HS 330 test 1
A father deeded a house as a gift to his daughter 10 years ago but retained the right to live in it until his death. He died this year while still living in the house. The following are relevant facts: The father bought the property in 2000 for $160,000. The fair market value of the property when the gift was made in 2006 was $240,000. The father filed a timely gift tax return but paid no gift tax because of the basic credit amount. The fair market value of the property at the father's death was $290,000. The daughter sold the property 3 months after her father's death for $290,000. She had a gain of (A) $0 (B) $80,000 (C) $130,000 (D) $290,000
(A) $0 The house is included in the father's gross estate under Sec. 2036 since he retained a life estate in the house until his death. Under the basis adjustment rules of Sec. 1014, the daughter takes a basis in the house equal to the date-of-death fair market value for income tax purposes. Since the daughter sold the house at its date-of-death value, her gain is zero for income tax purposes.
Allen died last month and was survived by his spouse, Ellen. Among the items of family property are the following: A $400,000 life insurance policy on Allen's life with Ellen designated as beneficiary (Ellen has been the owner of the policy ever since it was issued 4 years ago), the family residence with a fair market value of $200,000 (Allen and Ellen own the residence jointly with the right of survivorship even though Allen purchased it in 1988 with his separate funds), and a $10,000 bank account (Allen and Ellen own the account jointly with the right of survivorship even though Ellen made all the deposits). What amount of the family property will be included in Allen's gross estate for federal estate tax purposes? (A) $105,000 (B) $200,000 (C) $500,000 (D) $505,000
(A) $105,000 The life insurance is not included because Allen held no incidents of ownership in the policy within 3 years of death. One-half of the property held jointly by Allen and Ellen will be included under Sec. 2040. Thus, the answer is $105,000.
A widower made the following cash gifts in a year when the annual exclusion was $14,000: $15,000 to his daughter, $20,000 to a qualified charity, $5,000 to his sister, $10,000 to his brother, and $25,000 to his mother. The total amount of the taxable gifts made was (A) $12,000 (B) $22,000 (C) $34,000 (D) $75,000
(A) $12,000 The taxable gifts are computed as follows: Total gifts, less annual exclusions, less charitable deduction = total taxable gifts ($75,000 - $57,000 - $6,000 = $12,000). Annual exclusions are as follows: Daughter $14,000, charity $14,000, sister $5,000, brother $10,000, mother $14,000.
Which of the following statements concerning executors is correct? (A) An executor can be given broad and discretionary powers with respect to the management of estate assets. (B) An executor is chosen by the beneficiary of a will shortly after the decedent's death. (C) An executor must be an individual rather than an entity or institution. (D) An executor is answerable only to the beneficiary and not to the court having jurisdiction over the probate of the estate.
(A) An executor can be given broad and discretionary powers with respect to the management of estate assets. (B) is incorrect because the executor is named in the last will of the testator and is not named by the beneficiary. (C) is incorrect because an executor may be an individual but is often a corporate trust institution with power to serve as an executor. (D) is incorrect because the probate court has control over the probate proceedings and the executor is answerable to it, not the beneficiary.
All the following statements concerning the computation of federal estate tax are correct EXCEPT (A) Casualty losses are deductible from the gross estate only to the extent they are reimbursed by insurance. (B) Gift taxes and estate taxes are unified and paid at the same tax rate. (C) The executor can deduct certain costs, fees, and taxes from the gross estate before arriving at the adjusted gross estate. (D) Gift taxes paid on post-1976 gifts made by a decedent within 3 years of death become part of the gross estate.
(A) Casualty losses are deductible from the gross estate only to the extent they are reimbursed by insurance. Losses due to theft, fire, and floods are deductible from the gross estate but only to the extent they are not reimbursed by insurance.
Which of the following statements concerning property ownership by a married couple residing in a community-property state is (are) correct? I. Income earned by one spouse becomes community property. II. Community property loses its identity when a couple moves from a community-property state to a common-law state. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(A) I Only. II is incorrect because the law of the state in which property is acquired generally establishes the interests of the parties for purposes of community law and common law tax treatment.
Which of the following statements concerning a revocable trust is (are) correct? I. It avoids probate. II. It enables the grantor to save income taxes. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(A) I only II is incorrect because a revocable trust permits the grantor to alter or amend the trust and to get back the trust property at any time. Therefore, all the income from the trust is taxable to the grantor.
Which of the following statements concerning state death taxes is (are) correct? I. The federal state death tax deduction is allowed only if a federal estate tax Form 706 return must be filed. II. State estate and inheritance taxes are generally imposed at the same rate regardless of the relationship of the deceased to the beneficiary. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(A) I only II is incorrect because states that impose an inheritance tax often have tax rates that vary with the relationship of the beneficiary to the decedent.
Which of the following statements concerning federal gift and estate taxes is (are) correct? I. The donor's gross estate includes the amount of any gift taxes paid by the donor on gifts made within 3 years of death. II. Gifts made within 3 years of death are brought back into the donor's gross estate. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(A) I only II is incorrect because the general rule is that completed gifts are not brought back into a decedent's gross estate. There are exceptions, however; transfers of property with retained rights and gifts of life insurance policies within 3 years of death are brought back into a decedent (insured's) gross estate.
Which of the following gratuitous property transfers will be included in a donor's gross estate at its date-of-death value for federal estate tax purposes? I. a lifetime transfer in which the donor retained the power to change the donees' shares of the transferred property II. a lifetime transfer in which the donor retained a reversionary interest on the date of death equivalent to 3 percent of the value of the property (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(A) I only II is incorrect because the threshold for a reversionary interest to be included in the gross estate of a grantor is 5 percent.
Which of the following statements concerning valuation of assets for federal estate tax purposes is (are) correct? I. The date of valuation of an estate is the date of the decedent's death or, if applicable, the alternate valuation date, which is 6 months later. II. All estate assets are valued at fair market value, which is the value placed on the estate assets by the executor with the advice of the attorney for the estate. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(A) I only II is incorrect because, depending on the type of estate assets and the particular circumstances, fair market value may be inappropriate for federal estate tax valuation purposes. Special-use value, adjusted-book value, and capitalization of adjusted earnings are other possible valuations.
Which of the following statements concerning qualified disclaimers of gifted property is (are) correct? I. The disclaimer must be in writing. II. The person making the disclaimer may direct who is to be the recipient of the gifted property. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(A) I only II is incorrect because, once a qualified disclaimer is made, the property must pass without any direction on the part of the person making the disclaimer.
