BUS 3720 Multiple Choice
A father deeded a house as a gift to his daughter 20 years ago but retained the right to live in it until his death. He died this year while still living in the house. The following are relevant facts: • The father bought the property in 1982 for $60,000. • The fair market value of the property when the gift was made in 1995 was $140,000. • The father filed a timely gift tax return but paid no gift tax because of the basic credit amount. • The fair market value of the property at the father's death was $190,000. • The daughter sold the property 3 months after her father's death for $190,000. She had a gain of (A) $0 (B) $80,000 (C) $130,000 (D) $190,000
(A) $0
Allen died last month and was survived by his spouse, Ellen. Among the items of family property are the following: • A $400,000 life insurance policy on Allen's life with Ellen designated as beneficiary (Ellen has been the owner of the policy ever since it was issued 4 years ago) • The family residence with a fair market value of $200,000 (Allen and Ellen own the residence jointly with the right of survivorship even though Allen purchased it in 1978 with his separate funds) • A $10,000 bank account (Allen and Ellen own the account jointly with the right of survivorship even though Ellen made all the deposits) What amount of the family property will be included in Allen's gross estate for federal estate tax purposes? (A) $105,000 (B) $200,000 (C) $500,000 (D) $505,000
(A) $105,000
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 decedent's death. (C) An executor must be an individual rather than an entity or institution. (D) An executor is answerable only to the beneficiary and not to the court having jurisdiction over the probate of the estate.
(A) An executor can be given broad and discretionary powers with respect to the management of estate assets.
Which of the following gratuitous property transfers will be included in a donor's gross estate at its date-of-death value for federal estate tax purposes? I. a lifetime transfer in which the donor retained the power to change the donees' shares of the transferred property II. a lifetime transfer in which the donor retained a reversionary interest on the date of death equivalent to 3 percent of the value of the property (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(A) 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. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(A) I 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 decedent. II. The decedent must have actually received payments prior to death. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(A) I only
Which of the following statements concerning the availability of the marital 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 U.S. citizen before the decedent spouse's estate tax return is filed and remains a U.S. 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. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(A) 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 decedent 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 decedent is not personally liable for the indebtedness, no interest in the property is included in the gross estate. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(A) I only
Which of the following powers would result in the property subject to the power being included in a decedent's estate? (A) the power to add to the corpus (B) the power to change beneficiaries (C) the power to direct issuance of voting proxies (D) the power to direct the reinvestment of funds
(B) the power to change beneficiaries
Which of the following statements concerning valuation of assets for federal estate tax purposes is (are) correct? I. The date of valuation of an estate is the date of the decedent's death or, if applicable, the alternate valuation date, which is 6 months later. II. All estate assets are valued at fair market value, which is the value placed on the estate assets by the executor with the advice of the attorney for the estate. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(A) I only
Which of the following statements concerning the federal estate tax charitable deduction is correct? (A) In order to be allowed as a charitable deduction, the bequest must first be includible in the donor's gross estate. (B) The amount of the deduction is limited to a percentage of the adjusted gross estate. (C) For the deduction to be obtained, the bequest must be in the form of an outright gift. (D) The amount of the deduction will be increased by the amount of any estate taxes paid from the charitable bequest.
(A) In order to be allowed as a charitable deduction, the bequest must first be includible in the donor's gross estate.
All the following are advantages of a buy-sell agreement EXCEPT (A) It binds the IRS to accept the value of the decedent's business interest. (B) It can provide liquidity to a decedent-shareholder's estate. (C) It provides for the continuation of the business. (D) It makes the business more attractive to creditors.
(A) It binds the IRS to accept the value of the decedent's business interest.
All the following are advantages of a buy-sell agreement EXCEPT (A) It guarantees the estate tax value of the decedent's 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.
(A) It guarantees the estate tax value of the decedent's interest.
All the following statements concerning a will are correct EXCEPT (A) It is 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.
(A) It is irrevocable once executed.
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 all 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.
(A) Probate costs will be eliminated in the administration of the man's estate.
