Bryant - Course 6. Estate Planning. Comprehensive Course Exam for Estate Planning Flashcards
Under the special use valuation provisions in Section 2032(A), if a farm or a closely held business qualified for the special valuation, an additional estate tax will be imposed if a qualified heir sells the property within __ ____??____ __ after the decedent’s death.
* 8 years
* 5 years
* 10 years
* 3 years
10 years
- If a farm or a closely held business qualified for the special valuation rules, then an additional estate tax will be imposed if within 10 years after the decedent’s death a qualified heir disposes of the property or ceases to use that property in the manner in which it was used to qualify for this special tax treatment.
Life insurance and disability income premiums used to fund the purchase of an owner’s interest are __ ____??____ __ to the corporation.
* tax-exempt
* tax-deferred
* not deductible
* deductible
not deductible
- Life insurance and disability income premiums used to fund the purchase of an owner’s interest are not deductible to the corporation. On the other hand, the death proceeds and disability income proceeds will be received by the insurance corporation on an income tax-free basis.
Choose the correct characteristic(s) of Uniform Transfers to Minors Act (UTMA) trusts. (Select all that apply)
* Allow for testamentary transfers.
* Typically terminate at the age of 18.
* Only stocks, bonds, and mutual funds can be purchased.
* Flexibility.
Allow for testamentary transfers.
Flexibility.
* UTMAs are a flexible type of trust that can be used for the benefit of a minor.
* They allow for testamentary transfers into the minor’s account & terminate at age 21 or 25, depending on the state.
* UTMAs permit the use of various investments, including transfers of real estate, partnership interests, and oil and gas interests.
A revocable living trust __ ____??____ __.
I. is created by the grantor during their lifetime
II. provides the right tor evoke the trust, change its terms, or regain possession of the property in the trust
* Neither I nor II
* I only
* Both I and II
* II only
Both I and II
- A revocable living trust is one created by the grantor during their lifetime in which the grantor retains the right to revoke the trust, change its terms, or regain possession of the property in the trust.
- A revocable trust becomes irrevocable when the grantor dies.
Each of the following statements regarding a will is correct, except:
* The validity of a will is determined through the probate process.
* A will only transfers assets that were separately owned by the testator at death.
* Because a valid will is a legal document, provisions in the will override beneficiary designations in life insurance contracts and annuities.
* It is only within the provisions of the will that the testator can name guardians for minor children, as well as the executors of the estate.
Because a valid will is a legal document, provisions in the will override beneficiary designations in life insurance contracts and annuities.
- A will is a legal document, but does not override named beneficiary designations in life insurance and annuity contracts.
- A will only transfers assets that were separately owned by the testator at death. These assets are called probate assets.
- It is only within the provisions of the will that the testator can name guardians for minor children. In addition executors of the estate may only be appointed within the will.
- The validity of a will is determined through the probate process.
Each of the following elements should be included in the powers of attorney EXCEPT:
* An outline of the general aspects of the covered principal’s affairs.
* Verbiage dealing with gifting powers such as annual exclusions and/or lifetime gifts.
* Authority to transfer assets into a trust created by the principal.
* A provision authorizing the agent to make elections with respect to retirement plan assets.
An outline of the general aspects of the covered principal’s affairs.
- The powers of attorney should be very specific as to the aspects of the principal’s affairs that are covered.
Diana’s gross estate is $4,500,000 & the administrative and funeral costs are $350,000. Calculate the value that the stock must exceed to qualify for Sec. 303 redemption.
* $1,575,000
* $4,150,000
* $1,452,500
* $350,000
$1,452,500
* The value for purposes of federal estate tax of all stock of the corporation that is included in determining the value of the decedent’s gross estate must be more than 35% of the excess of the value of the gross estate minus the sum allowable as a deduction under IRC Sec. 2053 that is estate expenses, indebtedness, and taxes, and Sec. 2054 that is losses.
In Diana’s situation, the stock value is calculated as follows:
0.35 x ($4,500,000 - $350,000) = $1,452,500
Mr. Harper has been working with his attorney to write a new will before he gets married. The attorney has handwritten instructions signed by Mr. Harper in his file. What happens if Mr. Harper dies on the way to sign the new will?
* This is functionally an oral will and can be admitted to probate.
* Both his old will and the unsigned will can be admitted to probate.
* Only his old will (existing) can be admitted to probate.