A wife owns a $100,000 whole life insurance policy on her husband's life. She has named her son as revocable beneficiary. Which of the following statements concerning the life insurance is correct? (A) If the wife dies before her husband and bequests the policy to him upon her death, the transfer will qualify for the marital deduction. (B) The annual premium payments by the wife are gifts to her son. (C) If the husband dies before the wife, the wife will have made a gift to her son equal to the difference between the interpolated terminal reserve and the face amount of the policy. (D) If the wife dies before the husband, the value of the policy will be excludible from her estate.
(A) If the wife dies before her husband and bequests the policy to him upon her death, the transfer will qualify for the marital deduction. A is correct because it is a present transfer to the husband at death and not subject to any terminable interest, as such the value of the policy qualifies for the marital deduction. (B) is incorrect because the gift is incomplete until the husband dies. (C) is incorrect because the gift is valued at the entire amount of the death benefit. (D) is incorrect because the policy is owned by the wife, and it will be property considered includible in her estate if she dies before her husband.
Which of the following statements concerning the federal estate tax charitable deduction is correct? (A) In order to be allowed as a charitable deduction, the bequest must first be includible in the donor's gross estate. (B) The amount of the deduction is limited to a percentage of the adjusted gross estate. (C) For the deduction to be obtained, the bequest must be in the form of an outright gift. (D) Gratuitous services are deductible to the extent of the present value of the services provided.
(A) In order to be allowed as a charitable deduction, the bequest must first be includible in the donor's gross estate. (B) is incorrect because there is no percentage limitation for an estate charitable deduction. (C) is incorrect because there are a variety of forms of charitable bequests that can qualify as charitable deductions. (D) is incorrect because gratuitous services are never allowed for federal estate tax charitable deductions.
All the following are advantages of a buy-sell agreement EXCEPT (A) It binds the IRS to accept the value of the decedent's business interest. (B) It can provide liquidity to a decedent-shareholder's estate. (C) It provides for the continuation of the business. (D) It makes the business more attractive to creditors.
(A) It binds the IRS to accept the value of the decedent's business interest. Although a properly drafted buy-sell agreement can be used to peg the estate tax value of a decedent's business interest, the IRS is not necessarily or absolutely bound to accept the value of a decedent's business interest established in such an agreement.
All the following statements concerning a will are correct EXCEPT (A) It is irrevocable once executed. (B) It is a legal instrument. (C) It provides for the disposition of property at death. (D) It takes effect after death.
(A) It is irrevocable once executed. A will may be revoked or amended any time prior to death.
All the following statements concerning property are correct EXCEPT (A) Life insurance is tangible personal property. (B) Crops growing on land are real property. (C) Any property that is not real property is personal property. (D) A bond issue secured solely by the assets of a corporation is intangible personal property.
(A) Life insurance is tangible personal property. Life Insurance is intangible personal property.
A man has established a revocable inter vivos trust and has named the trustee the beneficiary of all his life insurance policies. His will provides that all of his residuary estate will "pour over" to the trust. All the following statements concerning this arrangement are correct EXCEPT (A) Probate costs will be eliminated in the administration of the man's estate. (B) Flexibility and discretion in the administration of trust assets can be attained. (C) The trust must be in existence prior to the date the man's will is executed. (D) Pour over trusts do not impact the estate taxes owed.
(A) Probate costs will be eliminated in the administration of the man's estate. Probate costs will be imposed on the estate-administered assets that will pour over to the trust at death.
Which of the following statements regarding the generation skipping transfer tax (GSTT) is correct? (A) The GSTT is seen most frequently in situations where a grandparent transfers property to a grandchild. (B) The GSTT is a graduated tax based on the total amount of transfers made by the decedent. (C) GSTT liability is always on the donor. (D) GSTT only applies if there is no estate tax due on the transfer.
(A) The GSTT is seen most frequently in situations where a grandparent transfers property to a grandchild. (B) is incorrect because the GSTT is a flat tax. (C) is incorrect because GSTT liability depends on the type of distribution, sometimes the trustee is liable for paying the taxes. (D) is incorrect because the GSTT is a tax on top of gift and estate taxes already due.
All the following are true regarding buy-sell agreement EXCEPT (A) The agreement guarantees the estate tax value of the decedent's interest. (B) The number of partners or business owners can impact the decision on whether to use a cross-purpose or entity-purchase buy sell agreement. (C) It provides for business continuation. (D) It makes the business more attractive to creditors.
(A) The agreement guarantees the estate tax value of the decedent's interest. While executing a buy-sell agreement is important, the mere existence of an agreement does not necessarily guarantee that the IRS will accept the estate tax value of the decedent's business interest.
All the following statements concerning property held by a married couple as tenants by the entirety are correct EXCEPT (A) The entire property must be included in the estate of the first to die. (B) The property passes automatically to the survivor at the time of the first death. (C) Each holds an undivided interest in the whole property. (D) Neither spouse can unilaterally transfer his or her interest.
(A) The entire property must be included in the estate of the first to die. One-half of property held as tenants by the entirety is included in the gross estate of the first spouse to die.
A husband is terminally ill and is considering changing his estate plan to take full advantage of the marital deduction. All the following factors favor the husband's taking full advantage of the federal estate tax marital deduction EXCEPT (A) The wife has substantial assets and is in the highest federal estate tax bracket. (B) The assets in the husband's estate consist largely of real property. (C) The use of the marital deduction recognizes the time value of money. (D) The husband has complete confidence in his wife's using her inheritance for the benefit of their children.
(A) The wife has substantial assets and is in the highest federal estate tax bracket. This situation does not favor transferring wealth to the surviving spouse since her estate is already large and will be subject to substantial taxes at her death without the addition of her husband's wealth.
All the following statements concerning powers of appointment are correct EXCEPT (A) They must be created by will. (B) The donor is generally the original owner of the property. (C) Exercise of a power of appointment may be limited in time and scope. (D) Appointees may include the donee.
(A) They must be created by will. Powers of appointment may be created during life or at death.
Which of the following items would be included in a decedent's gross estate for federal estate tax purposes? (A) a life insurance policy on the decedent's life that was transferred by the decedent 2 years earlier to an irrevocable trust for the benefit of her children (B) proceeds of a wrongful death suit brought by the decedent's executor against the drunk driver who caused the decedent's death (C) real estate given to the decedent by an aunt that, in accordance with the aunt's will, passes to the decedent's sister at the decedent's death (D) property in a trust established by the decedent's father for his grandchildren with the decedent and the decedent's sister as cotrustees of the trust
(A) a life insurance policy on the decedent's life that was transferred by the decedent 2 years earlier to an irrevocable trust for the benefit of her children The transfer was less than 3 years prior to the decedent's death. (B) is incorrect because the amount of the wrongful death claim belongs to the decedent's estate and not the decedent, since the claim was initiated by the estate after the decedent died. (C) is incorrect because it is a life estate that the decedent could not transfer at his or her death. (D) is incorrect because the decedent had no beneficial interest in the trust.