In which of the following situations would a power held by the decedent at his or her death cause the entire value of the trust property to be included in the decedent's gross estate? (A) The decedent possesses the power to appoint trust property to his or her estate. (B) The decedent holds the power to invade trust property only for reasons of the decedent's health, education, support, or maintenance. (C) The decedent possesses the power to appoint trust property to his or her children at the decedent's death. (D) The decedent holds the power to appoint trust property only with the consent of the donor of the power.
(A) The decedent possesses the power to appoint trust property to his or her estate.
Which of the following statements concerning the income taxation of estates and their beneficiaries is correct? (A) 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. (B) Like individuals, estates are entitled to the standard deduction. (C) The estate's income tax return also includes all the decedent's income and deductible expenses for the year in which the decedent died. (D) A beneficiary receiving a remainder interest from an estate with earned income will be taxed according to whether the executor in fact distributes income or corpus to the beneficiary.
(A) 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.
All the following statements concerning the estate taxation of life insurance proceeds are correct EXCEPT (A) The proceeds are included in an insured's gross estate if the policy is payable to his or her gross estate. (B) Group life insurance proceeds are treated in the same manner as individually owned insurance. (C) The proceeds are included in the insured's gross estate if payable to an inter vivos trust that is required to pay the expenses of the insured's estate. (D) The proceeds must be excluded from the policyowner-insured's gross estate if payable to the surviving spouse because of the marital deduction.
(A) The proceeds are included in an insured's gross estate if the policy is payable to his or her gross estate.
A husband is terminally ill and is considering changing his estate plan to take full advantage of the marital deduction. All the following factors favor the husband's taking full advantage of the federal estate tax marital deduction EXCEPT (A) The wife has substantial assets and is in the highest federal estate tax bracket. (B) The assets in the husband's estate consist largely of real property. (C) The use of the marital deduction recognizes the time value of money. (D) The husband has complete confidence in his wife's using her inheritance for the benefit of their children.
(A) The wife has substantial assets and is in the highest federal estate tax bracket.
All the following statements concerning powers of appointment are correct EXCEPT (A) They must be created by will. (B) The donor is generally the original owner of the property. (C) Exercise may be immediate or may be delayed by design. (D) Appointees may include the donee.
(A) They must be created by will.
Which of the following items would be included in a decedent's gross estate for federal estate tax purposes? (A) a life insurance policy on the decedent's life that was transferred by the decedent 2 years earlier to an irrevocable trust for the benefit of her children (B) proceeds of a wrongful death suit brought by the decedent's executor against the drunk driver who caused the decedent's death (C) real estate given to the decedent by an aunt that, in accordance with the aunt's will, passes to the decedent's sister at the decedent's death (D) property in a trust established by the decedent's father for his grandchildren with the decedent and the decedent's sister as cotrustees of the trust
(A) a life insurance policy on the decedent's life that was transferred by the decedent 2 years earlier to an irrevocable trust for the benefit of her children
Which of the following property or property interests would be excluded from the decedent's gross estate for federal estate tax purposes? (A) a property interest that the decedent had no right to transfer to another at death no matter how great the decedent's interests were during lifetime (B) the decedent's interest in real estate if the property passes directly to the heirs (C) the value of an income tax refund not yet paid to the decedent (D) property subject to indebtedness if the decedent is not personally liable for the indebtedness
(A) a property interest that the decedent had no right to transfer to another at death no matter how great the decedent's interests were during lifetime
The federal estate tax is (A) a tax on the right of a decedent to transfer property (B) a tax on the right of a beneficiary to inherit property (C) a tax levied only on a decedent's probate property (D) an excise tax levied on the privilege of accumulating wealth
(A) a tax on the right of a decedent to transfer property
All the following transfers made within 3 years of death cause property to be included in the decedent's gross estate EXCEPT (A) an outright transfer of stock to the decedent's son (B) gift taxes paid by the decedent on a gift made within 3 years of death (C) a transfer of a life insurance policy by the insured (D) a transfer of the decedent's retained interest in property for life
(A) an outright transfer of stock to the decedent's son
Which of the following transfers by a husband would qualify for the marital deduction? (A) property left "to my wife for life, then to her estate" (B) property left "to my wife for life, then to our children" (C) property left "to my wife" in a specific bequest in the husband's will that also directs the executor to use the property to purchase a straight life annuity (no refund) for her (D) property left "to my wife for life with the remainder to go to our children, but for my wife to receive her interest, she must survive me by one year"
