam's death EXCEPT

The special use tax savings will not be recaptured as long as the qualified heir does not dispose of the property for at least 2 years following Sam's death

All or part of the income from a trust will be taxed to the grantor in all the following situations EXCEPT

The trustee holds the power to withhold income temporarily from a current income beneficiary

492000

Timothy made the following transfers to his only daughter during the year: A bond portfolio with an adjusted basis of 130000 and a fair market value of 140000 2000 shares of RCM Corporation stock with an adjusted basis of 1260000 and fair market value of 3443000 An automobile with an adjusted basis of 15000 and fair market value of 9000 An interest free loan of 2000 for personal computer on January 1st. The applicable federal rate for the tax year was 8% What is the value of Timothy's gross gifts for this year?

Support

To avoid inclusion in a power's holder gross estate, a power should limit the appointment of property to the power holder for the sole purpose of

Which of the following is the primary reason to use a power of appointment?

To delegate a dispositive decision

19. What are examples of qualified transfers that would circumvent gifting laws

Transfers to political orgs qualified transfers (educational funds- tuition, books, laptops, etc, payments made directly to medical institutes for care) payments for legal support payments between divorce spouses, transfers within a business setting are types of gifts are not subject to gift taxes.

A SCIN can give the seller a collateral interest in the property sold.

True

If an individual sells property to a charity for less than the full FMV of the property, the transaction is split into two parts: a sale element and a charitable contribution element.

True

One advantage of the unlimited marital deduction is that the payment of estate taxes can be deferred until the death of the surviving spouse.

True

One of the advantages of an FLP is that restrictions can be placed on the transferability of the limited partnership interests owned by junior family members.

True

The gross estate includes property that avoids probate, such as life insurance proceeds payable to a named beneficiary. T or F?

True

The value of property over which the decedent held a GPOA will be included in the decedent's gross estate, regardless of whether the decedent exercised the power.

True

Transfers to irrevocable trusts are treated as completed gifts and are subject to gift tax.

True

The marital deduction is:

Unlimited.

a. What are the community property states- its a swing without oregon

Washington, California, Idaho, arizona, new mexico, texas, louisiana, and michigan

The marital deduction is unlimited

When a US citizen dies and bequeaths property to his US citizen spouse, the marital deduction is limited to the following amount:

Which of the following statements concerning corporate buy-sell agreements is correct?

With a cross-purchase agreement, the sale of stock by a decedent shareholder's estate is treated as a sale or exchange, allowing the estate favorable capital gain treatment

Do insurance policy proceeds apply to either the income tax or estate tax treatment of a life insurance?

Yes - benefits received under a periodic settlement option are partially subject to income tax.

private nonoperating foundation

a charitable organization (private foundation) that does NOT spend at least 85% of its adjusted net income (or minimum investment return, if less) on activities engaged in for the active conduct of the exempt purpose

private operating foundation

a charitable organization (private foundation) that spends at least 85% of its adjusted net income (or minimum investment return, if less) on activities engaged in for the active conduct of the exempt purpose

medicare

a federal program that pays for healthcare for persons over age 65 and for people under age 65 with diabilities

6. Who can prepare a will

a lawyer or licensed attorney

uniform statutory rule against perpetuities

a legislatively created alternative to the Common Law RAP that typically sets the perpetuities period at 90 years

heir at law

a person who would have the right to inherit from a decedent who died intestate

issue

a person's offspring or progeny

estate

a quantity of wealth or property

blind trust

a revocable trust agreement whereby an individual transfers property to the trust for management purposes when self-management of the assets might be deemed to be a conflict of interest

prudent man rule

a rule which requires a trustee, as a fiduciary, to act in the same manner that a prudent person would act if the prudent person were acting for his own benefit

trust

a structure that vests legal title (the legal interest) to assets in one party, the trustee, who manages those assets for the benefit of the beneficiaries (who hold the equitable title) of the trust

distributable net income (DNI)

a tax concept that allocates taxable income between the trust and beneficiaries to ensure the trust income is subject to only one level of tax

variable annuities

a tax-advantaged retirement product for those wanting to avoid some limitations of IRA accounts

complete transfer

a transfer that is no longer rescindable or amendable

charitable remainder unitrust (CRUT)

a trust that provides a payment to the donor (usually for life) equal to a fixed percentage of the trust assets as valued annually; the remainder interest of the trust passes to a named charitable organization

pourover trust

a trust that receives assets that "pour" into it from another source, generally the grantor's estate at the grantor's death

simple trust

a trust that requires all of the trust income to be distributed on an annual basis to the beneficiaries and does not have a charitable organization as one of its beneficiaries

self-settled trust

a trust where the beneficiary is also the grantor of the trust

partially intestate

a valid will, but the will does not dispose of all assets

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

a. Key Person Discount 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.

Estate planning is the process of accumulation, management, conservation, and transfer of wealth considering legal, tax, and personal objectives. a. True b. False

a. True This is the definition of estate planning.

11. What are the common ways for money to get to the rightful person besides TOD avoiding probate

a. Wills b. Trusts c. Gifts d. Donations

qualified annuities

an annuity used in connection with a retirement account or plan that is entitled to special income tax treatment

self-cancelling installment note (SCIN)

an installment sale that terminates at the earlier of the (1) death of the seller or (2) the term set forth in the installment note

transfer/assignment of property

any type of passing of property

who can review a will

anyone not licensed should NOT be giving legal advice because it is out of their jurisdiction.

property

anything an owner may lawfully exercise the right to use, control, or dispose

insurer's general account

assets that support "guaranteed products"

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.

b) A complete interest in property with all the rights associated with outright ownership.

Paula, a single woman, transferred $2,000,000 to a GRAT naming her two sons as the remainder beneficiaries, while retaining an annuity with a present value of $860,000. If this is the only transfer that Paula made during the year, what is Paula's total taxable gift for the year? a. $1,112,000 b. $1,140,000 c. $1,972,000 d. $2,000,000

b. $1,140,000 The present value of the expected future remainder interest is a gift of a future interest subject to gift tax. The value of the expected future remainder interest is $1,140,000 ($2,000,000 - $860,000). Because this is a gift of a future interest, it does not qualify for the annual exclusion.

b. $90,000 The failure-to-file penalty of $90,000 (5% x $600,000 x 3 months) is reduced by the failure-to-pay penalty of $9,000 (0.5% x $600,000 x 3 months), creating an adjusted failure-to-file penalty of $81,000. Adding the failure-to-pay penalty of $9,000 to the adjusted failure-to-file penalty creates a total penalty of $90,000. Option d is incorrect because the question asks only for penalties. $690,000 is penalties plus tax.

Which of the following statements about split-dollar life insurance and its uses is incorrect? a. Stock redemption plans can be funded by split-dollar life insurance. b. All policy values and benefits of a split-dollar life insurance policy are subject to the claims of company general creditors. c. The insurance premium of a split-dollar life insurance contract is generally divided between the employee and the employer. d. The insurance death benefit of a split-dollar life insurance policy is generally divided between the employee and the employer.

b. All policy values and benefits of a split-dollar life insurance policy are subject to the claims of company general creditors. Only the portion of benefit in the policy that is attributable to the actual contributions of the company are subject to the claims of company creditors.

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. a. 1 and 2 b. 2 and 4 c. 1, 2 and 4 d. 1, 2, 3, and 4

Of the following statements, which is false? a. The availability of the unlimited marital deduction merely postpones the potential estate tax due. b. Property that is not included in the decedent's gross estate cannot qualify for the unlimited marital deduction. c. 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. d. An individual can use the unlimited marital deduction during life to fund the surviving spouse's applicable estate tax credit. The best property to transfer in this method is the property that is expected to appreciate in value after the transfer to the surviving spouse.

c. Option c is a false statement. If the death benefit of a life insurance policy is included in a decedent's gross estate, and the surviving spouse is the listed beneficiary and receives the proceeds, the value of the death benefit will be eligible for the unlimited marital deduction. All of the other options are true statements.

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 return was filed, became a U.S. citizen. d. An income beneficiary of a CRUT who is a nonresident alien spouse.

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 return was filed, became a U.S. citizen. 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.

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.

c. Nellie gave Jessie the power to use Nellie's money to pay Jessie's creditors. 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.

property interest

can be legal interest, beneficial interest, or both

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? a. $5.354 million b. $7.476 million c. $9.626 million d. $10.4804 million

d. $10.4804 million Total guess??? Not sure why this is though! Oooops

During the year, Edward created a trust for the benefit of his five children. The terms of the trust declare that his children can only access the trust's assets after the trust has been in existence for 20 years and the trust does not include a Crummey provision. If Edward transfers $100,000 to the trust during the year, what is his total taxable gift for the year? a. $0 b. $30,000 c. $60,000 d. $100,000

d. $100,000 Because the trust does not include a Crummey provision, the transfer to the trust is a gift of a future interest and is not qualified to be offset by the annual exclusion. Therefore, the entire transfer to the trust is subject to gift tax.

testate

decedent has left a valid will behind

beneficial interest

economic benefit but not title

net estate

estate reduce by the amount of liabilities

Contingent Beneficiary

individual(s) who will receive the IRA when the account owner dies and the primary beneficiary disclaims or has died before the account owner

guaranteed life benefits

insurers offer secondary guarantees that offer some degree of protection of principal while still affording access to market-based returns

probate

legal process of administering the estate of the decedent with court supervision

fixed distribution

level periodic payments determined by a fixed interest rate applied to a benefit base

trustee-to-trustee transfer

money from one qualified plan is rolled to another plan or account by way of custodian to custodian (money is never participant's hands)

totten trust

not a trust, but rather a bank account with a beneficiary clause

All of the following types of wills are written EXCEPT

nuncupative wills

heir

one who inherits property

descendant

one who is descended or the issue of a specific ancestor

devisee

one who receives real property as a beneficiary of a will or a gift

variable annuity contract riders

optional contract provisions that owners can choose when they enter the annuity contract

dower

originally the right of the wife to receive a life estate between 1/3 and 1/2 of the land owned by the husband at the husband's death if one or more child was born

alternate or contingent beneficiary

party to whom a death benefit is to be paid if the beneficiary precedes the insured in death

beneficiary

party to whom death benefit is to be paid

life annuity

periodic payment are made unit death of the annuitant

term certain annuity

periodic payments are made for a fixed number of years

policy owner

person who has "title" to the policy

Fair Market Value

price at which property would change hands between a willing buyer and a willing seller

QTIP property (2044)

property for which a QTIP election was made in the gross estate of the first-to-die spouse

bargain sale

property is sold for less than the economic value

personalty

property that is not real estate

tangible property

property that is not realty and may be touched

capital gain property

property that, when sold, results in either capital gain or Section 1231 gain

applicable federal rate (AFR)

rates published monthly by the IRS for federal income tax purposes, in accordance with section 1274(d) of the Internal Revenue Code; interest rates on loans should not be less than the AFR for the loan to be considered a taxable event and not a gift by the IRS

Donee

receiving the gift

legal interest

refers to "legal title" of property

annuities (2039)

straight life annuity- not included in gross estate survivorship annuity- included at fair market value of remainder interest

portability

the ability of the executor of an estate to timely file Form 706 to transfer the decedent's unused credit exclusion to the surviving spouse

private annuity

the annuitant sells an asset to a buyer in exchange for an unsecured promise from the buyer to make fixed annual payments to the annuitant for the remainder of the annuitant's life

beneficiary vs will

the beneficiary designation takes precedent over the will

defined benefit plan

the benefit received in retirement is a fixed amount

defined contribution plan

the contribution the employer makes is a fixed amount

date of declaration

the date a board of directors approves and declared a dividend to be paid to its shareholders

date of record

the date that a dividend paying company determines the owners of its stock who are entitled to a dividend (regardless of whether or not the individual owns the stock as of the payment date)

x dividend date

the date the market price of a stock adjusts for a declared dividend (i.e., the market price of the stock is reduced approximately by the amount of the dividend

sale

the direct transfer of property to another fo a note, money, or property of equal fair market value

abatement

the elimination or reduction of bequests by law so that all debt and administrative expenses can be paid in full

tentative tax

the estate tax calculated on the tentative tax basis

remainder beneficiary

the individual or entity entitled to receive the assets that remain in a trust at the date of the trust's termination

trustee

the individual or entity responsible for managing the trust assets and carrying out the directions of the grantor that are formally expressed in the trust instrument

primary beneficiary

the individual who gets the IRA when the account owner dies

annuitant

the natural person on whose life any "life annuities" are based

income beneficiary

the person or entity who has the current right to income from a trust, or the right to use the trust assets

grantor

the person who creates and initially funds a trust; also known as the settlor or creator

beneficiary

the person(s) entitled to receive the death benefit of a life insurance policy at the insured's death; also, the person(s) who hold(s) the beneficial title to a trust's assets

power of appointment

the power to name who will enjoy or own property

17. Abatement

the reduction in assets transferring to a legatee because the estate has insufficient assets to satisfy all of the legatee

sprinkling provision

the trustee's right to make distributions to the trust beneficiaries at his discretion

inter vivos transfer

transfer made during life

sale

transfer of property where each party considers the exchange in equivalent value

All the following are methods to void probate EXCEPT

using a self-proving will to transfer property owned by the decedent

Cash value

values accumulated in a deferred annuity during its accumulation period. Based on premiums paid and earnings credited to those premiums

variable subaccounts

various investment alternatives available to the annuity contract owner

residue of the estate

what remains of an estate after all foregoing instructions in the will have been carried out

ademption

when a specific bequest is not honored

All of the following statements concerning property held by tenancy in common are correct EXCEPT

when a tenant dies, his or her interest passes to the surviving tenant (s).

will

written document that expresses a person's desired disposition of his/hers probate property at death

net income with makeup charitable remainder trust (NIMCRUT)

a CRUT that requires that a fixed percentage (minimum of 5%) of the annual value of trust assets be credited to the income beneficiary, or if less, the net income of the trust for that year, with any deficiencies to be made up in later years when trust income exceeds the required set percentage amounts for such years

legatee

a beneficiary who receives property other than real estate

private foundation

a charitable organization that receives its support from a single individual or family

spendthrift clause

a clause in a trust document which does not allow the beneficiary to anticipate distributions from the trust, assign, pledge, hypothecate, or otherwise promise to give distributions from the trust to anyone; if such a promise is made, it is void and may not be enforced against the trust

rule against perpetuities (RAP)

a common law rule which requires that all interests in a trust must vest, if at all, within lives being plus 21 years

life insurance

a contract with an insurer that agrees to pay a lump sum death benefit in exchange for the payment of premiums

intestate

a decedent who dies without leaving a valid will

residuary bequest

a general bequest for the balance of the estate that the will or other documents have not previously disposed of

pecuniary bequest

a general bequest specifying a dollar amount

family limited partnership (FLP)

a limited partnership created under state law with the primary purpose of transferring assets to younger generations using minority and marketability discounts to create reduced gift tax valuations

exchange

a mutual transfer of assets with equal fair market values between individuals

fiduciary

a person in a position of trust who has the legal duty to act for the benefit of another person

fiduciary

a person who has a legal duty to act in the best interest of another as a result of holding a position of trust and confidence

blockage discount

a reduction in the fair market value of a large block of publicly-traded stock because the transfer of a large stock is less marketable than other transfers of smaller amounts of stock

lack of marketability discount

a reduction in the fair market value of a transferred asset because the interest is more difficult to sell to the public

minority discount

a reduction in the fair market value of a transferred interest in property because the interest is not a controlling interest

key person discount

a reduction in the fair market value of transferred stock due to an economic reality that the value of the stock will decline is a key person, such as the founder, dies or becomes disabled

installment sale

a sale of property that includes a note from the buyer to the seller; the buyer pays the seller the full valuable consideration over the property over a specified set of terms

qualified personal residence trust (QPRT)

a special form of GRIT in which the grantor transfers his home to this type of trust and receives "use" of the personal residence as the annuity; the remainder interest of the trust passes to a noncharitable beneficiary

tangible personal property trusts (TPPT)

a special form of a GRAT in which the grantor transfers tangible personal property to this trust and receives "use" of the property as the annuity; the remainder interest transfers to a noncharitable beneficiary

special needs trust

a specific type of trust that is used to provide benefits to persons or beneficiaries with special needs

medicaid

a state and federal assistance program that pays for medical care and most long-term care expenses for eligible persons with low incomes and limited assets

arm's-length transaction

a transfer generally between unrelated parties in the form of a sale, an installment sale, or an exchange

testamentary trust

a trust created after the death of the grantor; the grantor's will generally includes all of the trust provisions

irrevocable trust

a trust created by a grantor that cannot be replaced; the grantor cannot take back the property that was transferred to the trust

standby trust

a trust created during the grantor's lifetime that is either unfunded or minimally funded; also known as a contingent trust

bypass trust (credit shelter trust/ B trust)

a trust created to ensure than an individual makes use of his applicable estate tax credit

revocable trust

a trust created where the grantor of the trust retains the right to revoke the trust at any time prior to his incapacity or death

trusteed IRAs

a trust established within the United States that holds IRA assets, which is an alternative to a custodial IRA; it allows for ultimate control over the distribution of the IRA assets by the owner after his or her death and provides creditor protection for the beneficiaries

2503(C) trust

a trust for the benefit of a minor designed to qualify the contribution to the trust for the annual exclusion; this trust must give the minor the right to receive the trust assets when he reaches age 21, but is not required to pay the income to the minor at any time earlier

2503(B) trust

a trust for the benefit of a minor designed to qualify the present value of the income interest of the trust for the annual exclusion; this trust must pay its income annually to the minor, but may hold the trust property for the minor's lifetime

charitable lead trust (CLT)

a trust in which a charitable organization receives the income interest and a noncharitable beneficiary (usually a family member) receives the remainder interst

charitable remainder trust (CRT)

a trust in which a noncharitable beneficiary receives the income interest and a charitable organization receives the remainder interest

see-through trust

a trust is the beneficiary of a custodial IRA; it provides for more control over distribution of IRA assets after the owner's death, as well as providing increased creditor protection for the beneficiaries of the trust

complex trust

a trust that does not meet the definition of a simple trust

QTIP trust

a trust that grants the surviving spouse a lifetime right to income of the trust while transferring the remainder interest to individual(s) of the grantor's choosing, typically created at the death of the first spouse to die

inter vivos trust

a trust that is created during the grantor's lifetime

charitable remainder annuity trusts (CRAT)

a trust that provides a fixed annuity to the donor (usually for life) for an amount that is greater than or equal to 5% of the initial net fair market value of the property contributed to the trust; the remainder interest of the trust passes to a named charitable organization

estate trust

a trust which grants the surviving spouse a testamentary general power of appointment over the trust assets; because of the spouse's general power of appointment over the trust's assets, the fair market value of the trust will be eligible for the unlimited marital deduction at the death of the first-to-die spouse

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. a. Raymond's estate could transfer $10,000,000 to Raymond's wife as a specific bequest, and direct that his estate's executor donate Raymond's entire unused exemption to his wife. b. At Raymond's death, his estate could create an ILIT for the sole benefit of Raymond's children utilizing Raymond's remaining applicable estate tax credit equivalency. These funds could be used to purchase life insurance on Raymond's wife. Any remaining assets should be given the Raymond's wife outright. c. At Raymond's death, his estate should transfer $5,250,000 to an Irrevocable Trust for the sole benefit of Raymond's children. The remaining assets should be given outright to Raymond's wife. d. 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.

d. Only option d would give Raymond's wife access to all of his estate, and utilize his applicable estate tax credit; therefore, option d is the best option. Option a is not the best option because we do not know what the state of the law portability will be at Raymond's wife's death. And, while option a assumes that Raymond's wife's now ten million dollar estate will pass to her beneficiaries with no estate tax, she could lose Raymond's unused exemption amount by remarrying and becoming the surviving spouse of another. Moreover, by giving all of his fortune outright to his wife, it is possible that none will go to his children. Option b may maximize future estate benefits for the Raymond's children after Raymond's wife's death, but does not meet Raymond's desires to allow his wife to access all of the funds. Raymond's wife would not have access to the funds within the ILIT. Option c, like option b, does not meet Raymond's goals because Raymond's wife would not have the right to access the funds within the Irrevocable Trust.

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.

a) A well-drafted will leaving everything to Ross with a no-contest clause. 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.

Trey decides to set up a trust for the benefit of his two sons, Ronnie and Chad. Trey makes an annual contribution to the trust in the amount of $28,000 and gives each son the right to withdraw up to $14,000. In the current year, when the total trust assets are $52,000, Ronnie decides to withdraw $14,000, but Chad does not withdraw anything. What is the result of Chad's decision not to withdraw any of Trey's contribution to the trust? a) Chad has made a taxable gift to Ronnie of $4,500. b) Ronnie has made a taxable gift to Chad of $14,000. c) Trey has made a taxable gift to Ronnie of $14,000. d) All of the above.

a) Chad has made a taxable gift to Ronnie of $4,500. This question addresses the 5/5 Lapse Rule. The 5/5 Lapse Rule states that a taxable gift has been made where a power to withdraw in excess of $5,000 or 5% of the trust assets is lapsed by the powerholder. In this case, Chad has allowed his power to withdraw $14,000 to lapse. As a result, Chad has made a gift to himself of $4,500 ($7,000-($5,000/2)) and a gift to Ronnie of $4,500 ($7,000-($5,000/2)).

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.

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. 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.

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? a. Anne leaves ownership of certain copyrights to Edward. b. Property transferred to a credit shelter trust for the benefit of Catherine, with Edward as the trustee. c. Anne leaves her beach house to Edward, subject to the condition that if Edward does not survive Anne's sister, Anne's sister will get the property. d. The $1,000,000 life insurance policy on Anne's life owned by Edward.

a. Although copyrights are terminable interests, no person other than Edward has any interest in the property, since all rights were given to Edward. Therefore, the transfer of the copyrights to Edward will qualify for the marital deduction. Option b does not qualify for the unlimited marital deduction because even though Edward is trustee, and has legal title to the property inside the trust, he does not have beneficial title to the property. Option c does not qualify for the unlimited marital deduction because the transfer to Edward is a terminable interest. Option d does not qualify for the unlimited marital deduction because the proceeds of a life insurance policy owned by Edward on Anne's life will not be included in Anne's gross estate.