A woman is the income beneficiary of an irrevocable trust created by her mother. Which of the following powers given to her by the trust will cause all the assets in the trust to be includible in her gross estate for federal estate tax purposes? (A) the testamentary power to direct the trustee to use trust assets to pay her estate taxes or debts owed upon death (B) the power to direct the trustee to pay her trust assets limited in amount to an ascertainable standard relating to her health and education (C) the power each year to direct the trustee to pay her an amount of trust assets not exceeding the greater of $5,000 or 5 percent of the assets held by the trust (D) the testamentary special or limited power to direct the trustee to distribute trust assets to her children
(A) the testamentary power to direct the trustee to use trust assets to pay her estate taxes or debts owed upon death (B), (C), and (D) are incorrect because only general powers of appointment are included in the gross estate by the holder of the power. These selections are examples of limited powers of appointment.
A father and son have been farming land owned by the father for the past 12 years. Just prior to his death the father was offered $3 million for his farm because of its possible use as a shopping center. The son would like to continue to farm the land if it can be included in his father's estate at its current-use value. Additional facts are as follows: Average annual gross rentals from nearby farms of similar acreage are $160,000. Average annual state and local real estate taxes on the farm are $32,000. The interest rate for loans from the Federal Land Bank is 8 percent. For federal estate tax purposes, the farm-method valuation formula would result in a current-use value for the farm of (A) $1,400,000 (B) $1,600,000 (C) $1,750,000 (D) $1,850,000
(B) $1,600,000 The current-use value is calculated as follows: Net comparable income ($160,000 less $32,000) = $ 128,000 Capitalized net income $128,000/.08 = $1,600,000
A wife decides she is going to transfer some property to her husband when she dies. Upon her death, her will states that a $100,000 bank account and a $500,000 house with a $200,000 mortgage will pass to her husband outright. In addition, a trust with $500,000 of assets will pay income for life to her sister and then will pass to her husband after the death of her sister. The present value of the husband's remainder interest in the trust is $150,000. How much would qualify for the federal estate tax marital deduction? (A) $550,000 (B) $400,000 (C) $600,000 (D) $750,000
(B) $400,000 (A), (C), and (D) are incorrect. The $100,000 bank account, and the house will qualify for the marital deduction. However, only the net value of the house will qualify - $500,000 - $200,000 = $300,000. $300,000 house plus $100,000 bank = $400,000 marital deduction. None of the trust will qualify because it is a potentially terminable interest. It is not certain that anything will pass to the husband. Property also has to go to the husband in order to qualify.
John Jenkins, a widower, made the following gifts in 2016: $50,000 in cash to his son, $15,000 in cash to the American Cancer Society, stock worth $20,000 to his grandson (originally purchased for $10,000), and bonds worth $90,000 to the University of Pennsylvania development fund (originally purchased for $100,000). What is the total amount of taxable gifts made by John? (A) $35,000 (B) $42,000 (C) $125,000 (D) $159,000
(B) $42,000 For tax purposes, gifts are valued at their current market value. In addition, each gift will qualify for the $14,000 annual exclusion (2016), and the remainder of the gifts to the American Cancer Society and University of Pennsylvania will qualify for the charitable deduction. Therefore, only $36,000 of the gift to his son and $6,000 of the gift to his grandson will be taxable gifts.
Jason wants to leave property to his three daughters, Alex, Jessica, and Stacy. So he states in his will all my property to my daughters per stirpes. At Jason's death, only Stacy is still alive. However, Jessica is survived by her two children, Steve and Josh, and Alex is survived by three children, Jane, Eric, and Katie. Assume that Jason's estate is worth $6,000,000. How much money, if any, does his granddaughter Katie receive? (A) $0 (B) $666,666 (C) $1,000,000 (D) $2,000,000
(B) $666,666 Per stirpes distributes the property of an estate by each branch of the family equally. So, Alex's branch would receive $2,000,000, Jessica's branch would receive $2,000,000 and Stay would receive $2,000,000. Now, Jane, Eric, and Katie would have to split evenly their branch's $2,000,000/3 = $666,666.
Among the assets in a decedent's gross estate is stock in a closely held corporation that was left to a nephew. The interest passing to the nephew is required to bear the burden of all estate taxes and expenses. The relevant facts about this estate are as follows: Adjusted gross estate = $7,700,000. Fair market value of stock in the closely held corporation = $3,300,000. Administration and funeral expenses = $35,000. Federal and state estate taxes = $945,000. Bona fide debts of the decedent = $60,000. What amount of closely held corporate stock can be redeemed under IRC Sec. 303 so that the redemption will be treated as a sale or exchange rather than a dividend distribution? (A) $0 (B) $980,000 (C) $1,040,000 (D) $3,395,000
(B) $980,000 The calculation of the amount redeemable under Sec. 303 involves two steps. First, the estate must be eligible for Sec. 303. The estate is eligible only if the value of the closely held stock exceeds 35 percent of the adjusted gross estate. In this question the estate qualifies since the value of the stock is over 42 percent ($3,300,000 divided by $7,700,000) of the adjusted gross estate. The second step involves determining the amount redeemable. Since the nephew's bequest is liable for estate expenses and taxes, the amount of stock redeemable ($980,000) is equal to the sum of estate expenses and death taxes (not, however, the debts of the decedent): Funeral and administrative expenses + federal and state estate taxes = maximum Sec. 303 redemption ($35,000 + $945,000 = $980,000)
Which of the following statements concerning guardians is correct? (A) A guardian for personal care is called a guardian ad litem. (B) A special guardian can be appointed by the court to protect a minor's rights in a legal proceeding. (C) A guardian named in a deceased parent's will is binding on the court. (D) Guardianships are expected to be indefinite in nature.
(B) A special guardian can be appointed by the court to protect a minor's rights in a legal proceeding. (A) is incorrect because a guardian ad litem is a guardian appointed for a particular purpose such as legal guidance and protection during a specific law suit. (C) is incorrect because the direction in the parent's will is treated as a suggestion to the court that will be overridden if cause exists. The court and state law provide the authority for the guardian to act, and the guardian will be named in the best interests of the ward. (D) A guardian's role is expected to be temporary in nature, only lasting for the length of the minority or need for assistance. However, in some cases this can last through the ward's life.