(A) property left "to my wife for life, then to her estate"
A woman is the income beneficiary of an irrevocable trust created by her mother. Which of the following powers given to her by the trust will cause all the assets in the trust to be includible in her gross estate for federal estate tax purposes? (A) the testamentary power to direct the trustee to use trust assets to pay her estate taxes (B) the power to direct the trustee to pay her trust assets limited in amount to an ascertainable standard relating to her health and education (C) the power each year to direct the trustee to pay her an amount of trust assets not exceeding the greater of $5,000 or 5 percent of the assets held by the trust (D) the testamentary special or limited power to direct the trustee to distribute trust assets to her children
(A) the testamentary power to direct the trustee to use trust assets to pay her estate taxes
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 farm 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 father's 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 (A) $1,400,000 (B) $1,600,000 (C) $1,750,000 (D) $1,850,000
(B) $1,600,000
Among the assets in a decedent's gross estate is stock in a closely held corporation that was left to a nephew. The interest passing to the nephew is required to bear the burden of all estate taxes and expenses. The relevant facts about this estate are as follows: Adjusted gross estate $7,700,000 Fair market value of stock in the closely held corporation 3,300,000 Administration and funeral expenses 35,000 Federal and state estate taxes 945,000 Bona fide debts of the decedent 60,000 What amount of closely held corporate stock can be redeemed under IRC Sec. 303 so that the redemption will be treated as a sale or exchange rather than a dividend distribution? (A) $0 (B) $980,000 (C) $1,040,000 (D) $3,395,000
(B) $980,000
Which of the following powers held by the income beneficiary is (are) considered to be a general power of appointment, thus causing all or a portion of the trust corpus to be includible in the beneficiary's gross estate for federal estate tax purposes? I. the power to withdraw the greater of $5,000 or 5 percent of trust corpus in any one year II. the power to direct the trustee to pay the beneficiary's personal debts (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(B) 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. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(B) 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 corporation's 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. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(B) II only
Which of the following statements concerning valuation for gift tax purposes is (are) correct? I. The value of a life insurance contract is equal to the aggregate gross premium paid, regardless of when the contract was gifted. II. If blockage exists, a lower gift value is permitted for shares of stock because of the effect of dumping a large number of shares on the market at one time. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(B) II only
All the following are methods to avoid probate EXCEPT (A) naming beneficiaries other than the decedent's estate to receive life insurance and pension plan benefits (B) using a self-proving will to transfer property owned by the decedent (C) titling property as joint tenants with right of survivorship (D) placing property in a revocable living trust
(B) using a self-proving will to transfer property owned by the decedent
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? (A) Under a special automatic one-half inclusion rule applicable to joint tenancy with right of survivorship, one-half the value of the property is included in Tom's estate. (B) If Tom's 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. (C) One-third of the joint tenancy would be included in Tom's gross estate if his estate can prove that the joint tenancy originally belonged to Jerry. (D) Even if the three tenants paid an equal share of the purchase price, the full value of the joint tenancy would be included in Tom's estate because Tom had the right to sell his interest in the property during his lifetime.
(B) If Tom's 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 the following statements concerning the federal estate tax are correct EXCEPT (A) The decedent's estate is primarily liable for the payment of the tax. (B) Property transferred by contract or operation of law is not included in a decedent's estate for tax purposes. (C) All property owned by a U.S. citizen is subject to federal estate tax regardless of where the property is located. (D) In 2011, the basic estate tax exclusion amount is the same as the basic gift tax exclusion amount.
(B) Property transferred by contract or operation of law is not included in a decedent's estate for tax purposes.
In which of the following situations would the retained interest be valued at zero for purposes of valuing the gift of the remainder interest? (A) Stock is transferred to a grantor-retained annuity trust (GRAT). (B) Stock is transferred to a grantor-retained income trust (GRIT). (C) Stock is transferred to a grantor-retained unitrust (GRUT). (D) Following the recapitalization of a controlled corporation, a gift of voting common stock is made to a family member by the former sole owner who now retains only nonvoting common stock.