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.

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.

In which of the following situations would the use of a QDOT be appropriate? a. Tom dies and is survived by his wife, Tina, who is not a U.S. citizen. b. Regina dies and is survived by her husband, Raul, who becomes a U.S. citizen two months after Regina's death. c. Harold dies and does not have a surviving spouse but has a significant other. d. Franz, who is not a U.S. citizen, dies and is survived by his wife, Francine, who is a U.S. citizen.

a. Option b does not describe a situation in which the use of a QDOT would be appropriate because Raul became a U.S. citizen prior to the due date of the estate tax return and therefore, any property transfers to Raul would qualify for the unlimited marital deduction. Option c is not correct because there is no reason to use a QDOT if Harold does not have a surviving spouse. Option d is not correct because a QDOT is used when the surviving spouse is not a U.S. citizen.

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).

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 irrevocability.

Of the following, which is not a benefit of the unlimited marital deduction? a. 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. b. The estate tax on property can be deferred until the death of the second-to-die spouse. c. The unlimited marital deduction can fund the applicable estate tax credit of the surviving spouse. d. The unlimited marital deduction can ensure the surviving spouse has sufficient assets to support her lifestyle.

a. Property that transfers to the second-to-die spouse is eligible for the marital deduction and, to the extent that it is not consumed, will be included in the second-to-die spouse's gross estate at the fair market value at his date of death, including any appreciation that may have occurred since the first-to-die spouse's estate. Therefore, future appreciation of an asset is not sheltered by using the unlimited marital deduction.

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.

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).

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 a. $0 b. $114000 c. $1,550,000 d. $1,600,000

a. $0 Because the property is transferred outright to a noncitizen spouse, it does not qualify for the unlimited marital deduction. Therefore, $0 is eligible for the unlimited marital deduction.

Gene contributed $500,000 to an irrevocable trust and did not retain any right to the trust's assets. The income beneficiary of the irrevocable trust was Gene's sister, and the remainder beneficiary of the irrevocable trust was Gene's niece. At the time of the transfer, Gene paid gift tax of $35,000. Gene died four years later, when the value of the irrevocable trust was $1,200,000. With regard to the irrevocable trust, how much is included in Gene's gross estate? a. $0 b. $35,000 c. $500,000 d. $1,200,000

a. $0 Nothing is included in Gene's gross estate. The full fair market value of the trust is excluded from Gene's gross estate because the transfer to the trust was irrevocable and Gene did not retain any right to the trust's assets. Furthermore, because more than three years have passed since the transfer, the gift tax paid will not be included in his gross estate.

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? a. $0 b. $156,000 after the annual exclusions c. $232,000 (40% of $582,000) d. $300,000 (40% of $750,000)

a. $0 They are allowed $5,340,000 (2014) each. They used only $582,000, net of the $28,000 per donee annual exclusion. (125,000 x 6 = 750,000 in gross gifts, less 28,000 x 6 = 168,000 which equals $582,000) They have each allocated $291,000 (1/2 of 582,000) of their $5,340,000 exemption.

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? a. $0 b. $12,500 c. $21,000 d. $25,000

a. $0 Foreign charitable organizations are not qualified charitable organizations and contributions to such organizations do not qualify for a charitable deduction. It is always the responsibility of the donee to determine the deductibility of his contribution.

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. a. $0 b. $21,000 c. $42,000 d. $102,000

a. $0 This was a cash gift, not a gift of life insurance. Therefore, none of the gift will be included in Eric's gross estate as the trust is irrevocable.

Eric died on July 24, 20xx. At the time of his death, he owned 1,000 shares of Jefferson Crab stock. Given the daily trade prices for Jefferson Crab surrounding Eric's date of death, at what value will the Jefferson Crab be included in Eric's gross estate? Thursday, July 15, 20xx $101 - Price Open $107 - High $95 - Low $105 - Close Monday, July 19, 20xx $104 - Price Open $108 - High $100 - Low $103 - Close Tuesday, July 27, 20xx $103 - Price Open $105 - High $101 - Low $104 - Close Wednesday, July 28, 20xx $108 - Price Open $112 - High $108 - Low $109 - Close a. $103,290 b. $103,440 c. $103,500 d. $104,000

a. $103,290 Since the stock is not traded on the date of Eric's death, the value is determined utilizing the artificial valuation formula in the text, the average of the high and low for the 2 relevant dates, Monday and Tuesday. [($104 x 2) + ($103 x 5)]/7 = $103.29 x 1,000 shares = $103,290. Saturday and Sunday are not counted as trading days for purposes of the calculation.

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? a. $145,000 b. $1,000,000 c. $5,250,000 d. Unlimited

a. $145,000 There is a special annual exclusion for noncitizen spouses of $145,000. A spouse can transfer up to $145,000 to his noncitizen spouse without incurring gift taxes.

Mary's husband, Patrick, died two years ago. Patrick's will included the following three testamentary trusts: a trust for the benefit of Mary's children, but giving Mary a general power of appointment over the trust assets for the remainder of her life (GPOA Trust), a bypass trust for the benefit of Mary's children, but giving Mary a power to invade the trust assets for an ascertainable standard for the remainder of her life (Bypass Trust), and a charitable trust for the benefit of Mary's alma mater (Charitable Trust). At Mary's death, which of the trusts assets will be included in her gross estate? 1 - GPOA Trust. 2 - Bypass Trust. 3 - Charitable Trust. a. 1 only b. 1 and 2 c. 2 and 3 d. None

a. 1 only Only the GPOA Trust would be included in Mary's gross estate. Because the withdrawal right of the Bypass trust was limited to an ascertainable standard, its assets are not included in Mary's gross estate. Mary does not have an interest in the assets of the charitable trust so those assets are also not included in her gross estate.

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. 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. b. A transfer by Jennifer of $15,000 to a UTMA account established by her son for Jennifer's granddaughter. c. An irrevocable trust which pays income to Jennifer for 10 years and then pays the remainder to her grandniece who is only 25 years younger than Jennifer. d. An irrevocable trust which pays income to Jennifer's daughter for life, then distributes the remainder to the grandchild of a friend and that grandchild is currently 31 years old.

a. 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. Options b, c, and d all have skip persons as transferees. Only the grandson in a is not a skip person. His parent's death moved him up a generation. The 37½ year rule does not apply to lineal descendants. The 31 year old may or may not receive assets in option d.

Elizabeth has drafted her own will using the "EZ Wills" software that she purchased on the internet. She sends it to you for a review. In your first review of the will, you look for which of the following common provisions? a. A statement of the domicile of the testator. b. A secondary clause. c. A specific bequest of property owned tenancy by the entirety. d. A disclosure clause.

a. A statement of the domicile of the testator. A statement of the domicile of the testator is a provision that is commonly found in a will. Neither a secondary clause nor a disclosure clause exist. Property owned tenancy by the entirety transfers by operation of law and is not disposed of through a will.

Which of the following statements accurately reflects the nature of buy-sell agreements? a. A stock redemption plan must have a corporation as a party to the contractual arrangement. b. A stock redemption plan increases the cost basis of surviving shareholders. c. Under a cross-purchase plan funded with life insurance, premiums paid are tax deductible to the payor. d. Proceeds of a life insurance policy owned by a surviving shareholder must be included in the gross estate of the decedent.

a. A stock redemption plan must have a corporation as a party to the contractual arrangement. The corporation must be a party to the stock redemption plan. A stock redemption plan is a stock purchase by a corporation, so the cost basis of the surviving shareholders are not affected, thus they do not receive a step up in basis. Proceeds of a policy owned by a surviving shareholder are not includible in the decedent's gross estate. Premiums are not tax deductible.

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

a. An Irrevocable Trust 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.

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.

a. An ownership interest in a life insurance policy. 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.

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: a. Elect Portability b. Elect to use the alternative valuation date c. Disclaim $2,000,000 and elect to use the alternative valuation date d. Do Nothing

a. Elect Portability The alternative valuation can only be used if it reduces both the gross estate (yes) and reduces the estate tax due (no, because it was all left to a spouse so no estate tax would be due in either situation). Since the new estate law permits the portability of the estate applicable exclusion between spouses, disclaiming any of the property is not necessary as Mrs. Riley's unused credit can be utilized by John in addition to his own (up to $10,680,000 in 2014).

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.

a. Financial planner, CPA, and attorney. 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.

Eugene is considering having his attorney prepare a springing power of attorney in which his gives his friend, Eleanor, the power to handle his finances. Why should Eugene include such a document in his overall estate plan? a. In the event that Eugene becomes disabled, Eleanor will be able to pay Eugene's bills. b. Eleanor is not legally competent. c. Eleanor is only 16 years old. d. Eugene wants Eleanor to be able to handle all of his finances immediately.

a. In the event that Eugene becomes disabled, Eleanor will be able to pay Eugene's bills. Eugene should not make Eleanor the agent of his springing power of attorney if she is not legally competent or is not of the age of majority. If Eugene wants Eleanor to be able to handle his finances immediately, he should not use a spring power of attorney, which only becomes effective upon the principal's disability or incapacity.

3. Ch 2- the basic types of joint account registrations and who can enter into those accounts

a. Jwros (Joint tenancy with right of survivorship)- in interest in property between one or more unrelated persons- each person holds undivided equal interest in the whole property b. TE (tenancy by the entirety)- like joint tenancy but exclusive to married couples- neither party can sever their interest, it is automatically transferred to spouse in death, and it may involve the ownership interest of either real or personal property c. TIC(Tenancy in Common)- is an interest in a property held by two or more related or unrelated persons. MOST COMMON TYPE BETWEEN NON-SPOUSES- both persons owns an undivided but not necessarily equal interest in the property.

21. What types of transactions- arm's length, private annuities- know who they match with and if they have special interest.

a. Lifetime transfers- between related parties and loved ones- the transfer that escapes the taxes of future appreciation, in the form of sales or other transactions b. Arm's- Length Transactions- transfers to strangers in the form of a sale, an installment sale, or an exchange

Which of the following is not a common estate planning goal? a. Maximizing transfer costs. b. Minimizing transfer taxes. c. Providing for liquidity at death. d. Fulfilling client's healthcare decisions.

a. Maximizing transfer costs. Minimizing transfer costs, not maximizing transfer costs, is a common estate planning goal. All of the other answers are common estate planning goals.

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. d. Referring clients to her brother, Jack, who happens to be a licensed attorney.

a. Preparing a last will and testament for her first client. 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).

a. Roth IRAs. 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.

Which of the following is NOT a requirement for a testamentary charitable bequest to qualify for the unlimited charitable deduction? a. The bequest must be contingent upon some other event occurring. b. The amount of the bequest must be determinable at the decedent's date of death. c. The fair market value of the assets must be included in the decedent's gross estate. d. The bequest must be payable to a qualifying charitable organization.

a. The bequest must be contingent upon some other event occurring. The bequest CANNOT be contingent upon some other event occurring. The bequest must be mandatory. All of the other statements are requirements for a testamentary charitable bequest to qualify for the unlimited charitable deduction.

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? a. 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. b. A cross-purchase should be selected if the surviving partners expect to sell their business interest during their lifetimes. c. An entity approach may solve the affordability problem if one partner is significantly older than the others. d. An entity agreement becomes more desirable as the number of partners included in the agreement increases.

a. 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. Transfer-for-value problems can be created if existing policies are transferred between shareholders of a corporation in a cross-purchase agreement.

1. What are the broad goals of estate planning- effective & efficient transfer of assets?

a. transferring/distributing property b. minimizing taxes c. minimizing transaction costs associated with the transfer d. maximizing transfer of assets to heirs

16. There are advantages and disadvantages of probate- know the main three on each side

a.Advantages Protects the decedent by fulfilling their wishes Protects the legatees and the heirs by orderly legal admin to prevent an heir from taking inappropriate property, clean title to heirs and legatees, and it requires notice such that creditors and heirs have an opp to be heard Protects the creditors- it makes sure that debts are paid for b.Disadvantages Its complex and takes a lot of time (6 to 24 mos) Monetary expenses- court costs 5 to 10% up to 20% and ancillary probate (probate that happens if property is owned in more than one state) Loss of privacy- its all public record after probate

able accounts

accounts for disabled individuals that provide some of the benefits of special needs trusts without the complexities typically associated with those trusts

Separate Accounts

an IRA owner can own several different IRA accounts and can divide any one account into several different accounts with each account having different beneficiaries

alternative valuation date

an alternative date, other than the date of death, to value a decedent's gross estate; either 6 months after the date of death, or if the asset is disposed of within 6 months of the date of death, the asset's disposition date; wasting assets do not qualify

straight single life annuity

an annuity for a term equal to the annuitant's life

deferred annuity

an annuity for which periodic payments begin more than one payment interval in the future

survivorship authority

an annuity that provides payments to one person, and then provides payments to a second person upon the death of the first

immediate annuity

an annuity under which periodic payments begin within one payment interval following the purchase of the annuity

pooled trust

an exception that resulted from the Omnibus Budget and Reconciliation Act of 1993; managed by a nonprofit organization; while each beneficiary will have their own account, the assets will generally be pooled and managed together

insurance products

an insurance company is contractually obligated to make annuity payments

grantor retained income trust (GRIT)

an irrevocable trust in which the grantor retains an income interest in the trust for the term of the trust; thus, the grantor will donate property to the trust and the income from the asset will be distributed to the grantor during the term of the trust; at the end of the trust term, the remaining property is distributed to the beneficiary (remainderman)

grantor retained unitrust (GRUT)

an irrevocable trust that annually pays a fixed percentage of the value of its assets (as revalued on an annual basis) to the grantor or (settlor) for some defined term, and pays the remainder interest of the trust to a noncharitable beneficiary

intentionally defective grantor trust (IDGT)

an irrevocable trust that is used to freeze the value of assets transferred to family members or loved ones for estate tax purposes; a gift to this trust is a completed gift for estate and gift tax purposes, but is treated as a grantor trust for income tax purposes; it should be noted that the trust is intentionally established as a grantor trust

irrevocable life insurance trust (ILIT)

an irrevocable trust that owns and holds life insurance on its grantor's life; also known as a wealth replacement trust (WRT)

wealth replacement trust (WRT)

an irrevocable trust that owns and holds life insurance on its grantor's life; also known as an irrevocable life insurance trust (ILIT)

grantor retained annuity trust (GRAT)

an irrevocable trust that pays a fixed annuity to the grantor (settlor) for some defined term, and pays the remainder interest of the trust to a noncharitable beneficiary

disclaimer

an unqualified refusal to accept a gift or bequest

single premium annuity

annuity contracts that provide for only a single premium payment. No further payment may be made by the owner

income in respect of decedent (IRD) assets

assets that, as a result of income deferral, have built in income that must be recognized by the beneficiary of the asset

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? a. $500 b. $1,600 c. $2,000 d. $2,500

b. $1,600 For a contribution to a university where the donor receives the right to purchase tickets to athletic events, only 80% of the contribution will be allowed as a charitable contribution. The price of the actual tickets is not deductible. $2,000 x 80% = $1,600.

Arthur transfers property valued at $250,000 to a charitable organization in return for a single life annuity based on his life value at $130,000. Arthur's adjusted basis in the transferred property was $95,000. Arthur died two years after the transaction and at the time of his death, the property had a fair market value of $325,000. At the time of the initial transfer, what was Arthur's charitable income tax deduction (ignoring any AGI limitations)? a. $75,000 b. $120,000 c. $155,000 d. $250,000

b. $120,000 The value of the property contributed less the value of the annuity received is Arthur's charitable deduction for income tax purposes. $250,000 - $130,000 = $120,000.

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, 2 and 3 c. 1, 3 and 4 d. 1, 2, 3 and 4

b. 1, 2 and 3 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.

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. a. 1, 2 and 3 b. 1, 3 and 4 c. 2 and 4 d. 4 only

b. 1, 3 and 4 The IRS may challenge the valuation of stock in business continuation agreements, with or without insurance; the IRS is not bound by any contractual agreement between the company and its shareholders.

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 a. 3 only b. 2 and 5 c. 4 and 5 d. 1, 3 and 4

b. 2 and 5 Due to rapid increase in asset value, statement 1 would likely provide a higher estate value and therefore the alternate valuation date is not likely useful. Statement 3 - QTIP is not an issue as Carol and Jack both die, and she is not his heir; therefore, there is no use for a QTIP. Finally, special use valuation pertains to real property used in a trade or business.

Robbie transferred $100,000 to an irrevocable trust for the benefit of his minor child, Dominic. The transfer was eligible for the annual exclusion. The trust permits the trustee to accumulate trust income within the trust, and only make distributions to Dominic based upon an ascertainable standard until Dominic is 21 years old. When Dominic attains the age of 21, the trust must terminate and the trust assets must be distributed to Dominic. Which type of trust has Robbie created? a. 2503(b) Trust b. 2503(c) Trust c. Totten Trust d. Intentionally Defective Grantor Trust (IDGT)

b. 2503(c) Trust A 2503(c) trust allows income to be accumulated within the trust until the minor beneficiary attains the age of majority and the transfer of property to the trust qualifies for the annual exclusion. A 2503(b) trust requires the trustee to make annual income distributions to the minor beneficiary. A Totten Trust is a bank account which includes a payable on death clause. An IDGT is a grantor trust which requires the grantor to pay the income tax on the income of the trust.

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.

b. Avoidance of probate 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.

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 2014 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 $2,000,000. d. Bobby has not made a taxable gift.

b. Bobby has made a taxable gift of $686,000. 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 2014.

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? a. The alternate valuation date. b. Deduct estate administrative expenses on the estate's fiduciary income tax return. c. Pay estate taxes under IRC Section 6166. d. Use a Section 303 stock redemption.

b. Deduct estate administrative expenses on the estate's fiduciary income tax return. The alternative valuation is not beneficial because there is no estate liability. No estate tax is due therefore no installment payment is needed and 6166 does not apply. The estate is not a closely held business (C corporation) so Section 303 redemption does not apply.

Diana's will leaves all of her property to her husband, George. If he does not survive her by more than eight months, the property will transfer to Diana's only daughter. Diana dies on May 1 and George dies on the following December 1. Of the following statements, which is correct? a. Diana's property will transfer to her daughter and the property will be eligible for the unlimited marital deduction in Diana's estate. b. Diana's property will transfer to her daughter and the property will not be eligible for the unlimited marital deduction in Diana's estate. c. Diana's property will transfer to George and the property will be eligible for the unlimited marital deduction in Diana's estate. d. Diana's property will transfer to George and the property will not be eligible for the unlimited marital deduction in Diana's estate.

b. Diana's property will transfer to her daughter and the property will not be eligible for the unlimited marital deduction in Diana's estate. Diana's property will not transfer to George because he failed to survive her for at least eight months. Therefore, both answer c and answer d are incorrect. Option a is incorrect because the property that transfers to Diana's daughter will not be eligible for the unlimited marital deduction in Diana's estate. For transfers to a surviving spouse to qualify for the unlimited marital deduction, the survival period in the survivorship clause cannot exceed six months. Due to the length of the survivorship clause, the property would not have qualified for the unlimited marital deduction even if George survived Diana by more than eight months.

The estate planning process is fairly simple and can generally be completed by a financial planner without any assistance from a licensed attorney or CPA. a. True b. False

b. False Estate planning is a complex process that usually requires the skills of a licensed attorney and a CPA, as well as a financial planner.

Only individuals who currently have assets in excess of the applicable estate tax credit equivalency amount need estate planning. a. True b. False

b. False Everyone needs estate planning in order to minimize taxes, ensure that their loved ones receive their property, and to provide for their loved ones financially after their death.

Which of the following apply to Section 303 redemption? a. The closely held interest must meet the 25% rule. b. Qualifying redemption amounts are limited by the payment of death taxes and estate administration taxes and costs. c. A publicly traded stock will usually qualify for a 303 redemption if the interest is a minority interest. d. The stock redeemed must be common stock.

b. Qualifying redemption amounts are limited by the payment of death taxes and estate administration taxes and costs. The rule is 35% of the gross estate. The stock must be closely-held and it can be either common or preferred.

Which of the following is NOT a feature of a testamentary trust? a. Creation under a last will and testament. b. Shifts the income tax burden to a lower-bracket taxpayer. c. Results in the inclusion of assets in the gross estate. d. Does not avoid probate.

b. Shifts the income tax burden to a lower-bracket taxpayer. All of the other answers are features of a testamentary trust.

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.

b. The credit for tax paid on prior transfers was repealed in 2005. At that time, the credit became a deduction. The credit for tax paid on prior transfers was NOT repealed in 2005. The state death tax credit is repealed in 2005 and is replaced with a deduction. All of the other statements are true statements.

"determined"

beneficiaries have until 9/30 of the year following the death to disclaim

date of beneficiary

beneficiary must be determined by 9/30 of the year following the account owner's death

Ralphie, a real estate mogul, dies owning a great deal of real property. Which of the following would be included in Ralphie's probate estate? a) A building owned fee simple by Ralphie's wife. Ralphie and his wife do not live in a community property state. b) A vacant lot owned joint tenancy with rights of survivorship by Ralphie and his brother. c) A beach house owned tenancy in common by Ralphie and his mother. d) An office building owned tenancy by the entirety by Ralphie and his wife.

c) A beach house owned tenancy in common by Ralphie and his mother. Option a is incorrect because the property of Ralphie's wife would not be included in his probate estate. Option b is incorrect because property owned JTWROS passes outside of probate. Option d is incorrect because property owned tenancy by the entirety passes outside of probate.