All the following statements concerning estates and trusts are correct EXCEPT (A) The personal representative of an estate and a trustee have similar fiduciary responsibilities. (B) Both estates and trusts come into being by operation of law. (C) Both estates and complex trusts are separate taxpaying entities. (D) There are lots of reasons why a trust document might allow for removal of a trustee, including changes in tax and trust laws.
(B) Both estates and trusts come into being by operation of law. A trust is created by the action of a grantor (settlor).
All the following are post mortem planning devices EXCEPT (A) 6166 Installment Payments (B) Health Care Power of Attorney (C) 303 Stock Redemptions (D) Election Against The Will
(B) Health Care Power of Attorney A health care power of attorney is not a post-mortem planning device as it can only be effective during life.
Which of the following statements concerning estate planning using life insurance is (are) correct? I. One benefit of using life insurance to fund an ILIT is that the arrangement avoids any generation skipping transfer tax issues. II. Crummey powers are often used on life insurance trusts to help the premium payments to the trust qualify for the present interest annual exclusion. (A) I only Correct (B) II only (C) Both I and II (D) Neither I nor II
(B) II only I is incorrect because ILITs are still subject to GSTT if the premiums are over $14,000 a year or if the contributions to the trust does not qualify as a present interest. II is correct.
Which of the following statements concerning an irrevocable trust is (are) correct? I. A transfer of property to an irrevocable trust is ineffective for the purpose of reducing the grantor's gross estate. II. An irrevocable trust is treated as a completed gift for tax purposes at the time of the transfer. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(B) II only I is incorrect because gifting to an irrevocable trust will reduce a grantor's gross estate unless certain powers or rights are retained by the grantor.
Which of the following powers held by the income beneficiary is (are) considered to be a general power of appointment, thus causing all or a portion of the trust corpus to be includible in the beneficiary's gross estate for federal estate tax purposes? I. the power to withdraw the greater of $5,000 or 5 percent of trust corpus in any one year II. the power to direct the trustee to pay the beneficiary's personal debts (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(B) II only I is incorrect because it is a special power of appointment.
Which of the following statements concerning state death taxes is (are) correct? I. When no federal estate tax is due, no state death tax is payable. II. In inheritance tax states, the amount of state death taxes applied to property passing to beneficiaries varies with the beneficiary's relationship to the decedent. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(B) II only I is incorrect because many states impose a state death tax, regardless of federal estate taxation.
Which of the following statements concerning valuation for gift tax purposes is (are) correct? I. The value of a life insurance contract is equal to the aggregate gross premium paid, regardless of when the contract was gifted. II. Annuities and other assets that diminish in value over time are valued at present value at the date of death. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(B) II only I is incorrect because only a life insurance policy gifted immediately after purchase has a value for gift tax purposes equal to the gross premium paid. A paid-up life policy has a value equal to the premium payable for the same type of single-premium policy based on the insured's age on the date of the gift. A premium-paying policy has a value equal to the interpolated terminal reserve plus any unearned premiums.
Which of the following statements concerning estates is (are) correct? I. The administration of a decedent's estate should generally exist for an unlimited period of time. II. An estate is considered a separate tax entity for federal income tax purposes. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(B) II only I is incorrect because the administration of an estate has a limited period of existence. The one primary purpose for its existence is to effect the orderly, legal transfer of property. Once the estate accomplishes its purpose, the estate is closed.
All the following statements concerning a testamentary trust are correct EXCEPT (A) Its provisions are included in a decedent's will. (B) It saves probate costs. (C) It is revocable until the death of the testator. (D) It becomes irrevocable once it is operative.
(B) It saves probate costs. By definition the testamentary trust, as part of a testator's will, is also part of the probate estate and therefore is subject to normal probate costs.
All the following are ethical principles of a professional EXCEPT (A) Diligence (B) Partiality (C) Confidentiality (D) Objectivity
(B) Partiality All of the other answer choices are ethical principles. The professional should be impartial and not show favoritism.
Which of the following statements concerning a testamentary trust is correct? (A) It is an inter vivos trust. (B) Property that passes via a will and goes into a testamentary trust goes through probate. (C) It cannot exist for more than 5 years. (D) At its termination the trust property must revert to the grantor.
(B) Property that passes via a will and goes into a testamentary trust goes through probate. (A) is incorrect because testamentary trusts (not inter vivos trusts) are created at death. (C) is incorrect because testamentary trusts are limited in duration only by their terms and the rule against perpetuities. (D) is incorrect because the reversionary interest could be granted to a third party.
All the following statements regarding lifetime gifts are correct EXCEPT (A) Titling a home in another person's name is considered a gift. (B) Retitling a bank account as a joint bank account is a gift. (C) The annual exclusion is only available for present interest gifts in trust. (D) The IRS does not care if property is real or personal property for gift tax purposes.
(B) Retitling a bank account as a joint bank account is a gift. A joint bank account is not a gift until the joint owner actually withdrawals money from the account.
All the following statements concerning gifts to minors are correct EXCEPT (A) The gift generally involves some complexity since state laws often restrict the titling of property in the minor's name. (B) The annual gift tax exclusion is unavailable unless the minor receives the property outright. (C) Gifts to a Uniform Transfers to Minors (UTMA) custodial account provide for the outright distribution to the minor at the time the minor reaches the age of majority. (D) Gifts to a Sec. 2503(c) minors trust permit the trustee to accumulate and reinvest income but still qualify for the annual exclusion.
(B) The annual gift tax exclusion is unavailable unless the minor receives the property outright. Several types of transfer mechanisms are available to make gifts to minors that both qualify for the annual gift tax exclusion and restrict the minor's current access to the funds.
All the following statements concerning the grantor- trust rules are correct EXCEPT (A) The taxable income of a grantor trust is taxed to the grantor. Correct (B) The grantor- trust rules are avoided if the grantor's spouse has the power to revoke the trust. (C) Trusts are often considered grantor retained trusts if the grantor has too much control over the trust. (D) A grantor trust may be created for nontax advantages.
(B) The grantor- trust rules are avoided if the grantor's spouse has the power to revoke the trust. The spouse and grantor are treated as one person for the grantor- trust rules.
Income earned but unpaid at the time of a decedent's death is deemed to be income in respect of a decedent (IRD). Which of the following statements concerning IRD is correct? (A) The income must be reported on the decedent's final federal income tax return. (B) The income is taxable to the person or entity receiving it. (C) IRD includes income earned by the executor on estate assets. (D) The character of the income as taxable or nontaxable is changed when passed to the recipient.
(B) The income is taxable to the person or entity receiving it. (A) is incorrect because IRD is reportable by the individual or entity that actually receives it: either the decedent's estate or a beneficiary. (C) is incorrect because IRD includes only income earned by the decedent before his or her death. (D) is incorrect because the character of IRD remains the same as if the decedent had received it.