* This is a nuncupative will, and it can be admitted to probate.
Both his old will and the unsigned will can be admitted to probate.
- This handwritten, signed document is a holographic will. Requirements are that it is in the testator’s handwriting and signed. The Uniform Probate Code allows courts to accept such documents.
- Nuncupative wills are oral wills. They must be made in the presence of witnesses generally during a final illness or combat situation.
Select the specialized form of property ownership existing between co-tenants who are husband and wife in which the spouses own the whole interest collectively, but no undivided individual share.
* Tenancy in Common
* Community Property
* Tenancy by the Entirety
* Joint Tenants with Rights of Survivorship
Tenancy by the Entirety
- A tenancy by the entirety is a specialized form of joint tenancy with right of survivorship existing between co-tenants who are husband and wife.
The estate is based on the common law concept of “spousal unity,” that husband and wife are one person.
The spouses own the whole interest collectively, but no undivided individual share.
Once all or a portion of an individual’s exemption is allocated to a GST, all future appreciation on the property is designated to be __ ____??____ __.
* taxable
* exempt
* tax-deferred
* pass-through
exempt
- Once all or a portion of a person’s exemption is allocated to a GST, all future appreciation on the property is designated to be exempt.
When selecting assets that will be protected by the GST exemption, assets most likely to appreciate, such as equities, should be used.
Financial goals that involve tax planning include each of the following EXCEPT:
* Shifting income to family members in lower brackets
* Maximizing exclusions and exemptions when transferring property
* Obtaining a stepped-up basis in property
* Reducing estate administration costs
Reducing estate administration costs
Financial goals that involve tax planning include:
* Minimizing gift and estate taxes when transferring property to others
* Shifting income to family members in lower tax brackets
* Obtaining a stepped-up basis in property to avoid future capital gains taxes
Non-tax personal estate planning goals often include:
* Caring for spouses and children
* Planning for incapacity
* Reducing estate administration costs
* Protecting property
* Controlling the transfer of property interests to others
If the donor is making a gift of cash to a public charity, the maximum income tax deduction that may be taken is __ ____??____ __ of the donor’s AGI.
* 60%
* 30%
* 50%
* 20%
60%
- If the donor is making a gift of cash to a public charity, the maximum income tax deduction that may be taken is 60% of the donor’s AGI.
If parents die without a will, __ ____??____ __ will appoint a new guardian who is capable and willing to provide for the children’s financial and emotional support.
* the trustee
* the fiduciary
* the probate courts
* the executor
the probate courts
- If parents die without a will, the probate courts will conduct a hearing to appoint a new guardian who is capable and willing to provide for the children’s financial and emotional support.
The alternate valuation date election is made by the __ ____??____ __.
* trustee
* grantor
* executor
* beneficiary
executor
- The executor will elect the alternate valuation date on the estate tax return Form 706 when a significant portion of the estate assets have decreased in value.
The alternate valuation date (AVD) is __ ____??____ __ after death.
* twelve months
* nine months
* six months
* three months
six months
- The alternate valuation date (AVD) is six months after death.
- The executor can elect the alternate valuation date only if the value of the decedent’s gross estate has diminished in value in six months and the estate tax liability is also less.
The __ ____??____ __ generally manages, distributes, and accumulates income and principal as per the terms of a formal written agreement (called a trust instrument) for the benefit of the beneficiaries.
* trustee
* executor
* corpus
* grantor
trustee
- A trustee is a party to whom property is transferred by the grantor, who receives legal title to the property placed in the trust, and who generally manages, distributes, and accumulates income and principal as per the terms of a formal written agreement (called a trust instrument) for the benefit of the beneficiaries.
After establishing and prioritizing estate planning objectives, what is the next step in the estate planning process?
* Identify the factors that limit or affect the selection of estate planning techniques.
* Implement the estate planning technique.
* Select an appropriate estate planning technique.
* Identify estate planning weaknesses before selecting a technique.
Identify the factors that limit or affect the selection of estate planning techniques.
Estate Planning Process
1. Gather significant data from the client.
2. Establish and prioritize estate planning objectives.
3. Identify the factors that limit or affect the selection of estate planning techniques.
4. Identify estate planning weaknesses before selecting a technique.
5. Select an appropriate estate planning technique.
6. Implement the estate planning technique.
7. Monitor the plan for revisions and modifications.
The charitable deduction is allowed for all gifts made during the calendar year by U.S. citizens or residents if the gift is to __ ____??____ __.
