Estate and Trust Planning Midterm

Janice made the following transfers this year. Which transfer is an incomplete gift?

$75,000 that Janice transferred to her revocable trust.

Sherri purchased a home many years ago for $40,000. She married Gary five years ago when the house was worth $150,000, but they do not live in this home. Sherri and Gary live in a community property state. Assume Sherri died today and gave her interest in the property to her son Casey. The property is currently valued at $200,000. What is Gary's basis in the home after Sherri's death?

0 Gary does not own any interest in the property. Sherri purchased the home before she was married to Gary. At the time of marriage, the property remained Sherri's separate property. When Sherri died, her interest (100%) transferred to Casey. Thus, Gary does not own any of the property and does not have any basis in the property. Casey will have a basis of $200,000

Bernard made a gift of $500,000 to his brother in 1997. At the time of the gift, the applicable gift tax credit was $192,800, but due to Bernard's prior taxable gifts he paid $200,000 of gift tax. When Bernard died in 2018, the applicable gift tax credit had increased to $4,417,800. At Bernard's death, what amount related to the $500,000 gift to his brother is included in his gross estate?

0 Gift tax paid on gifts made within three years of a decedent's date of death is included in the decedent's gross estate. In this case, Bernard made the gift more than three years before his death, so $0 is included in his gross estate related to this gift. The value of the gift, $500,000 is added to the decedent's taxable estate to determine the tentative tax base and Bernard will get credit for the gift tax paid of $200,000.

Chuck and Nancy take their pet rock company public and are soon multimillionaires. Recognizing the volatility facing the pet rock industry, Chuck purchased a $5M straight life annuity that pays $200K a year. Chuck dies in a freak rock stampede 5 years later. What amount will be in his GE?

0 Straight life annuity ends at the person's death and is not included in their gross estate.

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

0 The house is included in the father's gross estate under Sec. 2036 since he retained a life estate in the house until his death. Under the basis adjustment rules of Sec. 1014, the daughter takes a basis in the house equal to the date-of-death fair market value for income tax purposes. Since the daughter sold the house at its date-of-death value, her gain is zero for income tax purposes.

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?

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.

Mike makes the following transfers: •2 years ago: •Life insurance policy to his cousin, $1M DB, $250 CSV •$100,000 Stock Portfolio to his sister •$50,000 RV to his son •Paid gift taxes of $55,000 •Last year: •$50,000 cash to brother •Paid $10,000 in gift taxes He died this year owning a $250,000 home ($100,000 basis) tenancy by the entirety, $50,000 stock portfolio, $500,000 in his 401K with his wife named as the beneficiary, a $50,000 car, and $25,000 in cash. Calculate his gross estate.

1,815,000 1M + 55K + 10K + 125K + 50K + 500K +50K + 25K = $1,815,000

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 Elizabeth's basis in the home?

100,000

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?

100,000

Chuck and Nancy take their pet rock company public and are soon multimillionaires. Recognizing the volatility facing the pet rock industry, Chuck paid 60% of the cost for a $5M joint and survivor annuity that pays $200K a year. A comparable annuity for Nancy based on her current age would cost $4M and at original purchase age would cost $6M. Chuck dies in a freak rock stampede 5 years later. What amount will be in his GE?

2,400,000 4M x .6 = $2.4M

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 The transfer of the remainder interest is a gift to his children. Because the interest is a gift of a future interest, it is not eligible for the annual exclusion - thus, Kevin's taxable gifts for the year are $2,500,000 ($4,000,000 - $1,500,000).

Your grandma mails you a check for Christmas. You receive it Dec. 26, 2020 but do not get around to cashing it until Jan. 4, 2021. Did grandma make the gift in 2020 or 2021?

2021 2021. It works the same way as if she added you to her bank account. It is not a gift until money is withdrawn. In this example, you cashed the check in 2021.

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?

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).

Kate and her brother Rustin own a piece of property in Dallas as tenants in common valued at $50,000. Kate owns a 75% interest and Rustin owns a 25% interest. During Mardi Gras, Rustin went down to New Orleans and decided he loved it there. The next week he purchased a house on St. Charles Avenue right across from the Mardi Gras parade route. Unfortunately, Rustin did not get an appraisal and learned later that he significantly overpaid for the property. In addition, the home was much too expensive for Rustin and shortly after the purchase Rustin defaulted on the loan. Even after the bank seized the home, there was a $50,000 debt remaining. Assuming the bank received a default judgment against Rustin and could seize the Dallas property, what portion of the property could be seized to satisfy Rustin's debt?

