FIL 342
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
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
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 owns 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
Josh was a majority owner in a closely held business. He had an adjusted basis in his interest of$400,000, and at his death this year, the fair market value reported on his estate tax return was $6,000,000. Like most majority owner's in closely held businesses, Josh did not have much liquidity in his estate and his executor was forced to redeem some of his interest in the business. If Josh's executor redeemed 30% of Josh's interest for $2,500,000 to pay the estate tax and administration fees, how much is subject to capital gains tax? a. $0. b. $700,000. c. $2,100,000. d. $2,500,000.
B
Maggie contributed $10,000 to a private non operating foundation that has never made any distributions. Maggie also contributed $15,000 to a private operating foundation. Maggie's AGI for the tax year was $100,000. What is Maggie's charitable contribution deduction for the year? a. $10,500. b. $25,000. c. $50,000. d. $100,000.
B
Mary Jane's husband died in October of 2018. Mary Jane has a one year old dependent child and has not remarried. Which filing status will Mary Jane use on her 2021 income tax return? a. Single. b. Head of household. c. Married filing jointly. d. Qualifying widow.
B
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
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.
B
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 canceled 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
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
Mary Jane's husband died in October of 2018. Which filing status will Mary Jane probably use on her2018 income tax return? a. Single. b. Head of household. c. Married filing jointly. d. Qualifying widow.
C
Michael transfers $100,000 of stock to a charitable organization in return for a life annuity on his life valued at $43,000. With regards to this transfer, how much is Michael's charitable deduction? a. $0. b. $43,000. c. $57,000. d. $100,000.
C
The Dalton Family Winery has operated a winery with estate grown grapes for generations. Mike owns100% of the winery valued at $4.5 million. His estate is valued at $10 million. His son and daughter-in-law have long since toiled in the vineyards to pick the grapes. Mike plans to leave the entire operation to them. Which post mortem election(s) could Mike's executor make use of presuming he is not married at the time of his death? a. 303 and 6166. b. 2032A and 303. c. 2032A and 6166. d. 303, 2032A and 6166.
C
Todd irrevocably transfers property to a trust over which he retains an annuity payment each year equal to 6% of the initial fair market value of the property transferred to the trust. Todd designates the United Way as the remainder beneficiary. Which of the following statements concerning this transfer is true? a. Todd can make an additional contribution to the trust in subsequent years. b. Todd must inform the United Way of their right to the remainder of the trust's assets. c. Todd will receive an income tax charitable deduction on his income tax return for the year in which the trust is formed. d. The United Way can force Todd to transfer the present value of their interest to them immediately.
C
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
Which of the following is not a typical reason an estate will have liquidity concerns? a. To meet specific bequests. b. To pay taxes. c. To pay life insurance premiums on the decedent's life. d. To pay funeral and administrative expenses and the executor's fee.
C
Which of the following statements is not true? a. A charitable gift during life can reduce estate taxes. b. A charitable gift during life can reduce income taxes. c. Only a full, outright donation of property will qualify as a deductible charitable contribution. d. The donor of a charitable gift may be required to file a gift tax return including the charitable contribution.
C
Which of the following statements regarding selling an estate's assets to generate cash is not correct? a. The estate may have income tax consequences. b. The assets may not be sold at full, realizable fair market value. c. Any losses on the sale of the assets are deductible as losses on the estate tax return. d. Any selling expenses are deductible on the estate tax return.
C
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 canceled.
D
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
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
Robin contributed $100 to the United Way and $300 to the Church of Good People. Which of the following statements concerning her contribution to the charitable organizations is correct? a. Robin must file IRS Form 8283. b. Both the United Way and the Church of Good People are required to send a confirmation of the contribution to Robin. c. Only the United Way is required to send a confirmation of the contribution to Robin. d. Only the Church of Good People is required to send a confirmation of the contribution to Robin.
D
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
Before his death in 2018, Melvin, age 66, incurred $65,000 in medical bills. Melvin's taxable estate at his death was $675,000 and his adjusted gross income for 2018 was $100,000. How much of Melvin's medical expenses will be deducted on his estate tax return? a. $0. b. $57,500. c. $65,000. d. $100,000.
A
Doug graduated from the University of Pittsburgh. Each year, season tickets are sold only to those who make a contribution to the university of $1,000 or more. If Doug contributes $1,000, so that he meets the requirements to purchase season tickets, how much is his deductible contribution for the year? a. $0. b. $800. c. $900. d. $1000.
A
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
Gillian transfers property to a revocable trust naming herself as the income beneficiary and the United Way as the remainder beneficiary. What type of trust has Gillian created? a. Revocable living trust. b. CRAT. c. CRUT. d. Pooled income fund.
