Book 6 pages 107 - End

Question 1

true or false?

the best definition of disability for buy-sell agreement purposes is own occupation

Answer 1

true

Question 2

any interest that in terms of voting is not a controlling interest

Answer 2

minority interest

Question 3

the theory behind a ___ discount is that a large amount of stock included in the decedent’s gross estate cannot be liquidated at one time without a decrease in the stock’s market price

Answer 3

blockage

Question 4

the ___ discount is based on the premise that the stock of a closely held business will decline if a key person such as the founder were to die

Answer 4

key person discount

Question 5

name some types of valuation discounts

Answer 5

minority discount
blockage discount
key person discount
lack of marketability discount

Question 6

section 6166 is ____

Answer 6

deferred payment of estate tax

Question 7

to use a deferred payment of estate tax the value of the closely held business must exceed ___% of the adjusted gross estate

Answer 7

35%

Question 8

to use a special use valuation the value of the property (real and personal) used in the farm or closely held business must be at least ___% of the adjusted gross estate

Answer 8

50%

Question 9

to use a special use valuation the value of the real property alone must be at least ___% of the adjusted gross estate

Answer 9

25%

Question 10

to use special stock redemption at time of death the value of the stock must be more than ___% of the adjusted gross estate

Answer 10

35%

Question 11

true or false?

when using stock redemption in an estate tax situation the disposition of the asset will be treated as ordinary income

Answer 11

false, capital gain

Question 12

under a reverse QTIP election the ___ deduction will still be available for estate tax purposes

Answer 12

marital

Question 13

why would a reverse QTIP election be made?

Answer 13

to utilize a deceden’ts GSTT exemption

Question 14

true or false?

a person who breaches fiduciary duties may be personally liable for damages

Answer 14

true

Question 15

a(n) ___ is the personal representative of an estate that is named specifically in the decedent’s will

Answer 15

executor

Question 16

a(n) ____ is a personal representative of an estate appointed by a court, if the decedent died without a valid will or failed to name an executor in the will

Answer 16

administrator

Question 17

true or false?

a grandchild is considered a skipped person for GSTT purposes

Answer 17

true

Question 18

an unrelated person who is younger than the transferor by ___ years or more is considered a skipped person for GSTT

Answer 18

37.5

Question 19

____is gross income the decedent had earned and was entitled to at death but had not yet received

Answer 19

income in respect of a decedent

Question 20

true or false?

IRD (income in respect of a decedent) is considered income for federal income tax purposes

Answer 20

true

Question 21

true or false?

forgiveness of debt at death of an installment note is an example of IRD

Answer 21

true

Question 22

what amount is included as IRD if when a forgiveness of debt at death is realized?

Answer 22

the entire amount of any remaining unrecognized gain

Question 23

true or false?

salary received after the date of death is considered IRD

Answer 23

true

Question 24

is rental income and interest accrued but unpaid at time of death considered IRD?

Answer 24

yes

Question 25

true or false?

annuity payments are not considered IRD if received after death

Answer 25

false, they are

Question 26

who usually includes IRD in their income for income tax purposes?

Answer 26

the beneficiary of the decedent or the estate

Question 27

true or false?

all IRD is taxed as capital gain to the beneficiary

Answer 27

false, it is taxed the same way it would have been to the decedent (i.e. if IRA distribution then you have ordinary income)

Question 28

true or false?

IRD assets allow for a step up in basis

Answer 28

false, the decedent’s original basis carries over to the new owner

Question 29

is IRD included in the gross estate of the decedent?

Answer 29

yes

Question 30

true or false?

there is a tax deduction allowed for IRD

Answer 30

true

Question 31

When Mike died his gross estate included a qualified plan worth $700k. The total estate tax liability for Mike’s estate was $2million. The estate tax liability would have been $1.6 million if the qualified plan was excluded from his gross estate. Mike’s son George is a beneficiary of the qualified plan and received a taxable distribution this year of $350k. What income tax deduction is allowed to George this year?

Answer 31

$200k

($350k / $700k) x $400k

Question 32

if the IRD income tax deduction is claimed it is a _____ deduction not subject to the 2% of AGI floor

Answer 32

miscellaneous itemized

Question 33

an estate must report income of the estate if the estate has gross income of $____ or more

Answer 33

$600

Question 34

true or false?

personal interest is deductible on an estate tax return

Answer 34

false

Question 35

true or false?

trade or business interest is deductible on an estate tax return

Answer 35

true

Question 36

true or false?

investment interest is deductible on an estate tax return

Answer 36

true

Question 37

true or false?

qualified residence interest is not deductible on an estate tax return

Answer 37

false, it is

Question 38

true or false?

executor fees are gross income to the executor

Answer 38

true

Question 39

the waiver of executor fees may not be beneficial if _________

Answer 39

the spouse executor’s marginal tax bracket is lower than the marginal estate tax rate

Question 40

true or false?

medical expenses paid within one year of death are deductible on the decedent’s final income tax return and the estate tax return at the same time

Answer 40

false, it can only be one or the other

Question 41

true or false?

if medical expenses are deducted on the estate tax return there is no limit on the deduction

Answer 41

true

Question 42

a disclaimer by the spouse in favor of children reduces the use of ___ deduction and helps avoid ____

Answer 42

marital ; overqualification

Question 43

a disclaimer by the children in favor of the spouse increases the use of ___ deduction and helps avoid ___

Answer 43

marital ; underqualification

Question 44

permits the decedent spouse to provide lifetime income to the surviving spouse but control who receives any property remaining after surviving spouse dies

Answer 44

QTIP

Question 45

true or false?

QTIP property must be included in the surviving spouse’s gross estate when they die to the extent it has not been spent or consumed before surviving spouse’s death

Answer 45

true

Question 46

if a beneficiary is an higher marginal bracket than the estate’s marginal bracket they would most likely benefit from a valuation date that offers the ____ basis in the asset inherited

Answer 46

higher

Question 47

true or false?

the portability provision is available for nonspouses

Answer 47

false

Question 48

true or false?

the marital deduction is available for same sex spouses

Answer 48

true

Question 49

true or false?

surviving cohabitants have no intestacy rights to the decedent’s proeprty

Answer 49

true

Question 50

true or false?

tenancy in common property avoids probate?

Answer 50

false

Question 51

true or false?

tenancy in common property will only include the decedent’s share of the property in their estate

Answer 51

true

Question 52

true or false?

JTWROS property will include the entire value of the property in the decedent’s gross estate

Answer 52

true

Question 53

true or false?

JTWROS property avoids probate?

Answer 53

true

Question 54

true or false?

a revocable trust avoids probate if assets are transferred to the trust during the client’s lifetime

Answer 54

true