25% Co-owners of tenancy in common property are not liable for the debts of their co-owners. Thus, the bank can only seize Rustin's portion of the property to satisfy his debt.

At the time of his death Jason had the following assets: • Home owned jointly with rights of survivorship with his wife Sally, valued at $500,000. • Stock account in his individual name, valued at $250,000. • Life estate received from his mother, Judy, in a family vacation home. The home is worth $1,000,000. Jason's sister Toby is the remainder beneficiary. • IRA worth $750,000. His wife Sally is the primary beneficiary. What is the value of assets that will be subject to probate at Jason's death?

250,000

Tracey is a financial planner who recently 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. 1. During the initial meeting, Tracey collected personal data about Troy including the estate planning documents Troy had previously executed. 2. During the second meeting, Tracey recommended the use of a trust to fulfill some of Troy's estate planning goals. 3. Troy called Tracey one afternoon and asked if Tracey could explain the probate process to him, which Tracey promptly did. 4. 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?

4 only

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?

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.

Natalie and Ashley own farm land as Joint Tenants with Rights of Survivorship. Natalie contributed $60,000 and Ashley contributed $40,000. The land is currently valued at $1,000,000 and each of them has a 50% interest in the property. If Natalie died today, what amount of the value of the farm land would be included in her gross estate?

600,000 Property owned JTWROS follows the actual contribution rule for inclusion in the gross estate. Therefore, since Natalie contributed 60% of the property, her estate will include 60% of the Fair Market Value (60% x $1,000,000 = $600,000).

Alicia Anderson loans her son $15,000 and puts in the contract that he is to pay it back at 5% interest. The prime rate is 2.5%. Before he makes a payment, she cancels the note. Taking into account the annual exclusion amount for 2021, what is the dollar amount of the gift?

750 The annual exclusion amount is $15,000, so only the gift amount above this per donee is subject to gift tax. 15,000 x .05 = $750. Alicia gave up $15,750, and the AEA is $15,000, so 15,750 - 15,000 = $750. Alicia must file a gift tax form for the $750 gift to her son.

Mike makes the following transfers: •2 years ago: •SOLD the life insurance policy to his cousin, $1M DB, $250 CSV •$100,000 Stock Portfolio to his sister •$50,000 RV to his son •Paid gift taxes of $55,000 •Last year: •$50,000 cash to brother •Paid $10,000 in gift taxes He died this year owning a $250,000 home ($100,000 basis) tenancy by the entirety, $50,000 stock portfolio, $500,000 in his 401K with his wife named as the beneficiary, a $50,000 car, and $25,000 in cash. Calculate his gross estate.

815,000 55K + 10K + 125K + 50K + 500K +50K + 25K = $815,000

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 woman 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.

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.

Which of the following could lead to a will being contested?

Any of these could be contested A child is disinherited The spouse is disinherited Prior wills left everything to the children, and the new will leaves everything to the new spouse

Which of the following statements regarding SCINs is correct?

A SCIN can give the seller a collateral interest in the property sold. 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. Each payment received by the seller consists of (1) interest income, (2) capital gain, and (3) return of adjusted basis. 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 fiduciary (income) tax return.

Which of the following statements is false regarding a bargain sale?

A bargain sale is generally inappropriate if the buyer of the property is a family member.

All the following testamentary transfers are considered transfers by operation of contract EXCEPT

A joint securities account becomes the sole property of a surviving account holder at the death of the other joint owner.

Under which of the following circumstances would a decedent be considered to have died intestate?

All: The decedent handwrote a will, but did not sign or date it. The decedent was not of "sound mind" when he signed his statutory will. The decedent failed to prepare a last will and testament.

Which of the following accurately describes a life estate?

An interest in property that ceases upon the death of the owner of the life estate

Which of the following could lead to a will contest?

Any of these could lead to a will contest. Walter executed the will shortly after he was diagnosed with dementia. He was of sound mind at that time. Walter leaves everything to his lover Emmanuel Walter does not mention his lover Emmanuel in his will, but everything else (retirement, life insurance) that does not go through probate is left to Emmanuel.

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?

Any will

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

Both

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.

Both I and II

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 $30,000 and gives each son the right to withdraw up to $15,000. In the current year, when the total trust assets are $52,000, Ronnie decides to withdraw $15,000, 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?

Chad has made a taxable gift to Ronnie of $5,000. 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 $15,000 to lapse. As a result, Chad has made a gift to himself of $5,000 ($7,500-($5,000/2)) and a gift to Ronnie of $5,000 ($7,500-($5,000/2)).

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?

Charlotte should bring all of the above information to her first meeting with Samantha.

