Estate Planning Final
Claude decides to prepare his will, but does not want to seek the help of an attorney. Claude handwrites all of the provisions of the will and does not have it witnessed by anyone. What type of will does Claude have, if any? A. Holographic. B. Nuncupative. C. Statutory. D. Claude does not have a will.
The correct answer is a. A holographic will is one that is handwritten. Answer b is incorrect because a nuncupative will, which is not valid in all states, is an oral will. Answer c is incorrect because a statutory will must generally be prepared by an attorney and must be witnessed.
Anne recently died. Anne is survived by her husband, Edward, and daughter, Catherine. Which of the following would be a qualifying property transfer for the purposes of the unlimited marital deduction? A. Anne leaves ownership of certain copyrights to Edward. B. Property transferred to a credit shelter trust for the benefit of Catherine, with Edward as the trustee. C. Anne leaves her beach house to Edward, subject to the condition that if Edward does not survive Anne's sister, Anne's sister will get the property. D. The $1,000,000 life insurance policy on Anne's life owned by Edward.
The correct answer is a. Although copyrights are terminable interests, no person other than Edward has any interest in the property, since all rights were given to Edward. Therefore, the transfer of the copyrights to Edward will qualify for the marital deduction. Option b does not qualify for the unlimited marital deduction because even though Edward is trustee, and has legal title to the property inside the trust, he does not have beneficial title to the property. Option c does not qualify for the unlimited marital deduction because the transfer to Edward is a terminable interest. Option d does not qualify for the unlimited marital deduction because the proceeds of a life insurance policy owned by Edward on Anne's life will not be included in Anne's gross estate.
Which of the following items will pass through probate? A. A house subject to a mortgage and owned fee simple by the decedent. B. Property held tenancy by the entirety. C. Bank accounts with named beneficiaries. D. None of the above will pass through probate.
The correct answer is a. Answers b and c will not pass through probate because they pass by operation of law or state contract law. Answer a will pass through probate because it is owned fee simple by the dece- dent. The fact that the house is subject to a mortgage does not affect whether it passes through probate.
Sherri purchased a home many years ago for $40,000. She married Gary five years ago when the house was worth $150,000. 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? A. $0. B. $75,000. C. $100,000. D. $200,000.
The correct answer is a. 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 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.
Mary's husband, Patrick, died two years ago. Patrick's will included the following three testamentary trusts: a trust for the benefit of Mary's children, but giving Mary a general power of appointment over the trust assets for the remainder of her life (GPOA Trust), a bypass trust for the benefit of Mary's children, but giving Mary a power to invade the trust assets for an ascertainable standard for the remainder of her life (Bypass Trust), and a charitable trust for the benefit of Mary's alma mater (Charitable Trust). At Mary's death, which of the trusts assets will be included in her gross estate? GPOA Trust. Bypass Trust. Charitable Trust. A. 1 only. B. 1 and 2. C. 2 and 3. D. None.
The correct answer is a. Only the GPOA Trust would be included in Mary's gross estate. Because the withdrawal right of the Bypass trust was limited to an ascertainable standard, its assets are not included in Mary's gross estate. Mary does not have an interest in the assets of the charitable trust so those assets are also not included in her gross estate.
In which of the following situations would the use of a QDOT be appropriate? A. Tom dies and is survived by his wife, Tina, who is not a U.S. citizen. B. Regina dies and is survived by her husband, Raul, who becomes a U.S. citizen two months after Regina's death. C. Harold dies and does not have a surviving spouse but has a significant other. D. Franz, who is not a U.S. citizen, dies and is survived by his wife, Francine, who is a U.S. citizen.
The correct answer is a. Option b does not describe a situation in which the use of a QDOT would be appropriate because Raul became a U.S. citizen prior to the due date of the estate tax return and therefore, any property transfers to Raul would qualify for the unlimited marital deduction. Option c is not correct because there is no reason to use a QDOT if Harold does not have a surviving spouse. Option d is not correct because a QDOT is used when the surviving spouse is not a U.S. citizen.
