Estate Planning 11&13
Robin transfers $15,000 to her son, Gerry; $40,000 to her niece, Bernadette; and pays Hollowpoint Medical Hospital $50,000 for her granddaughter, Jill's, medical expenses. Which of these transfers is subject to GSTT? A)None of the listed transfers will be subject to GSTT. B)The transfer to Jill. C)The transfers to Bernadette and Jill. D)The transfers to Bernadette, Gerry, and Jill.
A)None of the listed transfers will be subject to GSTT.
Which of the following statements regarding term life insurance is correct? A)The premium on a term life insurance policy reflects the actuarial risk that the insured will die during the term of the contract. B)The cash accumulation account of a term life insurance policy is invested in the bond portfolios of the insurer. C)The cash accumulation account of a term life insurance policy is invested in individual stocks selected by the insured. D)The premium of a term life insurance policy will decrease as the pure cost of life insurance increases.
A)The premium on a term life insurance policy reflects the actuarial risk that the insured will die during the term of the contract.
Travis, 28, and his wife, 26, have recently moved into a new home. They financed $350,000 of the $500,000 purchase price and utilized all of their savings to pay the down payment of $150,000. Travis's wife stays at home with their 3-year old son, Alex, and is expecting a baby in two months. Which of the following statements is not correct? A)Travis should consider a 30 year term life insurance policy on his life which could fund his children's educational needs if he should die during the term. B)A universal life insurance policy would provide Travis with the insurance protection of a term life insurance policy and would also provide him with a tax-deferred savings mechanism. C)A whole life insurance policy would provide Travis with the least expensive temporary life insurance needed to eliminate the mortgage at his death. D)Travis should consider a whole life insurance policy on his life which could fund his children's educational needs or pay off the mortgage if he dies while those needs exist, and which could also provide Travis with a source of funds if he lives through his retirement.
C)A whole life insurance policy would provide Travis with the least expensive temporary life insurance needed to eliminate the mortgage at his death.
Which of the following statements regarding dynasty trusts is not true? A)A dynasty trust will not vest its ownership in each generation of beneficiaries. B)Alaska has laws that favor the creation of dynasty trusts. C)The income of a dynasty trust is always taxed at the trust level since ownership does not vest in the beneficiaries. D)A dynasty trust can give a beneficiary a limited power of appointment without causing inclusion of the trust's assets in the beneficiary's gross estate.
C)The income of a dynasty trust is always taxed at the trust level since ownership does not vest in the beneficiaries.
In 2020, Patricia, a single wealthy woman, has made previous generation skipping gifts equal to her lifetime exemption and now plans to give her granddaughter $1,000,000 this year. Patricia has made no gifts at all to anyone this year. What will be Patricia's total cash out flow as a result of this transaction? A)$1,000,000. B)$1,394,000. C)$1,788,000. D)$1,945,600.
D)$1,945,600.
Mel has never made any gifts subject to GSTT. He is single and would like to transfer as much as he possibly can during the year to his grandchild without triggering any GSTT. How much can Mel transfer to his grandchild this year and meet his goal? A)$15,000. B)$4,577,800. C)$11,580,000. D)$11,595,000.
D)$11,595,000.
The owner of a life insurance policy has decided to surrender the life insurance policy to the insurer. Since inception of the life insurance contract, the owner has paid premiums of $100,000 and received cash policy dividends equal to $20,000. If at the surrender date, the owner receives a cash payment of $140,000 from the insurer, what is his gain/ loss subject to income tax on the life insurance policy? A)$0. B)$20,000. C)$40,000. D)$60,000.
D)$60,000.
To which of the following transfers does the GSTT not apply? A)A taxable termination. B)A taxable distribution. C)A direct skip. D)A skip-over.
D)A skip-over.
In an attempt to exclude the death benefit of a paid up $500,000 face value whole life insurance policy from his gross estate, Jerry gifted the policy to his daughter. Six months prior to the gift, Jerry had been diagnosed with a terminal illness and given a 12 month life expectancy by his doctor. Jerry died 4 years after the gift of the life insurance policy. What amount is included in his federal gross estate related to this whole life insurance policy? A)$0. B)$250,000. C)$500,000. D)$500,000 discounted for Jerry's six month life expectancy.
