Estate Final
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.
The correct answer is a. Minimizing transfer costs, not maximizing transfer costs, is a common estate planning goal. All of the other answers are common estate planning goals.
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).
The correct answer is b. Robbie has created a 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 does not qualify as a charitable organization? A. The State of Louisiana. B. The City of New Orleans. C. The Red Cross. D. The Democratic National Committee.
The correct answer is d. Political organizations are not qualifying charitable organizations. The other options are all considered qualified charitable organizations under Section 170(c).
Lisa made the following transfers during 2017: $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 valuedat $40,000 and her daughter is the remainder beneficiary. What is the total amount of Lisa's taxable gifts for 2017? A. $48,000. B. $60,000. C. $63,000. D. $65,000.
C
Big Mike, a very generous man, has given his granddaughter, Jordan, a gift equal to $5.490 million last year and paid any relevant taxes. He now wants to give his grandson, Colin, a gift of $5.490 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. $5.464 million. B. $7.644 million. C. $9.824 million. D. $10.774 million.
D $5.49 Gift $5.504 x 0.40 GST $2.196 $2.196 GST Gift Tax $3.074 10.774 $5.504 Gift - 14 $5.490 $2.196 GST $7.686 0.40 $3.074 Gift Tax
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? A. Sole Ownership. B. JTWROS. C. Tenancy in Common. D. Tenancy by the Entirety.
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.
Dawson recently prepared a last will and testament in which he left all of his assets to his girlfriend, Jen. Dawson and Jen broke up last night and now Dawson wants to leave all of his worldly possessions to his best friend, Joey. What can Dawson do to prevent Jen from receiving any of his assets? A. Dawson can shred the will under which Jen receives all of his assets. B. Dawson can send Jen an email telling her that he is cutting her out of his will. C. Dawson can tell Joey that he plans to write a new will. D. Dawson can give the will to Joey.
The correct answer is a. A will can be revoked by physically destroying the will. None of the other answers would effectively revoke Dawson's will.
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.
The correct answer is a. 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.
Bernard made a gift of $500,000 to his brother in 1997. At the time of the gift, the applicable gift tax credit was $192,800, but due to Bernard's prior taxable gifts he paid $200,000 of gift tax. When Bernard died in 2017, the applicable gift tax credit had increased to $2,141,800. At Bernard's death, what amount related to the $500,000 gift to his brother is included in his gross estate? A. $0. C. $153,000. D. $200,000. E. $500,000.
The correct answer is a. Gift tax paid on gifts made within three years of a decedent's date of death is included in the decedent's gross estate. In this case, Bernard made the gift more than three years before his death, so $0 is included in his gross estate related to this gift. The value of the gift, $500,000 is added to the decedent's taxable estate to determine the tentative tax base and Bernard will get credit for the gift tax paid of $200,000.
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.
The correct answer is a. None of the other answers describe circumstances under which the decedent's property would be subject to ancillary probate.
Elizabeth, who is not a licensed attorney, recently started her own financial planning practice. Which of the following activities would be considered the unauthorized practice of law? A. Preparing a last will and testament for her first client. B. Helping clients to identify their financial planning goals. C. Preparing financial statements for prospective clients. E. Referring clients to her brother, Jack, who happens to be a licensed attorney.
The correct answer is a. Only licensed attorneys should prepare last will and testaments for clients.
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.
The correct answer is a. 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.
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? Price Open High Low Close Thursday, July 15, 20xx $101 $107 $95 $105 Monday, July 19, 20xx $104 $108 $100 $103 Tuesday, July 27, 20xx $103 $105 $101 $104 Wednesday, July 28, 20xx $108 $112 $108 $109 A. $103,290. B. $103,440. C. $103,500. D. $104,000.
The correct answer is a. 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.
Mrs. Riley dies in 2017 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.
The correct answer is a. 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 $10,980,000 in 2017).
Chris and Jenn made the following gifts this year: Chris gave their son, Evan, a car worth $4,000 owned as community property. Chris also gave his son his stamp collection (separate property) valued at $60,000. Chris gave his brother Stephen $20,000 of Chris' separate property so Stephen could purchase a new home. Chris gave his sister Heather $4,000 in cash from his and Jenn's joint checking account which consists only of community property. He also gave Heather a piece of land he purchased before his marriage to Jenn, valued at $49,000. After the gift, how is Evan's ownership of the car classified? A. Sole Ownership. B. Joint Tenancy with Chris. C. Tenancy in Common with Chris and Jenn D. Community Property with Evan's wife Michelle.