Jane transferred a piece of real estate to her son Christopher 6 months ago. Jane purchased the real estate for $90,000 six years ago and the property was valued at $65,000 on the date of transfer. Jane paid $20,000 in gift tax on the transfer. All of the following statements are true, except:

Christopher's basis will be adjusted for a portion of the gift tax paid. Because Jane's basis in the property was greater than the FMV of the property on the date that she gifted the property, Christopher will be subject to the double basis rules and will receive no adjustment in basis for gift tax paid.

Under what circumstances would property be subject to ancillary probate?

If the decedent is a resident of one state and owns real property in another state.

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 at least some of his annual contributions to the trust to qualify for the annual exclusion. What would be the best way to accomplish this goal?

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. Option c describes a Crummey provision, which converts what otherwise would have been a gift of a future interest, which would not be eligible for the annual exclusion, into a gift of a present interest, which is eligible for the annual exclusion. Option a is incorrect because without a Crummey provision, the annual contribution does not qualify for the annual exclusion, regardless of the amount. Option b is incorrect because even though this would qualify for the annual exclusion, giving minors the unfettered right to remove funds from the trust is not as good of a solution as a Crummey power. Option d is incorrect.

A disclaimer clause attempts to discourage disappointed heirs from contesting the will by substantially decreasing or eliminating a bequest to them.

False

One of the advantages of probate is that it allows heirs to receive inherited property quickly and timely after the decedent's passing.

False

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

False

Property titled as tenancy by the entirety will pass through probate for retitling.

False

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.

False

The probate process is a private matter, not available in public records.

False

If a partner of a nontraditional, unmarried couple wishes to pass assets to the surviving partner, he/she can count on state intestacy laws to include the significant other.

False Intestacy laws include a spouse, but not a significant other.

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

False The alternate valuation date is six months from the date of death.

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 represent the best team to help your clients?

Financial planner, CPA, and attorney.

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

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 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

I only

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

II only

Which of the following statements concerning estates is (are) correct? I. The administration of a decedent's estate should generally exist for an unlimited period of time. II. An estate is considered a separate tax entity for federal income tax purposes.

II only

Eugene is considering having his attorney prepare a springing power of attorney in which he gives his friend, Eleanor, the power to handle his finances. Why should Eugene include such a document in his overall estate plan?

In the event that Eugene becomes disabled, Eleanor will be able to pay Eugene's bills.

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?

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.

Which of the following is not a transfer cost associated with estate planning?

Insurance premiums

Tom loans $11,000 to his daughter Tina. Why would interest not be imputed on this loan?

Interest would not be imputed because Tina has unearned income of $500. Option a is incorrect because the annual exclusion is not relevant to imputed interest. Option b is incorrect; loans of less than $10,000 are exempt from both income tax and gift tax consequences. Option d is incorrect because whether interest is imputed on this loan is based on Tina's level of unearned income, not earned income.

All the following statements concerning a will are correct EXCEPT

It is irrevocable once executed.

Mary inherited her best friend's Corvette. She always thought it was her dream car, but after driving it for a week, she found the gas was too expensive, it was hard to park, and it just was not practical. She wrote a letter to the probate judge disclaiming the Corvette. Will this be considered a qualified disclaimer?

No

Margie has come to you and told you that she is considering executing a power of attorney for health care or an advance medical directive (also known as a living will). Although her state utilizes both documents, she believes that she only needs one of these documents. Which of the following statements is true regarding the two documents?

Margie should execute both documents as they cover different aspects of medical care.

Which of the following is not a common estate planning goal?

Maximizing Transfer Costs

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.

Neither I nor II

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?

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

John works full time as a plumber. When they need him, John does plumbing services for the local animal shelter and does not charge for his services. Has he made a gift to the shelter?

No

You are an adult. Your parents pay your tuition directly to the university while you are in school. Does the tuition payment constitute a gift?

No, because it is a qualified transfer. No, it is a qualified transfer, and no gift tax form needs to be filed.

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?

No, preparing Catherine's will would be considered the unauthorized practice of law.

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 the legal title to the property.

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?

Preparing a last will and testament for her first client.

Sam 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

Probate costs will be eliminated in the administration of Sam's estate.

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?

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

Of the following, which property transfers at death by contract?

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.

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?

SCIN A SCIN is a note with a self-canceling 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.

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?

Tenancy in Common

Sylvia and Rachel own a townhouse together and are not married. Rachel contributed 40% of the purchase price and Sylvia contributed 60% of the purchase price. Each of them has an equal interest in the property. Which of the following are permissible ways they could title the property? Sole Ownership. Tenancy in Common. Joint Tenancy with Rights of Survivorship. Tenancy by the Entirety. Community Property.