A)$0.
Pamela's dad, Tim, died on August 10 of this year. Six years ago, Tim had gifted ownership of a paid-up $1,000,000 whole life insurance policy on his life with a replacement value of $100,000 and an adjusted basis of $100,000 to Pamela. If Pamela, as designated beneficiary, receives the death benefit of the life insurance policy this year, how much will be taxable to her? A)$0. B)$50,000. C)$100,000. D)$1,000,000.
A)$0.
Sally was recently diagnosed with stage four lung cancer. Her doctors have given her 9 months to live. She has many medical expenses and needs money. If Sally sells a whole life insurance policy, with a $1,000,000 face value and a $250,000 adjusted basis to a viatical settlement provider for $350,000, how much capital gain will Sally have to recognize for income tax purposes on the sale? A)$0. B)$250,000. C)$350,000. D)$1,000,000.
A)$0.
Twelve years ago, Paul purchased a single premium $1,000,000 life insurance policy on his own life for $150,000 and named his daughter as the sole beneficiary. Paul gifted ownership of the policy to Holly this year when the value of the life insurance policy was $200,000. Paul paid $15,000 of gift tax on the transaction. At Paul's death, how much of the death benefit that Holly receives will be subject to income tax? A)$0. B)$785,000. C)$800,000. D)$1,000,000.
A)$0.
Which of the following statements regarding universal life insurance policies is true? A)As long as the premium of a universal life insurance policy is paid, the insurer guarantees that the life insurance policy will remain in force. B)A universal life insurance policy will be cancelled if the pure cost of insurance protection increases and the cash accumulation account does not have the funds to pay the additional cost. C)Funds within the cash accumulation account of a universal life insurance policy cannot be used to pay the policy premium. D)A universal life insurance policy allows the insured to select the cash accumulation account investments.
B)A universal life insurance policy will be cancelled if the pure cost of insurance protection increases and the cash accumulation account does not have the funds to pay the additional cost.
Last year, Jerry gave a life insurance policy with a $400,000 death benefit to his son, Brad. At the time of the gift, the value of the life insurance policy was $50,000 and Jerry had to pay $5,000 in federal gift tax. Jerry unexpectedly died this year. What amount will be included in Jerry's federal gross estate related to this life insurance policy? A)$5,000. B)$400,000. C)$405,000. D)$455,000.
C)$405,000.
In an attempt to exclude the death benefit of a paid up $500,000 face value whole life insurance policy from his gross estate, Jerry gifted the policy to his daughter. Six months prior to the gift, Jerry had been diagnosed with a terminal illness and given a 12 month life expectancy by his doctor. What is the gift tax value of the gift of this policy? A)The replacement cost of the life insurance policy. B)The life insurance policy's interpolated terminal reserve plus any unearned premium. C)$500,000 discounted for Jerry's six month life expectancy. D)The cash surrender value of the life insurance policy.
C)$500,000 discounted for Jerry's six month life expectancy.
Many grandparents name their grandchildren as the beneficiaries of their life insurance policies. How should the life insurance policies for the benefit of grandchildren be held? A)A revocable life insurance trust should be established and funded with a transfer of the life insurance policy. B)The grandparent should be the owner with the grandchild as the listed beneficiary. C)An irrevocable life insurance trust should be created for the benefit of the grandchild. D)The ownership of the policy should be transferred to the grandchild.
C)An irrevocable life insurance trust should be created for the benefit of the grandchild.
Louie gave a $1,000,000 life insurance policy on his own life to his brother. At the date of the gift, the life insurance policy was valued at $200,000. Which of the following statements regarding the gift of this life insurance policy is correct? A)If Louie dies two years after this gift, his federal gross estate will include $200,000. B)If Louie dies four years after this gift, his federal gross estate will include $200,000. C)If Louie dies two years after this gift, his federal gross estate will include $1,000,000. D)If Louie dies four years after this gift, his federal gross estate will include $1,000,000.
C)If Louie dies two years after this gift, his federal gross estate will include $1,000,000.