All the following statements concerning the unlimited estate tax marital deduction are correct EXCEPT (A) The marital deduction was designed to equalize the federal estate tax treatment of decedents in common-law states with those in community-property states. (B) The marital deduction is available against all death taxes imposed by state law. (C) The marital deduction only applies to property interests that are included in a decedent's gross estate for federal estate tax purposes. (D) The marital deduction available to a decedent in a common-law state is equal to the net amount of qualifying property passing to the surviving spouse.
(B) The marital deduction is available against all death taxes imposed by state law. State laws vary, and some states don't exempt transfers to a surviving spouse for death tax.
All the following constitute basic elements of a gift for gift tax purposes EXCEPT (A) a transfer for less than adequate consideration (B) valuation on a fair-market-value basis (C) delivery of the subject matter of the gift to the donee (D) acceptance of the gift by the donee
(B) valuation on a fair-market-value basis The valuation of a gift is not an element of the gift for gift tax purposes.
In 2016 a wife makes outright gifts of $98,000 to her son, and her husband agrees to split the gifts with her. Which of the following correctly states the amount of the taxable gifts? (A) wife $25,000, husband $45,000 (B) wife $35,000, husband $35,000 (C) wife $49,000, husband $49,000 (D) wife $84,000, husband $0
(B) wife $35,000, husband $35,000 The calculation of taxable gifts is as follows: Total gifts, less annual exclusion = total taxable gifts. Wife: $49,000 - $14,000 = $35,000. Husband: $49,000 - $14,000 = $35,000.
On January 1 of this year, a father gave his daughter a $100,000 ordinary life insurance policy on his life and filed a timely gift tax return. Premiums are paid annually. The pertinent facts concerning the policy are the following: Date of issue: July 1, 15 years ago. Premium paid on July 1 of this year = $1,600. Terminal reserve on July 1 of last year = $10,000. Terminal reserve on July 1 of this year = $12,000. What is the value of the policy for federal gift tax purposes? (A) $11,000 (B) $11,600 (C) $11,800 (D) $12,000
(C) $11,800 (C). The calculation of the value of a life insurance policy for gift or estate tax purposes is as follows: Interpolated terminal reserve plus unearned premium at the time of valuation. Since the time of the gift, January 1 of this year, falls at the midpoint of the time interval presented, the interpolated terminal reserve is $11,000 (the sum of $10,000 and $12,000 divided by two). Since one-half of the annual premium ($800) is unearned as of January 1 of this year, the value of the policy on January 1 of this year, for gift tax purposes is $11,800 ($11,000 + $800 = $11,800)
Mary Bennett and her husband purchased property 22 years ago for $100,000 and titled it in joint names with the right of survivorship. However, the entire contribution for the property came from funds that Mary had inherited from her father. When Mary died last year, the property was worth $800,000. What is her husband's basis in the property? (A) $100,000 (B) $400,000 (C) $450,000 (D) $800,000
(C) $450,000 Half of the property will be included in Mary's estate, for which her husband will receive a stepped-up basis of $400,000. He will continue to have a $50,000 basis in the half of the property that was not included in her estate. Thus, his total basis is $450,000.
The following are facts concerning a decedent's estate: Taxable estate = $8,800,000. Post-1976 adjusted taxable gifts = $150,000. Post-1976 gifts made to a qualified charity = $300,000 The tentative tax base of this estate is (A) $8,250,000 (B) $8,650,000 (C) $8,950,000 (D) $9,450,000
(C) $8,950,000 Once the taxable estate is determined, the amount of adjusted taxable gifts made after 1976 is added to the taxable estate. The sum of these two figures is the tentative tax base.
Which of the following is a gift for federal gift tax purposes? (A) Without compensation a carpenter builds a chicken shed for a neighbor. (B) A valuable oil painting owned by a father is delivered to his son to be displayed at the son's residence with a provision that the painting is to be returned to the father on demand. (C) A father waives the interest payment his son was to pay on a $50,000 interest-bearing note evidencing to the father. (D) A mother promises to give her son her new car as soon as the odometer reads 50,000 miles.
(C) A father waives the interest payment his son was to pay on a $50,000 interest-bearing note evidencing to the father. Forgiveness of money owed is considered a gift unless it is in a business context. (A), (B), and (D) are incorrect because they do not constitute gifts for federal gift tax purposes.
All the following statements concerning estate planning are correct EXCEPT (A) The first step in the estate planning process is data gathering. (B) Wills should be reviewed every few years and after major life events. (C) A living will can substitute for a traditional will. (D) Tangible personal property and real property are often taxed in the state where the property is located.
(C) A living will can substitute for a traditional will. A living will tells your family and caregivers what type of health care you want once you are terminally ill or incapacitated. It should be used in conjunction with a traditional will as a living will cannot transfer property.
All the following are true regarding pooled income funds EXCEPT (A) A pooled income fund is akin to a mutual fund operated by a charity. (B) Pooled income funds typically have donations from a variety of sources. (C) A pooled income fund cannot pay any money back to the donor. (D) The remainder value in the pooled income fund ends up going to the charity.
(C) A pooled income fund cannot pay any money back to the donor. Pooled income funds are akin to mutual funds run by charities. The fund pays out income to the grantor for life and upon the grantor's death, the charity keeps the remainder.
All the following statements concerning the federal income taxation of estates are correct EXCEPT (A) An estate is taxed on accumulated income. (B) An estate is allowed a tax deduction for reasonable expenses. (C) An estate is taxed at a flat income tax rate. (D) An estate is entitled to a tax deduction for amounts of income distributed.
(C) An estate is taxed at a flat income tax rate. Estates are taxed at progressive income tax rates.
Which of the following statements concerning installment sales of property is correct? (A) Payments must occur in more than 4 different tax years before installment reporting is permitted. (B) One downside with installment payments is that all taxable gain from the sale is recognized, due, and payable up front. (C) Any installment payments due at the time of death are included in the seller's gross estate at their present value. (D) The seller first recovers all federal income tax basis tax free before recognizing any capital gain.
(C) Any installment payments due at the time of death are included in the seller's gross estate at their present value. (A) is incorrect because installment reporting merely requires one payment to occur in a tax year later than the year of sale. (B) is incorrect because gain is realized upon each payment. (D) is incorrect because each installment payment will be treated as part return of basis and part taxable gain, if any.