Which of the following accurately describes a QTIP Trust. a. A QTIP is sometimes called a "B" or "Q" Trust. b. Trust income must be paid to the spouse or other designated beneficiary at least annually. c. The trust assets will be included in the gross estate of the surviving spouse. d. The surviving spouse designates the remainder beneficiaries of the QTIP.

c. Option a is incorrect because a QTIP is not the same as a "B" trust. Option b is incorrect because the income of the trust must be paid to the spouse, not to any other beneficiary. Option d is incorrect because the surviving spouse does not choose the remainder beneficiaries of the QTIP.

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) A California home valued at $1,000,000 b) Mexican property valued at $450,000 c) The contents of the California home valued at $100,000 d) An investment account held at an NYC bank valued at $500,000

Paula, a single woman, transferred $2,000,000 to a GRAT naming her two sons as the remainder beneficiaries, while retaining an annuity presently valued at $860,000. If this is the only transfer that Paula made during the year, what is Paula's total taxable gifts for the year?

$1,140,000

Carolyn made the following transfers during her life: a) The transfer of her home to an irrevocable trust for the benefit of her four children on January 1, 2014. Carolyn retained the right to live in the home for the remainder of her life. The FMV of the home at the date of transfer to the trust was $1,000,000. The FMV of the home at Carolyn's death was $1,200,000. b) A transfer of $44,000 to an irrevocable trust for the benefit of her four children on January 2, 2010. Carolyn retained the right to a 4% annuity payment from the trust for the years 2010 and 2011. At Carolyn's death, the trust had a value of $62,000. If Carolyn died on July 13, 2014, with regard to the aforementioned transfers, how much is to be included in Carolyn's gross estate?

$1,200,000

Rachel died 8 months ago and her executor is finalizing her estate tax return. The executor has determined that Rachel's Adjusted Gross Estate is $10,000,000 and that her estate is entitled to a charitable deduction in the amount of $500,000. What is the estate tax liability for Rachel's estate?

$1,628,000

Kathi and Darrin, who are married, own their home together as community property. They purchased the home 17 years ago for $100,000. After many improvements and a surge in the market, the home is now worth $200,000. If Darrin died today and left his share of the home to his daughter Elizabeth, what is Kathi's basis in the home? $50,000 $100,000 $150,000 $200,000

$100,000 Kathi's one-half interest in the home will have a basis of $100,000 due to a step-to fair market value of both halves at Darrin's death because the property is owned as community property.

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, 2014. 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, 2009. Carolyn retained the right to a 4% annuity payment from the trust for the years 2009 and 2010. At Carolyn's date of death, the trust had a value of $62,000. If Carolyn died on July 13, 2014, 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

c. $1,200,000 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 Carolyn'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.

Rachel died eight months ago and her executor is finalizing her estate tax return. The executor has determined that Rachel's adjusted gross estate is $10,120,000 and that her estate is entitled to a charitable deduction in the amount of $500,000. Calculate the estate tax liability for Rachel's estate. a. $336,800 b. $1,575,000 c. $1,712,000 d. $3,793,800

c. $1,712,000 Subtract the charitable deduction from the adjusted gross estate to get the taxable estate ($10,120,000 - $500,000 = $9,620,000). The tentative tax on the taxable estate is $3,793,800 ($345,800 + 0.40 ($8,620,000)). Subtract the applicable estate tax credit to determine the federal estate tax liability ($3,793,800 - $2,081,800 = $1,712,000).

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

c. $25,000 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.

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 2014, his will included a testamentary bypass trust and a residual bequest to his U.S. citizen wife. If Price's net worth at his death was $5,340,000, how much will be transferred to the bypass trust to maximize its benefits? a. $1,325,000 b. $2,825,000 c. $4,665,000 d. $5,340,000

c. $4,665,000 Price's executor would fund the testamentary bypass trust with the difference between the applicable estate tax credit equivalency at Price's death (2014 - $5,340,000) and the funding amount of the inter vivos bypass trust ($675,000). In this case, the amount would be $4,665,000 ($5,340,000 - $675,000).

Lisa made the following transfers during 2014: - $17,000 to her grandson for his law school tuition. - $1,000 to her neighbor to help him pay a hospital bill. - A transfer of property valued at $100,000 to a GRAT. Lisa retained an annuity valued at $40,000 and her daughter is the remainder beneficiary. What is the total amount of Lisa's taxable gifts for 2014? a. $48,000 b. $60,000 c. $63,000 d. $65,000

c. $63,000 Lisa's transfers to her grandson and neighbor are not qualified transfers because the payments were not made directly to the educational or medical institution. The transfers are eligible for the annual exclusion, though. As such, the taxable amount of each is $3,000 ($17,000 - $14,000) and $0, respectively. The transfer of the remainder interest in the GRAT to Lisa's daughter is valued at $60,000 ($100,000 - $40,000). Since it is a gift of a future interest, the transfer is not eligible for the annual exclusion. Accordingly, Lisa's total taxable gifts are $63,000 ($3,000 + $0 + $60,000).

When Ronnie died seven months ago he left his prize art collection to his daughter Kate. Ronnie had a fantastic eye for selecting artwork by unknown painters, buying the painting cheap, and then selling them for a high profit once the painter was recognized by the general public. Three months before his death, Ronnie purchased an enchanting oil painting of a beautiful women that Ronnie claimed would be "as famous as the Mona Lisa" for $4,000. Kate has been exhibiting the painting since her father's death and a local art collector offered her $100,000 for the painting. Kate is extremely excited because the painting was only valued at $15,000 when her father died. If Kate sold the painting today, what would her taxable gain be for income tax purposes. a. $85,000 short term capital gain. c. $85,000 long term capital gain. d. $96,000 short term capital gain. e. $96,000 long term capital gain.

c. $85,000 long term capital gain. Kate's basis in the property is equal to the date of death value. The holding period for inheritances is long term regardless of how long the decedent or the legatee held the property. Thus her gain is $100,000 (sale price) - $15,000 (Kate's basis in the property). Her holding period is a long term capital gain.

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 a. 1 only b. 2 and 3 c. 1 and 2 d. 1, 2 and 3

c. 1 and 2 Death benefits from a modified endowment contract (MEC) are still income tax free unless sold. Statement 2 subjects the policy proceeds to income tax if the policy was transferred to a transferee who took under a transfer for value rule.

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. a. 1 only b. 1 and 3 c. 1, 2 and 3 d. 1, 2, 3 and 4

c. 1, 2 and 3 The value of the assets transferred may use an alternative valuation date. Special use valuation is only available if certain qualifications are met (see 2032 (a)).

c. 1, 2 and 4 Survivorship life pays the entire death benefit at the second death and is generally not included in the insured's gross estate if owned in an ILIT.

Making arrangements to deal with the possibility of physical or mental incapacity is an important area of estate planning. Which of the following arrangements may be used to deal with such unexpected incapacity? A springing durable power of attorney. A revocable living trust. Fee simple titling. A living will. a. 1 only b. 2 and 4 c. 1, 2, and 4 d. 1, 2, 3, and 4

c. 1, 2, and 4 Fee simple ownership is not an arrangement that helps to deal with unexpected incapacity. All of the other arrangements are methods of dealing with unexpected incapacity.

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 for GSTT 3. There's a $5,340,000 lifetime exemption in 2014 for GSTT 4. Transfers qualifying for gift tax annual exclusion are also excluded from GSTT a. 1 and 4 b. 2 and 3 c. 1, 3 and 4 d. 4 only

c. 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: a. 1 and 4 b. 2 and 3 c. 1, 3, and 4 d. 4 only

c. 1, 3 and 4 There are exceptions to the GSTT including the predeceased parent rule. Gifts qualifying for the annual gift tax exclusion are excluded for GSTT. The lifetime exemption for GSTT is $5,340,000 (2014).

Which of the following statements regarding SCINs is correct? a. If the seller outlives the SCIN term, the buyer continues to pay the SCIN payment until the seller's death. b. The payments received by the seller under a SCIN are treated as interest income. c. A SCIN can give the seller a collateral interest in the property sold. d. If the seller dies before the end of the SCIN term, the seller is deemed to have made a taxable gift to the buyer equal to the difference between the payments made and the total principal payments due on the SCIN.

c. A SCIN can give the seller a collateral interest in the property sold. Option a is incorrect because the buyer of a SCIN only makes payments until the earlier of (1) the seller's death or (2) the term set forth in the SCIN. Option b is incorrect because each payments received by the seller consists of (1) interest income, (2) capital gain, and (3) return of adjusted basis. Option d is an incorrect statement. If the seller dies before the end of the term, the difference between the seller / decedent's adjusted basis and the face value of the note is deemed a transfer of the estate, and must be included as income on the estate's 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? a. Donna should deduct the entire fair market value of the antique this year. b. Donna should deduct $30,000 this year and every year for the next five years. c. Donna should deduct $50,000 this year. d. Donna should deduct $200,000 this year.

c. Donna should deduct $50,000 this year. Option c is correct because, given Donna's AGI, she will obtain the maximum tax benefit by electing to deduct the adjusted basis of the antique, subject to a ceiling of 50% of her AGI. Electing to deduct the adjusted basis produces a deduction of $50,000 per year for four years, for a total charitable deduction of $200,000 (equals basis). Option b is wrong because if Donna elects to deduct the fair market value of the antique, and is thus limited to 30% of her AGI, her deduction will be $30,000 per year for six years, or a total of $180,000, which is less advantageous than option c. Donna may not take the deductions described in option a and option d.

Which of the following is true regarding a Grantor Retained Annuity Trust (GRAT)? a. At the end of the GRAT term, a taxable gift occurs. b. If the grantor dies during the trust term, a pro rata portion of the trust assets will be included in the grantor's estate. c. Interest and dividends earned by assets in a GRAT are taxed to the grantor. d. If the grantor survives the trust term, all of the trust assets will be included in the grantor's estate.

c. Interest and dividends earned by assets in a GRAT are taxed to the grantor. Option a is incorrect because a taxable gift occurs when the GRAT is established, not when the GRAT term ends. Option b is incorrect because if the grantor dies during the trust term, all of the trust assets are included in his gross estate. Option d is incorrect because if the grantor survives the trust term, none of the trust assets are included in his estate.

You are a CFP and although you never went to law school, you consider yourself to be very good at reviewing wills. Your client, Catherine, asks you to prepare a will for her. Should you prepare a will for Catherine? a. Yes, Catherine is your best client and you might lose her if you do not prepare the will. b. Yes, it is permissible for a CFP to prepare a legal document. c. No, preparing Catherine's will would be considered the unauthorized practice of law. d. No, you should only prepare Catherine's will if you are going to prepare her husband's will as well.

c. No, preparing Catherine's will would be considered the unauthorized practice of law. Drafting legal documents, such a wills, is an activity reserved for licensed attorneys. If you are not a licensed attorney and you prepare a legal document, you have engaged in the unauthorized practice of law.

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 the Amanda can transfer ti Javier without incurring transfer taxes or utilizing her applicable credit during 2015?

$147,000

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?

$250,000. -Adjusted basis of the land with no step up.

Sherri purchased a home many years ago for $100,000. She married Gary five years ago when the house was worth $200,000. Sherri and Gary live in a community property state. Assume Sherri died today and left her entire interest in the property to her son Cody. The property is currently valued at $400,000. What is Cody's basis in the home after Sherri's death?

$400,000

Notwithstanding any gift tax exclusion, Crummey powers are further limited in the following way to not be considered a taxable gift to the other trust beneficiaries if the holder of the power allows it to lapse.

$5,000 OR 5% of the principal, whichever is greater.

Lisa made the following transfers during 2014: a) $17,000 to her grandson for his law school tuition b) $1,000 to her neighbor to help him pay a hospital bill c) A transfer of property valued at $100,000 to a GRAT. Lisa retained an annuity valued at $40,000 and her daughter is the remainder beneficiary What is the total amount of Lisa's taxable gifts for 2014?

$63,000

Lois, an elderly, single woman, recently came to you to, an estate planning professional, to discuss her estate plan. After a lengthy discussion you determine that Lois completed several transactions last year that may be subject to gift tax. The transactions you uncovered include: 1) Lois had a bank account in the amount of $15,000 that was owned fee simple. She wanted to make sure her son, Ronnie, could access the money "just in case" so she changed the ownership of the account to JTWROS in her and Ronnie's name equally. Ronnie has not made any withdrawals. 2) Feeling guilty about retitling her checking account JTWROS with her son, Lois decided to change the titling of her vintage automobile as JTWROS with her daughter, Joyce. Lois purchased the property for $15,000 and the fair market value of the property on the date of retitling was $30,000. Due to a high demand for this particular vintage model the value of the car today is $40,000. 3) Lois received a beneficiary designation in the mail for her $1,000,000 life insurance policy. The policy never had a beneficiary, so she designated her son, Ronnie and daughter, Joyce, as joint beneficiaries. Lois's basis in the policy is $200,000. 4) Lois has two stock portfolio accounts with a local brokerage firm valued at $200,000. Upon her advisor's suggestion, she retitled the account as a Transfer on Death account to "save taxes." Upon her death, the assets will transfer equally to her son, Ronnie, and her daughter, Joyce. 5) Lois's daughter Joyce has always been a little poor with budgeting her money. So it was no surprise to Lois that Joyce couldn't afford her daughter Katelyn's braces. Feeling sorry for Katelyn, Lois gave Joyce $50,000 for the braces. Lois later found out that the braces only cost $15,000 and Joyce spent the remaining money on elective cosmetic surgery. 6) Lois was beginning to become very concerned because her son Ronnie had never married. She was so happy he finally got married she gave Ronnie and his new wife, Sam, $40,000 so they could take a two month trip to Australia. When you inform her that you are concerned about some of these transactions and that she may need to file a gift tax return she states, "you obviously must not be a very good planner because none of my other planners ever told me that, besides it would be ridiculous for me to pay tax on things I want to give to my family that I purchased with my hard earned money that was already taxed." After more discussion, Lois confesses to you that you are highly recommended and frankly, she has already used almost every planner in town and since they have all declined to represent her, she is confident that you will do the right things. Calculate Lois's taxable gifts for the current year. $40,000 $55,000 $63,000 $105,000

$63,000 The retitling of the bank account is not a complete gift. It will not be complete until Ronnie actually withdrawals from the account. The retitling of the vintage automobile is a completed gift of one-half of the value. The beneficiary designation is not a gift. A Totten trust, or a Transfer on Death account, is a form of beneficiary designation and is not a completed gift. Taxable gifts is a term of art meaning gross gifts minus annual exclusions, which in this case are three (Joyce, Ronnie, and Sam), totaling $42,000. 1. Retitling of Bank Account $0 2. Retitling of Vintage Automobile $15,000 3. Change of beneficiary designation $0 4. Retitling of Stock accounts $0 5. Transfer of cash to Joyce for braces $50,000 6. Transfer of cash to Ronnie for honeymoon $40,000 Total Gifts Made $105,000 Less Annual Exclusion (3 People x $14,000) ($42,000) Total Taxable Gifts $63,000

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? $42,400 $50,000 $92,400 $130,000

$92,400 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. $20,000 + ($47,000 X $80,000/$100,000) = $57, 600. $150,000 - $57,600 = $92,400

property owned at death code (2033)

- all property in which the decedent had an interest at death (essentially the probate estate) -ex. cash, stocks, bonds, retirement accounts, autos, clothes, etc. -rental income accrued before death -cash surrender value of a life insurance policy owned on the life of another -state income tax refunds -medical insurance reimbursements -awards for pain and suffering (but not wrongful death)

Ch 7: On January 1st of this year, a father gave his daughter a $100,000 ordinary life insurance policy on his life and filed a timely gift tax return. Premiums are paid annually. The pertinent facts concerning the policy are the following: - Date of issue: July 1, 15 years ago. - Premium paid on July 1 of this year = $1600. - Terminal reserve on July 1 of this year = $12,000. What is the value of the policy for federal gift tax purposes?

-$11,800 Interpolated terminal reserve plus unearned premium at the time of valuation. SInce the time of the gift, Jan 1 of this year, falls at the midpoint of the time interval presented, the interpolated terminal reserve is $11,000 (the sum of 10,000 and 12,000 divided by 2). SInce 1/2 of the annual premium (800) is unearned as of Jan 1 of this year, the value of the policy on Jan 1 of this year, for gift tax purposes is 11,800.

What conditions make a GRAT succeed?

-Assets appreciate -Outlive the trust term

When is a GRAT appropriate?

-Assets that appreciate faster than the IRS rate -Taxable scenario -Leaving to a related party/noncharitable related property -Live longer than the annuity term

What is a QTIP?

-Qualified Terminal Interest Property -Spouse dies -Gives spouse terminal interest in property -Qualifies for marital deduction in first-to-die spouse, included in estate of second. -First-to-die designates eventual beneficiary

What is a SCIN?

-Self Cancelling Installment Note -Installment purchase for specified time -Note cancels when seller dies -Stops if seller outlives the term

What conditions does a SCIN succeed?

-Seller dies before note expires -Property appreciates

When is a SCIN appropriate?

-Taxable Estate -Purchaser is related party who can make payments -Seller is in poor, but not terminally ill, health -Property is expected to appreciate

revocable transfers

-interest subject to the power of the decedent to alter, amend, revoke or terminate -also applies to affecting the time or manner of enjoyment of the property or income, even if the identity of the beneficiary is not affected *does not apply if: -transfer was for full and adequate consideration -power can only be exercised with the consent of all parties in the transferred property -power held solely by another person

9. What are the generic terms of most common wills // what characteristics would describe those types of wills?

. Holographic wills: a will that is written in the testator's handwriting, will must be signed and dated, no witnesses required a. Nuncupative wills: an oral dying declaration (usually only covers personality as opposed to reality and intangibles) made before sufficient witnesses- not valid in all states b. Statutory Wills: generally drawn by a licensed attorney and complies with the laws for wills of the domiciliary state of the decedent

12. Each will should have core provision of a will- what are they?

. Introductory clause: Identifies testator, testators residence, state of domicile, and next of kin a. The declaration clause: identifies document as the last will and testament of the testator and revokes previous wills and codicils b. The bequests clause: directs specific property to be passed to others c. The residuary clause: distributes the residue or balance of the estate d. Guardianship Clause: names the guardian for minors and legal dependents e. Appointments and Powers Clause: clause directing payment of debts and taxes (includes the sources from which to pay them) f. Attestation Clause: a provision at the end of the document signed by the witnesses as authentication of a testator's will g. Self Proving Clause: a declaration signed by the notary stating that he witnessed the testor and the witnesses sign the will

8. What legal instruments can protect incapacitated persons

. Power of Attorney- a legal document that authorizes a trusted person to act on one's behalf it ends at the death of that person a. Power of Appointment- a power is usually included in a trust or power of attorney allowing the power to direct and assets to another. Power to transfer assets b. Can also include dnrs and durable power of attorney for health care and living wills

Which of the following statements regarding a Grantor Retained Annuity Trust (GRAT) is/are true? 1. When the trust is established, a taxable gift occurs based on the present value of the remainder interest of the trust assets. 2. The gift that occurs when the GRAT is created is eligible for the annual exclusion. 3. For estate planning purposes, a GRUT (Grantor Retained Unitrust) is preferable to a GRAT if the assets in the trust are expected to appreciate in value. 4. The beneficiaries of a GRAT will not receive a step-up in basis of the trust property if the grantor survives the trust term.

1 and 4

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.

c. Ricky's insurance policy on his own life may not be paid out to the named beneficiary. 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.

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

c. SCIN 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.

Which of the following is not necessary to properly execute a Section 303 stock redemption? a. The value of the stock must be greater than 35% of the decedent's adjusted gross estate, including gifts made in the last 3 years. b. The 303 redemption can only be used if the corporation has the cash to redeem the shares. c. The 303 redemption can be made without a positive earnings and profits account. d. The Section 303 redemption is limited to an amount that cannot exceed the death taxes of the estate, plus funeral and administrative expenses for which the decedent is liable.

c. The 303 redemption can be made without a positive earnings and profits account. The closely-held stock must make up 35% of the decedent's adjusted gross estate value and must be the stock of a closely-held firm. The E and P account must be positive or there is no need for a 303 redemption.

Which of the following are parties to a power of attorney? a. The principal's mother, even though she is not named as the principal's agent. b. The guardian ad litem. c. The principal, or person granting the power. d. The attorney who prepares the power of attorney.

c. The principal, or person granting the power. The parties to a power of attorney are the principal and the agent.

Property would be included in the Jack's gross estate at the time of death in all the following situations EXCEPT

12 years before his death, Jack placed a valuable painting in an irrevocable trust created to benefit his son, but he reserved the right to keep the painting in his own home for 5 years

Ch 7: A widower made the following cash gifts in a year when the annual exclusion was $14,000: -$15,000 to his daughter -$20,000 to a qualified charity -$5000 to his sister -$10,000 to his brother -$25,000 to his mother. The total amount of the taxable gifts made was?

12,000 Total gifts = 75,000 -less annual exclusions daughter-14,000 charity- 14,000 sister- 5,000 brother- 10,000 mother- 14,000 = 57,000 75,000 - 57,000 - 6000 (charitable deduction) = 12,000 total taxable gifts

When applying for Medicaid, the look back period for transfers of income and assets to family members is ____ ?

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

Which statement concerning a QTIP trust is incorrect?

A Beneficiaries other than a surviving spouse may receive trust income or principal while the surviving spouse is alive

Which statement does not correctly pertain to portability?

A Portability has been adopted on both the federal and state levels

At his wife Sabrina's death, Dwayne disclaimed some assets bequeathed to him by will that were subsequently transferred from Sabrina's estate to other beneficiaries:... How did these transfers affect Sabrina's estate tax? Which of these are correct?

A & C A. Sabrina's estate received a charitable deduction for the CD given to charity C. The assets transferred to her children were taxed in Sabrina's 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 Qualified Domestic Trust (QDOT).