* a war veterans’ organization
* a civil defense organization created under federal, state, or local law
* a church, synagogue, or other religious organization
* all of the above
all of the above
- The gift tax deduction is allowed for all gifts made during the calendar year by U.S. citizens or residents if the gift is to a qualified charity.
According to Section 170(c) of the IRC, the following organizations, and several others, are considered qualifying charities. - A war veterans’ organization
- A church, synagogue, or other religious organization
- A civil defense organization created under federal, state, or local law
The GSTT exemption amount is __ ____??____ __ in 2023.
* $12,920,000
* $5,113,000
* $5,850,000
* $17,000
$12,920,000
- An exemption is available from the GSTT of $12,920,000 (2023). For a married couple, each spouse has a GSTT exemption.
__ ____??____ __ deals with management of the ward’s property and personal affairs.
* Plenary guardianship
* Guardianship
* A ward
* Conservatorship
Plenary guardianship
- Plenary guardianship manages both the ward’s property and personal affairs.
Choose items that are categorized as ordinary income property for charitable giving purposes. (Select all that apply)
* Inventory
* Short-Term Capital Assets
* Musical Compositions (purchased from an estate sale)
* Long-Term Capital Assets
Inventory
Short-Term Capital Assets
Ordinary income property includes:
* Capital assets held less than the requisite long-term period at the time contributed,
* Section 306 stock (that is, stock acquired in a nontaxable corporate transaction that is treated as ordinary income if sold),
* Works of art, books, letters, and musical compositions, but only if given by the person who created or prepared them or for whom they were prepared, and
* A taxpayer’s stock in trade and inventory (which would result in ordinary income if sold).
Long-term capital assets are not considered ordinary income property.
According to the assignment of income doctrine, if a father assigns the right to next year’s rent received from his condominium to his daughter, income will be taxable to:
* the daughter
* both the father and daughter
* the father
* neither the father nor the daughter
the father
- The assignment of income doctrine states that income earned or belonging to one individual, cannot be assigned to another simply to gain tax-favored treatment.
- By directing right’s to next year’s rent earned from the condominium to his daughter, the father has assigned income and, consequently, will be taxed.
In the event that the surviving spouse is not a U.S. citizen, the value of the decedent’s assets in excess of the estate tax exclusion amount will be subject to estate tax unless the assets are transferred into a(n) __ ____??____ __.
* QDRO
* A-trust
* QDOT
* QTIP
QDOT
- Under IRC Section 2056, the decedent’s estate will qualify for the federal marital deduction if assets transfer into a marital trust, referred to as a qualified domestic trust, or QDOT.
The federal estate tax is a tax on __ ____??____ __.
* the right to transfer property
* the right to receive property
* all property included in the estate, except for the amount used to pay the tax
* inherited items
the right to transfer property
- The federal estate tax is a tax on the transfer of property when a person dies. It is measured by the value of the property rights that are shifted from the decedent to others.
- It is a tax on the right to transfer property or an interest in property, rather than a tax on the right to receive property, which is the basic characteristic of an inheritance tax.
Which statement accurately describes a characteristic of tenancy by the entirety?
* Tenancy by the entirety offers no protection from creditors.
* Business partners may hold property as tenants by the entirety.
* Property held in tenancy by the entirety can only be severed with the consent of both spouses.
* Property held in tenancy by the entirety cannot be severed by divorce.
Property held in tenancy by the entirety can only be severed with the consent of both spouses.
- Tenancy by the entirety offers limited protection from creditors as well. If one spouse defaults on debts and creditors are seeking compensation, the most the creditor can do is put a lien on the property.
- Property held in tenancy by the entirety can only be severed with the consent of both spouses or by divorce.
Implementation of the estate plan occurs in which step of the planning process?
* Four
* Seven
* Six
* Five
Six
Estate Planning Process
1. Gather significant data from the client.
2. Establish and prioritize estate planning objectives.
3. Identify the factors that limit or affect the selection of estate planning techniques.
4. Identify estate planning weaknesses before selecting a technique.
5. Select an appropriate estate planning technique.
6. Implement the estate planning technique.
7. Monitor the plan for revisions and modifications.
__ ____??____ __ are documents given by the probate court to act on behalf of the estate as fiduciary.
* Codicils
* Trust documents
* Letters testamentary
* Powers of attorney
Letters testamentary
- Letters testamentary are letters of authority given by the probate court to act on behalf of the estate as fiduciary.