Colleen transferred ownership of a whole life insurance policy on her life to an Irrevocable Life Insurance Trust (ILIT) six years ago and retained the right to borrow against the policy. When Colleen dies, the proceeds of the life insurance policy are: A)Included in Colleen's federal gross estate if she has any outstanding loans against the life insurance policy. B)Included in Colleen's federal gross estate if Colleen continued paying the policy premiums after the life insurance policy was transferred to the ILIT. C)Never included in Colleen's federal gross estate. D)Always included in Colleen's federal gross estate.
D)Always included in Colleen's federal gross estate.
Jack purchased a life insurance policy on his own life and never designated a beneficiary. In this case, the life insurance policy death benefit is: A)Included in Jack's federal gross estate if Jack dies within three years of the initial premium payment. B)Included in Jack's federal gross estate if Jack paid the premiums until his death. C)Never included in Jack's federal gross estate. D)Always included in Jack's federal gross estate.
D)Always included in Jack's federal gross estate.
Jason is the owner of a paid-up whole life insurance policy on his own life. All of the following statements are correct except: A)Jason may assign ownership of the whole life insurance policy to a trust. B)Jason can borrow against the cash value of the whole life insurance policy. C)The death benefit of the whole life insurance policy will be included in Jason's federal gross estate. D)If Jason gifts the whole life insurance policy to his son, the value for gift tax purposes is the sum of the policy's interpolated terminal reserve plus any unearned premium.
D)If Jason gifts the whole life insurance policy to his son, the value for gift tax purposes is the sum of the policy's interpolated terminal reserve plus any unearned premium.
Four years ago, Marvin gave a life insurance policy with a $750,000 death benefit to his daughter, Marsha. At the time of the gift, the value of the life insurance policy was $65,000, and Marvin paid $10,000 in federal gift tax. Marvin unexpectedly died this year. What amount will be included in Marvin's federal gross estate related to this life insurance policy? A)$0. B)$10,000. C)$65,000. D)$750,000.
A)$0.
Billy funds a trust with property valued at $7,000,000. The income beneficiary is Robin who has a general power of appointment over the trust. The remainder beneficiary is Seth, Robin's son and Billy's grandson. Billy dies and then Robin dies. After Robin's death, the assets are distributed to Seth. Who pays any GST tax? A)There is no GST tax. B)Seth after the distribution. C)The trust before the distribution to Seth. D)Robin's estate.
A)There is no GST tax.
Jackie's father died last month and she is the listed beneficiary on his insurance policy. Jackie has contacted the insurer and has requested a lump-sum payment of the death benefit of the life insurance policy. Which of the following statements regarding this lump-sum payment is true? A)When Jackie receives the lump-sum payment of the death benefit from the insurer, part of the payment will be taxable. B)Because Jackie has elected a lump-sum payment of the death benefit, she will actually receive a payment less than the face value of the policy. C)Had Jackie elected the life annuity, each payment would have been excluded from her gross income. D)Jackie could have elected to leave the death benefit on deposit with the insurer and continue the tax-deferred growth of the policy
A)When Jackie receives the lump-sum payment of the death benefit from the insurer, part of the payment will be taxable.
Jim purchased a yacht from Ronald for $200,000 seven years ago. The terms of the sale included a note of $50,000 and cash for the remaining amount. Ronald had a zero basis in the yacht. Immediately after purchasing the yacht, Jim's business began to fail and Jim could no longer make the payments. In exchange for the note, Jim gave Ronald a life insurance policy on his life with a face value of $50,000. This year, Jim died and Ronald received the death benefit as the designated beneficiary of the policy. How much of this death benefit is taxable to Ronald? A)$0. B)$50,000. C)$150,000. D)$200,000.
B)$50,000.
Upon what form is a lifetime GST reported? A)Form 1040. B)Form 709. C)Form 706. D)Form 1041.
B)Form 709.
David, age 78, retired from his 40-year career at BBB Corporation last year. As part of an overall estate plan, David has begun establishing many different trusts. Of the following list of beneficiaries listed in David's trusts, who would be a skip person for purposes of the GSTT? A)Jenna, age 31, David's wife. B)Tiffany, age 22, David's girlfriend. C)Peter, age 25, David's grandson, whose mother is living, but whose father, (David's son) is deceased. D)Bill, David's 81-year-old lifelong neighbor.
B)Tiffany, age 22, David's girlfriend.