The correct answer is a. The car is owned by Chris as fee simple sole ownership. There is no indication that Chris or Jenn retained any interest in the car after the gift. Even though Evan is married, a gift to an individual would not be community property.
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.
The correct answer is a. 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.
Melissa is a very generous single woman. Before this year, she had given $2,000,000 in taxable gifts over the years. In the current year, Melissa gave her daughter Riley $100,000 and promptly filed her gift tax return. Melissa did not make any other gifts this year. How much gift tax must Melissa pay the IRS because of this transaction? A. $0. B. $25,900. C. $30,450. D. $711,250.
The correct answer is a. The problem states that she has given over two million dollars in taxable gifts therefore she has an unused amount of her $5,490,000 (2017) exclusion remains. The calculation is as follows: $100,000 - $14,000 = $86,000 + $2,000,000 = $2,086,000 total taxable gifts (no gift tax due at this time).
Which of the following is NOT a terminable interest? A. An ownership interest in a life insurance policy. B. A life estate in a home. C. An interest in a patent. D. An interest in property for a term equal to an individual's life.
The correct answer is a. (Chapter 10) The ownership interest of a life insurance policy is not a terminable interest. The ownership interest does not terminate. All of the other interests listed are terminable interests. A life estate is a terminable interest because the interest in the property terminates at the individual's death. An interest in a patent is a terminable interest because a patent right terminates after a certain period of time. Option d describes a life estate, so it is also a terminable interest.
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.
The correct answer is b. 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
Kerri was recently diagnosed with an inoperable brain tumor. While the tumor has not caused any noticeable mental problems yet, Kerri's brain function is expected to deteriorate substantially over the next three years, resulting in significant medical expenditures. Kerri's sister Ann was diagnosed with the same illness 2 years ago. Kerri's only other surviving relatives include three brothers, two nieces, and one nephew. Although Kerri's brother invited her to live with him, Kerri sold her home in Oklahoma last month and moved to an assisted living facility in South Texas that specializes in caring for patients with brain tumors. Kerri's gross estate is currently valued at $8,000,000, including $2,000,000 in personal property, $2,000,000 in a retirement account, and $4,000,000 in a closely held family business. The only estate planning document Kerri currently has is a valid will that was executed a year ago. Kerri reviewed the will after her diagnosis and is confident that all of her wishes have been properly documented. Which of the following statements is correct? A. Since Kerri has a valid will, there is no need for her financial planner to review or update her will. B. If Kerri were to decide to make changes to her will utilizing a codicil, she would still have to be competent to execute such a document for it to be considered valid. C. Kerri should begin a gifting program of $14,000 per year per person to her surviving relatives. D. Kerri should execute a general power of attorney and a durable power of attorney for health care with Ann as her appointed agent.
The correct answer is b. Kerri should have her will reviewed because she moved from Oklahoma to Texas. Moving from one state to another necessitates a review of the will to ensure that all new state laws are met. A codicil is an amendment or change to the will and to be valid the testator must be competent when the codicil is executed. Option c is incorrect because even though her estate is over the applicable exclusion, a gifting program is not appropriate because of the significant medical expenses she is expected to incur over the next three years. Option d is incorrect; Ann is not the appropriate person to be Kerri's agent because Ann also has a brain tumor and there- fore, could not make decisions for Kerri.
Which of the following statements is false? A. The unlimited marital deduction is a deduction from a decedent's adjusted gross estate to arrive at the decedent's taxable estate. The unlimited marital deduction is limited to the value of the assets included in the decedent's gross estate which are transferred to the decedent's surviving spouse. B. The credit for tax paid on prior transfers was repealed in 2005. At that time, the credit became a deduction. C. If the sum of a decedent's gross estate and lifetime adjusted taxable gifts is less than the applicable estate tax credit equivalency amount for the year of the decedent's death, the executor of the decedent's estate does not have to file an estate tax return. D. Jesse gave his mom property valued at $100,000 six months before her death. Jesse's adjusted basis in the property was $45,000. Jesse was the sole heir of his mother's estate, and the same property was distributed from his mother's estate to him. At his mom's date of death, the property had a fair market of $105,000. Jesse's adjusted basis in this property is $45,000.