(B) Stock is transferred to a grantor-retained income trust (GRIT).
All the following statements concerning the unlimited estate tax marital deduction are correct EXCEPT (A) The marital deduction was designed to equalize the federal estate tax treatment of decedents in common-law states with those in community-property states. (B) The marital deduction is available against all death taxes imposed by state law. (C) The marital deduction only applies to property interests that are included in a decedent's gross estate for federal estate tax purposes. (D) The marital deduction available to a decedent in a common-law state is equal to the net amount of qualifying property passing to the surviving spouse.
(B) The marital deduction is available against all death taxes imposed by state law.
All the following statements concerning transfers by will are correct EXCEPT (A) Property transferred by will is subject to probate. (B) The property transfer becomes irrevocable once the will is properly signed, dated, and witnessed. (C) A trust can be created within a will as a part of the will. (D) A will permits taking maximum advantage of the marital deduction for property passing to the spouse.
(B) The property transfer becomes irrevocable once the will is properly signed, dated, and witnessed.
All the following statements concerning qualifying terminable interest property (QTIP) are correct EXCEPT (A) Qualifying terminable interest property qualifies for the marital deduction. (B) The rules for 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 spouse's lifetime. (C) Qualifying terminable interest property is a way for a spouse to protect the interest of other heirs (such as the children from a prior marriage) while also providing for the surviving spouse. (D) In order for QTIP treatment to be allowed, the first decedent-spouse's executor must make an irrevocable election that any qualifying terminable interest property that has not been consumed or given away during the surviving spouse's lifetime will be included in the surviving spouse's estate.
(B) The rules for 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 spouse's lifetime.
Property would be included in the Jack's gross estate at the time of death in all the following situations EXCEPT (A) During his lifetime, Jack placed property in an irrevocable trust but retained the right to income for his life. (B) Twelve 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. (C) Jack and his wife created irrevocable trusts for each other as life beneficiaries. (D) Jack created an irrevocable trust containing income-producing property for his daughter, but he named himself the trustee and retained the power to accumulate or distribute income.
(B) Twelve 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.
Which of the following statements concerning corporate buy-sell agreements is correct? (A) With an entity (stock redemption) purchase agreement, the percentage ownership of each surviving shareholder remains the same when the decedent shareholder's stock is redeemed. (B) 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 gains treatment. (C) With an entity (stock redemption) purchase agreement, 12 life insurance policies would be needed to fund the agreement if there were four shareholders. (D) With a cross-purchase agreement, the corporation should be the applicant, owner, and beneficiary of the life insurance policies used to fund the agreement.
(B) 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 gains treatment.
All the following types of wills are written EXCEPT (A) holographic wills (B) nuncupative wills (C) mutual wills (D) joint wills
(B) nuncupative wills
Which of the following types of property is subject to probate? (A) death benefits from a retirement plan passing to a named Beneficiary (B) testamentary trust property (C) life insurance proceeds paid to a named beneficiary (D) property held jointly with right of survivorship passing to the surviving joint tenant
(B) testamentary trust property
Mary Bennett and her husband purchased property 22 years ago for $100,000 and titled it in joint names with the right of survivorship. However, the entire contribution for the property came from funds that Mary had inherited from her father. When Mary died last year, the property was worth $800,000. What is her husband's basis in the property? (A) $100,000 (B) $400,000 (C) $450,000 (D) $800,000
(C) $450,000
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 decedent's 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 spouse's estate as determined by a valid antenuptial agreement.
(C) A joint securities account becomes the sole property of a surviving account holder at the death of the other joint owner.