Which of the following is not a reason for using life insurance in an estate plan? A)The proceeds of the life insurance policy can be used to create liquidity for the decedent's estate. B)The proceeds of the life insurance policy can be used to eliminate any debt for the decedent's surviving spouse. C)The insured can borrow the death benefit from the life insurance policy to fund his retirement. D)Expected future education expenses can be funded with the death benefit of the life insurance policy.
C)The insured can borrow the death benefit from the life insurance policy to fund his retirement.
Byron, age 65, gave $30,000 each to his son, his daughter, his six-year-old grandniece, his 21-year-old female neighbor, and his wife. Which of the transfers would be subject to GSTT? A)The transfer to his wife. B)The transfer to his neighbor. C)The transfer to his grandniece and the neighbor. D)The transfer to his grandniece, his neighbor, and his daughter.
C)The transfer to his grandniece and the neighbor.
Watson, Inc. has four equal partners. All four partners are interested in entering into a buy-sell arrangement. How many life insurance policies would be purchased to properly fund using a cross-purchase agreement? A)4 policies. B)6 policies. C)8 policies. D)12 policies.
D)12 policies.
In which of the following situations would the death benefit of a life insurance policy be taxable, partially or wholly? A)Deborah, as designated beneficiary, received the $80,000 death benefit of Larry's life insurance policy. Larry had purchased the policy for $35,000 from his employer when he retired in 1997. B)Clean-it, LLC, received the $100,000 death benefit of David's life insurance policy. In 1990, David, the owner of 50% of the stock of Clean-it, LLC sold the policy to Clean-it for $12,000 as part of an entity-type buy-sell agreement. C)Weakam, Ullo, and Evans, LLP, received the $1,000,000 death benefit of a life insurance policy on Randy Evans, one of the managing partners. Randy had sold the policy to Weakam, Ullo, and Evans, LLP in 1945 when the business was just starting out as part of an entity-type buy-sell agreement. D)Adam sold a $100,000 death benefit life insurance policy to Dawson for $35,000 as part of cross-purchase buy-sell agreement. Dawson and Adam were the only two shareholders of Cupper Corporation and each owned a policy on the other.
D)Adam sold a $100,000 death benefit life insurance policy to Dawson for $35,000 as part of cross-purchase buy-sell agreement. Dawson and Adam were the only two shareholders of Cupper Corporation and each owned a policy on the other.
Which of the following statements concerning the GSTT is not correct? A)Each individual can exclude up to $11,580,000 of transfers from GSTT. B)The GSTT is applied to a gift after the application of the annual exclusion. C)Gifts that are subject to GSTT can be split. D)The GSTT only applies to transfers in trust.
D)The GSTT only applies to transfers in trust.
The owner of a whole life insurance policy would like to exchange his life insurance policy for an annuity on his life. Currently, the value of the life insurance policy is $150,000, excluding a $50,000 loan the owner has against the life insurance policy, and the owner's adjusted basis in the policy is $65,000. Which of the following statements is true? A)If the owner exchanges the life insurance policy for an annuity, the owner must recognize a $135,000 capital gain on the exchange. B)The owner's basis in the annuity after the exchange will be $115,000. C)The exchange will be considered a transfer for valuable consideration. D)If the annuity has a death benefit, the beneficiary will have to include the death benefit in her taxable income at the owner's death.
The owner's basis in the annuity after the exchange will be $115,000.
Mr. Fahey, age 71, has been paying the premium on a whole life insurance policy for the past 30 years. The policy has a $1,000,000 death benefit and has built up a cash value of $250,000. Mr. Fahey's adjusted basis in the life insurance policy is $200,000. Which of the following statements is not correct? A)If the insurer pays Mr. Fahey a life insurance policy dividend of $3,000, his adjusted basis in the whole life insurance policy will increase to $203,000. B)If the insurer pays Mr. Fahey a life insurance policy dividend of $4,000, his adjusted basis in the whole life insurance policy will decrease to $196,000. C)The cash surrender value of Mr. Fahey's whole life insurance policy would be equal to the cash value of the policy less a life insurance policy surrender charge. D)Mr. Fahey can take a loan from the cash value of the life insurance policy without suffering any income tax consequences.
A)If the insurer pays Mr. Fahey a life insurance policy dividend of $3,000, his adjusted basis in the whole life insurance policy will increase to $203,000.