The correct answer is b. Option b is a false statement. The credit for tax paid on prior transfers was NOT repealed in 2005. The state death tax credit was repealed in 2005 and was replaced with a deduction. All of the other statements are true statements.
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. A. $81,000. B. $90,000. C. $99,000. D. $690,000.
The correct answer is b. The failure-to-file penalty of $90,000 (5% x $600,000 x 3 months) is reduced by the failureto-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.
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? A. $500,000. B. $1,000,000. C. $1,400,000. D. $1,415,000.
The correct answer is b. 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.
John has a general power of appointment over his father's assets. Which of the following is not true regarding such a power? A. John can appoint his father's money to pay for the needs of his father. B. John can appoint money to John's creditors. C. John must only appoint money using an ascertainable standard. D. If John predeceases his father, John's gross estate would include his father's assets even though they had not been previously appointed to John.
The correct answer is c. Answers a, b, and d are all true. Because John has a general power of appointment over his father's assets, John may appoint those assets to anyone for any reason and is not limited by an ascertainable standard such as health, education, maintenance, or support.
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.
The correct answer is c. 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.
Brody and Tanya recently sold some land they owned for $150,000. They received the land five years ago as a wedding gift from Brody's Aunt Jeanette. Aunt Jeanette purchased the land many years ago when the property was worth $20,000. At the date of the gift, the property was worth $100,000 and Aunt Jeanette paid $47,000 in gift tax. What is the long term capital gain on the sale of the property? A. $42,400. B. $50,000. C. $92,400. D. $130,000.
The correct answer is c. In general, when a donor makes a gift of property other than cash to a donee, the donee will take the property at the donor's adjusted basis. The holding period of the donee will include the holding period of the donor for purposes of subsequent transfers and the determination of long or short-term capital gains. An exception to the general basis rule occurs when the donor gives property with a fair market value in excess of his adjusted basis and the donor pays gift tax. The gift tax associated with the appreciation is added to the donor's original adjusted basis to determine the donee's basis. Thus, the basis would be: $20k + ($47k * $80k/$100k) = $57,600. The gain on the asset would be $150,000 - $57,600 = $92,400.
Laurie and Chance are considering purchasing a piece of land on which they plan to build a vacation home. Laurie and Chance are engaged to be married, and are unsure of how they should title the property. Which of the following statements is correct regarding their ownership and titling of the land? A. Laurie and Chance cannot own the property as joint tenants because joint tenancies may only be established between married parties. B. If Laurie and Chance were married and owned the property as a joint tenancy between spouses, one-half of the value of the property will be included in the probate estate of the first spouse to die without regard to the actual contribution of each spouse. C. If the property is held as a joint tenancy then Laurie and Chance will each own the same fractional share in the property regardless of how much they contribute. D. If the property is held as a joint tenancy and Chance dies first, the property will pass to Laurie unless Chance's will directs a different disposition.
The correct answer is c. Joint tenancy requires equal ownership. Option a is incorrect because joint tenancies may be established by spouses or nonspouses. Option b is incorrect because if the two were married, each would be deemed to have contributed 50%, therefore only 50% would be included in the gross estate of the first spouse to die. Nothing will be included in the probate estate. Option d is incorrect because if the property is held as a joint tenancy then the property will transfer automatically at the first tenant's death, regardless of what the will dictates.
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.
The correct answer is c. 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.
Tom loans $11,000 to his daughter Tina. Why would interest not be imputed on this loan? A. Interest would not be imputed because the loan is less than the amount of the annual exclusion. B. Interest would not be imputed because loans of $100,000 or less are exempt from both income tax and gift tax consequences. C. Interest would not be imputed because Tina has unearned income of $500. D. Interest would not be imputed because Tina's earned income is less than $1,000.