A person dying without a valid will generally loses which of the following capabilities? I. the right to name guardians of minor children II. the right to name a personal representative (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
Important factors in assessing liquidity needs in estate planning include which of the following? I. the amount and terms of debt of the estate owner II. Residuary beneficiaries are not of great concern for liquidity planning. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
Nontax benefits of lifetime gifts include which of the following? I. obtaining privacy that is not possible when testamentary transfers are made II. reducing probate and administrative costs (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
The failure of an individual to have a will can result in which of the following? I. Favorite relatives may be disinherited. II. Testamentary gifts to charity cannot be made. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
Which of the following statements concerning community-property law is (are) correct? I. Transmutation is the voluntary change of separate property and community property characterization by the community owners. II. The character of community property does not typically change when a couple moves from a community property state to a common law property state. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
Which of the following statements concerning grantor- retained annuity trusts (GRATs) is (are) correct? I. These trusts provide the grantor with a fixed annual annuity for a term of years or life and the grantor is taxed on the trust income. II. A goal in establishing a GRAT is to transfer property at a reduced transfer tax cost through the use of an irrevocable trust. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
Which of the following statements concerning property is (are) correct? I. All property must be either real or personal property. II. A mortgage is considered intangible personal property. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
Which of the following statements concerning the installment sale of property is (are) correct? I. Installment sales are often used to help find more buyers by offering a variety of financing and payment options. II. The gain on the sale is recognized by the seller ratably as the installment payments are received. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
Which of the following statements concerning the marital deduction is (are) correct? I. Federal estate tax and state death taxes may be payable from a surviving spouse's share of the estate. II. Subject to certain qualifying provisions, terminable interests passing to a surviving spouse can qualify for the marital deduction. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
Which of the following statements concerning wills is (are) correct? I. A will may be revoked by the testator prior to his or her death. II. An election against a will by a surviving spouse is not considered a will contest. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
Which of the following statements is (are) correct regarding joint-tenancy with right of survivorship (JTWS)? I. If a husband and a wife own property as JTWRS in a common law state, only the portion included in the gross estate will receive a set up in basis, not the entire value of the property. II. Even though you cannot transfer a JTWRS property interest through a will, the value of your ownership interest at death is included in your gross estate. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
An executor may value assets as of the date of death or the alternate valuation date 6 months after death. Assuming the executor elects the alternate valuation date, which of the following statements is (are) correct? I. Property sold by the executor before the alternate valuation date is valued at its arm's-length sale price. II. Property that has increased in value since the date of death is valued at the alternate valuation date. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II Both I and II are correct. (Regarding statement II: Remember that some property in a decedent's estate may increase in value during the 6-month period even though the overall value of the estate is less at the alternate valuation date than at the date-of-death value.)
Which of the following statements concerning the generation-skipping transfer tax (GSTT) is (are) correct? I. Payments directly to an education provider can avoid the GSTT. II. Each donor is entitled to a lifetime exemption amount from the GSTT. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II Both statements are correct. Each donor is entitled to a lifetime exemption amount and payments directly to education provides are exempt from GSTT.
Henry, Harry, and Hobie form a closely held corporation, XYZ Corp. Each one receives 100 shares of stock. The three shareholders enter into a stock redemption (entity purchase) buy-sell agreement so that when one dies, the remaining shareholders can continue the business in coequal ownership. If Henry dies prematurely, which of the following statements concerning this arrangement is correct? (A) Harry and Hobie now own 150 shares of XYZ. (B) Harry and Hobie are obligated to purchase Henry's shares from his estate. (C) Harry and Hobie continue to own the same number of shares as they did prior to Henry's death. (D) There are 300 shares of stock outstanding in XYZ Corp.
(C) Harry and Hobie continue to own the same number of shares as they did prior to Henry's death. (A) is incorrect because with a stock redemption Harry and Hobie will each own 100 shares after Henry's death. (B) is incorrect because it is XYZ Corp. that is obligated to purchase Henry's shares from the estate. (D) is incorrect because XYZ will retire Henry's shares, which leaves Harry and Hobie with 100 shares each.
All the following statements concerning income taxation of estates and trusts are correct EXCEPT (A) An estate is a separate taxpaying entity. (B) A complex trust is a separate taxpaying entity. (C) Income distributed by a trust to an income beneficiary of the trust is taxable to the trust. (D) The executor or administrator of an estate is responsible for filing an income tax return.
(C) Income distributed by a trust to an income beneficiary of the trust is taxable to the trust. Income distributed to an income beneficiary of a trust is taxable to the beneficiary.
Believing that his death was imminent, a widower gave his daughter some real estate 2 years ago and filed a timely gift tax return. The widower died on January 1 of this year. Additional facts are these: Widower's basis in the real estate = $300,000. Value of real estate when gifted = $1,710,000. Value of real estate on date of death = $2,200,000. Amount of gift tax paid by widower = $650,300. Assuming the widower made no additional gifts to his daughter, all the following statements concerning this situation are correct EXCEPT (A) The gift of the real estate is included in the calculation of the widower's federal estate tax as an adjusted taxable gift. (B) The gift tax paid is brought back into the widower's gross estate at $650,300. (C) The daughter's income tax basis in the real estate is $2.2 million. (D) The widower recognized no gain for income tax purposes at the time the gift was made.
(C) The daughter's income tax basis in the real estate is $2.2 million. The daughter's income tax basis is not stepped up to the date-of-death value since she received it by gift before the transferor's death.
All the following statements concerning the deferral of payment of estate tax under Sec. 6166 for estates that hold closely held business interests are correct EXCEPT (A) The tax deferral is limited to the estate tax created by the inclusion of a qualified business interest. (B) The principal payments on the deferred tax may begin up to 5 years after the normal due date, with interest only payable during this initial period. (C) To qualify for such a deferral, the estate must hold a closely held business interest valued at greater than 65 percent of the adjusted gross estate. (D) The deferred tax is accelerated if the heirs dispose of the business interest.
(C) To qualify for such a deferral, the estate must hold a closely held business interest valued at greater than 65 percent of the adjusted gross estate. The threshold value of closely held business interests is in excess of 35 percent of the adjusted gross estate for Sec. 6166 qualification.
When the calculation of the federal estate tax is made, which of the following is a credit against the amount of federal estate tax due? (A) debts of the decedent (B) federal income taxes due as of the date of death (C) allowable foreign death taxes (D) administration expenses
(C) allowable foreign death taxes (A), (B), and (D) are incorrect because they are deductions from the amount of the gross estate, not credits against the tax due.
All the following are can be deducted from the adjusted gross estate EXCEPT (A) The marital deduction (B) the charitable deduction (C) attorney fees (D) state death taxes
(C) attorney fees Attorney fees would have already been deducted from the gross estate to arrive at the adjusted gross estate. As such, they cannot be deducted again.