Fred, the founder and CEO of WonderCo, recently passed away. At his death, Fred owned 80% of the stock of WonderCo; and the WonderCo stock was his only asset. WonderCo is a publicly traded company. Which of the following discounts would be applicable to Fred's WonderCo stock? A. Key Person Discount. B. Minority Discount. C. Both a and b. D. Neither a nor b.
The correct answer is a. Option b is incorrect because Fred owns a controlling interest in WonderCo; therefore, a Minority Discount is not applicable. Therefore, option c is also incorrect. Option d is incorrect because answer a is correct; since Fred was both the founder and CEO of WonderCo, his stock is entitled to a Key Person Discount.
Which of the following applies to the income tax or estate tax treatment of life insurance policy proceeds? A. Benefits received under a periodic settlement option are partially subject to income tax. B. Death proceeds are includible in the gross estate of the decedent if the decedent was the insured regardless of ownership. C. Payments under a cashout settlement option are partially subject to income tax. D. For a personally owned life insurance policy premiums are deductible if made as part of a court ordered child or spousal support plan (QDRO).
The correct answer is a. Periodic annuity settlement benefits are not fully subject to income tax because the recipient has a tax basis equal to the original proceeds. Proceeds are includible in estate for tax purposes only if grantor retained an incident of ownership. Life insurance premiums are not deductible when personally owned, and the 3-year rule applies to a life insurance policy regardless of irre- vocability.
Jaime, a wealthy doctor, wrote a will many years ago after his first child was born. His will leaves his home on Drury Lane to his daughter, Taylor. Jaime sold the home on Drury Lane last year and purchased a new home on Mulberry Lane. The extinction of Taylor's legacy is called what? A. Abatement. B. Ademption. C. Surety. D. Letters testamentary.
The correct answer is b. Abatement is the reduction in an estate when there are insufficient assets to satisfy all legatee provisions. A surety bond is a bond posted by the administrator of the probate process. Letters testamentary is the document given to the executor from the probate court authorizing the executor to act on behalf of the estate.
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.
Argo and his wife, who had made no previous gifts, gifted $125,000 in total present interest gifts to each of 6 grandchildren in separate accounts in the current year. They allocated their GST exemption to the accounts. How much GST tax do they each owe? A. $0. B. $156,000 after the annual exclusions. C. $232,800 (40% of $582,000). D. $300,000 (40% of $750,000).
The correct answer is a. They are allowed $5,490,000 (2017) each. They used only $582,000, net of the $28,000 per donee annual exclusion. ($125,000 x 6 = $750,000 in gross gifts, less $28,000 x 6 = $168,000 netting $582,000) They have each allocated $291,000 (1/2 of 582,000) of their $5,490,000 GST exemption.
Trey decides to set up a trust for the benefit of his two sons, Ronnie and Chad. Trey makes an annual contribution to the trust in the amount of $28,000 and gives each son the right to withdraw up to $14,000. In the current year, when the total trust assets are $52,000, Ronnie decides to withdraw $14,000, but Chad does not withdraw anything. What is the result of Chad's decision not to withdraw any of Trey's contribution to the trust? A. Chad has made a taxable gift to Ronnie of $4,500. B. Ronnie has made a taxable gift to Chad of $14,000. C. Trey has made a taxable gift to Ronnie of $14,000. D. All of the above.
The correct answer is a. This question addresses the 5/5 Lapse Rule. The 5/5 Lapse Rule states that a taxable gift has been made where a power to withdraw in excess of $5,000 or 5% of the trust assets is lapsed by the powerholder. In this case, Chad has allowed his power to withdraw $14,000 to lapse. As a result, Chad has made a gift to himself of $4,500 ($7,000-($5,000/2)) and a gift to Ronnie of $4,500 ($7,000-($5,000/2)).
