Life Insurance Quiz 8

A death benefit only (DBO) plan can be appropriately used for all but which of the following purposes? to distribute benefits during a key employee's lifetime to recruit and retain a key employee by providing additional income for his survivors upon his death to supplement payments under a buy-sell agreement upon the death of a key employee to provide additional income or estate liquidity for a key employee's survivors upon his death

a

Which of the following statements is true regarding buy-sell agreements? Premiums for life insurance used to fund a redemption buy-sell agreement are tax-deductible for a corporation, but not for a partnership or an individual. In a cross purchase buy-sell agreement, the corporation agrees to purchase the business interest upon the occurrence of the triggering event. If a corporation pays premiums for a policy owned by one shareholder on the life of another shareholder, this payment will likely be considered a dividend. If a shareholder dies, the policies owned by the other shareholders will be included in the decedent's estate for federal estate-tax purposes.

c

The advantages of death benefit only insurance includes all of the following EXCEPT: Continuing income can be provided to the beneficiaries of a key employee The entire corporate payment to the benefiaiary is subject to income tax The proceeds are taxed at the beneficiaries tax rate The employer can leverage payouts with income tax deductions

b

If stockholders are subject to restrictions on the sale of stock under a buy-sell agreement, why should the certificates be marked with a legend stating the existence of the restrictions? To make the agreement binding on the parties to the agreement To reduce the estate tax value of the stock To make the restrictions enforceable against a transferee To avoid the transfer-for-value rule

c

The annual payout from a charitable remainder annuity trust (CRAT) to a noncharitable beneficiary may not exceed what percentage of the initial fair market value of the property contributed to the trust? 10% 25% 50% 75%

c

Which of the following gifts of less than the client's entire interest in property would NOT generate an income tax deduction? a charitable gift annuity a remainder interest in a qualified charitable remainder trust a charitable gift of the cash surrender value of a policy of which his son is the beneficiary an annuity or unitrust interest in a charitable lead trust

c

Which of the following is NOT one of the advantages of making a gift of life insurance to an irrevocable life insurance trust? sprinkle and spray powers can be used by an independent trustee beneficiaries can be given limited powers of appointment cash values can later be withdrawn from the trust if needed the trust is generally protected from the claims of creditors

c

A gift of life insurance to an irrevocable life insurance trust can make all of the following results possible, EXCEPT: state death taxes savings federal estate tax savings estate liquidity continued control and ownership of the life insurance policy

d

A qualified appraisal must be obtained for a taxpayer to claim a deduction for a gift of life insurance of $100 or more $500 or more $1,000 or more $5,000 or more

d

A DBO plan is typically designed to benefit all of or most of the employees of an employer, in order to meet the requirements for qualified plans. True False

false

Merely naming a charity as the beneficiary of a life insurance policy will result in an income tax deduction for the donor. True False

false

The annual right of withdrawal for each Crummey powerholder is typically $10,000. True False

false

The transfer within three years of death rule applies to any life insurance held in an irrevocable trust. True False

false

A charitable remainder trust allows a donor to make a currently-deductible charitable gift of appreciated property while retaining a lifetime income interest. True False

true

A donor who names a qualified charity as recipient of any dividends from a life insurance policy receives an income tax deduction as the dividends are paid. True False

true

A transfer of group term insurance to an irrevocable trust makes significant estate tax savings possible at minimum gift tax cost. True False

true

Life insurance proceeds may be subject to income tax if there has been a transfer for valuable consideration. True False

true

One of the primary purposes of a buy-sell agreement is to create a market for a shareholder's stock. True false

true

Payments under a DBO plan to an employee owning 50% or less of the employer typically will be excludable from his gross estate. True False

true

When a life insurance policy is transferred to an irrevocable trust, a gift is made subject to the gift tax. True False

true