The correct answer is c. Option a is incorrect because gift loans do not qualify for the annual exclusion. Option b is incorrect; loans of less than $10,000 are exempt from both income tax and gift tax consequences. Option d is incorrect because whether interest is imputed on this loan is based on Tina's level of unearned income, not earned income.
Which of the following empowers an executor to act as the agent of a probate court? A. Surety Bond. B. Letters of Administration. C. Letters Testamentary. D. Intestacy Laws.
The correct answer is c. Option a is the bond that an administrator must generally post. Option b is what empowers an administrator to act as the agent of a probate court. Option d describes the state laws that govern the disposition of a decedent's estate if he has failed to prepare a valid will.
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? A. Donald should make sure that he does not contribute more than $14,000 for each nephew, or $42,000 in total, each year. B. Donald should give his nephews an unlimited ability to remove funds from the trust. C. 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. D. Donald's annual contributions to the trust will not qualify for the annual exclusion under any circumstances.
The correct answer is c. 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.
Which of the following statements is false regarding a bargain sale? A. The difference between the fair market value of the asset and the consideration received in exchange for the asset is considered a gift. B. The gift portion of a bargain sale will qualify for the annual exclusion. C. A bargain sale is generally inappropriate if the buyer of the property is a family member. D. If the property is sold by the seller for more than the seller's basis in the property, a taxable gain will result.
The correct answer is c. Option c is a false statement because bargain sales usually occur among related parties. All of the other options are true.
In 1999, Price funded a bypass trust with $675,000, the applicable estate tax credit equivalency amount at that time. At Price's death in 2017, his will included a testamentary bypass trust and a residual bequest to his U.S. citizen wife. If Price's taxable estate before prior gifts at his death was $5,490,000, how much will be transferred to the bypass trust to maximize its benefits? A. $1,325,000. B. $2,125,800. C. $4,815,000. D. $5,490,000.
The correct answer is c. Price's executor would fund the testamentary bypass trust with the difference between the applicable estate tax credit equivalency at Price's death (2017 - $5,490,000) and the funding amount of the inter vivos bypass trust ($675,000). In this case, the amount would be $4,775,000 ($5,490,000 - $675,000).
Which of the following is/are considered a disadvantage(s) of probate? The process can result in delays. The process may be expensive. The process provides clear title to heirs and legatees. The process is open to public scrutiny. A. 1 only. B. 1 and 2. C. 1, 2, and 4. D. 1, 2, 3, and 4.
The correct answer is c. The fact that probate provides clear title to heirs and legatees is an advantage, not a disadvantage, of the process. All of the other options are disadvantages of the probate process.
Although he has a vast fortune, Ricky has decided not to prepare an estate plan because he believes that his surviving family members will divide up his assets appropriately. Which of the following is not a risk associated with failing to plan an estate? A. Ricky's estate could incur excessive transfer taxes. B. Ricky's favorite Corvette may not be transferred to his ex-wife, Carla. C. Ricky's insurance policy on his own life may not be paid out to the named beneficiary. D. Ricky's current wife, Lucille, may not provide for Ricky's children from a previous marriage.
The correct answer is c. The proceeds of insurance policies with named beneficiaries pass outside of probate via state contract law. Ricky's failure to plan his estate will not affect his insurance policy.
Maxwell died August 8, 2017. Of the following transfers made during his life, which is included in his gross estate? A. The transfer of a whole life insurance policy on Maxwell's life to an ILIT on September 16, 2013. B. The sale of his term insurance policy to his brother, Donald, for fair market value on August 12, 2013. C. The transfer of a whole life insurance policy on Maxwell's life (face value $150,000) valued at $20,000 to his son on September 16, 2015. D. A gift of $14,000 to Maxwell's sister on August 7, 2017. No gift tax was due on the gift.
The correct answer is c. The transfer would be included in Maxwell's gross estate because transfers of life insurance on the decedent's life within three years of the decedent's date of death are included in the decedent's gross estate. Option a is incorrect because the transfer is not included in Maxwell's gross estate because the transfer was completed more than three years prior to Maxwell's date of death. Option b is incorrect because the sale of an insurance policy for fair market value removes the asset from the gross estate. Option d is incorrect because gifts, other than life insurance, within three years of the decedent's date of death are not included in the decedent's gross estate. Gift tax paid within three years of the decedent's date of death is included in the decedent's gross estate, but in this case no gift tax was paid.