Chad and Ross (both males) have been involved in an intimate relationship for the past 25 years. Chad's family is quite wealthy, and has provided Chad with every "extra" in life. Unfortunately, Chad's family is also very conservative and they do not approve of Chad's relationship with Ross. Chad was diagnosed with cancer last year and given only 12-15 months to live. Chad plans to leave the substantial wealth he has inherited over the years to Ross. After a few too many glasses of wine last Christmas, Chad's mother proclaimed, "Chad, I hope you have a great estate planning attorney, because I will spend every penny I have to keep Ross from inheriting a dime from you!" In a fit of rage, Chad has come to you, an estate planning attorney, and asks you to recommend ways he can ensure that Ross will receive his assets. Which of the following would you be least likely to recommend to Chad to meet his objectives? A. A well-drafted will leaving everything to Ross with a no-contest clause. B. A revocable living trust created and funded now with Ross as the beneficiary at Chad's death. C. An irrevocable trust created and funded with Chad as the income beneficiary and Ross as the remainder beneficiary. D. Retitling all assets as JTWROS.
The correct answer is a. While all of these options may seem to accomplish Chad's goal, option a has the most inherent risk. The trust options and titling option are much less likely to be susceptible to fraud and undue influence claims. The use of a will in this situation is very susceptible to a contest. The no-contest clause is irrelevant because Chad did not leave anything to anyone else to encourage them not to contest. Chad and Ross could get married.
Alton would like to transfer the ownership of his Picasso painting to his son Edgar, but Alton would like to continue to have the painting hanging in his house. Which of the following would you recommend to Alton? A. TPPT. B. CRAT. C. QPRT. D. FLP.
The correct answer is a. Option b is incorrect because Alton's son Edgar is not a charity. Option c is incorrect because a QPRT, or Qualified Personal Residence Trust, is a special form of a GRAT to which the grantor contributes his personal residence. Option d is incorrect because a FLP would be more appropriate for transferring ownership of a family business than ownership of a paint- ing. Option a is correct because TPPTs or Tangible Personal Property Trusts are funded with personal property and the grantor retains the right to use the property that has been trans- ferred to the trust.
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. During the initial meeting, Tracey collected personal data about Troy including the estate planning documents Troy had previously executed. During the second meeting, Tracey recommended the use of a trust to fulfill some of Troy's estate planning goals. Troy called Tracey one afternoon and asked if Tracey could explain the probate process to him, which Tracey promptly did. 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?
The correct answer is a. Only activity four would be considered the unauthorized practice of law. The drafting of legal documents is reserved for attorneys. Inquiring about estate planning documents should be completed by all practitioners. Recommending appropriate estate planning devises, such as trusts, can be done by financial planners. Explaining the probate process to a client would not be the unauthorized practice of law; the line would be crossed if Tracey gave legal advice regarding the probate process.
Which of the following statements relating to qualified transfers for gift tax purposes is not correct? A. The relationship between the donor and the donee is irrelevant with a qualified transfer. B. A payment made directly to an individual to reimburse him for medical expenses is a qualified transfer. C. The exclusion for a qualified transfer is in addition to the annual exclusion. D.A payment made to a qualified education institution for tuition costs is a qualified transfer.
The correct answer is b. A payment made directly to an individual to reimburse him for medical expenses is not a qualified transfer. To be a qualified transfer, the payment must be made directly to the healthcare provider. All of the other options are true.
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: A. If Christopher were to sell the property for $60,000 today, then the loss is a short term capital loss. B. Christopher's basis will be adjusted for a portion of the gift tax paid. C. Christopher will have a dual basis for income tax purposes. D. If Christopher sold the property for $120,000 after holding it for 5 years, his gain would be $30,000.
The correct answer is b. 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.
