Bryant - Course 6. Estate Planning. Comprehensive Course Exam for Estate Planning Flashcards
1
Q
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
A
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.
2
Q
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
A
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.
3
Q
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.
A
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.
4
Q
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
A
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.
5
Q
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.
A
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.
6
Q
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.
A
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.
7
Q
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
A
$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
8
Q
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.
A
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.
9
Q
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
A
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.
10
Q
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
A
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.
11
Q
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
A
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
12
Q
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%
A
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.
13
Q
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
A
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.
14
Q
The alternate valuation date election is made by the __ ____??____ __.
* trustee
* grantor
* executor
* beneficiary
A
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.
15
Q
The alternate valuation date (AVD) is __ ____??____ __ after death.
* twelve months
* nine months
* six months
* three months
A
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.
16
Q
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
A
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.
17
Q
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.
A
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.
18
Q
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
A
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
19
Q
The GSTT exemption amount is __ ____??____ __ in 2023.
* $12,920,000
* $5,113,000
* $5,850,000
* $17,000
A
$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.
20
Q
__ ____??____ __ deals with management of the ward’s property and personal affairs.
* Plenary guardianship
* Guardianship
* A ward
* Conservatorship
A
Plenary guardianship
- Plenary guardianship manages both the ward’s property and personal affairs.
21
Q
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
A
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.
22
Q
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
A
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.
23
Q
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
A
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.
24
Q
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
A
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.
25
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.
26
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.
27
__ ____??____ __ 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.
28
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.
29
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.
30
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.
31
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
32
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.
33
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.
34
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.
35
A disclaimer that results in property passing to a person at least two generations below that of the original transferor will result in __ ____??____ __.
* taxation at the beneficiary’s individual tax rate
* GSTT
* no taxation
* carryover basis
GSTT
* A disclaimer that results in property passing to a person at least two generations below that of the original transferor will result in GSTT.
36
While discussing the issues associated with the creation of an estate plan, the planner should focus on which the following?
I. Rate of inflation
II. Estate liquidity
* I only
* II only
* Both I and II
* Neither I nor II
Both I and II
While discussing the issues associated with the creation of an estate plan, the planner must also focus on the following:
* The rate of inflation: It is a factor in reducing the actual value of future earnings.
* The estate liquidity: A properly executed estate plan should not result in the forced liquidation of the estate assets in order to discharge the liabilities and/or taxes associated with death.
37
A reverse gift transfer will result in a stepped-up basis on transfer at death in each of the following situations except
* If the gifted property is bequeathed to anyone other than the original donor.
* The decedent lives for more than one year after receiving the gift.
* If the gifted property is bequeathed to anyone other than the donor's spouse.
* If the gifted property is transferred back to the original donor within a year of the original gift.
If the gifted property is transferred back to the original donor within a year of the original gift.
* The reverse gift transfer will work if
the **decedent lives for more than one year after receiving the gift, or
if the gifted property is bequeathed to anyone other than the original donor or the donor's spouse**.
* **In these two situations the transferred property would receive a stepped-up basis in the decedent spouse's estate for the property's fair market value**.
38
Select the item that would NOT be considered future income rights for income in respect of a decedent (IRD).
* business accounts payable
* dividends
* vested amounts in qualified retirement plans
* interest payments
business accounts payable
* Business accounts receivable are considered future income rights.
39
A(n) __ ____??____ __ estate is one where the separately-owned assets of the decedent's estate transfer under the provisions of the will.
* testate
* intestate
* taxable
* gross
testate
* A testate estate is one where the separately-owned assets of the decedent's estate transfer under the provisions of the will.
40
Who appoints a guardian?
* The trustee
* An executor
* A parent
* The court
The court
* A guardian is appointed by the court and is charged with the responsibility of caring for another (the ward). Parents can name a guardian of their minor children in a will. The court usually honors their choice. (That person is a testamentary guardian.)
41
Which of the following property interested will avoid the probate process?
* An annuity with a named beneficiary
* Community property
* Property transferred by a Pour-over will into a trust
* Property passing from a will into a Testamentary Trust
An annuity with a named beneficiary
Property that passes through a will or intestacy must always go through the probate process. Examples of property interests that are probate assets include:
* Fractional interests held in Tenancy-in-Common property
* Community property
* Property passing from a will into a Testamentary Trust
* Property transferred by a Pour-over will into a trust
* Homestead and exempt property allowances
An annuity with a named beneficiary is considered a will substitute and will avoid the probate process.