A husband and wife own an office building as joint tenants with the right of survivorship. The building has an estate tax value of $1.5 million. If they dissolve the joint tenancy and retitle the property in the name of the husband as sole owner, which of the following statements is (are) correct? I. If the husband dies first and leaves the office building outright to his wife, there will be no federal estate tax attributed to its inclusion in his gross estate. II. If the wife dies first, their children, as sole heirs, will get a stepped-up tax basis for the property at their father's subsequent death. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
A person dying without a valid will generally loses which of the following capabilities? I. the right to name guardians of minor children II. the right to name a personal representative (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
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? I. Property sold by the executor before the alternate valuation date is valued at its arm's-length sale price. II. Property that has increased in value since the date of death is valued at the alternate valuation date. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
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 decedent possessed incidents of ownership in the policy at death but could not exercise the rights without the consent of some other person (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) 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 (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) 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 decedent retained a reversionary interest that was worth more than 5 percent of the value of the transferred property immediately before death. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
Which of the following statements concerning income in respect of a decedent (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 the additional estate tax due to the IRD's being included in the gross estate. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
Which of the following statements concerning the marital deduction and bypass planning is (are) correct? I. Generally, the testator's will sets up two trusts-a marital trust to hold the assets that qualify for the marital deduction and a nonmarital (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. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
Which of the following statements concerning the marital deduction is (are) correct? I. Federal estate tax and state death taxes may be payable from a surviving spouse's share of the estate. II. Subject to certain qualifying provisions, terminable interests passing to a surviving spouse can qualify for the marital deduction. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
Which of the following statements concerning wills is (are) correct? I. A will may be revoked by the testator prior to his or her death. II. An adult child may be disinherited entirely by a parent in most states. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
Which of the following items is a deduction from a decedent's gross estate in determining the adjusted gross estate? (A) foreign death taxes (B) state excise taxes (C) claims against the estate (D) the marital deduction
(C) Claims against the estate
All the following statements concerning the inclusion and valuation of all or part of a commercial annuity in the estate of an annuitant are correct EXCEPT (A) A joint and survivor annuity is includible in proportion to the amount of the total premium paid by the decedent. (B) An annuity is includible at its date-of-death value even if the executor elects the alternate valuation date. (C) A life annuity with a period certain is includible to the extent of the present value of any remaining guaranteed payments. (D) A life annuity with no period certain is includible in proportion to the amount of the total cost received as payments by the decedent prior to death.
(D) A life annuity with no period certain is includible in proportion to the amount of the total cost received as payments by the decedent prior to death.
All 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 (A) If the property is held by joint tenants other than as husband and wife alone, property is included in the deceased joint tenant's estate according to the percentage-of-contribution rule. (B) If recently purchased property is jointly owned solely by a husband and wife, one-half the property is included in the gross estate of the first spouse to die, regardless of which spouse furnished all or part of the consideration. (C) Even if the decedent's estate can prove that the decedent did not contribute to the purchase of the joint tenancy with persons other than a spouse alone, the decedent's fractional share of the property is included in the decedent's estate. (D) If the decedent acquired the jointly held property as a gift or inheritance with persons other than a spouse, the value representing the decedent's fractional interest is included in his or her estate.
(C) Even if the decedent's estate can prove that the decedent did not contribute to the purchase of the joint tenancy with persons other than a spouse alone, the decedent's fractional share of the property is included in the decedent's estate.
All the following statements concerning estate planning for a resident-alien spouse are correct EXCEPT (A) A qualified domestic trust (QDOT) can be used for marital-deduction transfers to a surviving resident-alien spouse. (B) The QDOT rules include a new type of transfer tax. (C) For the unlimited marital deduction to apply, a resident-alien spouse is required to obtain U.S. citizenship prior to the U.S. citizen spouse's death. (D) The general rule is that transfers to a resident-alien spouse do not qualify for the unlimited federal estate or gift tax marital deduction
(C) For the unlimited marital deduction to apply, a resident-alien spouse is required to obtain U.S. citizenship prior to the U.S. citizen spouse's death.
Henry, Harry, and Hobie form a closely held corporation, 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 as they did prior to Henry's death. (D) There are 300 shares of stock outstanding in XYZ Corp.
(C) Harry and Hobie continue to own the same number of shares as they did
Which of the following statements concerning intestate succession is correct? (A) Intestate statutes provide for inheritances for friends and charities. (B) If there is a surviving spouse, he or she generally receives the decedent's entire estate. (C) If there is no surviving spouse, surviving children may inherit the decedent's entire estate in equal shares. (D) If a spouse survives with no children, the decedent's brothers and sisters are next in line and generally share the probate estate with the surviving spouse.