Which of the following is an advantage of a revocable living trust? A. Reduction in federal estate taxes. B. Avoidance of probate. C. Removal of asset appreciation from the grantor's gross estate. D. Distribution of the trust assets according to the terms of the grantor's will.
The correct answer is b. Option b is an advantage of using a revocable living trust. Option a is incorrect because use of a revocable living trust does not reduce the grantor's federal estate taxes because the full fair market value of the trust assets are included in the grantor's gross estate. Option c is incorrect for the same reason. Option d is incorrect because the trust agreement, not the grantor's will, controls the distribution of the trust assets.
Which of the following transfers would not be considered a qualified transfer? A. Piper pays $35,000 to Harvard University for her niece's tuition. B. Piper pays $50,000 to her friend Paige, who uses the money to pay for her medical expenses. C. Piper pays $10,000 to Children's Hospital for her granddaughter's medical expenses. D. Piper pays $12,000 to Prestigious Preparatory School for her nephew's tuition.
The correct answer is b. Options a, c, and d described qualified transfers. Option b is not a qualified transfer because the payment was not made directly to the healthcare provider.
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? A. Margie is correct in believing that an individual does not need both documents, she only needs to execute one document because they both accomplish the same goals. B. Margie should execute both documents as they cover different aspects of medical care. C. Margie only needs to execute the power of attorney for health care because it covers everything the advance medical directive covers and more. D. Margie does not need to execute either document; she can solve her medical concerns by executing a DNR.
The correct answer is b. The documents address different medical care concerns. A power of attorney addresses the providing of medical care, but generally does not address the ending of life sustaining treat- ment. The living will addresses the ending of life sustaining treatment, but not the providing of medical care. A DNR is not a replacement for the other two documents; it is an additional document that addresses the prevention of resuscitation in the event of heart failure for a ter- minally ill patient.
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.
A transfer to which of the following organizations would NOT qualify for the gift and estate unlimited charitable deduction? A. The United States of America. B. The Los Angeles Homeowner's Association. C. Mothers Against Drunk Driving. D. The Society for the Protection of Wild Birds.
The correct answer is b. Transfers to a homeowner's association do not qualify for the unlimited charitable deduction. Transfers to any of the other organizations would qualify for the unlimited charitable deduc- tion.
Kate and her brother Rustin own a piece of property in Dallas as tenants in common valued at $50,000. Kate owns 75% and Rustin owns 25%. 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? A. 0%. B. 25%. C. 50%. D. 100%.
The correct answer is b. 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.
Paula, a single woman, transferred $2,000,000 to a GRAT naming her two sons as the remainder beneficiaries, while retaining an annuity with a present value of $860,000. If this is the only transfer that Paula made during the year, what is Paula's total taxable gift for the year? A. $1,112,000. B. $1,140,000. C. $1,972,000. D. $2,000,000.
The correct answer is b. 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 exclu- sion.
Gina, age 79, recently had a stroke. Afraid that she may not live long enough to see her family enjoy her beach house, she would like to transfer it to her daughter, Taylor. Gina does not want to pay any gift tax or utilize any of her lifetime credit amount. Which of the following techniques, if used by Gina to transfer the beach house to Taylor, will not result in a taxable gift? A. GRAT. B. QPRT. C. SCIN. D. GRUT.
The correct answer is c. A SCIN is a note with a self-cancelling premium payment attached so that the note will cancel at the transferor's death. The GRAT, QPRT and the GRUT are irrevocable trusts and will result in a current taxable gift.
Which of the following is a principal reason for establishing a revocable living trust? A. Reducing the grantor's gross estate. B. Temporal Discounts. C. Probate Avoidance. D. Avoidance of the Rule Against Perpetuities.
The correct answer is c. A revocable living trust is primarily established so that the trust assets avoid the probate pro- cess. The trust assets will transfer per the trust document and will not need to pass through probate. A revocable living trust does not reduce a grantor's gross estate or offer any temporal discounts because it is not a completed gift of any interest and the grantor has the ability to revoke the transfer to the trust at any time. The assets of a revocable living trust are included in a grantor's gross estate at the fair market value at the grantor's date of death. The rule against perpetuities is not an issue with a revocable living trust because the assets will vest at the grantor's date of death.