Josephine, who is single, drafted her own will using the "Zoom Wills" software that she purchased on the internet. She sends it to you for a review. In your first review of the will, you look for which of the following common provisions?

A statement of the domicile of the testator.

Ch 7: Which of the following statements concerning federal gift and estate taxes is (are) correct? 1) The federal state death tax deduction is allowed only if a federal estate tax Form 706 return must be filed 2) State estate and inheritance taxes are generally imposed at the same rate regardless of the relationship of the deceased to the beneficiary 1 2 1 & 2 neither

A) -2 is incorrect because the general rule is that completed gifts are not brought back into a decedents gross estate. There are exceptions, however; transfers of property with retained rights and gifts of life insurance policies within 3 years of death are brought back into a decedent (insured's) gross estate.

Marcia contributed $600,000 to an irrevocable trust with no retained powers in 2016 and did not retain any powers over the transferred assets. She named her only daughter as the sole income and remainder beneficiary and paid gift tax at the date of the transfer of $25,000. In 2018, Marcia died of lung cancer. The fair market value of the property in the irrevocable trust was $3,000,000 at the date of her death. What amount of the trust assets are included in Marcia's gross estate? A) $0. B) $600,000. C) $625,000. D) $3,000,000.

A) $0. Rationale Because the trust was an irrevocable trust and Marcia did not retain any rights to the trust, the value of the trust is not included in Marcia's gross estate. However, the $25,000 gift tax is included in her gross estate because it was paid for gifts made within three years of her death.

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. Rationale 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 determine the deductible status of his contribution.

Stephanie contributed $450,000 to a revocable living trust in 2008. She named herself as the income beneficiary and her only son as the remainder beneficiary. The term of the trust was equal to Stephanie's life expectancy. Stephanie died in 2018, when the fair market value of the trust's assets is $2,000,000. How much is included in Stephanie's probate estate related to the revocable living trust? A) $0. B) $345,800. C) $450,000. D) $2,000,000.

A) $0. Rationale The question asks for the amount included in Stephanie's probate estate. Because a revocable living trust transfers assets per the trust document, $0 of the value of the trust is included in Stephanie's probate estate. Remember, however, that the full value of a revocable living trust is included in a decedent's gross estate.

Christopher made cash gifts to his two children for the past three years totaling $250,000 and his wife consented to split the gifts with him. Total taxable gifts were reduced to $45,000 for each spouse after gift splitting and annual exclusions were applied. The gift tax was computed as $9,400 prior to the applicable exclusion amount. Assume Christopher died in 2019. Which of the following statements is/are correct? 1. Christopher's gross estate has been reduced by $250,000 through gifting. 2. The applicable credit amount on Christopher's estate tax return is reported as $4,496,400 because the total tax on the gifts ($9,400) reduced the amount of his applicable credit amount. 3. Christopher's executor must add $45,000 of total taxable gifts to the "adjusted taxable gift" entry on his estate tax return. 4. The gift tax that Christopher paid was added to his gross estate under the gross-up rule. A) 1 and 3 B) 2 and 4 C) All are correct statements. D) None are correct statements

A) 1 and 3

Which of the following statements regarding a Grantor Retained Annuity Trust (GRAT) is/are true? 1. When the trust is established, a taxable gift occurs based on the present value of the remainder interest of the trust assets. 2. The gift that occurs when the GRAT is created is eligible for the annual exclusion 3. For estate planning purposes, a GRUT (Grantor Retained Unitrust) would be preferable to a GRAT if the assets in the trust are expected to appreciate in value. 4. The beneficiaries will not receive a step-up in basis of the trust property if the grantor survives the trust term. A) 1 and 4 only B) 2 and 3 only C) 3 and 4 only D) 1, 2, and 4 only

A) 1 and 4 only

In 2019, Darrin and his wife, Kathi, want to establish a family limited partnership (FLP) and transfer their business to the FLP. The value of the business interest is $4,000,000. They want to make use of the annual exclusion and have been advised that a 30% discount is appropriate for gifting a minority interest of limited partnership shares. The general partnership interest (1%) is valued at $40,000. They have eight family members (children and grandchildren) to whom to transfer limited partnership interests. Darrin and Kathi are unwilling to utilize any of their lifetime exemptions. Presuming the annual exclusion remains the same and the value of the business interest remains unchanged in the future, how many years does it take them to transfer all of the limited partnership interest? (Round up your answer). A) 12 years B) 14 years C) 16 years D) 18 years

A) 12 years $15,000 / (1 - 30%) = $21,429. $3,960,000 / $21,429 = 185 units. 8 beneficiaries and 2 donors = 16 units per year. 185 / 16 = 12 years.

Darrin and his wife, Kathi, want to establish a family limited partnership (FLP) and transfer their business to the FLP. The value of the business interest is $4,000,000. They want to make use of the annual exclusion and have been advised that a 25% discount is appropriate for gifting a minority interest of limited partnership shares. The general partnership interest (1%) is valued at $40,000. They have eight family members (children and grandchildren) to whom to transfer limited partnership interests. Darrin and Kathi are unwilling to utilize any of their lifetime exemptions. Presuming the annual exclusion remains the same and the value of the business interest remains unchanged in the future, how many years does it take them to transfer all of the limited partnership interest? A) 12 years. B) 13 years. C) 16 years. D) 18 years.

A) 12 years. Rationale $15,000 ÷ (1-25%) = $20,000 $3,960,000 ÷ 20,000 = 198 units 8 beneficiaries and 2 donors = 16 units per year 198 ÷ 16 = 12.38 years or 12 years or $15,000 x 8 (Family Members) $120,000 x 2 (Darrin and Kathi) $240,000 ÷ (1 - 0.25) Discount $320,000 (Per Year) $3,960,000 = 12.38 Years $320,000

Which of the following statements concerning IRD is (are) correct. 1) The deduction for the estate tax attributable to IRD will eliminate the income tax. 2) A beneficiary does not receive a step-up in basis for IRD. 3) IRD is subject to estate tax or income tax, but not both. A) 2 only B) 1 and 2 only C) 2 and 3 only D) 3 only

A) 2 only

Of the following statements regarding Tangible Personal Property Trusts (TPPTs), which is true? A) A TPPT is designed to utilize temporal discounts to transfer tangible personal property at a reduced gift tax cost. B) Only easy-to-value personal property may be included in a TPPT. C) Property which is expected to depreciate in value should be transferred to a TPPT. D) A TPPT is designed to utilize minority and lack of marketability discounts to transfer property at a reduced gift tax cost.

A) A TPPT is designed to utilize temporal discounts to transfer tangible personal property at a reduced gift tax cost. Rationale Answer a is a correct statement. Like a GRAT or QPRT, a TPPT uses temporal discounts to transfer property, in this case tangible personal property, at a reduced gift tax cost. Answer b is incorrect because any tangible personal property can be contributed to a TPPT. Answer c is incorrect as property which is expected to appreciate should be contributed to the TPPT so that the appreciation occurs in the hands of the beneficiary and not the grantor. Answer d is an incorrect statement.

Which of the following statements concerning an Irrevocable Life Insurance Trust (ILIT), is correct? A) A contribution to an ILIT that includes a Crummey power is eligible for the gift tax annual exclusion. B) Contributions to an ILIT are not taxable gifts until the insured dies and the transfer is deemed complete. C) ILITs are designed so the insured retains ownership of the life insurance policy. D) The grantor of an ILIT is deemed the owner of the life insurance policy to the extent he remains the insured of the life insurance policy.

A) A contribution to an ILIT that includes a Crummey power is eligible for the gift tax annual exclusion. Rationale Answer a is a correct statement. Answer b is incorrect as contributions to an ILIT are taxable gifts, and are not eligible for the annual exclusion without a Crummey provision. Answer c is incorrect because an ILIT is designed to prevent an insured party from having ownership of the life insurance policy on his life. Answer d is an incorrect statement.

Which of the following trusts would qualify for the unlimited marital deduction? A) A power of appointment trust. B) A family trust. C) A "see-through" trust. D) An exemption amount trust (bypass).

A) A power of appointment trust. Rationale A powers of appointment trust (POA) is a marital trust because the surviving spouse has a general power over those assets and must therefore include any remaining in his/her gross estate.

Which of the following statements concerning trusts is correct? A) A trust can have several beneficiaries, including different classes and individuals. B) When a grantor contributes property to a trust, he must recognize any unrealized capital gain or loss he has in the contributed property. C) A trust can only have one trustee. D) The gift of a remainder interest in a trust is a gift of a present interest.

A) A trust can have several beneficiaries, including different classes and individuals. Rationale A trust can have several beneficiaries. A trust may have income beneficiaries or remainder beneficiaries, and within each class can have several individuals of each type. Answer b is incorrect as a grantor does not recognize any unrealized gain in property transferred to a trust. Answer c is incorrect because a trust can have one or several trustees. Answer d is incorrect because the gift of a remainder interest in a trust is a gift of a future interest, which is not eligible for the annual exclusion.

Which of the following statements is not correct? A) An organization that spends less than 85% of its adjusted net income on activities engaged in for the active conduct of its exempt purpose is a public charity. B) Public charities receive broad support from the general public. C) An organization that is not a public charity and spends 90% of its adjusted net income on activities engaged in for the active conduct of its exempt purpose is a private operating foundation. D) A public charity can receive up to 33% of its support from its gross investment income and its unrelated business taxable income.

A) An organization that spends less than 85% of its adjusted net income on activities engaged in for the active conduct of its exempt purpose is a public charity. Rationale Option a describes a private non-operating foundation not a public charity. All of the other statements are true.

A partial interest includes all of the following except: A) An outright gift B) A life estate C) A remainder interest D) A reversionary interest

A) An outright gift

Which of the following is an income tax ramification associated with simple trusts? A) Because all income is required to be paid, the trust beneficiary is subject to income tax liability. B) Because payment of income is not required, the trust is responsible for the income tax liability. C) A DNI calculation is required to ascertain the income tax liability of the beneficiary and the trust. D) The grantor is always responsible for the payment of income tax.

A) Because all income is required to be paid, the trust beneficiary is subject to income tax liability.

A donor who serves as trustee of a Section 2503(c) trust risks having the principal of the trust _______________. A) Included in his or her own gross estate. B) Not considered a gift of a present interest. C) Held in the trust after the minor turns 21 years old. D) Be subject to the "Kiddie Tax."

A) Included in his or her own gross estate.

Which of the following statements is correct regarding the Federal bankruptcy and inherited IRAs? A) Inherited IRAs are not retirement accounts. B) Inherited IRA assets are excludible under ERISA from the bankruptcy estate. C) Inherited IRA assets up to $1,000,000 (as indexed) are exempt in bankruptcy. D) Inherited IRA assets are exempt in bankruptcy if needed for support.

A) Inherited IRAs are not retirement accounts. Rationale Inherited IRAs are not retirement accounts (according to the Supreme Court) and, therefore, are included in the bankruptcy estate.

Jack had been working with an estate planner for several years prior to his death. Accordingly, Jack made many transfers during his life in an attempt to reduce his potential estate tax burden, and Jack's executor, Tom, is thoroughly confused. Tom comes to you for clarification of which assets to include in Jack's gross estate. Which of the following transactions will not be included in Jack's gross estate? A) Jack gave $40,000 to each of his three grandchildren two years ago. No gift tax was due on the gifts. B) Jack purchased a life insurance policy on his life with a face value of $300,000. Jack transferred the policy to his son two years ago. C) Jack and his wife owned their personal residence valued at $250,000 as tenants by the entirety. D) After inheriting a mountain vacation home from his mother, Jack gifted the vacation home to his daughter to remove it from his gross estate. Jack continued to use the property as a weekend getaway and continued all maintenance on the property.

A) Jack gave $40,000 to each of his three grandchildren two years ago. No gift tax was due on the gifts.

A) Jack gave $40,000 to each of his three grandchildren two years ago. No gift tax was due on the gifts. Rationale The $40,000 gifts to his grandchildren are excluded from his gross estate because only gifts of life insurance within three years and any gift tax paid on a gift within three years are included in a transferor's gross estate. The life insurance policy included in answer b is included in the Jack' gross estate because transfers of life insurance within three years of death are included in the decedent's gross estate. Any property owned at the decedent's date of death, as in answer c, is included in the decedent's gross estate. (Do not confuse gross estate inclusion with probate inclusion.) Even though Jack gave the mountain home in answer d to his daughter, and the value of the property generally would not be included in Jack's gross estate, the fact that Jack continued to utilize the property each weekend and maintained the property would cause inclusion in his gross estate.

Your son has been studying trusts in his financial planning class. He has come to you for more information. Of the following statements listed below, which do you tell him? A) Of the many reasons people create trusts, one reason is to provide for asset management. B) Testamentary trusts are created during the grantor's life. C) The property within a revocable living trust is not included in decedent's probate or gross estate. D) The grantor of a trust must include the full fair market value of any property transferred to a trust within three years of his death in his gross estate.

A) Of the many reasons people create trusts, one reason is to provide for asset management. Rationale Answer a is a true statement. Answer b is incorrect because testamentary trusts are created in a grantor's will. Intervivos trusts are created during the grantor's life. Answer c is incorrect as property within a revocable living trust is not included in a decedent's probate estate, but is included in a decedent's gross estate. Answer d is an incorrect statement. Only gift tax paid on transfers within three years of a decedent's death and or the death benefit of a life insurance policy transferred within three years of an individual's date of death are included in the decedent's gross estate.

Which of the following techniques will not help an individual lower her gross estate? A) Pay-on-Death Arrangement (POD) B) Grantor Retained Annuity Trust (GRAT) C) Sale D) Self-Cancelling Installment Note (SCIN)

A) Pay-on-Death Arrangement (POD)

Which of the following techniques will not help an individual lower his gross estate? A) Pay-on-Death Arrangement (POD). B) Grantor Retained Annuity Trust (GRAT). C) Sale. D) Self-Cancelling Installment Note (SCIN).

A) Pay-on-Death Arrangement (POD). Rationale A POD is a transfer mechanism that transfers a bank account to a beneficiary according to contract law. A POD does not reduce an individual's gross estate as the full value of the POD bank account is included in the individual's gross estate. A GRAT, sale, and SCIN may all reduce an individual's gross estate by removing appreciation and future income from the property transferred.

A trustee is subject to which of the following? A) Prudent Man Rule. B) Trustee's Ethical Code. C) Uniform Trustee Provisions. D) Fiduciary Responsibilities Doctrine.

A) Prudent Man Rule. Rationale A trust fiduciary must follow the Prudent Man Rule demonstrating a duty of loyalty and duty of care on behalf of the trust's beneficiaries. The Prudent Man Rule specifically states that the trustee, as fiduciary, must act in the same manner that a prudent person would act if the prudent person was acting for his own benefit after considering all of the facts and circumstances surrounding the decision. None of the other options are existing codes, provisions, or doctrines.

Which of the following does not transfer property at death by contract? A) Tenancy by the entirety. B) IRAs. C) Life insurance. D) POD accounts.

A) Tenancy by the entirety. Rationale Tenancy by the entirety transfers property by operation of state titling law. All of the other options transfer property by contract.

Which of the following statements pertaining to the estate tax is incorrect? A) The estate tax is tax inclusive because the money used to pay the tax is taken from a separate account. B) The executor is personally liable to pay the tax from assets the decedent owned. C) The estate tax is due nine months after death unless an extension is granted. D) An estate tax return must be filed for a widow with a gross estate of $3 million who made taxable gifts of $4 million ten years ago.

A) The estate tax is tax inclusive because the money used to pay the tax is taken from a separate account.

Which of the following statements regarding a Grantor Retained Annuity Trust (GRAT) is correct? A) The remainder interest of a GRAT is payable to a noncharitable beneficiary. B) The term of the trust should be set equal to the life expectancy of the grantor. C) The remainder beneficiary is taxed on the income in the GRAT each year. D) At the end of the GRAT term, the property reverts to the grantor.

A) The remainder interest of a GRAT is payable to a noncharitable beneficiary.

A) The remainder interest of a GRAT is payable to a noncharitable beneficiary. Rationale The remainder interest of a GRAT is payable to a noncharitable beneficiary. Answer b is incorrect because the term of the GRAT should be less than the grantor's life expectancy because if the grantor dies during the term of the trust the full fair market value of the trust assets are included in his gross estate. Answer c is incorrect because the grantor is taxed on the income in the GRAT each year. Answer d is incorrect because at the end of the GRAT term, the property is payable to the noncharitable beneficiary.

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. 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. B. A transfer by Jennifer of $15,000 to a UTMA account established by her son for Jennifer's granddaughter. C. An irrevocable trust which pays income to Jennifer for 10 years and then pays the remainder to her grandniece who is only 25 years younger than Jennifer. D. An irrevocable trust which pays income to Jennifer's daughter for life, then distributes the remainder to the grandchild of a friend and that grandchild is currently31 years old.

A. 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.

All of the following statements concerning a simple trust are correct EXCEPT

Accumulation of trust income is allowed

Ch 11: All of the following are advantages of a buy-sell agreement EXCEPT: A) It guarantees the estate tax value of the decedents interest B) It assumes a market for the business interest C) It provides for business continuation D) It makes the business more attractive to creditors

Answer is A. -While executing a buy-sell agreement is important, the mere existence of an agreement does not necessarily guarantee that the IRS will accept the estate tax value of the decedent's business interest

Ch 11: Henry, Harry, and Hobie form a closely held corp, XYZ Corp. Each one receives 100 shares of stock. The three shareholders enter into a stock redemption (Entity purchase) buy-sell agreement so that when one dies, the remaining shareholders can continue the business in coequal ownership. If Henry dies prematurely, which of the following statements concerning this arrangement is correct? A) Harry and Hobie now own 150 shares of XYZ B) Harry and Hobie are obligated to purchase Henry's shares from his estate. C) Harry and Hobie continue to own the same number of shares are they did prior to Henry's death. D) There are 300 shares of stock outstanding in XYZ Corp.

Answer is C. -A is incorrect because with a stock redemption Harry and Hobie will each own 100 shares after Harry's death. -B is incorrect because it is XYZ corp. that is obligated to purchase Henry's shares from the estate. -D is incorrect because XYZ will retire Henry's shares, which leaves Harry and Hobie with 100 shares each.

Ch 8: All the following testamentary transfers are considered transfers by operation of contract EXCEPT A) A surviving spouse is the beneficiary of a survivor annuity from his or her deceased spouse's pension plan. B) An irrevocable inter vivos trust is the named beneficiary of a life insurance policy on the decedents life. C) A joint securities account becomes the sole property of a surviving account holder at the death of the other joint owner D) A surviving spouse receives his or her share of the deceased spouses estate as determined by a valid antenuptial agreement

Answer is C. Jointly held property with rights of survivorship passes to the survivor by operation of law

Amy owns an Andy Warhol painting valued at $3 million. She has made arrangements with the Warhol Museum in Pittsburgh to donate the painting to the museum when she dies. As part of the arrangement, Amy will keep the painting in her home until her death. All of the following are true with respect to this arrangement except:

B Amy's commitment to the Museum is a present interest entitled to a value for charitable deduction purposes

Joseph is 75 years old. He is very interested in making a charitable contribution of highly appreciated securities, but cannot afford to give up the income stream generated by these securities. Given Joseph's age, he is most concerned about receiving a guaranteed amount of income; however, he would also like to provide a benefit to his favorite charity. Which of the following vehicles can best accomplish Joseph's planning objectives?

B CRAT

Floyd has a gross estate of $14 million and Thelma has an estate of $2 million. Floyd wants Thelma to receive a life estate in a trust that qualifies for a marital deduction in his estate and which passes the remaining assets to his children from a prior marriage. He also wants to utilize his unified credit and reduce the couple's combined estate tax liability. All of the following estate planning techniques will accomplish Floyd's objectives, except:

B Floyd should establish a power of appointment trust for Thelma

Loretta's will establishes a by-pass trust at her death, which also gives her husband Rex a right to exercise a power according to an ascertainable standard. How much of the trust corpus will be included in Rex's estate at his death?

B No amount attributed to the trust is included in Rex's gross estate

Which statement does not correctly describe a marital deduction?

B A marital deduction is not available for property that passes to the surviving spouse's estate under a presumption-of-survivorship clause in the will when it cannot be determined which spouse died first.

Jerome met with his attorney and arranged his estate to provide for his wife Melinda in the event he predeceases her. Which transfers will not qualify for the marital deduction in Jerome's estate?

B & D B. Jerome's life insurance proceeds will be payable to Melinda under a life income settlement option. D. Melinda intends to disclaim a portion of Jerome's estate to fund a By-pass trust to the exemption equivalent amount at his death.

Ch 7: All the following statements concerning gift taxes to minors are correct except: A) the gift generally involves some complexity since state laws often restrict the titling of property in the minor's estate B) The annual gift tax exclusion is unavailable unless the minor receives the property outright C) Gifts to a Uniform Transfers to Minors (UTMA) custodial account provide for the outright distribution to the minor at the time the minor reaches the age of majority D) Gifts to a Sec. 2503(c ) minors trust permit the trustee to accumulate and reinvest income

B) Several types of transfer mechanisms are available to make gifts to minors that both qualify of the annual gift tax exclusion and restrict the minor's current assets to the funds.

Phil contributed $300,000 to an irrevocable trust and did not retain any right to the trust's assets. The income beneficiary of the irrevocable trust was Phil's nephew, and the remainder beneficiary of the irrevocable trust was Phil's niece. At the time of the transfer, Phil paid gift tax of $20,000. Phil died two years later, when the value of the irrevocable trust was $1,200,000. Based solely on there facts, how much is included in Phil's gross estate? A) $0. B) $20,000. C) $300,000. D) $1,200,000.