Which of the following items is a deduction from a decedent's gross estate in determining the adjusted gross estate? (A) foreign death taxes (B) state excise taxes (C) claims against the estate (D) the marital deduction
(C) claims against the estate (A) and (B) are incorrect because foreign death taxes and state excise taxes are not a deduction against the gross estate. (D) is incorrect because the marital deduction is a deduction against the adjusted gross estate to determine the taxable estate.
All the following are advantages of the probate process EXCEPT (A) court supervision of executor's activities (B) inventory of estate assets (C) privacy of decedent's will (D) validation of decedent's will
(C) privacy of decedent's will One of the disadvantages of probate is that the decedent's will becomes a matter of public record.
A decedent died on January 1, 2016. The facts concerning the decedent's estate are as follows: Estate tax payable before credits = $2,465,000. Funeral and administrative expenses = $75,000. Basic credit amount = $2,125,800. State death taxes paid = $15,900. Based on the above information, the net federal estate tax payable is (A) $0 (B) $513,800 (C) $323,300 (D) $339,200
(D) $339,200 The net federal estate tax payable is calculated as follows: estate tax before credits, less basic credit amount (2016): $2,465,000 - $2,125,800 = $339,200
The following are facts concerning a decedent's estate: Gross estate = $6,800,000. Funeral and administrative expenses = $75,000. Marital deduction = $400,000. Post-1976 adjusted taxable gifts = $50,000. State death tax = $48,000. The tentative tax base for this estate is (A) $6,027,000 (B) $6,175,000 (C) $6,227,000 (D) $6,327,000
(D) $6,327,000 The tentative tax base is computed as follows: Gross estate, less deductions, plus post-1976 adjusted taxable gifts ($6,800,000 - $523,000 + $50,000) = $6,327,000. Deductions are as follows: funeral and administration $75,000, marital deduction $400,000, state death tax deduction $48,000.
In which of the following situations in 2016 will a child's income be taxed at the parent's highest marginal tax rate? (A) A 25-year-old child receives $12,000 in stock dividends. (B) An 8-year-old child receives income as a bona fide employee in the family business. (C) A 12-year-old child with no other income earns $500 in interest from a bank account gifted by a parent. (D) A 17-year-old child earns $10,000 income from a trust created by grandparents.
(D) A 17-year-old child earns $10,000 income from a trust created by grandparents. (A) is incorrect because children above age 19 (or 24 for a full-time student) are taxed at their rates for their income. (B) is incorrect because the kiddie tax rules are inapplicable to earned income of children. (C) is incorrect because the child's unearned income is not taxed at the parents' highest income tax rate until it exceeds $2,100 (2016).
All the following statements concerning the inclusion and valuation of all or part of a commercial annuity in the estate of an annuitant are correct EXCEPT (A) A joint and survivor annuity is includible in proportion to the amount of the total premium paid by the decedent. (B) An annuity is includible at its date-of-death value even if the executor elects the alternate valuation date. (C) A life annuity with a period certain is includible to the extent of the present value of any remaining guaranteed payments. (D) A life annuity with no period certain is includible in proportion to the amount of the total cost received as payments by the decedent prior to death.
(D) A life annuity with no period certain is includible in proportion to the amount of the total cost received as payments by the decedent prior to death. A pure life annuity terminates at the annuitant's death, and nothing remains to be included in the decedent's estate.
Which of the following statements concerning income taxation of trusts and estates is correct? (A) Trusts and estate are taxed like corporations. (B) A complex trust is allowed an exemption of $1,000. (C) An estate is taxed the same as a grantor trust. (D) An estate is allowed an exemption of $600.
(D) An estate is allowed an exemption of $600. (A) is incorrect because trusts and estates have a much different tax system than trusts, as they are taxed on retained income. (B) is incorrect because a complex trust has an exemption of $100. (C) is incorrect because grantor trust taxation is irrelevant to the taxation of estates. Grantor retained trusts are taxed to the grantor as if the trust did not exist for tax purposes.
All the following are true regarding an executor's duties EXCEPT (A) The executor must file any required tax forms, including the decedent's final income tax form, on behalf of the decedent. (B) An executor might waive his or her fee when they could receive more money as a beneficiary under the will. (C) An executor is required to act as a fiduciary. (D) An executor bond can never be waived by the decedent's will.
(D) An executor bond can never be waived by the decedent's will. The executor bond is often waived.
Which of the following statements concerning federal estate tax is correct? (A) All transfers made within 3 years of death must be brought back into the gross estate for federal estate tax purposes. (B) Jointly held property is not subject to federal estate tax. (C) Property passing outside the probate estate is not subject to federal estate tax. (D) For all estates required to file a return, a federal estate tax return must be filed within 9 months of death unless an extension is granted.
(D) For all estates required to file a return, a federal estate tax return must be filed within 9 months of death unless an extension is granted. (A) is incorrect because, subject to certain exceptions, gifts made within 3 years of death by donors who die are not brought back into the donor's gross estate. (B) and (C) are incorrect because jointly held property and nonprobate property are subject to federal estate tax.
All the following are true regarding charitable gifts EXCEPT (A) If a partial interest is gifted to a qualified charity, the full partial interest must be transferred in order to qualify for the charitable deduction. (B) You can take full advantage of the estate tax charitable and marital deduction by gifting all income from a trust for life to the surviving spouse and the remainder to a charity. (C) The charitable deduction can be received even if the charity receives the property through a qualified disclaimer. (D) Gifts to all non-profit organizations qualify for the charitable deduction.
(D) Gifts to all non-profit organizations qualify for the charitable deduction. All non-profit organizations do not qualify for the charitable deduction. Only qualified charities can qualify.
Which of the following statements is (are) correct? I. Generally, the use of a revocable living trust is driven by a desire to avoid taxes. II. While estates need to file income tax returns, complex trusts do not need to file income tax returns. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(D) Neither I nor II Both I and II are incorrect. Statement I is incorrect because revocable living trusts are usually driven by non-tax reasons as a revocable living trust is simply taxed as if the grantor did nothing tax wise. Statement II is incorrect because both estates and complex trusts need to file annual income tax returns.
Mrs. Jones would like to buy more life insurance but wants to avoid inclusion of the insurance in her gross estate at death. If Mrs. Jones creates an irrevocable trust to apply for the life insurance policy, which of the following trust terms is (are) recommended? I. a provision for Mrs. Jones to replace the trustee II. a provision directing the trustee to pay Mrs. Jones's estate taxes (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(D) Neither I nor II I and II are incorrect because either provision would cause the proceeds paid to the trust to be included in Mrs. Jones's estate.