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.
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.
David would like to fund a charitable trust and name himself as the income beneficiary. He would like the payout from the trust each year to be constant. Given David's desires, which type of charitable trust should David fund? A. Charitable Lead Annuity Trust. B. Charitable Lead Unitrust. C. Charitable Remainder Annuity Trust. D. Charitable Remainder Unitrust.
The correct answer is c. The Charitable Remainder Annuity Trust would be the best option because the charity is the remainder beneficiary and David would be the income beneficiary. The CRAT is a better option than the CRUT because the payout from the CRAT would be a fixed dollar amount, rather than a fixed percentage. David wants a stable payout each year which would lead us to a fixed dollar amount, and thus the CRAT.
You recently had lunch with an estate planning attorney during which she made several statements regarding the estate planning process. Of the statements listed below, which would you consider inappropriate from an estate planning perspective? A. "I frequently request copies of any long-term care or disability policies the client has." B. "A current balance sheet and income statement are helpful when beginning the estate planning process." C. "In all my years of experience I have learned to discount the client's transfer wishes when drafting the will. They are not paying me to make sure little Suzi gets the china, they are paying me to save them money." D."While the probate process is expensive and time consuming for many people, a financial planner should weigh the cost of the necessary planning devices needed to avoid probate against the cost of actually going through probate before determining with the client if probate should be avoided."
The correct answer is c. The financial planner should strive to meet the transfer objectives of the client as well as save money. Long-term care and disability policies are appropriate to review because they allow the financial planner to determine the risks associated with gifting a policy. Documents that describe the client's current financial situation are also appropriate to review. The financial planner should weigh the cost of probate against the documents and work needed to avoid probate.
Which of the following techniques can be used to lower the value of an individual's gross estate? A Totten Trust. A Qualified Personal Residence Trust. A Family Limited Partnership. An Irrevocable Life Insurance Trust. A. 1 only. B. 1 and 2. C. 2, 3, and 4. D. 1, 3, and 4.
The correct answer is c. Totten trusts are used to avoid probate, not to lower the value of the gross estate. All of the other techniques can be used to lower the value of an individual's gross estate.
You are a financial planner and you are preparing for a meeting with your new client, Anne. What would you be most likely to ask Anne to bring to the meeting with her? A. Pictures of her children. B. Her parents. C. Any will. D. Sales records for her ex-husband's business.
The correct answer is c. You would be most likely to ask Anne to bring any will with her. In addition, you would be likely to request copies of any other estate planning documents as well as tax documents.
Which 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 states is not a community property state? A. Arizona. B. Idaho. C. Wisconsin. D. Florida.
The correct answer is d. All of the other answers name states that are community property states.
Which of the following constitute incidences of ownership in an insurance policy: The right to name or change the name of the beneficiary. The right to surrender the policy. The right to assign the policy. The right to borrow cash from the policy. A. 3 and 4. B. 2 and 3. C. 1, 2 and 4. D. 1, 2, 3 and 4.
The correct answer is d. All of these rights are incidences of ownership.
Charlotte is getting ready for her first meeting with her new financial planner, Samantha. What information does Charlotte not need to bring to this meeting? A. Previously filed income tax and gift tax returns. B. A copy of her current will. C. A detailed list of Charlotte's assets and liabilities. D. Charlotte should bring all of the above information to her first meeting with Samantha.
The correct answer is d. Charlotte should bring all of this information with her.