B) $20,000. Rationale The full fair market value of the trust is excluded from Phil's gross estate because the transfer of the trust was irrevocable and Phil did not retain any right to the trust's assets. However, gift tax paid within three years of Phil's death is included in his gross estate. In this case, the gift tax paid within three years of Phil's death was $20,000.

Trusts are a general tool that are beneficial in many financial planning situations. Many trust benefits, such as asset protection and control, are appropriate considerations for a family with a special needs person. Which of the following is generally correct regarding special needs trusts? A) Family trusts can be established but will likely cause the child to lose federal benefits. B) A special needs trust under 42 U.S.C. Sec. 1396p(d)(4)(A) will permit a family member to contribute to the trust for the benefit of the special needs child without adversely effecting government benefits if funds are paid back to the State to the extent of the benefit at the death of the child. C) A pooled trust can be established. Banks and brokerage firms establish many of these trusts. D) A life insurance trust is prohibited from to assist with the needs of a special needs child.

B) A special needs trust under 42 U.S.C. Sec. 1396p(d)(4)(A) will permit a family member to contribute to the trust for the benefit of the special needs child without adversely effecting government benefits if funds are paid back to the State to the extent of the benefit at the death of the child. Rationale Choice a is not correct because they can be set up to maintain benefits. Choice c is incorrect as pooled trusts are established by non-profit organizations. Choice d is not correct because life insurance trusts can be used to provide benefits to special needs children.

A financial planner notes the following during a meeting. Her client's estate planning goals are to provide for her two children. One of the children is a successful physician and was recently sued by a patient for medical malpractice. The other child has a gambling problem and is having a hard time managing his assets. Which of the following strategies is most appropriate to provide for her needs? A) A special needs trust. B) A trust containing a spendthrift clause. C) Outright distribution of trust property to the two children. D) Passing all assets to a pourover trust.

B) A trust containing a spendthrift clause.

Which of the following statements regarding 2503(b) trusts is correct? A) The trustee has full discretion to make principal distributions to the beneficiary. B) All income of a 2503(b) trust must be paid to the beneficiary at least annually. C) When the beneficiary reaches the age of majority, the principal of a 2503(b) trust must be paid to the beneficiary. D) No portion of a contribution to a 2503(b) trust qualifies for the annual exclusion.

B) All income of a 2503(b) trust must be paid to the beneficiary at least annually. Rationale Answer b is a correct statement. Answer a is not correct because the trust document directs the trustee to make distributions. Answer c is not correct because the trust does not have to distribute the principal of the trust to the beneficiary when he reaches the age of majority. The trust is only required to pay the income annually. Answer d is incorrect because the present value of the income interest that the child will receive over the term of the trust is eligible for the annual exclusion.

Which of the following regarding installment sales is correct? A) All payments received by the seller in an installment sale are considered interest income. B) At the death of the seller, the principal balance of the installment sale is included in the seller's gross estate. C) The present value of the expected remainder value of the property sold in an installment sale is subject to gift tax at the date of the transfer. D) An installment sale would never be used with a related party.

B) At the death of the seller, the principal balance of the installment sale is included in the seller's gross estate.

Which of the following statements regarding installment sales is correct? A) All payments received by the seller in an installment sale are considered interest income. B) At the death of the seller, the principal balance of the installment sale is included in the seller's gross estate. C) The present value of the expected remainder value of the property sold in an installment sale is subject to gift tax at the date of the transfer. D) An installment sale would never be used with a related party.

B) At the death of the seller, the principal balance of the installment sale is included in the seller's gross estate. Rationale At the death of the seller, the fair market value of the remaining payments from the installment sale is included in the seller's gross estate. Answer a is incorrect because the payments received by the seller, depending upon the seller's adjusted basis in the property, are allocated as return of capital, capital gain, and interest income. Answer c is incorrect because an installment sale is a sale and does not have an expected remainder value - at the end of the installment payments, $0 principal remains on the note. Answer d is incorrect because an installment sale may be used to transfer potentially appreciating property to a related party. Even though an installment sale would not create a related party advantage, future income and appreciation from the property sold are removed from the seller's gross estate.

The gross estate of a decedent who died in the current year would not include which of the following items? A) A luxury sedan, valued at $60,000, driven every day by the decedent. B) Cash of $1,000,000 given to decedent's daughter two years ago. No gift tax was paid on the transfer. C) A bond given to decedent's cousin last year. Gift tax of $4,000 was paid on the transfer. D) A home which the decedent owned as tenants by the entirety with his wife.

B) Cash of $1,000,000 given to decedent's daughter two years ago. No gift tax was paid on the transfer. Rationale The $1,000,000 transfer is not included in the decedent's gross estate because the three year look back rule only applies to life insurance. Only the gift tax paid on the transfer in answer c would be included in the decedent's gross estate. The property listed in answer a and answer d would be included in the decedent's gross estate.

Which of the following is not an advantage of using a revocable trust? A) Privacy. B) Estate tax reduction. C) Probate avoidance. D) Ability to change the trust.

B) Estate tax reduction. Rationale A revocable trust does not reduce estate taxes. Privacy, probate avoidance, and the ability for the grantor to change the trust are all advantages of a revocable trust.

John transfers $8 million of stock to a GRAT naming his kids as the remainder beneficiaries. The GRAT was established for a ten year term. Which of the following statements concerning this transfer is correct? A) If John dies before the end of the trust term, $8 million will be included in his gross estate, even though the value of the GRAT assets are $10 million. B) If John lives beyond the ten years, none of the value of the GRAT assets will be included in his gross estate. C) Assuming the initial funding of the GRAT resulted in a taxable gift of $3 million, this amount will be added back to his gross estate. D) If John dies before the end of the trust, the GRAT's current value of $10 million will be included in his gross estate, in addition to any taxable gift resulting from the establishment of the GRAT.

B) If John lives beyond the ten years, none of the value of the GRAT assets will be included in his gross estate. Rationale Choice a is incorrect since the value included in the gross estate would be the lump sum necessary to support an annuity payment for the remaining term of the GRAT (this is a special exception to the §2036 rule that applies to GRATs). Choice c is incorrect as the taxable gift will not be added to his gross estate, but will go into the calculation of the total estate tax. Choice d is incorrect as the gift does not get added to his gross estate.

Which of the following statements regarding self-cancelling installment notes (SCINs) is correct? A) If a seller outlives the SCIN term, the buyer continues to pay the SCIN payment until the seller's death. B) If the buyer dies before the end of the SCIN term or the death of the seller, his gross estate includes a debt equal to the present value of the remaining payments. C) A SCIN cannot give the seller a collateral interest in the property sold. D) If the seller dies before the end of the note term, the seller is deemed to have made a taxable gift to the buyer equal to the difference between the payments made and total principal payments on the SCIN.

B) If the buyer dies before the end of the SCIN term or the death of the seller, his gross estate includes a debt equal to the present value of the remaining payments. Rationale If the buyer dies before the end of the SCIN term or the death of the seller, his gross estate includes a debt equal to the present value of the remaining payments. Answer a is incorrect because SCIN payments cease at the earlier of the death of the seller or the end of the SCIN term. Answer c is incorrect because a SCIN can allow the seller to retain a collateral interest in the property sold. Answer d is an incorrect statement.

Which of the following statements is true about Medicaid? A) It is the government's medical insurance program for those age 65 and older B) It is the government's medical and assisted living program for the poor C) It only pays for care in approved, skilled nursing homes after a hospital stay D) Coverage is limited to 100 days per episode of illness

B) It is the government's medical and assisted living program for the poor

Maureen created a Qualified Personal Residence Trust (QPRT) in 1999. The annuity term of the QPRT is ending this year. If Maureen continues to live in the house after this year, how is Maureen's estate planning affected? A) The QPRT is automatically null, and the home reverts to Maureen. B) Maureen must begin to pay the remainder beneficiary of the QPRT a fair market value rent. C) Maureen's probate estate will now include the value of the home at her date of death. D) Maureen's gross estate must include the fair market value of the home at her date of death.

B) Maureen must begin to pay the remainder beneficiary of the QPRT a fair market value rent. Rationale If Maureen continues to live in the home after this year, she must begin to pay the remainder beneficiary a fair market value rent. If she does not, the IRS may deem the transaction null and void and include the value of the home in Maureen's gross estate. The property will not automatically revert to Maureen and it will not be included in Maureen's probate estate, as the property will transfer per the trust document.

After an extensive hospital stay, Daryl died of heart failure in August of the current year. In computing Daryl's taxable estate, which of the following is not deductible? A) Payment to Good Insurance representing the past due balance of Daryl's car insurance for the month July. B) Per the will, a payment to Daryl's friend John. C) Payment to Brian's Engraving for Daryl's tombstone. D) Payment to Howe & Dewey, LLP, the estate's attorneys.

B) Per the will, a payment to Daryl's friend John. Rationale A specific bequest, as detailed in answer b, is not deductible. All of the other answers are deductible expenses or transfers.

A spendthrift clause: A) Requires the fiduciary of a trust to make small distributions. B) Protects the trust assets from the claims of the beneficiary's creditors. C) Eliminates the problems associated with multiple beneficiaries. D) Prevents the lapse of a general power of appointment and its subsequent estate tax consequences.

B) Protects the trust assets from the claims of the beneficiary's creditors. Rationale Answer b is a correct statement. The remaining answers are false statements.

To avoid inclusion in a power holder's gross estate, a power should limit the appointment of property to the power holder for the sole purpose of: A) Pleasure. B) Support. C) Wealth. D) Happiness.

B) Support. Rationale A power of appointment which limits the holder's benefit to support is not included in the power holder's gross estate. As a general rule, a power which limits the power holder's benefit to health, education, maintenance, or support (or any combination of those listed) is not included in the power holder's gross estate.

A trust created in the will of a decedent is a: A) Standby trust. B) Testamentary trust. C) Trust by will. D) Decedent's trust.

B) Testamentary trust. Rationale A testamentary trust is a trust created in a decedent's will. The decedent includes the instructions of the trust's formation and funding in his will. A standby trust is a trust created during a grantor's lifetime that is waiting for assets. The options included as answers c and d do not exist.

At the time of her death, Kathy owned an annuity in which payments will continue after her death to her beneficiary. What amount, if any, will be included in Kathy's gross estate? A) None B) The present value of any future payments C) The full initial value of the annuity D) It depends on whether the annuity is from an IRA, a tax-sheltered annuity, or a qualified plan

B) The present value of any future payments

All of the following statements concerning a Trusteed IRA or a "see-through" trust are correct EXCEPT? A) They can both ensure the owner's wishes with regard to maximum distributions. B) They can both be used to avoid RMD. C) They can both offer creditor protection. D) They can both offer invasion of principal for an ascertainable standard (HEMS).

B) They can both be used to avoid RMD. Rationale Neither can be used to avoid RMD. All of the other statements are correct.

All of the following statetments concerning a Trusteed IRA or a "see-through" trust are correct EXCEPT: A) They can both ensure the owner's wishes with regard to maximum distributions. B) They can both be used to avoid required minimum distribution (RMD). C) They can both offer creditor protection. D) They can both offer invasion of principal for an ascertainable standard (HEMS).

B) They can both be used to avoid required minimum distribution (RMD).

Craig owns an apartment building that has appreciated substantially in the last several years. He wants to remove this property and all future appreciation from his sizeable estate by transferring the building to his son, Tucker, who is 8. Craig does not want the income from the apartment rentals distributed to Tucker now, but he wants Tucker to take ownership of the building and the undistributed income when he turns 21. Their state's statutory age of majority is age 18. How should Craig transfer the building to Tucker? A) Transfer the building into a 2503(b) trust. B) Transfer the building into a 2503(c) trust. C) Transfer the building into a UGMA account. D) Transfer the building into a UTMA account.

B) Transfer the building into a 2503(c) trust.

Which of the following statements is false regarding Trusteed IRAs? A) Trusteed IRAs can provide creditor protection. B) Trusteed IRAs require the named beneficiary to name his or her successor. C) Trusteed IRAs can invade HEMS. D) Trusteed IRAs can limit distributions to RMD.

B) Trusteed IRAs require the named beneficiary to name his or her successor. Rationale One of the advantages of a Trusteed IRA is that the original owner can name the successor beneficiaries.

Which is not a common method of reducing the gross estate? A) Life insurance B) Trusts that do not avoid multiple taxation C) Gifts made during the donor's lifetime D) Special power of appointment

B) Trusts that do not avoid multiple taxation

A decedent's interest in a closely held business must be more than 35% of his or her adjusted gross estate in order for the estate to qualify for tax treatment under which of the following code sections? I. Sec. 6166 (deferral and installment payment of estate tax). II. Sec. 303 (capital gains treatment for certain stock redemptions)

Both I and II

Bart's dad gave him $100,000. Because Bart is a successful professional, he did not need the money and refused to accept it. Bart's dad then gave the money to Bart's sister. Which of the following statements concerning the taxation of the gift is (are) correct? I. If, in refusing the gift, Bart gave his dad a qualified disclaimer, Bart's dad is considered to have made a transfer to Bart's sister that is subject to the federal gift tax II. If, in refusing the gift, Bart did not give his dad a qualified disclaimer, Bart is considered to have made a transfer to his sister that is subject to the federal gift tax.

Both I and II

Suppose in 2011 when the annual exclusion is $13,000, Tom makes a gift of $50,000 to his wife, Maggie, and a gift of $20,000 to his son, Matt. If Tom and Maggie elect to split gifts, which of the following statements concerning the amount of annual exclusions each spouse can claim for federal gift tax purposes is correct? I. Tom's annual exclusions total $23,000 II. Maggie's annual exclusion is $10,000

Both I and II

Which of the following requirements must be met in order for the transfer of a reversionary interest taking effect at death to be pulled into a decedent's gross estate? I. The possession or enjoyment of the transferred property can be obtained only by the beneficiary's surviving the decedent. II. The descendent retained a reversionary interest that was worth more than 5 percent of the value of the transferred property immediately before death

Both I and II

Which of the following statements concerning a spendthrift provision in a trust instrument is (are) correct? I. This provision provides a restriction against attachment by creditors of trust asset, whether they are creditors of the beneficiary or the grantor. II. With this provision, the trust protects the property governed by the trust from the beneficiaries own indiscretion and poor judgment

Both I and II

Which of the following statements concerning income in respect of a descendent (IRD) is (are) correct? I. IRD is both includible at full value in the decedent's gross estate for estate tax purposes and taxed to the beneficiary of the income as ordinary income for income tax purposes II. The beneficiary of the IRD is allowed an income tax deduction for t he additional estate tax due to the IRD's being included in the gross estate

Both I and II

Which of the following statements concerning payment of gift tax is (are) correct? I. The donor of the gift is primarily liable for the gift tax. II. If the donor for any reason fails to pay the tax when it falls due, the done becomes liable to the extent of the value of the gift

Both I and II

Ch 10: An executor may value assets as of the date of death or the alternate valuation date 6 months after death. Assuming the executor elects the alternate valuation date, which of the following statements is (are) correct? 1) Property sold by the executor before the alternate valuation date is valued at its arm's length sale price 2) Property that has increased in value since the date of death is valued the alternate valuation date A) 1 B) 2 C) Both D) Neither

Both are correct (Regarding statement 2: Remember that SOME property in a decedents estate may increase in value during the 6-month period even though the overall value of the estate is less at the alternate valuation date than at the date-of-death value)

In 2018, Roxanne paid Badlaw University $12,000 for her nephew's tuition and gave her nephew $25,000 in cash. Roxanne is single and did not make any other gifts during the year. What is the amount of Roxanne's taxable gifts for the year? A) $0. B) $2,000. C) $10,000. D) $24,000.

C) $10,000. Rationale The transfer to Badlaw University would be a qualified transfer not subject to gift tax and the $25,000 cash transfer would be eligible for the annual exclusion of $15,000 ($25,000-$15,000 = $10,000).

In 1999, Maria funded a bypass trust with $675,000, the applicable estate tax credit amount at the time. At Maria's death in 2018, her will included a testamentary bypass trust and a residual bequest to her U.S. citizen husband. If Maria's net worth at her death was $11,180,000 how much will be transferred to the bypass trust to maximize its benefits? A) $0. B) $3,500,000. C) $10,505,000. D) $11,180,000.

C) $10,505,000. Rationale A bypass trust is designed to receive an amount equal to the decedent's remaining estate tax credit equivalency at his death. Since Maria had funded a bypass trust during her life with $675,000, and since that funding the applicable estate tax credit equivalency had risen, Maria's executor funded the testamentary bypass trust with the difference between the applicable estate tax credit amount at Maria's death ($11,180,000 for 2018) and the funding amount of the intervivos bypass trust ($675,000). In this case, the amount would be $10,505,000 ($11,180,000 - $675,000).

Christie's father has been diagnosed with cancer and has been given one year to live. In an attempt to avoid capital gains tax, Christie transfers her stock with an adjusted basis of $1,000 and a fair market value of $11,000 to her father. Christie's father dies seven months after the transfer when the fair market value of the stock was $12,000 and Christie's father's will leaves her everything, including the stock. Christie subsequently sells the stock for $19,000. What is Christie's capital gain on the transaction? A) $7,000. B) $10,000. C) $18,000. D) $19,000.

C) $18,000. Rationale A special rule applies when the donee of property dies within one year of the transfer and the donee bequeaths the property back to the original donor. In this case, the heir (original donor) will not receive a step up to fair market value in the property. Here, Christie will receive her stock from her father's estate with her father's basis - which was her basis before the original gift - or $1,000. So, when Christie sells the stock for $19,000, she has an $18,000 capital gain.

Gus dies owning several shares of an infrequently traded stock. If Gus dies on Wednesday, November 7th, and the stock has the following trading information: Monday, 11/5 $31 Thursday, 11/8 $36 Monday, 11/12 $28 What is the per share value (rounded to the nearest dollar) of the stock on the federal estate tax return? A) $31. B) $33. C) $34. D) $36.

C) $34. Rationale To value an infrequently traded stock, or to find the value on a date which falls in between trading dates, we must follow a special formula. First, multiply the first trading price after the valuation date by the number of days between the valuation date and the last trade before the valuation date. Add to this product, the product of the last trading price before the valuation date by the number of days between the valuation date and the first trade after the valuation date. Now, divide the total of the two by the total number of days between the trade before the valuation date and the trade after the valuation date. (2 x $36) + (1 x $31) = $103 = $34 3 3

Jude has begun some estate planning. What is the maximum amount of estate tax Jude can avoid by using the applicable estate tax credit during 2018? A) $780,800. B) $3,500,000. C) $4,417,800. D) $11,180,000.

C) $4,417,800. Rationale Jude can shelter estate tax of $4,417,800 using the applicable estate tax credit of $4,417,800. The applicable estate tax credit equivalency or exclusion amount is $11,180,000 for 2018.

If a decedent dies in 2018 with a taxable estate of $16,000,000 and has never used any of his applicable estate tax credit, what amount of the decedent's estate tax will be absorbed by the applicable estate tax credit amount in 2018? A) $780,800. B) $1,455,800. C) $4,417,800. D) $11,180,800.

C) $4,417,800. Rationale The applicable estate tax credit for 2018 is $4,417,800.

Despite his efforts to transfer all of his property out of his estate during his life, Gordon died on January 16th still owning the following property: Personal Residence: Adjusted Basis of $20,000 FMV of $320,000 Rental Property Adjusted Basis of $84,000 FMV of $80,000 Rental Income on above property (February 1 payment) Adjusted Basis of $2,000 FMV of $2,000 Cancelled vacation cruise refund (check received 12/31, not cashed) Adjusted Basis of $4,500 FMV of $4,500 Cash Adjusted Basis of $18,000 FMV of $18,000 What is the value of Gordon's gross estate? A) $124,500 B) $128,500 C) $422,500 D) $424,500

C) $422,500

Despite his efforts to transfer all of his property out of his estate during his life, Gordon died on January 16th still owning the following property: Adj. Basis FMV Personal Residence $20,000 $320,000 Rental Property $84,000 $80,000 Rental Income on above property (February payment) $2,000 $2,000 Cancelled vacation cruise refund (check received 12/31 but not cashed) $4,500 $4,500 Cash $18,000 $18,000 What is the value of Gordon's gross estate? A) $124,500. B) $128,500. C) $422,500. D) $424,500.

C) $422,500. Rationale The personal residence, the rental property, the cruise refund and the cash are all included at the fair market value at Gordon's date of death. The rental income is not included because the payment was made after Gordon's death, and it was not owed to Gordon before his death. $320,000 + $80,000 + $4,500 + $18,000 = $422,500. The rental income would be included in the estate's income tax return (Form 1041).

Dave transferred $5,500,000 to a GRAT naming his two children as the remainder beneficiaries while retaining an annuity valued at $500,000. If this is the only transfer Dave made during the year, what is Dave's total taxable gift for the year? A) $0. B) $4,972,000. C) $5,000,000. D) $5,487,000.

C) $5,000,000.

C) $5,000,000. Rationale The remainder interest is a taxable gift from Dave to his children equal to the value of the property contributed to the GRAT less the value of the annuity retained, $5,500,000-$500,000 = $5,000,000. Because the remainder interest is a gift of a future interest it is not eligible for the annual exclusion.

Before her death, Alice loaned Jerry $400,000 in return for a note. The terms of the note directed Jerry to make monthly payments including interest at the applicable federal rate. If Alice dies before the note is repaid, which of the following affects the valuation for Alice's gross estate? 1. Jerry's inability to make payments timely. 2. The market rate of interest. 3. The remaining term of the note. 4. Alice forgives the note as a specific bequest in her will. A) 1 only. B) 1 and 2. C) 1, 2, and 3. D) 2, 3, and 4.

C) 1, 2, and 3. Rationale If Alice dies before Jerry repays the note, the note is included in Alice's gross estate at the fair market value of the note plus any accrued interest due at Alice's date of death. This fair market value is affected by the interest rate, maturity date, and Jerry's ability to make the note payments, but not by Alice's forgiveness of the note in her will. The forgiveness of the note is deemed a specific bequest and the fair market value of the note is still included in Alice's gross estate.