(C) If there is no surviving spouse, surviving children may inherit the decedent's entire estate in equal shares.
Believing that his death was imminent, a widower gave his daughter some real estate 2 years ago and filed a timely gift tax return. The widower died on January 1 of this year. Additional facts are these: Widower's basis in the real estate $ 300,000 Value of real estate when gifted 1,710,000 Value of real estate on date of death 2,200,000 Amount of gift tax paid by widower 650,300 Assuming the widower made no additional gifts to his daughter, all the following statements concerning this situation are correct EXCEPT (A) The gift of the real estate is included in the calculation of the widower's federal estate tax as an adjusted taxable gift. (B) The gift tax paid is brought back into the widower's gross estate at $650,300. (C) The daughter's income tax basis in the real estate is $2.2 million. (D) The widower recognized no gain for income tax purposes at the time the gift was made.
(C) The daughter's income tax basis in the real estate is $2.2 million.
Which of the following statements concerning a general power of appointment is correct? (A) The holder of the general power may designate anyone but himself or herself as the property owner. (B) A power of appointment is a general power only if the donee can exercise the power both during his or her lifetime and at death. (C) The gross estate includes the value of all property subject to a general power of appointment possessed by a decedent at the time of death. (D) The holder of a general power may not use trust property for his or her own benefit if doing so would defeat the rights of the other beneficiaries.
(C) The gross estate includes the value of all property subject to a general power of appointment possessed by a decedent at the time of death.
Which of the following statements concerning the valuation of property for federal estate tax purposes is correct? (A) Like other real estate, farm or business real estate must be valued at the highest and best price that would be agreed upon between a willing buyer and a willing seller. (B) Where stock has an established market and quotations are available, the IRS generally uses the capitalization of the business's adjusted earnings to determine the value of the stock. (C) When shares representing a minority interest in a closely held corporation are valued, a discount is often allowed. (D) The value of a single-premium life insurance policy owned by the decedent on the life of another is equal to the full policy proceeds.
(C) When shares representing a minority interest in a closely held corporation are valued, a discount is often allowed.
All the following are advantages of the probate process EXCEPT (A) court supervision of executor's activities (B) inventory of estate assets (C) privacy of decedent's will (D) validation of decedent's will
(C) privacy of decedent's will
All 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 shareholder's ability to transfer the stock (D) irregular and limited history of sales or exchanges
(C) the lack of restrictions on a shareholder's ability to transfer the stock
The full proceeds of a life insurance policy would be included in the decedent's gross estate in all the following situations EXCEPT (A) At the time of death, the decedent possessed the right to change the beneficiary of a policy on his or her life. (B) At the time of death, the decedent possessed the right to surrender a policy on his or her life but only with the consent of the decedent's sister. (C) A policy on the decedent's life was purchased and owned by the decedent's son with the proceeds payable to the decedent's estate. (D) At the time of death, the decedent owned a premium-paying whole life policy on the life of another person.
(D) At the time of death, the decedent owned a premium-paying whole life policy on the life of another person.
Which of the following statements concerning federal estate tax is correct? (A) All transfers made within 3 years of death must be brought back into the gross estate for federal estate tax purposes. (B) Jointly held property is not subject to federal estate tax. (C) Property passing outside the probate estate is not subject to federal estate tax. (D) For all estates required to file a return, a federal estate tax return must be filed within 9 months of death unless an extension is granted.
(D) For all estates required to file a return, a federal estate tax return must be filed within 9 months of death unless an extension is granted.
Which of the following statements concerning the alternate valuation date allowed for federal estate tax purposes is correct? (A) The alternate valuation date is 12 months after the decedent's death. (B) The alternate valuation date can be used even if property is distributed or sold before the alternate valuation date. (C) The alternate valuation date can be used in valuing an interest, such as an annuity, whose value is affected by the mere passage of time. (D) If the alternate valuation date is selected, that date applies to all assets in the estate, subject to a few exceptions.
(D) If the alternate valuation date is selected, that date applies to all assets in the estate, subject to a few exceptions.