Carol and Joe, unrelated business partners, began operating a drug store in southern Florida. They funded a buy/sell agreement with a cross-purchase life insurance arrangement. Carol purchased a life insurance policy with Joe as the insured, and Joe purchased a life insurance policy with Carol as the insured. If Carol dies, which of the following is/are true? 1. The death benefit of the life insurance policy on Carol's life, owned by Joe, is excluded from Carol's federal gross estate. 2. The death benefit of the life insurance policy on Carol's life, owned by Joe, is included in Carol's federal gross estate if Carol own's 50% or more of the stock of the drug store. 3. The value of the life insurance policy on Joe's life, owned by Carol, is included in Carol's federal gross estate. 4. The death benefit of the life insurance policy on Carol's life, owned by Joe, is included in Carol's federal gross estate. A)1 only. B)1 and 3. C)1, 2, and 3. D)1, 2, 3, and 4.
B)1 and 3.
Which of the following statement(s) is/are correct regarding buy-sell arrangements? 1. Entity purchase arrangements increase the income tax basis for some survivors upon the death of another owner. 2. Cross-purchase arrangements increase the income tax basis for all survivors upon the death of another owner. A)1 only. B)2 only. C)Both 1 and 2. D)None of the above are correct.
B)2 only.
Justin transfers $2,000,000 in 2020 to an irrevocable trust providing that income is to be accumulated for 22 years. At the end of 22 years, the accumulated income is to be distributed to Justin's child, Chip, and the trust principal is to be paid to Justin's grandchild, Beau. Justin allocates $800,000 of his GST exemption to the trust on a timely filed gift tax return. What is the effective GSTT rate applicable to the trust? A)20.00%. B)24.00%. C)40.00%. D)60.00%.
B)24.00%.
As part of his employee benefit package, Larry's employer provided him with a $50,000 term life insurance policy. Larry named his wife, Cynthia, as the sole beneficiary of the life insurance policy. Which of the following statements is true with regard to this life insurance policy? A)Because the term insurance policy is part of a group term life insurance policy, the death benefit payable to Cynthia is considered taxable income. B)At Larry's death, the death benefit payable to Cynthia will be included in Larry's federal gross estate. C)Larry cannot change the beneficiary of the life insurance policy without Cynthia's prior written approval. D)If Cynthia dies before Larry, her federal gross estate will include the life insurance policy death benefit.
B)At Larry's death, the death benefit payable to Cynthia will be included in Larry's federal gross estate.
Raphael is the owner of a variable life insurance policy on his life. His wife, Isabel is the designated beneficiary. Which of the following statements is correct? A)If Isabel dies before Raphael, Isabel must include the value of the life insurance policy in her federal gross estate. B)At Raphael's death, the variable life insurance policy death benefit will be paid to Isabel. C)When the beneficiary of a life insurance policy is the wife of the insured/owner, the death benefit payable to the wife is included in the insured's probate estate. D)As beneficiary, Isabel can borrow against the death benefit during Raphael's life.
B)At Raphael's death, the variable life insurance policy death benefit will be paid to Isabel.
James owned a life insurance policy with his brother, Fred, as the insured. When James died, his will specifically bequeathed the policy to his sister, Lolita. Which of the following statements regarding the value of the life insurance policy to include in James' federal gross estate is not true? A)If the life insurance policy is a term life insurance policy, the value is the unused premium. B)Because Fred is still alive, the value of the policy included in the gross estate is zero. C)If the life insurance policy is a whole life policy in pay status, the value is equal to the unearned premium plus the interpolated terminal reserve. D)If the life insurance policy is a paid-up or single premium life insurance policy, its value is its replacement cost.
B)Because Fred is still alive, the value of the policy included in the gross estate is zero.
Jack is age 74 and made transfers to the following people. Which of the following individuals would be considered a skip person? • Ann; Jack's wife who is 23 years old. • Bobby; Jack's grandnephew who is 13 years old. • Sean; Jack's youngest son who is 5 years old. • Marcy; Jack's sister's grandchild. A)All of the above. B)Bobby and Marcy. C)Sean and Marcy. D)Marcy only.
B)Bobby and Marcy.