Which of the following statements regarding a Grantor Retained Annuity Trust (GRAT) is/are true? 1. At the end of the GRAT term, a taxable gift will occur when trust assets are transferred to the beneficiary. 2. If the grantor dies during the trust term, a pro rata share of the trust assets will be included in the grantor's estate. 3. Interest and dividends earned by assets in a GRAT will be taxed to the grantor. 4. If the grantor survives the trust term, none of the trust assets are included in the grantor's gross estate. A) 1 and 4 only B) 2 and 3 only C) 3 and 4 only D) 1, 2 and 4 only

C) 3 and 4 only

In August of the current year, Jim died of lung cancer. Jim's son, Doug, has decided to prepare his father's estate tax return but has come to you for clarification on whether the following list of items are included in Jim's gross estate. After reviewing the list, which item(s) will you tell Doug to exclude from Jim's gross estate? A) A life insurance policy on the life of Jim's wife owned by Jim. B) A check from Doctor's Hospital for the refund of medical expenses that Jim initially paid, but were subsequently paid for by Jim's health insurance company. The reimbursements were due to Jim before his death. C) A check from ABC Corporation for dividends in the amount of $15,000 declared September 23rd (the month after Jim's death). D) A payment of $500,000 from Mutual Life Insurance of America representing the proceeds of a life insurance policy owned by Jim.

C) A check from ABC Corporation for dividends in the amount of $15,000 declared September 23rd (the month after Jim's death).

In August of the current year, Jim died of lung cancer. Jim's son, Doug, has decided to prepare his father's estate tax return, but has come to you for clarification on whether the following list of items are included in Jim's gross estate. After reviewing the list, which item(s) will you tell Doug to exclude from Jim's gross estate? A) A life insurance policy on the life of Jim's wife owned by Jim. B) A check from Doctor's Hospital for the refund of medical expenses that Jim initially paid, but were subsequently paid for by Jim's health insurance company. The reimbursements were due to Jim before his death. C) A check from ABC Corporation for dividends in the amount of $15,000 declared September 23rd (the month after Jim's death). D) A payment of $500,000 from Mutual Life Insurance of America representing the proceeds of a life insurance policy owned by Jim.

C) A check from ABC Corporation for dividends in the amount of $15,000 declared September 23rd (the month after Jim's death). Rationale Jim died in August. The dividends from ABC Corporation in the amount of $15,000 are not included in Jim's gross estate because they were not declared until September. The life insurance policy in answer a is included in Jim's gross estate as all property owned by the decedent at his date of death is included in the decedent's gross estate. The check from the hospital detailed in answer b is included in Jim's gross estate because the payments were due to him before his death. The life insurance policy in answer d is included in Jim's gross estate because life insurance owned or transferred within three years of a decedent's date of death are included in the decedent's gross estate.

A Family Limited Partnership (FLP) offers all of the following advantages except: A) Significant discounts in valuing transfers of partnership interests B) A convenient way to gift assets that are generally difficult to break into easily giftable pieces C) A method of keeping appreciation taxable to the older generation D) A means of giving away property while still maintaining control

C) A method of keeping appreciation taxable to the older generation

Which of the following statements regarding private annuities is correct? A) If a seller dies before the end of the private annuity term, the buyer continues to pay the annuity to the seller's estate. B) A private annuity must include a risk premium to compensate the seller for the possibility of cancellation at the seller's death. C) A private annuity cannot give the seller a security interest in the property. D) With a private annuity, the buyer must make the annuity payments for the lesser of the term of the annuity or the life of the seller.

C) A private annuity cannot give the seller a security interest in the property. Rationale A private annuity cannot give the seller a security interest in the property or the private annuity treatment is disallowed. Answers a and d are incorrect because a private annuity requires the buyer to pay the annuity payment for the remaining life of the seller. Answer b is incorrect because the risk for the buyer in the private annuity is that the seller lives longer than his life expectancy and the buyer overpays. To compensate for this risk, the buyer does not have to make the payments if the seller dies before his life expectancy.

Of the following statements regarding a Qualified Personal Residence Trust (QPRT), which is true? A) At the end of the QPRT term, the residence reverts to the grantor. B) At creation of the QPRT, the grantor has a taxable gift to the remainder beneficiary eligible for the annual exclusion. C) At the end of the QPRT term, the grantor must begin paying rent to the remainder beneficiaries of the QPRT if he continues to live in the residence. D) A QPRT is ideal for a personal residence that is expected to appreciate at a lower rate than the Section 7520 rate.

C) At the end of the QPRT term, the grantor must begin paying rent to the remainder beneficiaries of the QPRT if he continues to live in the residence. Rationale Answer c is a true statement. Answer a is incorrect because the residence transfers to the remaindermen at the end of the QPRT term. Answer b is incorrect because the remainder interest is not eligible for the annual exclusion. Answer d is incorrect because the QPRT is ideal for a personal residence which is expected to appreciate at a higher rate than the Section 7520 rate.

Ch 8: A person dying without a valid will generally loses which of the following capabilities? 1) the right to name guardians of minor children 2) the right to name a personal representative a) 1 b) 2 c) both d) neither

C) Both are correct

A trust created to receive an amount equal to the decedent's remaining applicable estate tax credit equivalency at the decedent's date of death is a: A) Standby trust. B) Pourover trust. C) Bypass trust. D) Revocable trust.

C) Bypass trust. Rationale A bypass trust is created, either at death or during the grantor's life, to receive property with a fair market value equal to the decedent's remaining applicable estate tax credit equivalency. The bypass trust is created to ensure that an individual utilizes his full applicable estate tax credit at his death.

Harry, age 60, owns 400 shares of ABC Corporation, which he expects to increase 300% over the next four years. Harry eventually wants to transfer the stock in ABC Corporation to his son, Billy, but Billy is currently incapable of managing the stock or the income from the stock. Harry expects Billy to be responsible in five years. Of the following, which transfer method would work best to remove the expected appreciation of the stock from Harry's gross estate and protect the property for Billy? A) Private annuity. B) SCIN. C) GRAT. D) QPRT.

C) GRAT. Rationale The GRAT with a term of five or more years will allow Harry to transfer the stock to Billy at a gift tax cost equal to the current fair market value of the stock (before the 300% appreciation) less the sum of the annuity payments that will be paid back to Harry. This transfer method is not as ideal as a direct gift of the property because the annuity payments will return to Harry and will be included in his gross estate. Also, if Harry dies during the term of the GRAT, the full fair market value of the stock, at Harry's date of death, will be included in Harry's gross estate. Neither a private annuity nor a sale will meet Harry's goals because both give Billy access to the stock immediately. A QPRT is also not an option because a QPRT is a special GRIT which transfers a personal residence.

Carol wants to gift some assets to her son, Dan, in 5 years. She is willing to put the assets in a trust today if she can maintain an income stream that will be adjusted for the growth of the assets. Which type of trust should Carol establish to accomplish her goal? A) GRAT B) GRIT C) GRUT D) QPRT

C) GRUT

Which of the following statements is not true? A) A charitable gift during life can reduce estate taxes. B) A charitable gift during life can reduce income taxes. C) Only a full, outright donation of property will qualify as a deductible charitable contribution. D) The donor of a charitable gift may be required to file a gift tax return including the charitable contribution.

C) Only a full, outright donation of property will qualify as a deductible charitable contribution. Rationale A donor can transfer an interest in property, other than the full, outright ownership, and receive a charitable deduction. All of the other statements are true statements. Option d is a true statement because the donor of a charitable contribution will have to file a gift tax return and include the charitable transfer if the contribution is a split interest gift, or if the donor made other taxable gifts during the year.

Grandma wishes to leave a sum of money to each of her minor grandchildren upon her death. She wants the investment income to be used to support them until they finish their education and she wants the investment income from the funds to be taxed at as low a rate as possible. She does not want them to have access to the capital until the age of 45. Grandma should leave the money to ___________. A) Each of her children to be invested on behalf of the grandchildren. B) Each of the grandchildren directly. C) Testamentary trusts established for each of her grandchildren as beneficiaries. D) Inter vivos trusts established for each of her grandchildren as beneficiaries.

C) Testamentary trusts established for each of her grandchildren as beneficiaries.

In a Family Limited Partnership (FLP), there may be special valuation discounts available to enable wealth to pass to younger generations at a significantly lower tax cost than would otherwise be possible. One of these is the "lack of marketability" discount. What is the other? A) The "limited partner" discount B) The "succession of generations" discount C) The "minority interest" discount D) The "property right" discount

C) The "minority interest" discount

The main difference between a 2503(b) and a 2503(c) trust is: A) The 2503(b) trust requires the trustee to accumulate income, whereas the 2503(c) trust requires the trustee to distribute all income. B) The 2503(c) trust only allows distributions for the health, education, maintenance, and support of the beneficiary. C) The 2503(c) trust must terminate, or the beneficiary must have the right to receive the trust's assets, when the beneficiary reaches age 21. A 2503(b) trust may hold property for the lifetime of the beneficiary. D) The trustee of a 2503(b) trust must distribute the principal of the trust within five years of the beneficiary reaching the age of majority. With a 2503(c) trust the trustee must distribute the principal of the trust at the death of the beneficiary.

C) The 2503(c) trust must terminate, or the beneficiary must have the right to receive the trust's assets, when the beneficiary reaches age 21. A 2503(b) trust may hold property for the lifetime of the beneficiary. Rationale The main difference between a 2503(b) and 2503(c) trust is that the 2503(b) trust may hold property for the life of the beneficiary, whereas the 2503(c) trust must distribute the property to the beneficiary when he reaches the age of 21. Answer a is incorrect - the characteristics are reversed in each trust. Answers b and d are incorrect statements with no basis of fact.

In a typical family limited partnership: A) The owners of the closely held business transfer general partnership interests to their children or grandchildren B) No discount is allowed on the gifts since the children's interest as a group will be more than 50% C) The children receive limited partnership interests D) The family limited partnership should be funded with assets that are not expected to appreciate

C) The children receive limited partnership interests

Which of the following statements is correct concerning a trust? A) The grantor of a trust may not also be the trustee. B) The beneficiary of a trust holds legal title, while the trustee holds equitable title to the trust assets. C) The fiduciary relationship in a trust is between the trustee and the beneficiary, not between the grantor and the trustee. D) The grantor-trust rules will not apply to a grantor who has no continuing involvement with the trust he or she has created.

C) The fiduciary relationship in a trust is between the trustee and the beneficiary, not between the grantor and the trustee.

Which of the following statements concerning trust formation is correct? A) The trustee of the trust will receive the trust corpus after paying the income to the income beneficiary. B) The remainder beneficiary of a trust receives an annuity payment each year. C) The grantor of a trust contributes property to a trust which will be managed by the trustee. D) The income beneficiary of a trust always receives the trust property at the termination of the trust.

C) The grantor of a trust contributes property to a trust which will be managed by the trustee. Rationale Answer c is a correct statement. Answer a, b, and d are incorrect as the remainder beneficiary of a trust receives the trust corpus and the income interest is paid to the income beneficiary each year.

Which of the following situations would not cause the inclusion of an irrevocable trust in a grantor's gross estate? A) The grantor has retained the right to receive the income from the irrevocable trust. B) The grantor has retained the right to use the assets contributed to the irrevocable trust for the remainder of his life. C) The grantor retains an annuity from the irrevocable trust for a term of years less than his life expectancy. D) The grantor retains the right to revoke the trust.

C) The grantor retains an annuity from the irrevocable trust for a term of years less than his life expectancy. Rationale If the grantor retains an annuity from an irrevocable trust, this right alone will not cause the inclusion of the irrevocable trust in his gross estate. A GRAT is an irrevocable trust in which the grantor retains an annuity from the trust. If the grantor outlives the trust, the assets of the irrevocable trust will not be included in his gross estate. All of the other situations would cause the inclusion of an irrevocable transfer in a grantor's gross estate.

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

C. Any will 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 type(s) of charitable remainder arrangements permit additional contributions after inception?

CRUTs and Pooled Income Funds

10000

Celeste made the following transfers during 2017: 1. Her friend, Paul, needed 24000 o begin law school. Celeste gave Paul the cash. 2. An alimony payment of 14000 to her ex-husband 3. She paid 15000 to diamond Shores Hospital for her friend Jackie's medical bills What amount of Celeste's taxable gifts?

Notwithstanding the gift tax exclusion, Crummey powers are further limited in which of the following ways in order for them to not be considered a taxable gift to the other trust beneficiaries if the holder of the power allows it to lapse? A) 5% of the trust assets B) $5,000 C) $5,000 PLUS 5% of the principal D) $5,000 OR 5% of the principal, whichever is greater

D) $5,000 OR 5% of the principal, whichever is greater

Ken bought a house for $300,000 and transferred it to a QPRT that was to continue for a term of 12 years. At the time the QPRT was created, the house was worth $500,000. Ken died 10 years later, when the house was worth $700,000. What amount is included for the house in Ken's gross estate? A) $0 B) $50,000 C) $500,000 D) $700,000

D) $700,000

D) $750,000

John is 67 years old, and would like to transfer some of his assets to his adult son, Murray. John does not want to incur a gift tax liability, and also needs some cash flow, so he is considering selling the assets to his son. A friend recently informed John that a self-cancelling installment note (SCIN) is a good planning strategy for many reasons. Which of the following statements regarding self-cancelling installment notes (SCINs) is/are correct? 1. To be effective, a SCIN must reflect a risk premium to compensate the seller for the possibility of cancellation. 2. A seller who accepts a SCIN may accept security without jeopardizing the installment sale treatment. 3. At the seller's death, the present value of any remaining SCIN balance is excluded from the seller's gross estate. 4. A SCIN is a debt that is ordinarily extinguished at the seller's death. A) 1 only B) 3 only C) 1 and 3 only D) 1, 2, 3, and 4

D) 1, 2, 3, and 4

Of the following, which does not reduce a grantor's federal gross estate? A) A contribution of highly appreciating property to an irrevocable trust. B) A contribution of high income, zero growth property to an irrevocable trust. C) The creation of a grantor trust that requires the grantor to pay income tax on the trust's income. D) A contribution of depreciable personal property to a revocable living trust.

D) A contribution of depreciable personal property to a revocable living trust. Rationale A contribution to a revocable living trust does not reduce a grantor's federal gross estate. All of the other options would reduce a grantor's federal gross estate.

Of the following expenditures from an estate, which is not a deduction from the gross estate or adjusted gross estate to arrive at the taxable estate? A) Payment to United Charitable Organization (a charity qualifying under IRC Section 501(c)(3)) to satisfy a specific bequest. B) Distribution of assets to spouse to satisfy specific bequests listed in will. C) Payment to Second USA Bank for a credit card balance. D) A payment to decedent's friend for $10,000 to satisfy a specific bequest.

D) A payment to decedent's friend for $10,000 to satisfy a specific bequest. Rationale Payments made to satisfy specific bequests to individuals other than a surviving spouse or a charity are not deductions from the gross estate to arrive at the taxable estate. All of the others are deductible expenses or transfers.

D) A special general advocate trust. Rationale The first three choices are correct. The last choice is simply made up - it is not a real trust.

All of the following statements concerning a power of appointment trust are correct except: A) The trust will qualify for the unlimited marital deduction if the surviving spouse is given a general power of appointment over the trust's assets. B) Powers of appointment trusts are irrevocable trusts that can be created either during lifetime or at death. C) A general power of appointment trust qualifies the grantor's contributions for the gift tax annual exclusion if the beneficiary is allowed to take withdrawals at his discretion. D) A special power of appointment trust that limits the surviving spouse's right to an ascertainable standard qualifies the trust for the unlimited marital deduction.

D) A special power of appointment trust that limits the surviving spouse's right to an ascertainable standard qualifies the trust for the unlimited marital deduction. Rationale A special power of appointment trust that limits the surviving spouse's right to an ascertainable standard (health, education, maintenance and support) does not qualify the trust for the unlimited marital deduction. All of the other statements are true statements regarding power of appointment trusts.

Which of the following estates would have to file a federal estate tax return? A) A decedent who died in 2019, owning joint property with his spouse, valued at $4 million B) A decedent who died in 2019 with a total gross estate of $2.5 million and a taxable estate of $2.3 million C) An individual who gave $12 million cash to his spouse six months before he died in 2019 D) An individual who died in 2019 with a gross estate of $16 million and a taxable estate of $15.4 million

D) An individual who died in 2019 with a gross estate of $16 million and a taxable estate of $15.4 million

Which of the following incidents of ownership, held during the three year period before death, will cause inclusion of life insurance proceeds in the gross estate? A) The right to change the beneficiary B) The right to borrow against the policy C) The right to convert group coverage to an individual contract D) Any of the incidents of ownership would be enough to bring the proceeds into the gross estate

D) Any of the incidents of ownership would be enough to bring the proceeds into the gross estate

Maxwell died August 8, 2014. 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, 2010. b. The sale of his term insurance policy to his brother, Donald, for fair market value on August 12, 2010. 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, 2012. d. A gift of $14,000 to Maxwell's sister on August 7, 2014. No gift tax was due on the gift.

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, 2012. 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.

The executor is finalizing Dorothy's estate tax return - she passed away eight months earlier. The executor has determined that Dorothy's gross estate includes $1,400,000 of real estate, $850,000 of cash and cash equivalents, and $650,000 of qualified retirement plans. The total gross estate is $2,900,000. As the executor reviews the deductions, which of the following will he deduct from the total gross estate to arrive at the adjusted gross income on his Form 706? A) Income in Respect of Decedent (IRD) B) Unlimited charitable deduction C) Unlimited marital deduction D) Executor's fee

D) Executor's fee

Johnny died eight months ago and his executor is finalizing his estate tax return. The executor has determined that Johnny's gross estate includes $400,000 of real estate, $750,000 of cash and cash equivalents, and $300,000 of qualified retirement plans. The total gross estate is $1,450,000. As the executor reviews the deductions, which of the following will he deduct from the total gross estate to arrive at the adjusted gross estate on his Form 706? A) Income in Respect of Decedent (IRD). B) Unlimited charitable deduction. C) Unlimited marital deduction. D) Executor's fee.

D) Executor's fee. Rationale The executor's fees listed in answer d are deductions from the gross estate to arrive at the adjusted gross estate. The marital deduction and charitable deduction, as listed in answers b and c, are deductions from the adjusted gross estate to arrive at the taxable estate. Income in respect of a decedent, answer a, is a deduction on the estate's Form 1041 or a beneficiary's Form 1040, and is not a deduction on the decedent's Form 706.

Gordon creates an irrevocable trust into which he transfers income-producing property. The trust provides income to his children for life, remainder to the grandchildren. Gordon has appointed his wife, Sophia, as the trustee of the trust. Sophia, as the trustee, is given the power to apply trust income to purchase life insurance on Gordon's life. Who is responsible for the payment of the income tax liability attributed to the trust income? A) Sophia, as an individual B) The children and grandchildren as trust beneficiaries. C) Sophia, as the trustee, and the children and grandchildren, based upon the DNI calculation D) Gordon, as the grantor of the trust.

D) Gordon, as the grantor of the trust.

In an effort to keep any of its future appreciation out of her gross estate, Mary, a 73-year-old widow, transferred her home into a Qualified Personal Residence Trust (QPRT) naming her only son as the remainder beneficiary. Which of the following statements regarding a QPRT is false? A) If Mary has a taxable gift at the date of formation of the trust, the gift is not eligible for the annual exclusion. B) If Mary outlives the term of the QPRT and continues to live in the house, she must pay her son rent. C) At the termination of the QPRT, the personal residence is distributed to Mary's son. D) If Mary dies during the term of the QPRT, her gross estate will include the value of her home at the date of the transfer to the QPRT.

D) If Mary dies during the term of the QPRT, her gross estate will include the value of her home at the date of the transfer to the QPRT. Rationale All of the answers are correct with the exception of answer d. If Mary dies during the term of the QPRT, her gross estate will include the value of her home at her date of death.

fixed annuities

cash value is based on a declared interest rate and the growth rate of an external equity index

public charities

charitable organizations that receive broad support from the general public

indirect rollover

check made payable to participant and sent to participant

special needs trusts under 42U.S.C. Sec. 1396P(d)(4)(A)

considered to be self-settled in nature, are typically established by the special needs person's parent, grandparent, legal guardian or by a court and will avoid disqualification of Medicaid and SSI benefits

gross estate

consists of the fair market value of all of a decedent's interests owned at the decedent's date of death plus the fair market value of certain property interests the decedent transferred during his life, in which he retained some rights, powers, use, or possession

Ron established a GRAT, a GRIT, and a GRUT for the benefit of his daughter, Beth. Which of these trusts qualify for the annual gift tax exclusion? A) GRAT and GRUT only B) GRIT only C) All three qualify - GRIT, GRAT, and GRUT D) None of the above qualify for the annual gift tax exclusion

D) None of the above qualify for the annual gift tax exclusion

Which of the following assets are not generally counted for Medicaid planning eligibility purposes? A) Certificates of Deposit B) Equity Securities C) Vacation Home D) Primary Residence

D) Primary Residence

Which of the following assets are not generally counted for Medicaid planning eligibility purposes? A) Certificates of Deposit. B) Equity Securities. C) Vacation Home. D) Primary Residence.

D) Primary Residence. Rationale All are counted, except a personal residence.

Which of the following is not a party to a trust? A) Trustee. B) Income beneficiary. C) Grantor. D) Principal.

D) Principal. Rationale The parties to a trust are the grantor, who creates the trust and contributes the property; the trustee, who manages the trust and holds the legal title to the trust assets; and the beneficiary, who holds the beneficial title to the property. The principal of the trust is the property contributed to the trust; it is not a party to the trust.