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.
The correct answer is c. 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 pay- ments 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.
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? A. $60,000. B. $500,000. C. $600,000. D. $1,000,000.
The correct answer is c. 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).
Which of the following are characteristics of a qualified disclaimer? 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. It must be written and irrevocable. The disclaimant may disclaim a part of an asset. A. 1 and 2. B. 1 C. 1 and 3 D. 1, 2, 3
The correct answer is d. A qualified disclaimer must be written, irrevocable and received by the executor of the estate within 9 months. It must not direct the asset and can be for any interest partial or full.
Which of the following assets would pass through probate? A. A life insurance policy with a named beneficiary. B. Assets held in trust. C. A pay-on-death account with a named beneficiary. D. Household goods.
The correct answer is d. All of the other options describe assets that do not pass through probate.
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.
The correct answer is d. 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.
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.
The correct answer is d. 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.
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.
The correct answer is d. 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.
Colin would like to use his recent inheritance of $200,000 to establish a charitable remainder trust. Colin would like to have the flexibility to make additional contributions to the charitable remainder trust in the future. Which of the following would you recommend for Colin? A. A Charitable Remainder Annuity Trust. B. A Charitable Gift Annuity. C. A Charitable Lead Unitrust. D. A Charitable Remainder Unitrust.
The correct answer is d. Option a is incorrect because additional contributions may not be made to a CRAT. Option c is incorrect because a CLUT is not a charitable remainder trust. Option b is incorrect because each donation is a separate annuity and the annuity it not a remainder trust.
Which of the following 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.
The correct answer is d. 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 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.
The correct answer is d. Option d is incorrect because the ultimate beneficiary of a QTIP Trust is chosen by the grantor of the QTIP Trust. All of the other statements are correct.
Death benefit proceeds from a life insurance policy are included in a decedent's gross estate in which of the following circumstances: The decedent gave the policy to his father four years ago, but retained the right to change the name of the beneficiary. The policy beneficiary is a grantor trust of the decedent but the policy is owned by a closely-held corporation. The decedent gave the policy to a charity seven years ago. 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.
The correct answer is d. Statement 1 is included because the decedent retained an ownership right and statement 4 was transferred more than 3 years ago.
Maxwell and Jim have resided together for several years but are not married. Maxwell is concerned that if he dies first, his family may contest the transfer of his assets to Jim through his will so he wants to avoid any transfers through his will. Of the following options, which transfer arrangements would ensure that Maxwell's assets will be transferred to Jim at Maxwell's death? 1.A Qualified Personal Residence Trust (QPRT). 2.An Irrevocable Trust. 3.A Revocable Living Trust. 4.A Testamentary Trust. A. 2 only. B. 1 and 3. C. 2 and 4. D. 1, 2, and 3.
The correct answer is d. The QPRT, Irrevocable Trust, and Revocable Living Trust would ensure that Jim would receive Maxwell's assets at Maxwell's death because the assets will transfer per the trust docu- ment. Maxwell's family will not be able to contest the transfers from the trust. A testamentary trust will not ensure that Jim will receive Maxwell's assets because a testamentary trust would be first created in Maxwell's will. The family could contest the will and block the transfer to the testamentary trust. In such a case, Jim would not receive the assets. They could consider marrying.
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? A . $1,444,000. B. $1,500,000. C. $2,444,000. D. $2,500,000.
The correct answer is d. The transfer of the remainder interest is a gift to his children. Because it 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).
Chris and Jenn made the following gifts this year: Chris gave their son, Evan, a car worth $4,000 owned as community property. Chris also gave Evan his stamp collection (separate property) valued at $60,000. Chris gave his brother Stephen $20,000 of Chris' separate property so Stephen could purchase a new home. Chris gave his sister Heather $4,000 in cash from his and Jenn's joint checking account which consists only of community property. He also gave Heather a piece of land he purchased before his marriage to Jenn, valued at $49,000. Assuming Jenn did not want to split gifts, what is Chris' total taxable gifts after taking into consideration any available deductions or exclusions. A. $36,000. B. $91,000. C. 104,000. D. $133,000.
b (couldn't post picture of answer)