Which of the following statements concerning a valid written will is (are) correct? I. A testator's signature must be notarized when the will is executed. II. A testator must have testamentary capacity at the time of death. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(D) Neither I nor II I is incorrect because a notarization causes a will to be self-proved to a probate court but is not required since a will can be formally proved to a probate court by establishing the validity of the testator's signature. II is incorrect because the validity of a will requires that the testator have capacity when the will is executed.
Which of the following statements concerning ownership rights is (are) correct? I. If one is the legal owner of property, he or she must also be the equitable owner. II. A trustee has beneficial ownership of property in his or her care. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(D) Neither I nor II I is incorrect because it is quite possible to have legal ownership in one person and equitable ownership in another. II is incorrect because a trustee is only the legal owner of trust property. The beneficiary of a trust is the equitable owner of the trust property and is entitled to the trust income.
Which of the following statements concerning the federal estate tax marital deduction is (are) correct? I. Property passing outside the probate estate cannot qualify for the marital deduction. II. The marital deduction is limited to the greater of one-half of a decedent spouse's adjusted gross estate or $5.45 million in 2016. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(D) Neither I nor II I is incorrect because property passing outside the probate estate, such as jointly held property, can qualify for the marital deduction. II is incorrect because the marital deduction is unlimited in amount for qualifying property.
Which of the following statements is true regarding a charitable remainder unitrust (CRUT). (A) A CRUT pays out to the charity for the grantor's life and then pays the remainder to the grantor's estate. (B) The only payment option of a CRUT is a life annuity. (C) One downside of a CRUT is that the donor cannot add more money to it over time. Correct (D) Payments from a CRUT are variable, which requires the trust assets to be revalued each year.
(D) Payments from a CRUT are variable, which requires the trust assets to be revalued each year. (A) is incorrect because a CRUT pays out to an individual first and then remainder to the charity, not to the grantor's estate. (B) is incorrect because a term payment from the CRUT can also be permissible under current law. (C) is incorrect because the donor can add more money to a CRUT over time.
All the following statements concerning the estate taxation of life insurance proceeds are correct EXCEPT (A) Paying premiums on a policy owned by a third party does not include the value of the policy in the payor's gross estate, even if the payments are treated as a gift. (B) Being the beneficiary of a life insurance policy is not enough by itself to have the policy's value included beneficiary's gross estate. (C) The proceeds are included in the insured's gross estate if payable to an inter vivos trust that is required to pay the expenses of the insured's estate. (D) The proceeds must be excluded from the policyowner - insured's gross estate if payable to the surviving spouse because of the marital deduction.
(D) The proceeds must be excluded from the policyowner - insured's gross estate if payable to the surviving spouse because of the marital deduction. Although proceeds payable to a surviving spouse qualify for the marital deduction, they are included in the gross estate if the insured held incidents of ownership at death or within 3 years of death.
Which of the following statements concerning the qualification of property for the federal estate tax marital deduction is correct? (A) If a decedent is a resident of a community-property state, only separate property can qualify. (B) Property received by a surviving spouse as the result of a disclaimer will not qualify. (C) Property can qualify as long as the deceased spouse was a U.S. citizen. (D) The property interest must be includible in the surviving spouse's estate at death unless consumed or given away.
(D) The property interest must be includible in the surviving spouse's estate at death unless consumed or given away. (A) is incorrect because the decedent's share of community property qualifies if left to the surviving spouse. (B) is incorrect because property passing to a surviving spouse may qualify for the marital deduction when it is the result of a disclaimer. (C) is incorrect because the surviving spouse must receive a beneficial interest in property and be a U.S. citizen if the property is to be eligible for the marital deduction.
Which of the following interests in real property gives the owner of the interest the most control over the property? (A) a life estate (B) a remainder interest (C) a retained interest (D) a fee simple estate
(D) a fee simple estate (A), (B), and (C) are incorrect because they involve limitations on the holder's property interest. The holder of a life estate, remainder interest, or retained interest does not own the property in all events since some possessory term in the property belongs to another interest holder.
Which of the following examples of a terminable interest left to a surviving spouse qualifies for the federal estate tax marital deduction? (A) a property interest that passes to someone else if the surviving spouse remarries (B) a life estate in property (C) a life interest in a trust over which the surviving spouse has a special power of appointment (D) a property interest that passes to the surviving spouse only if the spouse actually survives the decedent by 3 months
(D) a property interest that passes to the surviving spouse only if the spouse actually survives the decedent by 3 months (A), (B), and (C) are incorrect because they are nondeductible terminable interests. (B) and (C) may become eligible for a marital deduction only if the executor makes a QTIP election.
Sam Silver purchased a joint life annuity for himself and his good friend from an insurance company. Assuming Sam contributed the entire purchase price, how will the annuity be valued at his death for purposes of determining his gross estate? (A) at the original cost of the joint life annuity (B) at the cost of a single life annuity on Sam's life at the date of his death (C) at the cost of a single life annuity for his friend at the time the original annuity was purchased (D) at the present value cost of a single life annuity for his friend at the time of his death
(D) at the present value cost of a single life annuity for his friend at the time of his death (A), (B), and (C) are incorrect because the value of commercial annuity contracts is based on the cost of comparable contracts issued to the surviving annuitant as of the date of the decedent's death.
Which of the following terms refers to the property of a decedent reverting to his or her state of domicile when he or she has no surviving relatives? (A) intestate (B) succession (C) apportionment (D) escheat
(D) escheat (A), (B), and (C) are incorrect because, although those terms refer to a decedent's property passing at death, they do not pertain to property reverting to a decedent's state of domicile when he or she has no surviving relatives.
All the following are factors that must be considered in determining whether an estate tax return must be filed EXCEPT (A) the size of the gross estate (B) citizenship and residency (C) the amount of the decedent's post-1976 taxable gifts (D) the amount of gifts made to a spouse that qualifies for the gift tax marital deduction
(D) the amount of gifts made to a spouse that qualifies for the gift tax marital deduction A gift qualifying for the gift tax marital deduction is not considered a taxable gift and therefore is not a factor in determining the filing requirements of a federal estate tax return.
Which of the following terms is (are) true regarding the unauthorized practice of law? I. Financial advisors are allowed to draft wills and other documents for close family members II. Providing estate planning advice in connection with a financial planning is the unauthorized practice of law. (A) I only (B) II only (C) Both I and II Correct (D) Neither I nor II
I and II are incorrect. Financial advisors cannot draft wills for anyone, including family members, without engaging in the practice of law. Statement II is incorrect because you can provide estate planning advice without reaching the level of engaging in the unauthorized practice of law.