Tim has a family business that he wants to transfer to his son, Greg. Greg does not have the cash to pay Tim for the fair market value (FMV) of the business, and Tim needs income to live on for the rest of his life. Which of the following strategies would be most appropriate for Tim? A) Installment sale B) Sale-leaseback C) Bargain sale D) Private annuity

D) Private annuity

Which of the following does not qualify as a charitable organization? A) The state of Kentucky. B) The city of Los Angeles. C) A cemetery company organized to maintain cemetery plots in a county. D) Republican National Committee.

D) Republican National Committee. Rationale Political organizations are not qualifying charitable organizations. The other options are considered qualified charitable organizations. Section 170(c) defines which organizations will qualify for charitable status. They include: • a State, a possession of the United States, or any political subdivision; • a corporation, trust or community chest, fund or foundation that is organized in the U.S. and is operated exclusively for religious, charitable scientific, literary or educational purposes, fostering national or international amateur sports competition, or prevention of cruelty to animals; • a post or organization of war veterans organized in the U.S.; • a domestic fraternal society, order or association, operating under the lodge system, but only if the contribution is to be used for the purposes listed above; • a cemetery company.

Which of the following statements is false regarding See-Through Trusts? A) See-Through trusts provide creditor protection. B) See-Through trusts require RMD to be paid. C) See-Through trusts may be accumulation trusts. D) See-Through trusts are required to provide the custodian of the IRA the trust document by April 15 following the year of the owner's death.

D) See-Through trusts are required to provide the custodian of the IRA the trust document by April 15 following the year of the owner's death. Rationale The trust instrument must be provided by October 31 in the year following the death of the IRA owner.

Which of the following is not a reason that the proceeds of a life insurance policy would be included in a decedent's gross estate? a) The proceeds are payable to the estate b) The decedent transferred the ownership of the policy to his daughter six years before his death, but retained the right to change the beneficiary of the policy c) The decedent transferred the ownership of the policy to his son six months before his son's death d) The decedent transferred ownership of the policy to his wife four years ago

D) The decedent transferred the ownership of the policy to his wife four years ago

When a U.S. citizen dies and bequeaths property to his U.S. citizen spouse, the marital deduction is limited to the following amount: A) $780,800. B) $4,417,800. C) $11,180,000. D) The marital deduction is unlimited.

D) The marital deduction is unlimited. Rationale For transfers to a U.S. citizen spouse, the marital deduction is unlimited.

The estate of Charles Darnell includes the following assets: - 3,000 shares of common stock, a controlling interest in Darnell, Inc. - a closely held corporation founded by the decedent and its largest sales producer - 500 shares of publicly traded stock in a computer company that has grown rapidly but has had reversals since just before decedent's death - An apartment building in a relatively stable area - A life insurance policy on the life of the decedent - U.S. Treasury bonds that will mature in 5 years and have been declining in value due to rising interest rates All of the following valuation techniques may apply to the Darnell estate, EXCEPT: A) The alternate valuation date B) The key person discount C) The lack-of-marketability discount D) The minority discount E) The face value

D) The minority discount

Which of the following statements is correct about Form 706, Estate Tax Return? A) The return is due within six months of the date of death, but can be extended. B) The return can be extended for up to seven months. C) The surviving spouse can apply the DSUE amount received from the estate of any of his or her deceased spouses against any tax liability arising from subsequent lifetime gifts and transfers at death. D) To elect portability of the DSUE amount to a surviving spouse, the executor must file the Form 706 and elect this treatment.

D) To elect portability of the DSUE amount to a surviving spouse, the executor must file the Form 706 and elect this treatment. Rationale Choice a is incorrect as the return is due within 9 months. Choice b is incorrect as the extension is for 6 months. Choice c is incorrect as it is the last spouse, not any spouse, and the DSUE cannot be applied against the GSTT.

Which of the following statements regarding Family Limited Partnerships (FLPs) is correct? A) The primary purpose of creating a FLP is to provide joint management of the property contributed to the FLP. B) At the creation of the FLP, the transferring individual will have a capital gain equal to the difference between the fair market value of the property transferred and his adjusted basis in the property. C) The limited partners in the FLP control all of the day-to-day functions of the FLP. D) Transfers of the limited partnership interests in the FLP are usually eligible for minority and lack of marketability valuation discounts.

D) Transfers of the limited partnership interests in the FLP are usually eligible for minority and lack of marketability valuation discounts. Rationale Answer d is a correct statement. Answer a is incorrect because the primary purpose of the FLP is to transfer interests in property utilizing various valuation discounts and for the general partner to retain complete control. Answer b is incorrect because the transfer of property to a partnership is generally a tax-free exchange. Answer c is incorrect because limited partners are barred from participating in the day-to-day operations of the FLP.

All of the following statements concerning the income beneficiary of a trust are correct, EXCEPT: A) An income interest in a trust can be given to the beneficiary, while also naming the same individual as the remainder beneficiary of the trust. B) A decedent will commonly create a testamentary trust that names his wife as the income beneficiary of his property for the rest of her life and his children as the remainder beneficiaries. C) A dynasty trust only has income beneficiaries. The trust property will never vest with a remainder beneficiary. D) When the property is paid to the remainder beneficiary at the termination of a trust, if the income beneficiary is a different individual than the remainder beneficiary, the income beneficiary is treated as having made a taxable gift to the remainder beneficiary.

D) When the property is paid to the remainder beneficiary at the termination of a trust, if the income beneficiary is a different individual than the remainder beneficiary, the income beneficiary is treated as having made a taxable gift to the remainder beneficiary. Rationale Answer d is a false statement. The income beneficiary is not viewed as making a gift to the remainder beneficiary at the termination of a trust. At the formation of the trust, the grantor of the trust made a taxable gift to the remainder beneficiary equal to the value of the property contributed less the value of the income interest payable to the income beneficiary. All of the other statements are true statements.

During 2017, Janice made the following transfers. What is the amont of her total taxable gifts for 2017? 1. Janice gave 10000 to her boyfriend so he could buy a new car 2. Janice's neighbor Judy needed 15000 to pay for her knee surgery. Janice paid Doctors-R-Us Hospital directly 3. Her nephew began attending Georgetown Law School this year. Janice made the initial year tuition payment of 25000 directly to Georgetown Law School during 2017

Which of the following are credits to be used against the federal estate tax for all years when there is an estate tax? 1) Estate Tax Credit Equivalent 2) Credit for tax on prior transfers 3) Credit for gift taxes 4) Foreign estate tax credit A) 1 and 2 only B) 2 and 3 only C) 1, 2, and 3 only D) 2, 3, and 4 only E) 1, 2, 3, and 4

E) 1, 2, 3, and 4

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.

Mary's husband died two years ago. His will included the following three testamentary trusts: -A trust for the benefit of Mary's children, but giving Mary a GPOA over the trust assets for the remainder of her life (GPOA Trust) -A bypass trust for the benefit of Mary's children, but giving Mary a power to invade the trust assets for an ascertainable standard for the remainder of her life (Bypass Trust) -A charitable trust for the benefit of Mary's alma mater: Kansas State University (Charitable Trust) At Mary's death, which of the trusts assets will be included in her gross estate?

GPOA Trust only

Which of the following statements concerning conditions that must be met in order for the value of an annuity to be included in a decedent's gross estate is (are) correct? I. The annuity must provide for payments to one or more beneficiaries if they survive the descendent II. The descendent must have actually received payments prior to death

I only

Which of the following statements concerning fiduciaries is (are) correct? I. All fiduciaries are required to manage the property in their care according to strict fiduciary principles and standards established by state law II. Because of fiduciaries hold a special position of trust in relation to the beneficiaries, the standard of conduct for fiduciaries is interpreted the same for both lay fiduciaries and professional fiduciaries

I only

Which of the following statements concerning the availability of the martial deduction in the case of a resident-alien spouse is (are) correct? I. A surviving resident-alien spouse is eligible for the marital deduction if the surviving spouse becomes a US citizen before the descendent spouses' estate tax return is filled and remains a US resident after the death of the citizen spouse. II. If a resident-alien spouse is the first to die, the marital deduction is not allowed for property transferred to the surviving citizen spouse

I only

Which of the following statements concerning the inclusion of property subject to indebtedness in a decedent's estate is (are) correct? I. If the descendent is personally liable for the indebtedness, the full value of the property is included in the gross estate, and the estate is allowed a deduction for the amount of the debt. II. If the descendent is not personally liable for the indebtedness, no interest in the property is included in the gross estate

I only

All of the following statements concerning gifts of life insurance and annuities are correct EXCEPT

If each beneficiary of a revocable life insurance trust has Crummey powers, the trust qualifies as a present-interest gift for the beneficiaries and thus qualifies for the annual exclusion

If a trust earns $20,000 in income, all the following statements concerning the taxation of the income are correct EXCEPT

If the $20,000 is taxable income and the trust distributes $25,000 to its sole beneficiary, the beneficiary is taxed on $25,000

Which of the following statements concerning the alternate valuation date allowed for federal estate tax purposes is correct?

If the alternate valuation date is selected, that date applies to al assets in the estate, subject to a few exceptions

2141800

If the decedent dies in 2018 with a taxable estate amount of 6000000 and has never used any of his applicable estate tax credit, what amount of the decedent's estate tax will be absorbed by the applicable estate tax credit amount in 2017?

When would a decedent's property be subject to ancillary probate?

If the decedent is a tenant in common in real estate with an unrelated person and the property is located in a state other than the state of domicile.

Which of the following statements concerning the federal estate taxation of annuity products is correct?

If the decedent's employer promised retirement benefits to the descendent for lie and then to a designated beneficiary who survives the descendent, the value of the surviving beneficiary's annuity would be include in the decedent's estate even if the descendent never received any benefits

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.

d) Pete transfers $20,000 to his ex-wife, Patricia. Pete and Patricia were divorced five years ago. 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."

Marie is the founder and sole owner of Purple Cakes Bakery. Allen has offered to buy her business for a price that Marie considers reasonable, but Allen does not have all the funds necessary to pay for the business at the current time. Marie is in good health, her true life expectancy is much greater than the IRS life expectancy factor, and she wants to accept Allen's offer. Allen is not related to Marie and has good credit. Given these facts, which transfer method should be used to transfer the business to Allen?

Installment Sale

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 at his earliest chance. What transfer would ensure that the assets are excluded from Paul's gross estate and could also ensure that Chad cannot squander the assets?

Irrevocable Trust

Which of the following statements concerning tenancy by the entirely is correct?

It is limited to co-ownership of property held by a husband and wife

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?

It would not qualify for any trust

460000

Marvin died in 2016 and his executor is finalizing his estate tax return. The executor has determined that Marvin's adjusted gross estate is $7,000,000 and that his estate is entitled to a charitable deduction in the amount of $400,000. Calculate the estate tax liability for Marvin's estate.

Which of the following is not an estate planning goal?

Maximizing the gross estate

Which of the following statements is correct concerning Medicaid?

Medicaid is the government's medical and assisted living program for the poor.

Which of the following states is not a community property state?

Mississippi

Which of the following statements concerning property held as tenancy in common is (are) correct? I. Because each ownership portion is an undivided part of the whole property, a single tenant cannot sell his or her interest in the property II. Tenancy is common can be used only with real property

Neither I or II

Which of the following statements concerning the number of annual exclusions to which the donor of a gift is entitled is (are) correct? I. A donor of a gift in trust for three beneficiaries is entitled to only one annual exclusion for the trust. II. A donor who gives his olden son two gifts and his youngest son one gift in a given year is entitled to three annual exclusions (one for each gift)

Neither I or II

Which of the following statements concerning the taxation of income in respect of a descendent (IRD) is (are) correct? I. For income tax purposes, IRD is taxed to the decedent's estate, regardless of who receives the income II. If IRD is subject to income taxation, it is not included in the decedents' gross estate for estate tax purposes?

Neither I or II

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 $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. Yes, this item is included in the probate estate. No, this item is not included in the probate estate.

No, this item is not included in the probate estate. The life insurance policy had a designated beneficiary who was alive at Curtis's death because she received the property, thus the proceeds are not included in Curtis's probate estate

Marcelle, age 48, wants to provide for the financial security of her friend, Jamie, and other unrelated friends. She establishes a trust. Jamie, age 70, will receive income from the trust for her life. Upon Jamie's death, Darren, another friend who is currently 50, will receive income for his lifetime. Upon his death, the remainder interest will be divided equally between Marcelle's nephews, Carl (age 8) and J.D. (age 6). How many times will this trust be subject to a GSTT?

None. No GSTT will be assessed

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? Paul holds a life estate over the property. Paul holds the legal title to the property. Paul holds the equitable title to the property. Paul does not hold an interest in the property.

Paul hold the legal title to the property. 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.

10. Like transfer on death or payable on death there are different titling's and legal tools to guide assets to the right directions avoiding probate and junk

Property can be transferred at death by a will by a contract (beneficiary designation), or by operation of law (ie. titling of property, use of trusts, intestacy)

Which of the following transfers by a husband would qualify for the martial deduction?

Property left "to my wife for life, then to her estate"

Which of the following does not transfer property at death by operation of law? A) Property owned JTWROS. B) Property owned tenancy in common (with a valid will.) C) Intestacy. D) A revocable living trust.

Property owned tenancy in common (with a valid will.) Rationale Property owned tenancy in common transfers per the will. All of the other options transfer property at death by operation of law.

All of the following are transfer costs associated with estate planning except:

Property taxes on inherited property.

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

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

All the following statements concerning the taxation of property transfers are correct EXCEPT

Property transferred at death that receives a stepped-up basis is not included in the decedents gross estate

All of the following statements concerning the federal estate tax are correct EXCEPT

Property transferred by contract or operation of law is not included in a decedent's estate for tax purposes

Teresa and her brother Michael decide to purchase a condo together. They both want to use the condo for family vacations. The price of the condo is $620,000. Michael expects to use the condo 60% of the time and Teresa 40% of the time. Michael contributed $372,000 and Teresa contributed the balance. Their ownership percentage equals their contribution percentage. Which type of property titling must the condo be to reflect their ownership interest?

Tenancy in Common

Rosie and her brother Michael decided recently to purchase an RV together. They both want to use the RV to take their families camping. The price for the RV was $10,000. Since Michael expects to use the RV 60% of the time and Rosie 40% of the time, Michael contributed $6,000 and Rosie contributed $4,000. Their ownership percentage equals their contribution percentage. Which type of property titling must the RV be to reflect their ownership interest? Fee Simple JTWROS Tenancy in Common Tenancy by the Entirety Community Property

Tenancy in Common Fee Simple ownership is for one owner. They cannot own the property JTWROS because they own unequal ownership percentages. Tenancy by the Entirety and Community Property must be owned between married people.

Which of the following types of property is subject to probate?

Testamentary trust property

Cassie wishes to leave a sum of money to each of her minor grandchildren upon her death. She wants the investment income to be used to support them until they finish their education and she wants the investment income from the funds to be taxed at as low a rate as possible. She does not want them to have access to the capital until the age of 45. Cassie should leave the money to:

Testamentary trusts established for each of her grandchildren as beneficiaries

Which of the following statements concerning the responsibilities for trustee is correct?

The Trustee's duties and powers do not terminate until the termination of the trust

Ch 10: A father and son have been farming land owned by the father for the past 12 years. Just prior to his death the father was offered 3 million for his because of its possible use as a shopping center. The son would like to continue to farm the land if it can be included in his fathers estate at its current-use value. Additional facts are as follows: -Average annual gross rentals from nearby farms of similar acreage are 160,000 -Average annual state and local real estate taxes on the farm are 32,000. -The interest rate for loans from the Federal Land Bank is 8 percent. For federal estate tax purposes, the farm-method valuation formula would result in a current-use value for the farm of?

The answer is 1,600,000 Current use-valuation is calculated as follows: Net comparable income (160,000 - 32,000) = 128,000 Capitalized net income (128,000 / .08) = 1,600,000

Ch 10: Which of the following statements concerning valuation of assets for federal tax purposes is (are) correct? 1) The date of valuation of an estate is the date of the decedents death or, if applicable, the alternate valuation date, which is 6 months later. 2) All estate assets are valued at fair market value, which is the value placed on the estate assets by the executor with advice of the attorney for the estate. A) 1 B) 2 C) Both D) Neither

The answer is A. -2 is incorrect because, depending on the type of estate assets and the particular circumstances, fair market value may be inappropriate for federal estate tax valuation purposes. Special-use value, adjusted-book value, and capitalization of adjusted earnings are other possible valuations.

Ch 8: A man has established a revocable inter vivos trust and has named the trustee the beneficiary of all his life insurance policies. His will provides that al of his residuary estate will "pour over" to the trust. All the following statements concerning this arrangement are correct EXCEPT: A) Probate costs will be eliminated in the administration of the man's estate B) Flexibility and discretion in the administration of trust assets can be attained. C) The trust must be in existence prior to the date the man's will is executed. D) The trust can provide liquidity in the man's estate

The answer is A. Probate costs will be imposed on the estate-administered assets that will pour over to the trust at death

Ch 10: Which of the following statements concerning grantor-retained annuity trusts (GRATs) is (are) correct? 1) These trusts provide the grantor with a fixed annual annuity for a term of years of life. 2) A goal in establishing a GRAT is to transfer property at a reduced transfer tax cost. A) 1 B) 2 C) both D) neither

The answer is B. - 1 is incorrect because only a life insurance policy gifted immediately after purchase has a value for gift tax purposes equal to the gross premium paid. A paid-up life policy has a value equal to the premiums payable for the same type of single-premium policy based on the insured's age on the date of the gift. A premium-paying policy has a value equal to the interpolated terminal reserve plus any unearned premiums.

Ch 10: All of the following are typical of the stock of a closely-held corporation EXCEPT A) A limited number of stockholders B) the absence of an exchange listing or regular quotation in the over-the-counter market C) the lack of restrictions on a shareholders ability to transfer the stock D) irregular and limited history of sales or exchanges

The answer is C. In the usual closely held corporate entity, restrictions are placed on the transfer of ownership of stock to ensure the existing owners maximum control of the corporation and to maintain continuity of ownership in the hands of the present owners or their families.

Ch 9: All of the following are advantages to the probate process EXCEPT: A) court supervision of executors activities B) inventory of estate assets C) privacy of a decedents will D) validation of decedents will

The answer is C. One of the disadvantages of probate is that the decedent's will becomes a matter of public record.

Ch 8: Which of the following statements concerning a valid written will is (are) correct? 1) a testators signature must be notarized when the will is executed. 2) a testator must have testamentary capacity at the time of death a) 1 b) 2 c) both d) neither

The answer is D 1 is incorrect because a notarization causes a will to be self-proved to a probate court but is not required since a will can be formally proved to a probate court by establishing the validity of the testators signature 2 is incorrect because the validity of a will requires that the testator have capacity when the will is executed

In which of the following situations would a power held by the descendent at his or her death cause the entire value of the trust property to be included in the decedent's gross estate?

The descendent possess the power to appoint trust property to his or her estate

Sarah gave her sister, Janet, a gift of property valued at $200,000 that was subject to $120,000 of indebtedness. (Ignore the annual exclusion) All the following statements concerning gift tax valuation are correct EXCEPT

The property is valued for gift tax purposes on the date the gift is made or, alternatively 6 months after the date the gift is made

All of the following statements concerning transfers by will are correct EXCEPT

The property transfer becomes irrevocable once the will is properly signed, dated, and witnessed

Suppose in a year when the annual exclusion is $13,000 Zoe gives gifts of a present interest of $20,000 to a qualified charity and $75,000 to her husband who is a US citizen. If Zoe and her husband elect to split gifts, all of the following statements concerning the calculation of Zoe's taxable gifts are correct EXCEPT

The total value of gifts deemed to have been made by Zoe for gift tax purposes is $95,000

All the following statements concerning the rule against perpetuities are correct EXCEPT

To determine whether the common-law rule is violated and thus whether the interest is invalid, it is necessary to wait until the interest actually vests

A grantor trust is a trust arrangement in which the grantor transfers property into a trust but the grantor retains some right of enjoyment over the property, such as the right to receive the income generated by the property.

True

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 False

True. This is an advantage of the unlimited marital deduction.

Which of the following statements concerning the income taxation of estates and trusts is correct?

Trusts and estates are subject to the same rate of income taxation

All of the following statements concerning estate planning for the elderly and incapacitated are correct EXCEPT

Trusts are especially useful because a trustee can manage assets in accordance with trust provisions and make personal health are decisions for an incompetent grantor

Which is not a common method of reducing the gross estate?

Trusts that do not avoid multiple taxation.

Which of the following statements concerning the generation-skipping transfer tax (GSTT) in 2011 is correct?

Tuition payments made to an educational institution by a grandmother on behalf of her grandson are excluded from both the fit tax and the GSTT

Vanessa is a very generous single woman. Before this year, she had given $2,000,000 in taxable gifts over the years. Vanessa gave her daughter Amber $100,000 and promptly filed her gift tax return. Vanessa did not make any other gifts this year. How much gift tax must Vanessa pay the IRS because of this transaction?

422500

What is the value of Gordon's gross estate?

Mike created a joint bank account with his son, James. At what point has a gift been made to James?

When James withdraws money from the account for his own benefit.

All the following statements concerning community property are correct EXCEPT

When a married couple moves from a community property state to a common law state, marital property acquired in the community jurisdiction becomes separate property

Which of the following statements concerning the valuation of property for federal estate tax purposes is correct?

When shares representing a minority interest in a closely held corporation are valued, a discount is often allowed

Which of the following is eligible for the annual exclusion? a. Frank designates his daughter, Holly, beneficiary of his 401(K) plan. b. Frank designates his wife, Betty, as beneficiary of is life insurance policy. c. Frank funds an irrevocable trust with 1100000 for the benefit of his son. The terms of the trust allow a payout at the discretion of the trustee d. Frank funds an irrevocable life insurance policy with the amount necessary to pay the premiums of the policy. The beneficiaries can take a distribution equal to the contribution each year.