Gayle is the owner and insured on a $1,000,000 face value life insurance policy in pay status. Gayle's adjusted basis in the life insurance contract is $250,000. If Gayle gifts this life insurance policy to her daughter and listed beneficiary, Celeste, which of the following statements is correct? A)After the date of the gift, any dividends paid on the life insurance policy will be taxable to Gayle. B)Celeste can amend the beneficiary designation of the life insurance policy to include her son, Matt, as a co-beneficiary. C)If Celeste dies before Gayle, Celeste's probate estate will include the replacement value of the life insurance policy. D)If Gayle dies within 3 years of the gift of the life insurance policy to Celeste, the death benefit will be included in Gayle's probate estate.
B)Celeste can amend the beneficiary designation of the life insurance policy to include her son, Matt, as a co-beneficiary.
Upon what form is a testamentary transfer subject to GSTT reported? A)Form 1040. B)Form 706. C)Form 1041. D)Form 709.
B)Form 706.
Which of the following is not a valid settlement option for the designated beneficiary of a life insurance policy? A)A lump-sum payment of the death benefit. B)Individual Retirement Account Rollover. C)Life Annuity. D)Term Annuity.
B)Individual Retirement Account Rollover.
All of the following statements concerning the GST tax are correct EXCEPT? A)The GST tax is flat at 40%. B)Like the gift tax, the GST tax lifetime exemption must be used first to determine any GST tax liability. C)Any GST tax is treated as a gift for gift tax purposes. D)Like gift tax, the lifetime exemption for GST tax is $11,580,000.
B)Like the gift tax, the GST tax lifetime exemption must be used first to determine any GST tax liability.
Which of the following is not considered an incident of ownership? A)The right to change the beneficiary of a life insurance policy. B)The insured making cash gifts to the owners of the life insurance policy of the premium amount. C)The right to take loans against the cash value of the life insurance policy. D)A provision in an ILIT that directs the trust to pay the federal estate taxes of the insured.
B)The insured making cash gifts to the owners of the life insurance policy of the premium amount.
Who has the right to surrender a life insurance policy for its cash surrender value? A)The insured of the life insurance policy. B)The owner of the life insurance policy. C)The beneficiary of the life insurance policy. D)The insurer of the life insurance policy.
B)The owner of the life insurance policy.
Mike created and funded an irrevocable trust for his daughter, Allison, with $1,000,000. Allison was the income beneficiary and her two daughters (Mike's lineal grandchildren) were the remainder beneficiaries. Which of the following statements is correct? A)If Mike predeceases Allison, this is a skip trust. B)When Allison dies, there is a taxable termination of the trust for GST purposes. C)At the inception, this is a skip trust and is subject to GST tax or use of the GST exemption when the trust is funded. D)Mike does not need to allocate part of his lifetime GST exemption to this transfer, since no GST tax will be due on the transfer.
B)When Allison dies, there is a taxable termination of the trust for GST purposes.
Mary selected her son as the beneficiary of a whole life insurance policy on her life. Which of the following statements concerning this beneficiary designation is incorrect? A)Mary could have chosen her son and her daughter as co-beneficiaries. B)If Mary lists her nephew as the contingent beneficiary of the whole life insurance policy, her nephew will collect the death benefit if her son dies before Mary. C)If Mary entered an irrevocable beneficiary designation, she is the complete owner of the life insurance policy and can amend the irrevocable beneficiary designation at anytime. D)At Mary's death, her son will receive the death benefit of the life insurance policy.
C)If Mary entered an irrevocable beneficiary designation, she is the complete owner of the life insurance policy and can amend the irrevocable beneficiary designation at anytime.
Jerry is the owner, the insured, and the beneficiary of a whole life insurance policy. Which of the following situations regarding this scenario is incorrect? A)When Jerry dies, his federal gross estate will include the death benefit of the life insurance policy. B)When Jerry dies, his probate estate will include the death benefit of the life insurance policy. C)Jerry's estate will include the death benefit in its taxable income. D)If Jerry designates a new beneficiary before he dies, and the beneficiary is alive at the time of Jerry's death, the death benefit will be excluded from his probate estate.
C)Jerry's estate will include the death benefit in its taxable income.