Tenancy in Common and Joint Tenancy with Rights of the Survivorship

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?

The decedent transferred the ownership of the policy to his wife four years ago. under IRC section 2035, the proceeds of a policy transferred within three years of death are included in the gross estate of the transferor.

All the following statements concerning the estate taxation of life insurance proceeds are correct EXCEPT

The proceeds must be excluded from the policyowner - insured's gross estate if payable to the surviving spouse because of the marital deduction.

At the time of his death Jason had the following assets: • Home owned jointly with rights of survivorship with his wife Sally, valued at $500,000. • Stock account in his individual name, valued at $250,000. • Life estate received from his mother, Judy, in a family vacation home. The home is worth $1,000,000. Jason's sister Toby is the remainder beneficiary. • IRA worth $750,000. His wife Sally is the primary beneficiary. Who will receive the family vacation home?

Toby

A bank savings account with a listed pay-on-death beneficiary avoids the probate process.

True

A donor must be competent to make a gift, and the donee must be capable of accepting the gift.

True

A durable power of attorney for health care allows the agent to make health care decisions for the principal in the event that the principal is incapacitated and unable to make health care decisions for himself.

True

All property not passing by contract, will, or operation of law passes under the laws of intestate succession.

True

Even if spouse #1 specifically disinherits spouse #2, spouse #2 is likely to receive a portion of spouse #1's estate.

True

Life insurance proceeds payable to the decedent pass through the probate process.

True

Probate is the legal process that performs the function of changing title to those properties that do not change title some other way.

True

Tax liability is measured by the value at the moment the gift becomes complete, rather than at the time of the transfer.

True

The probate process often requires the executor or administrator to advertise the upcoming probate for a statutory period of time in legal newspapers to give interested parties notice to enter into the process.

True

The probate process protects the decedent's creditors by ensuring that the debts of the estate are paid prior to distribution to heirs.

True

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

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 Restrictions on the transferability of limited partnership interests serve as a basis for marketability discounts and can also help protect the assets of the partnership from the creditors of the junior family members.

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?

Under Jose's will Fred will receive $300,000.

At the time of his death Jason had the following assets: • Home owned jointly with rights of survivorship with his wife Sally, valued at $500,000. • Stock account in his individual name, valued at $250,000. • Life estate received from his mother, Judy, in a family vacation home. The home is worth $1,000,000. Jason's sister Toby is the remainder beneficiary. • IRA worth $750,000. His wife Sally is the primary beneficiary. Who will receive the stock account?

Whoever Jason named in his will

You are an adult. Your parents give you money so that you can pay your medical bills while in school. Does the payment for medical bills constitute a gift?

Yes Yes, the payments to you are a gift. If they had paid the money to the hospital directly, it would be a qualified transfer, exempt from gift tax liability.

You are an adult. Your parents pay your rent while you are in school. Does the rent payment constitute a gift?

Yes, because they are giving you something for free. Yes, because they are giving you something for free and it is not a qualified transfer. If your rent is less than $15,000 per year and they do not give you any additional gifts that year, they do not need to file a gift tax form. If your parents choose to gift split, they can gift you up to $30,000 per year. In a community property state, gift splitting is assumed. In a common law state, they would have to fill out a gift tax form and elect to gift split.

Which of the following items would be included in a decedent's gross estate for federal estate tax purposes?

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

The federal estate tax is

a tax on the right of a decedent to transfer property

Which of the following are nontax advantages of lifetime gifts for the donor?

all of these are nontax advantages protection from creditor claims C. enjoyment of seeing the donee use the gift D. opportunity to see how the donee manages a windfall

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?

at the cost of a single life annuity for his friend at the time of his death

Who generally pays the gift tax?

donor

Which of the following is the best gift to give (among the answer choices)?

property that has appreciated in value

Which of the following constitutes a completed gift?

property transferred into an irrevocable trust

Trevone invested in a start-up company that is struggling. He has company stock but it has declined in value. He wants to use it for someone else's benefit, and considers donating the stock to his favorite charity. Of the following, which is the wisest course of action for Trevone to take?

sell the stock, take the capital loss, and donate the proceeds to charity, all while receiving an income tax deduction for the dollar amount of the donation

Which of the following powers would result in the property subject to the power being included in a decedent's estate?

the power to change beneficiaries

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?

the testamentary power to direct the trustee to use trust assets to pay her estate taxes

All the following forms of property interests give the holder current possessory enjoyment rights EXCEPT

vested remainder