A
In 2016, Amy created and funded an irrevocable Life Insurance Trust (ILIT) naming her children as the beneficiaries. Amy contributed cash each year to the trust to pay the life insurance policy premiums. In2018, Amy died in a car accident, and the policy death benefit of $1,000,000 was paid to the ILIT.Which of the following statements regarding this ILIT and Amy's estate is false? a. The ILIT will be included in Amy's gross estate because Amy made a contribution to the trust within three years of her death. b. If Amy's executor can demand a distribution from the ILIT to pay Amy's estate taxes, the value of the ILIT will be included in Amy's gross estate. c. Amy's executor can sell the assets from Amy's estate to the ILIT without causing the value of the ILIT to be included in Amy's gross estate. d. If Amy had released any rights she had to revoke the ILIT in 2017, the value of the ILIT would be included in Amy's gross estate.
A
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
Joseph died this year. His will specifically bequeaths $1,000,000 to his son, Kevin and bequeaths the residual of his estate to his wife, Martha. At the time Joseph had written his will, his net worth was in excess of $4,000,000, but at his death his net worth had plummeted to $1,050,000. Because Kevin's mother would only receive $50,000 ($1,050,000-$1,000,000) of his father's assets, Kevin fully disclaimed his bequest three months after his father's death. How much will Kevin have to report as a taxable gift because of this disclaimer? a. $0. b. $38,000. c. $50,000. d. $1,000,000.
A
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
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 $150,000 and an adjustedbasis of $100,000 to Pamela. If Pamela, as designated beneficiary, receives the death benefit of the lifeinsurance policy this year, how much will be taxable to her? a. $0. b. $50,000. c. $100,000. d. $1,000,000.
A
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
Terrence contributed $15,000 to a foreign charitable organization. At the time of the contribution, the organization told him that his contribution was tax deductible for income tax purposes. Ignoring any income limitations, how much of the $15,000 contribution is deductible? a. $0. b. $7,500. c. $10,000. d. $15,000.
A
The Organization to Prevent Cruelty to Animals receives contributions from the general public to fund programs to prevent cruelty to animals. Of its total support during the year, 75% of the funds are from contributions from supporting individuals. What type of charity is The Organization to Prevent Cruelty to Animals? a. Public Charity. b. Private Foundation. c. Private Operating Foundation. d. Public Non operating Charity.
A
The executor of an estate liquidated assets to generate the cash necessary to pay the estate taxes. Of the following assets, which is the least likely to generate income tax consequences upon its sale? a. Real estate sold within three months of the decedent's date of death. b. Publicly traded securities sold two weeks after the decedent's date of death. c. The redemption of the stock of a closely held business. The redemption qualified for Section 303 treatment. d. Publicly traded securities sold eight months after the decedent's date of death.
A
The executor of an estate makes many elections before he files an estate tax return. Which of the following is not an available election for the executor? a. Utilizing the annual exclusion against the testamentary transfers. b. Selection of the tax year-end. c. Electing QTIP on certain property passing to the surviving spouse. d. Deducting the expenses of administering the decedent's estate on the estate's income tax return.
A
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
Which of the following contributions would require the taxpayer to obtain a statement of value from the IRS? a. The taxpayer is never required to obtain a statement of value. b. Taxpayer donates art work valued at $150,000 to a private non operating foundation. c. Taxpayer donates art work valued at $10,000 to a public charity. d. Taxpayer donates art work valued at $15,000 to a public charity.
A
Which of the following statements concerning an illiquid estate is true? a. If the executor of an illiquid estate takes a loan to pay estate taxes, and pledges the estate's assets as security for the loan, the interest on the loan is deductible. b. When an executor sells an estate's assets eight months after the decedent's date of death, any gain or loss is included in the fair market value of the asset in the decedent's gross estate. c. An heir who agrees to take an in-kind distribution, instead of a cash distribution, from the estate, will take the property with an adjusted basis equal to the decedent's adjusted basis immediately before his death. d. Real property valued under the Special Use Valuation rules can be sold after four years for an unrelated use without suffering recapture.
A
Which of the following statements is not correct? a. An organization that spends less than 85% of its adjusted net income on activities engaged in for the active conduct of its exempt purpose is a public charity. b. Public charities receive broad support from the general public. c. An organization that is not a public charity and spends 90% of its adjusted net income on activities engaged in for the active conduct of its exempt purpose is a private operating foundation. d. A public charity can receive up to 33% of its support from its gross investment income and its unrelated business taxable income.
A
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
Chris donated one of his original creation paintings to his alma mater, Backwoods University. His adjusted basis in the artwork was $400 and the fair market value was $150. Chris also contributed 100shares of XYZ corporation that had an adjusted basis of $50 and a fair market value equal to $1,000(held long-term). Ignoring the AGI limitations, what is the maximum amount Chris can deduct in relation to these donations? a. $200. b. $1,150. c. $1,300. d. $1,400.