Which of the following statements concerning the federal estate taxation of annuity products is correct? (A) The value of a series of payments made to the decedent that end at the decedent's death would be included in the decedent's gross estate. (B) If the value of an annuity payable to a surviving beneficiary is required to be included in the decedent's gross estate, the amount includible is the original purchase price of the annuity. (C) Benefits for an annuity contract can be valued at the date of the decedent's death or at an alternate valuation date 6 months after the date of death. (D) If the decedent's employer promised retirement benefits to the decedent for life and then to a designated beneficiary who survives the decedent, the value of the surviving beneficiary's annuity would be included in the decedent's estate even if the decedent never received any benefits.
(D) If the decedent's employer promised retirement benefits to the decedent for life and then to a designated beneficiary who survives the decedent, the value of the surviving beneficiary's annuity would be included in the decedent's estate even if the decedent never received any benefits.
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 donee 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. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(D) Neither I nor II
Which of the following statements concerning a valid written will is (are) correct? I. A testator's signature must be notarized when the will is executed. II. A testator must have testamentary capacity at the time of death. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(D) Neither I nor II
Which of the following statements concerning the federal estate tax marital deduction is (are) correct? I. Property passing outside the probate estate cannot qualify for the marital deduction. II. The marital deduction is limited to the greater of one-half of a decedent spouse's adjusted gross estate or $2 million. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(D) Neither I nor II
All 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 (A) The executor has the discretion regarding where to take the deduction. (B) The primary reason about where to take the deduction is the minimization of taxes. (C) Before any administration expenses may be deducted for income tax purposes, the executor must file a timely statement waiving the right to claim these expenses on the decedent's federal estate tax return. (D) Once a decision has been reached as to whether it is more advantageous to take the allowable deductions on the estate tax return or the estate's income tax return, all of the deductible items must be deducted from that one return.
(D) Once a decision has been reached as to whether it is more advantageous to take the allowable deductions 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 of the following statements concerning the qualification of property for the federal estate tax marital deduction is correct? (A) If a decedent is a resident of a community-property state, only separate property can qualify. (B) Property received by a surviving spouse as the result of a disclaimer will not qualify. (C) Property can qualify even if the surviving spouse receives it as trustee for someone else. (D) The property interest must be includible in the surviving spouse's estate at death unless consumed or given away.
(D) The property interest must be includible in the surviving spouse's estate at death unless consumed or given away.
Which of the following statements concerning a charitable remainder annuity trust (CRAT) is correct? (A) The benefit paid to one or more noncharitable income beneficiaries is a fixed percentage (not less than 5 percent) of the net fair market value of the trust assets as annually revalued. (B) The trust may provide that if trust income is insufficient to meet the annual payment, no payment will be made out of principal. (C) Additional contributions may be made to a CRAT after the initial payment. (D) 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.
(D) 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.
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 (A) Sam must have been a U.S. citizen or resident. (B) The farm must constitute at least 50 percent of Sam's gross estate (after certain adjustments for mortgages and liens). (C) Sam or a family member must have owned the real property and used it as a farm for at least 5 of the 8 years immediately prior to Sam's death. (D) 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.
(D) 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.
Which of the following examples of a terminable interest left to a surviving spouse qualifies for the federal estate tax marital deduction? (A) a property interest that passes to someone else if the surviving spouse remarries (B) a life estate in property (C) a life interest in a trust over which the surviving spouse has a special power of appointment (D) a property interest that passes to the surviving spouse only if the spouse actually survives the decedent by 3 months
(D) a property interest that passes to the surviving spouse only if the spouse actually survives the decedent by 3 months
Sam Silver purchased a joint life annuity for himself and his good friend from an insurance company. Assuming Sam contributed the entire purchase price, how will the annuity be valued at his death for purposes of determining his gross estate? (A) at the original cost of the joint life annuity (B) at the cost of a single life annuity on Sam's life at the date of his death (C) at the cost of a single life annuity for his friend at the time the original annuity was purchased (D) at the cost of a single life annuity for his friend at the time of his death
(D) at the cost of a single life annuity for his friend at the time of his death