A __ ____??____ __ is an unqualified refusal by a potential beneficiary to accept benefits given through a testamentary or lifetime transfer of property.
* bequest
* stop-loss
* remuneration
* disclaimer
disclaimer
* A disclaimer is an unqualified refusal by a potential beneficiary to accept benefits given through a testamentary or lifetime transfer of property. It is also called renunciation.
* Most often a disclaimer refers to the refusal by a potential beneficiary to inherit all or part of a bequest under the terms of a will or trust.
Identify the two most common discounts available for family and closely-held businesses.
* Blockage discount
* Minority interest discount
* Key-person discount
* Lack of marketability discount
Minority interest discount
Lack of marketability discount
The two most common discounts available for family and closely-held businesses are:
* Lack of marketability, and
* A minority interest discount.
A lack of marketability discount is permitted for family businesses because investors are not interested in closely held stock or family limited partnership shares, and the cost of taking this stock public or selling it on an exchange to potential investors is very expensive.
A minority interest discount is allowed when transferring business interests to minority shareholders because these shareholders have no influence or control over business operations or management policy.
Assuming that intent to make a gift has been established, all of the following elements must be present to complete the gift EXCEPT:
* A delivery to the donee of the subject matter of the gift
* Acceptance of the gift by the done
* A completed Form 709 (U.S. Gift Tax Return Form)
* An irrevocable transfer of the present legal title to the donee
A completed Form 709 (U.S. Gift Tax Return Form)
- Assuming that the three objective criteria establishing gifting intent are met, three other elements must be present.
There must be:
* An irrevocable transfer of the present legal title to the donee so that the donor no longer had dominion and control over the property in question.
* A delivery to the donee of the subject matter of the gift or the most effective way to command dominion and control of the gift.
* Acceptance of the gift by the donee.
Form 709 is only required to be completed by the donor on a case-by-case basis, depending on the character and amount of the gift.
A husband and wife bought a home for $500,000 titled tenancy by the entirety.
The husband paid 30% ($150,000) and the wife paid 70% ($350,000). When the husband died in 2021 the home was valued at $800,000 and ½ of the property or $400,000 was included in his gross estate.
What was the wife’s new basis in the property?
* $650,000
* $800,000
* $550,000
* $400,000
$650,000
- Although the wife paid 70% when they acquired the property, each spouse is considered to own an equal ½ share under tenancy by the entirety.
- Her original basis at acquisition was $250,000 and she receives a step-up of her husband’s ½ based on the FMV of the home on the date of death (0.50 x $800,000 = $400,000).
- The new basis in the property is her original $250,000 basis, plus the husband’s $400,000.
- $250,000 + $400,000 = $650,000
Your client base is mainly elderly individuals and couples. You realize that you should be aware of signs of forgetfulness or dementia. Senior citizens are also especially vulnerable to financial fraud. What kind of financial signals should you be looking for?
I. The client had been requesting $4,000 a month but now is requesting $8,000 a month.
II. A caretaker requests that distributions be sent to him or her, not to the client.
III. nThe client starts to ask questions about high risk investments.
IV. The client requests that account transactions be sent to their attorney.
* I, II, III, IV
* II
* IV
* III
* I, II, III
I, II, III
* Dramatic changes in cash demands or investment risk tolerance could indicate that someone is mis-using the elder client. It is normal for account transactions to be sent to the client’s attorney.
The __ ____??____ __ is authorized to draft the appropriate estate planning documents.
* probate court
* executor
* attorney
* financial planner
attorney
* Only the attorney can draft the appropriate estate planning documents. These range in complexity and length from simple durable power of attorney to the recapitalization of the client’s business and the complete restructuring of the nature of the client’s estate plan.
A __ ____??____ __ trust must distribute all income to a beneficiary on at least an annual basis.
* UTMA
* 2503(c)
* UGMA
* 2503(b)
2503(b)
* A 2503(b) trust can provide a beneficiary with a stream of income during the time in which the beneficiary is a minor.
* The trust must distribute the income to the minor on an annual or more frequent basis. All or portions of gifts to such trusts will qualify as gifts of present interest for the income beneficiaries, and thus are eligible for the annual gift tax exclusion.