Many individuals who have been diagnosed with terminal illnesses sell their life insurance policies to viatical settlement providers. Which of the following statements is true regarding the transfer of a policy from an individual with a terminal illness to a viatical settlement provider? A)If the individual dies within three years of the transfer, the full proceeds of the insurance policy are included in his federal gross estate. B)The individual is subject to capital gain taxes on the difference between his adjusted basis in the life insurance policy and the amount paid to him by the viatical settlement provider. C)Regardless of when the individual dies, the payment from the viatical settlement company is excluded from income tax. D)If the individual lives for more than one year after the transfer, the individual will be subject to income tax on the payment from the viatical provider.
C)Regardless of when the individual dies, the payment from the viatical settlement company is excluded from income tax.
In 2006, Donna, age 30, purchased a regular whole life insurance policy on her life and designated her sister, Robin, as the beneficiary. The policy death benefit is $1,000,000. On January 1, 2020, Donna, on the advice of her CFP® professional, assigned the policy to an ILIT. At the time, the cash value of the policy was $100,000. The named beneficiary of the trust is Robin and the trustee is James. Which of the following statements regarding the life insurance policy is/are correct? A)The gift, which was taxable, is $85,000, after the standard 15 percent discount. B)The taxable gift is $100,000. C)The value of the policy for gift tax purposes is the interpolated reserve plus the unexpired premium. D)The value of the policy for gift tax purposes is replacement value.
C)The value of the policy for gift tax purposes is the interpolated reserve plus the unexpired premium.
Warren purchased a single premium life insurance policy on his life 15 years ago for $65,000. The current value of the policy is $155,000. Which of the following statements regarding Warren's life insurance policy is true? A)If Warren takes a loan of $140,000 against the cash surrender value of the life insurance policy, he will have long-term capital gain of $65,000. B)If Warren takes a loan of $65,000 against the cash surrender value of the life insurance policy, he will not have any capital gain. C)If Warren takes a loan of $75,000 against the cash surrender value of the life insurance policy, he will recognize $10,000 of long-term capital gain. D)If Warren takes a loan of $155,000 against the cash surrender value of the life insurance policy, he will recognize $90,000 of long-term capital gain.
D)If Warren takes a loan of $155,000 against the cash surrender value of the life insurance policy, he will recognize $90,000 of long-term capital gain.
Which of the following statements is true? A)Life insurance policy dividends are taxable as dividend income. B)Life insurance policy dividends kept on deposit with the insurer will generate tax-deferred interest income. C)If a life insurance policy lapses, any outstanding loans will be required to be repaid to the insurer immediately at the lapse. D)If a life insurance policy owner takes a loan from the policy, the death benefit of the policy will be reduced by any outstanding loans plus the accumulated interest due on the loan at the death of the insured.
D)If a life insurance policy owner takes a loan from the policy, the death benefit of the policy will be reduced by any outstanding loans plus the accumulated interest due on the loan at the death of the insured.
Amy, a 46-year-old divorced mother of 3, has owned her own automotive repair center for 15 years. She would like to provide income to her assistant, JoAnn, and her other friends. Amy established a trust naming JoAnn, age 67, as the initial income beneficiary for her life. At JoAnn's death, Walt, a 59-year-old mechanic who has worked for Amy, will receive the income for the remainder of his lifetime. At Walt's death, the remainder interest will be divided equally between Amy's sons, Paul, John, and Donald. When will this trust be subjected to GSTT? A)At the date of creation of the trust. B)At JoAnn's death. C)At Walt's death. D)Never.
D)Never.
At age 69, John, a widower, needs more than his pension and Social Security income to pay his living and medical expenses. His children do not have the resources to help him and he has already liquidated his individual retirement accounts. Which of the following is true if John decides to surrender his whole life insurance policy to the insurer? A)John would receive the present value (using the actuarial factors according to John's life expectancy) of the life insurance policy death benefit. B)Any amount of surrender value paid to John would reduce the death benefit payable to the listed beneficiary of the policy dollar-for-dollar. C)To surrender the life insurance policy, John must receive the approval of the listed beneficiary of the life insurance policy. D)The surrender value of the policy would be paid to John and the life insurance contract would be cancelled.
D)The surrender value of the policy would be paid to John and the life insurance contract would be cancelled.