Your client, Albert, is 68-years old. He is interested in establishing a trust with a value of $6,000,000 for his family. He is aware of the Generation Skipping Transfer Tax, and he has asked you for your advice as to which of the following would be considered a skip person. Which of the following is a skip person? A. Albert's son Patrick, who is age 17. B. Albert's grandson Connor, age 14, whose mother (Albert's daughter) died in an auto accident this year. C. Albert's mother Thelma. D. A trust that Albert had established 3 years ago for Albert's favorite employee, Sam, who has just turned 20.
The correct answer is d. Due to the age difference of more than 37½ years and the non-related party status, the trust for Sam is a skip person. The reason Patrick is not a skip person is because he is a first generation descendant. Connor is not a skip person because his mother's death moves him up a generation (predeceased parent rule).
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.
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 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).
Elizabeth, a widow, has decided to set up trusts for each of her four grandchildren to take advantage of the generation skipping transfer tax exemption. In the current year, she gives each grandchild $280,000. If Elizabeth has not made any previous taxable gifts, on what amount will she owe gift tax? A. $266,000. B. $280,000. C. $1,064,000. D. None.
The correct answer is d. The $5.49 million GSTT exemption will fully cover her $1,064,000 gifts to her grandchil- dren.
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? A Qualified Personal Residence Trust (QPRT). An Irrevocable Trust. A Revocable Living Trust. 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.
In 2016, Lori assigned a paid-up whole life insurance policy to an Irrevocable Life Insurance Trust (ILIT) for the benefit of her three children. The ILIT contained a Crummey provision for the benefit of each child. At the time of the transfer, the whole life insurance policy was valued at $200,000, and since Lori had not made any other taxable gifts during her lifetime, she did not owe any gift tax. Lori died in 2017, and the face value of the whole life insurance policy of $2,000,000 was paid to the ILIT. Regarding this transfer, how much is included in Lori's gross estate at her death? A. $0. B. $164,000. C. $964,000. D. $2,000,000.
The correct answer is d. The death benefit of a life insurance policy transferred within three years of the decedent's date of death is included in the decedent's gross estate. In this case, Lori transferred the policy one year before her death, so the full death benefit of $2,000,000 is included in her gross estate.
Uncle Joe died recently leaving two nieces, Rachel and Margaret. Uncle Joe owned the following property at his death. A house he inherited from his parents. A car owned by Uncle Joe. A life insurance policy on his own life. Uncle Joe's two nieces are the named benefi- ciaries of the policy. A 401(k) plan without a listed beneficiary. Uncle Joe's will left the house to his favorite niece Rachel and the car to his other niece Margaret. He did not use a residuary clause. Which of the following statements is correct? A. All assets will be transferred via the will. B. All assets will be transferred via the state's intestate probate laws. C. Some assets will be transferred via the will and the remaining assets will transfer outside the probate process. D. Some assets will be transferred via the state's intestate probate laws, some assets will transfer via the will, and some will transfer outside the probate process.
The correct answer is d. The house and the car will transfer under the will. The life insurance policy will transfer outside the probate process because of the named beneficiaries. The 401(k) plan will transfer to Uncle Joe's probate estate because there is no listed beneficiary. Since the will does not cover the 401(k) plan, the asset will transfer via the state's intestate succession laws.
Jose recently died with a probate estate of $900,000. He was predeceased by his wife, Guadalupe, and his daughter, Lucy. He has two surviving children, Pete and Fred. Jose was also survived by eight grandchildren, Pete's three children, Naomi, Daniel, Nick; Fred's three children, Heather, Chris and Steve; and Lucy's two children, David and Rachel. Jose's will states the following "I leave everything to my three children. If any of my children shall predecease me then I leave their share to their heirs, per stirpes." Which of the following statements is correct? A. Under Jose's will David will receive $225,000. B. Under Jose's will Chris will receive $150,000. C. Under Jose's will Nick will receive $100,000. D. Under Jose's will Fred will receive $300,000.
The correct answer is d. Under the will Pete and Fred will each receive 1/3 shares. Lucy's 1/3 share will flow to her children, with each of them receiving 1/2 of the 1/3 share.