B
Denis sold a parcel of land to a qualified charitable organization for $10,000. The parcel of land had a fair market value of $100,000 and an adjusted basis of $50,000. What taxable gain must Denis recognize at the time of the contribution? a. $0. b. $5,000. c. $50,000. d. $90,000.
B
Four years ago, Walter created a charitable remainder trust with himself as the income beneficiary and a charity as the remainder beneficiary. In the current year, Walter would like to make an additional contribution to the trust. Which of the following charitable trusts would allow Walter to make an additional contribution during the year? a. CRAT. b. CRUT. c. CRET. d. CRIT.
B
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
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
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
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
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
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 ofanother 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
Which of the following statements regarding life insurance is true? a. When an individual designates a charitable organization as the beneficiary of his life insurance policy, the individual can deduct the face value of the policy as a charitable contribution on his income tax return. b. If an individual designates a charitable organization as the beneficiary of his life insurance policy, but retains the right to change the beneficiary designation, the death proceeds of the life insurance policy will be included in his gross estate. c. If an individual designates a charitable organization as the beneficiary of his life insurance policy, and then dies without changing the beneficiary designation, the death proceeds of the life insurance policy will be included in his taxable estate. d. Transferring ownership of a life insurance policy to a charitable organization does not qualify for an income tax charitable deduction.
B
Cathy and Mark paid $400 for two tickets to the United Church's annual gala ball. The church determined that the fair market value of each ticket was $100. How much can Cathy and Mark deduct on their income tax return? a. $0. b. $100. c. $200. d. $400.
C
Connie cooks and delivers meals for the homeless and the elderly at Thanksgiving. Connie spends $200on food, she drives 300 miles, and she spends 15 hours of her time (valued at $10/hour) completing the charitable service each year. Of these expenses, how much will Connie deduct on her income tax return for the year? a. $0. b. $200. c. $242. d. $392.
C
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, 2018, Donna,on the advice of her CFP, 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 terminal reserve plus the unexpired premium. d. The value of the policy for gift tax purposes is replacement value.
C
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
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
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
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
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
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
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
Which of the following is not a requirement of using the special use valuation of property? a. The property must be used in a farming operation or a trade or business that was actively managed by the decedent or the decedent's family for 5 out of the 8 years immediately preceding the decedent's death. b. The value of the real and personal property used in a qualifying manner must equal or exceed 50 percent of the decedent's gross estate as adjusted. c. The value of the real property used in a qualifying manner must equal or exceed 75 percent of the value of the decedent's gross estate as adjusted. d. The qualifying property must pass to qualifying heirs who must actively participate in the farming activity or trade or business.
C
In which of the following cases will Robert, the executor of his father's estate, not waive his executor's fee? a. Robert is a 37% taxpayer and his father's estate is a 40% taxpayer. b. Robert is the only heir of his father's estate. c. Robert and his mother are the only heirs to his father's estate. Neither Robert's father or his mother are very wealthy and his mother has very expensive prescription costs. Robert is in the 37% marginal tax bracket. d. Robert is also one of three beneficiaries of his father's estate. The beneficiaries will share the residual of the estate equally.
D
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
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
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
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
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
Which of the following assets is most likely found in a wealth replacement trust? a. A personal residence. b. Investment securities. c. Personal use assets. d. Permanent life insurance.
D
Which of the following does not qualify as a charitable organization? a. The state of Kentucky. b. The city of Los Angeles. c. A cemetery company organized to maintain cemetery plots in a county. d. Republican National Committee.
D
Which of the following estates will most likely have the greatest liquidity problem? a. An estate with $4,000,000 of marketable securities. b. An estate comprised of rental real estate and marketable securities totaling $2,000,000. c. An estate consisting of a closely held business interest valued at $3,000,000, several pieces of art work valued at $400,000, and $500,000 of cash. d. An estate comprised of a closely held business interest valued at $4,000,000, and cash of$100,000.
D
Which of the following is not a benefit of taking a loan to pay estate taxes and administration fees? a. The interest on the loan is deductible for income tax purposes. b. The executor of the estate will have more time to sell the estate's assets. c. The estate's assets will not be sold in a fire-sale fashion. d. The principal of the loan is a debt on the estate tax return.
D
Which of the following is not an issue when considering whether to deduct the adjusted basis or the fair market value of contributed property? a. The current market rate of interest. b. The donor's current and projected adjusted gross income for the 5 years after the contribution. c. The fair market value of the donated property. d. The capital gains rate in effect at the time of the transfer.
D
Which of the following statements concerning a pooled income fund is correct? a. A pooled income fund is created for each individual. b. The pooled income fund is managed by its contributors. c. Pooled income funds invest strictly in tax-exempt securities. d. The income of a pooled income fund is paid to the contributors.
D