Pete transfers $20,000 to his ex-wife, Patricia. Pete and Patricia were divorced five years ago.

Which of the following transfers would result in gift tax?

Joelle gave her husband one half of an inheritance she received from her uncle. The inheritance was 3000000

While completing Joelle's tax returns, Joelle's CPA asked her if she made any gifts during the year. Joelle faxed her the following information. Of he following, which would not require the filing of a gift tax return?

Curtis, who was married, recently died owning several assets. Given the assets below, determine whether each asset should be included in Curtis' probate estate. Curtis's portion of acreage owned as community property with his wife. Yes, this item is included in the probate estate. No, this item is not included in the probate estate.

Yes, this item is included in the probate estate. Community property is always included in the gross estate

Curtis, who was married, recently died owning several assets. Given the assets below, determine whether each asset should be included in Curtis' probate estate. His personal residence worth $250,000 titled fee simple. Yes, this item is included in the probate estate. No, this item is not included in the probate estate.

Yes, this item is included in the probate estate. Items owned fee simple is always included in the gross estate

Which of the following statements is true? a. Angela transferred her home to a QPRT in 2010. She retained the right to live in the home for 13 years, and at the end of the term, the home transfers to Angela's three children. Angela dies in 2013, when the home has a fair market value of $250,000. The value of the home is excluded from Angela's gross estate because the children are the remainder beneficiaries of the QPRT. b. Missy transfers rental property to a Family Limited Partnership (FLP) in return for a 99% limited partnership interest and a 1% general partnership interest. Missy immediately begins a gifting program by gifting a portion of the limited partnership interests to her children and grandchildren. Six years after the initial formation of the FLP, Missy continues to own the 1% general partnership interest and 45% of the limited partnership interests in the FLP. Because Missy does not own a majority (greater than 50%) of the interest in the FLP, Missy cannot control the operations of the FLP. c. Rose has been diagnosed with an illness that is expected to substantially reduce her life expectancy. Before she dies, Rose would like to transfer her extremely valuable art collection to her wealthy daughter. The art collection is displayed in Rose's home, but Rose really needs money for her living expenses for the remainder of her life. A TPPT would be the most appropriate transfer device to fulfill Rose's desires. d. Earl has four children - Kenny, Tim, Aaron, and Cathy. Earl's will directs all of his property to be divided equally among his four children, and if any child predeceases Earl, that child's heirs will inherit Earl's property per capita. Cathy died two years before Earl. Cathy had three children. At Earl's death, Kenny will receive 1/6 of Earl's estate.

d. Option d is correct because Cathy's surviving heirs become equal heirs in Earl's estate because Cathy predeceased Earl. Accordingly, each heir receives 1/6 (Kenny, Tim, Aaron, Cathy's three kids) of Earl's estate. Option a is incorrect because the value of the home transferred to the QPRT will be included in Angela's gross estate because Angela died during the term of the QPRT. Option b is incorrect because ONLY the general partner can control the operations of a limited partnership and Missy is the general partner so she CAN control the operations of the FLP. Option c is incorrect because a TPPT would not fulfill Rose's desires because the TPPT would only give Rose the right to use the art for the rest of her life, and would not provide any income.

Which of the following statements is incorrect? a. When a decedent's taxable estate is less than the applicable estate tax credit equivalency, 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 remainder beneficiary of a QTIP Trust is chosen by the surviving spouse.

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.

In 2012, 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 2013, 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

d. $2,000,000 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.

Jennifer purchased her mother's home through the use of a SCIN. Under the terms of the SCIN, Jennifer was to pay her mother $22,000, plus interest and a SCIN premium, per year for 10 years. If Jennifer's mother died after six payments were made, what would be Jennifer's adjusted basis in the home? a. $0 b. $88,000 c. $132,000 d. $220,000

d. $220,000 The buyer's adjusted basis in property transferred through the use of a SCIN is the fair market value of the property on the date of the sale regardless of the number of payments made by the seller. In this case, the fair market value of the property must have been the annual principal payments times the expected term of the SCIN, or $220,000 ($22,000 x 10).

Maxine agrees to purchase Jacob's property utilizing a private annuity. Jacob's table life expectancy is ten years at the date of the agreement and the property has a fair market value of $400,000. The private annuity payment is $45,000 per year, and Maxine dies after making two payments. At Maxine's death, what amount is included in her gross estate with regards to the private annuity and the transferred property? a. $0 b. $90,000 c. $310,000 d. $400,000

d. $400,000 Maxine bought the property utilizing the private annuity. Maxine's gross estate will include the fair market value of the property purchased. The expected present value of the remaining private annuity payments will be a debt of the estate.

Steve made the following transfers during the year: $10,000 to Louisiana State University. The $10,000 contribution allows him to purchase football season tickets. Steve also bought the football season tickets at a cost of $5,000. $400 to the local public broadcast television station during the annual fund drive. In return for the $400 contribution, Steve received a mug and pen with the station's logo valued at $8. 1,000 shares of ABC stock to the United Way. At the date of the contribution, the stock had a fair market value of $50 per share. Steve's adjusted taxable basis in the stock was $10 per share and he held the stock long term. Ignoring any AGI limitations, what is Steve's maximum charitable income tax deduction for this year? a. $18,400 b. $20,392 c. $55,392 d. $58,400

d. $58,400 Ignoring any AGI limitations, Steve could deduct 80% of the $10,000 contribution, or $8,000. The $400 contribution to the public broadcast television station will not be reduced by the value of the mug and the pen because those items are considered de minimus. Without any AGI limitations, the full fair market value of the stock contribution may be deductible, $50,000 ($50 x 1,000). $8,000 + $400 + $50,000 = $58,400.

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. a. 1 and 4 b. 2 and 3 c. 3 and 4 d. 1 and 2

d. 1 and 2 Statement 1 is included because the decedent retained an ownership right and statement 4 was transferred more than 3 years ago.

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. a. 1 only b. 1 and 2 c. 2 and 3 d. 1, 2 and 3

d. 1, 2 and 3 All these statements are correct. Split dollar life insurance is an arrangement where an employee and employer generally share the premium cost and cash value for death benefit of a life insurance policy covering the life of the employee.

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. a. 3 and 4 b. 2 and 3 c. 1, 2 and 4 d. 1, 2, 3 and 4

d. 1, 2, 3 and 4 All of these rights are incidences of ownership.

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. a. 1 and 2 b. 2, 3 and 4 c. 1, 2 and 3 d. 1, 2, 3 and 4

d. 1, 2, 3 and 4 An ILIT will accomplish all of the items listed in this question.

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.

d. A "skip person" is a person who is one or more generations younger than the transferor. 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.

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.

d. A Charitable Remainder Unitrust. 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.

The best life insurance policy for the payment of federal estate taxes for a 55-year-old couple with illiquid assets is: a. An individual whole-life policy on each spouse on a cross-ownership basis. b. A joint first-to-die life insurance policy owned jointly. c. A joint last-to-die life insurance policy owned by the spouse with the larger estate. d. A joint and last-to-die life insurance policy owned by an irrevocable life insurance trust.

d. A joint and last-to-die life insurance policy owned by an irrevocable life insurance trust. A second-to-die life policy provides insurance for a lower cost than insuring each spouse individually. Due to the unlimited marital deduction, there is no need for liquidity until the death of the second spouse. The ILIT keeps the insurance proceeds from being included in the gross estate of either spouse as long as neither has any incidence of ownership in the trust or policy.

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.

d. A trust that Albert had established 3 years ago for Albert's favorite employee, Sam, who has just turned 20. 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).

Under which of the following circumstances would a decedent be considered to have died intestate? a. The decedent handwrote a will, but did not sign or date it. b. The decedent was not of "sound mind" when he signed his statutory will. c. The decedent failed to prepare a last will and testament. d. All of the above.

d. All of the above. Option a describes an invalid holographic will. Option b describes a situation in which the testator is not "of sound mind" and therefore cannot make a valid will. If the decedent dies without a valid will, he is said to have died intestate.

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? a. Premiums paid by PDC are taxable income to Digger. b. Premiums paid by PDC are considered gifts to Digger. c. Premiums paid by PDC are tax deductible as a business expenses. d. Any death benefit paid will be nontaxable to PDC.

d. Any death benefit paid will be nontaxable to PDC. PDC is the owner and beneficiary of the policy. For the same reason, premiums are NOT considered a gift or taxable to Digger, nor will they appear in his gross estate. "Key person" life premiums are not deductible as a business expense. Any death benefit pad will be nontaxable to PDC.

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.

d. Charlotte should bring all of the above information to her first meeting with Samantha.

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? a. Cheryl can no longer use the special use election. b. Cheryl can no longer use the reverse QTIP election. c. Cheryl can no longer use the Section 303 election. d. Cheryl gives up the right to use the 6166 election.

d. Cheryl gives up the right to use the 6166 election. The amount required to use the Section 6166 is that the ownership asset must make up at a minimum of 35% of the estate. Section 303 is not appropriate because this is a partnership and there is not stock in a partnership. Special use is for valuation of real property used in a trade or business. The reverse QTIP is a generation transfer tax election.

Which of the following are included in the gross estate: a. Proceeds from a life insurance policy owned by the decedent insured that was assigned to an ILIT two years before death of the insured. b. A secular trust where the only income beneficiary was the decedent's spouse. c. Property where the decedent had a reversionary interest of less than 1% of the value. d. Gift taxes paid two years prior to the decedent's date of death for gifts made four years earlier.

d. Gift taxes paid two years prior to the decedent's date of death for gifts made four years earlier. Incidence of ownership of life insurance policies assigned within three years of death are includible in the decedent's estate, as are CRATs and CRUTs. Any amount of gift tax subject to the gross up rule is includible in the taxable estate but must be for gifts made within three years of death.

Marie is the founder and sole owner of Purple Cakes Bakery. Allen has offered to buy her business for a price Marie considers reasonable, but Allen does not have all of the funds necessary to pay for the business at the current time. Marie is in good health, her true life expectancy is much greater than the IRS life expectancy factor, and she wants to accept Allen's offer. Allen is not related to Marie and has good credit. Given these facts, which transfer method should be used to transfer the business to Allen? a. Grantor Retained Annuity Trust. b. Self-Cancelling Installment Note. c. Private Annuity. d. Installment Sale.

d. Installment Sale Marie would sell the business to Allen utilizing an installment sale and would charge a reasonable rate of interest. Because Allen would not have to pay the full sale price at the date of the transfer, he would not need to have all of the funds necessary at that time. Because Allen is not related to Marie, she would not have any reason to enter into a GRAT, SCIN, or Private Annuity, which may inequitably benefit Allen. The best situation would be for Marie to sell the business to Allen in an outright cash sale, but that is not an option in this problem.

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? a. $1,064,000 b. $280,000 c. $266,000 d. None

d. None The $5.34 million GSTT exemption will fully cover her $1,064,000.

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 a. 1, 2 and 3 b. 1 and 3 c. 2 only d. None of the above

d. None of the above The deceased shareholder's estate will not increase due to the life insurance, as the deceased shareholder does not own the insurance policy and already has the value of his business interest in his gross estate. There is a step-up in basis because the descendant died and the shares are "purchased" by the corporation. The corporation is "owed" the premiums by the individual at death and does not pay tax.

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? a. Reese must file IRS Form 8283. b. Both her church and the United Way are required to send a confirmation of the contribution to Reese. c. Only her church is required to send a confirmation of the contribution to Reese. d. Only the United Way is required to send a confirmation of the contribution to Reese.

d. Only the United Way is required to send a confirmation of the contribution to Reese. Option a is incorrect because IRS Form 8283 must be filed whenever the aggregate total of all non-cash contributions exceeds $500. Options b and c are incorrect because contemporaneous written acknowledgement by the donee organization is only required when an individual contributes cash or property valued at $250 or more. Therefore, Reese's church is not required to send a confirmation of Reese's donation.

Of the following, which is not an issue when considering whether to deduct the adjusted basis or the fair market value of property contributed to a charitable organization? a. The current market rate of interest. b. The donor's current and projected adjusted gross income for the 5 years after the contribution. c. The fair market value of the donated property. d. The capital gains rate in effect at the time of the transfer.

d. The capital gains rate in effect at the time of the transfer. Option d is not an issue when deciding whether to deduct the adjusted basis or the fair market value since the transfer generally does not created a capital gain. All of the other options are issues to consider.

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? a. The beneficiary of the policy is the estate of the decedent b. The decedent transferred the ownership of the policy to his daughter 6 years before his death, but retained the right to change the beneficiary of the policy. c. The decedent transferred the ownership of the policy to his son six months before his death. d. The decedent transferred the ownership of policy to his partner four years ago.

d. The decedent transferred the ownership of policy to his partner four years ago.

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? a. The beneficiary of the policy is the estate of the decedent. b. The decedent transferred the ownership of the policy to his daughter six years before his death, but retained the right to change the beneficiary of the policy. c. The decedent transferred the ownership of the policy to his son six months before his death. d. The decedent transferred the ownership of the policy to his partner four years ago.

d. The decedent transferred the ownership of the policy to his partner four years ago. Option a is incorrect because the proceeds of the policy would be included in the estate if the proceeds are payable to the estate. Option b is incorrect because the decedent is considered to have an incident of ownership in the policy if he retains the right to change the beneficiary of the policy. Option c is incorrect; under IRC Section 2035, the proceeds of a policy transferred within three years of death are included in the gross estate of the transferor.

Which of the following is not a reason that the proceeds of a life insurance policy would be included in a decedent's gross estate a. The proceeds of the policy are payable to the estate. b. The decedent transferred the ownership of the policy to his daughter six years before his death, but retained the right to change the beneficiary of the policy. c. The decedent transferred the ownership of the policy to his son six months before his death. d. The decedent transferred the ownership of the policy to his wife four years ago.

d. The decedent transferred the ownership of the policy to his wife four years ago. Option a is incorrect because the proceeds of the policy would be included in the estate if the proceeds are payable to the estate. Option b is incorrect because the decedent is considered to have an incident of ownership in the policy if he retains the right to change the beneficiary of the policy. Option c is incorrect; under IRC section 2035, the proceeds of a policy transferred within three years of death are included in the gross estate of the transferor.

Which of the following is not a requirement of the unlimited marital deduction? a. In order to claim a marital deduction, the decedent must have been married as of the date of his death. b. The surviving spouse must be a U.S. citizen. c. The surviving spouse must be a U.S. citizen. d. The gross value of qualifying property left to the surviving spouse is included in the marital deduction.

d. The gross value of qualifying property left to the surviving spouse is included in the marital deduction Options a, b, and c are all requirements of the unlimited marital deduction. Option d is incorrect because only the net value, not the gross value, of qualifying property left to the surviving spouse is included in the marital deduction. The term "net value" for marital deduction purposes equals the gross value of the qualifying property left to the surviving spouse less any taxes, debts, or estate administration expenses payable out of the spousal interest.

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? a. The right to pay the annual premium directly to the insurer. b. The right to assign the policy, but only to a qualified charity. c. The right to surrender the policy, but only in case of terminal illness. d. The right to change the name of a charitable beneficiary to another charitable beneficiary.

d. The right to change the name of a charitable beneficiary to another charitable beneficiary. Any incidence of ownership (answers a, b or c) constitute incidence of ownership and would cause the policy to be included in the gross estate. The right to change a charitable beneficiary to another charitable beneficiary is not an incidence of ownership because the first charitable beneficiary may no longer exist.

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. b. 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.

d. The ultimate beneficiary of a QTIP Trust is selected by the surviving spouse. 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.

Tracey is a financial planner who received his CFP designation. Tracey does not have any other designations or licenses. Although Tracey's expertise is investment planning, he is anxious to expand his client base and is willing to assist clients with any area of financial planning. Over the last month Tracey engaged in the following activities with Troy, a new client. a. During the initial meeting, Tracey collected personal data about Troy including the estate planning documents Troy had previously executed. b. During the second meeting, Tracey recommended the use of a trust to fulfill some of Troy's estate planning goals. c. Troy called Tracey one afternoon and asked if Tracey could explain the probate process to him, which Tracey promptly did. d. Tracey downloaded a copy of a generic will from the internet, filled in Troy's information and gave the document to Troy to be executed. Of the activities above, which would be considered the unauthorized practice of law?

d. Tracey downloaded a copy of a generic will from the internet, filled in Troy's information and gave the document to Troy to be executed. Only activity d) would be considered the unauthorized practice of law. The drafting of legal documents is reserved for attorneys. Inquiring about estate planning documents should be completed by all practitioners. Recommending appropriate estate planning devises, such as trusts, can be done by financial planners. Explaining the probate process to a client would not be the unauthorized practice of law; the line would be crossed if Tracey gave legal advice regarding the probate process.

Jose recently died with a probate estate of $900,000. He was predeceased by his wife, Guadalupe, and his daughter, Lucy. He has two surviving children, Pete and Fred. Jose was also survived by eight grandchildren, Pete's three children, Naomi, Daniel, Nick; Fred's three children, Heather, Chris and Steve; and Lucy's two children, David and Rachel. Jose's will states the following "I leave everything to my three children. If any of my children shall predecease me then I leave their share to their heirs, per stirpes." Which of the following statements is correct? a. Under Jose's will David will receive $225,000. b. Under Jose's will Chris will receive $150,000. c. Under Jose's will Nick will receive $100,000. d. Under Jose's will Fred will receive $300,000.

d. Under Jose's will Fred will receive $300,000. Under the will Pete and Fred will each receive 1/3 shares. Lucy's 1/3 share will flow to her children, with each of them receiving 1/2 of the 1/3 share.

flexible premium annuity

deferred annuity that provides for ongoing premium payments by that contract owner

level premium annuity

deferred annuity that requires the same premium payments (can not change payment to payment)

insurer's separate accounts

designed to allow variable annuity owners to choose various investment alternatives as to participate more directly in financial markets; not guaranteed by the insurer

variable distributions

dollar amount of first periodic payment is determined based on cash value being annuitized and a rate fixed by the insurance company; the dollar amount is divided by the annuity unit value at the time to get a constant number of units that will always be distributed, but the cash amount distributed will vary based on the fluctuations of the value of the annuity units

pooled income funds (PIF)

donor contributions are pooled in a trust created and maintained by the charity; each donor receives an allocable share of the income from the trust for his life

adjusted gross estate

equal to the gross estate less any deductions for funeral expenses, last medical expenses, administrative expenses, debts, and losses during the administration of the estate

tentative tax base

equals the taxable estate plus all post-1976 taxable gifts

18. Ademption

extinction of a legacy bc an asset, specifically bequeathed to a legatee, has been disposed of prior to death

fixed annuity

finite stream of equal periodic payments

fixed account within variable annuity

funds allocated to this account are treated as if the owner had purchased a declared rate deferred fixed annuity in its accumulation phase

bequest

gift made via a will

specific bequest

gift of a particular item/asset that can be identified

class gift

gift to a group of people where the members may not be fully identifiable at the time the will is written

general bequest

gift to be satisfied out of the general assets of the estate

Donor

giving the gift

curtesy

husband's right to receive a life estate in land owned by the wife at the wife's death if one or more child was born

14. What are the requirements of a will to be legal

in most states the will just has to be in writing and signed at the logical end by the testator?

probate estate

includes only those assets from gross estate which to others via the probate process

reversionary interest

interests that have been transferred and subsequently revert back to the transferor; also, includes a possibility that the property transferred by the decedent may return to him or his estate and a possibility that property transferred by the decedent may become subject to a power of disposition by him

variable annuity

investor allocates cash among various "subaccounts"

Primary Insurance Amount (PIA)

monthly retirement benefit from SS for a worker retiring at full retirement age

joint and survivor annuity

periodic payments are made until death of second to die; payment usually decreases by 25-50% after the death of the first

life annuity with minimum term guaranteed

periodic payments over the annuitant's life, but if the annuitant dies prior to expiration of the guaranteed term, the payments continue until the end of the guaranteed term

personal representative

person appointed by the probate court to act as a fiduciary in acting for and managing the decedent's estate through the probate process

testator

person who makes the will

contract owner

person who owns all the rights to the annuity contract

insured

person's whose death triggers the death benefit

administrator

personal representative appointed by the court to represent the estate of an intestate decedent

executor

personal representative who was nominated in the decedent's will and appointed by the court

ordinary income property

property that, when sold, results in recognition of ordinary income

transfers with a retained interest (2036)

property transferred where the decedent retained an interest -express or implied understanding -retained interest for life -retained interest for period not ascertainable without reference to death -reserved for period that does not end before death

transfers taking effect on death (2037)

property transferred where: -possession of enjoyment requires the beneficiary to survive the decedent -decedent has retained a reversionary interest -value of reversionary interest is >5% (moment immediately before death...no alternative valuation available)

third party SNT

sometimes referred to as a family trust because the trust is a receptacle for funds from a parent, guardian or other family member; the assets of these trusts, if properly structured, are not counted or considered for purposes of available benefits for the beneficiary, thus making possible federal, state, and local funds

taxable estate

the adjusted gross estate less the available unlimited marital and unlimited charitable deductions

estate tax liability

the amount equal to the tentative tax less any applicable credits available to a decedent's estate

gross estate

the wealth or property attributed to the decedent at death for estate tax purposes

testamentary transfers

those transfers that can made by a will

section 7520 rate

to be used to value certain charitable interests in trusts; pusruant to this section, the interest rate for a particular month is the rate that is 120% of the applicable federal midterm rate (compounded annually) for the month in which the valuation date falls; that rate is then rounded to the nearest two-tenths of one percent

arm's length transaction

transfer of property where two parties are unrelated and negotiating to secure the best advantage for themselves

outright transfer

transfer where both legal and beneficial interests are transferred

gift

transferor gets little to nothing in return

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