42
Identify the items that can be categorized as probate fees. (Select all that apply)
* * Administrative expenses
* * Court filing fees
* * Attorney's fees
* * Appraisal fees for probate assets
Administrative expenses
Court filing fees
Attorney's fees
Appraisal fees for probate assets
* Probate fees are any expenses incurred by the estate as a part of the probate process.
* Probate fees include:
Appraisal fees for probate assets (e.g., real estate, business interests, etc.),
Court filing fees,
Attorney's fees, and
Other administrative expenses.
43
A(n) __ ____??____ __ is a person and/or institution named in a trust agreement to carry out provisions or terms of the trust.
* executor
* trustee
* testator
* grantor
trustee
* A trustee is a person and/or institution named in a trust agreement to carry out provisions or terms of the trust.
A trustee can be an individual, either a professional or nonprofessional, or it can be a corporate fiduciary. It is also possible and common to appoint both individual and corporate trustees.
44
Identify the correct characteristic of a commercial annuity.
* Payout terms are established using a variety of factors.
* Funded with various types of property.
* Use standard actuarial tables.
* The value of a survivorship is determined using government valuation tables.
Use standard actuarial tables.
* Commercial annuities are usually funded with cash, the gross estate would include replacement value of the commercial annuity, and standard actuarial tables are used to determine their payout terms.
45
At the death of the first spouse, the __ ____??____ __ election can be made to transfer any unused lifetime exclusion amount to the surviving spouse.
* QDOT
* HEMS
* QTIP
* DSUE
DSUE
* At the death of the first spouse, an election can be made to transfer any unused lifetime exclusion amount to the surviving spouse. This is known as a Deceased Spouse Unused Exclusion (DSUE) election. Unlike in the past, the unused portion of the lifetime exclusion is not forfeited if an unlimited marital deduction is used to the deceased's entire estate tax-free to a surviving spouse.
46
Last year, Seth received corpus that was not subject to estate or gift tax. The trust was established by Seth’s grandfather, Milo. What type of GST transaction has occurred?
* Direct skip
* Taxable termination
* GSTT exemption
* Taxable distribution
Taxable distribution
* A taxable distribution is any distribution of income or corpus from a trust to a skip person that is not otherwise subject to estate or gift tax.
* Since the trust was established by Milo, Seth’s grandfather, and Seth received a distribution of trust corpus, this transaction would be categorized as a taxable distribution.
47
A dependent child under age 19 has $1,500 of unearned interest income and no other income.
Assuming the child’s tax rate is 10% and parents' marginal tax rate is 32%, calculate the total tax due using the Kiddie Tax calculation.
* $150
* $128
* $25
* $0
$25
* Unearned Income $1,500
Standard Deduction
Minus $1,250
Taxed at child's rate
Minus $250
Net Unearned Income $0
Taxed at Parents' Rate Times 32%
Kiddie Tax $0
$250 @ 10% Plus $25
Total $25
48
To qualify for the charitable income tax deduction, the donation must involve a __ ____??____ __ gift.
* future interest
* present interest
* deferred interest
* retained interest
present interest
* To qualify for the charitable income tax deduction, the donation must involve a present interest gift.
* Future interest gifts of property to a charity ordinarily do not qualify for the charitable income tax deduction.
49
To deduct charitable contributions made by cash or checks, contributions must be substantiated by receipts from the charity that include each of the following EXCEPT:
* Amount of cash contribution.
* Description of any non-cash contribution.
* A qualified appraisal for a donated item valued below $5,000
* Name of the organization.
A qualified appraisal for a donated item valued below $5,000
**The charity's receipt should include:**
* Name of the organization.
* Amount of cash contribution.
* Description of any non-cash contribution.
* A statement that no goods or services were provided by the organization in return for the contribution, if applicable.
* Description and good faith estimate of the value of goods or services. Deductions for clothing and household goods can only be taken if the items are in "good condition" or better. For a donated item that exceeds $5,000, a qualified appraisal must be included with the donor's income tax return.
50
The IRS Valuation Manual states that the fractional interest discount is generally based on which of the following factors:
* Access to financing
* Size of tract and likelihood of partition
* Use of land
* Size of the fractional interest
* Number of owners
Access to financing
Size of tract and likelihood of partition
Use of land
Size of the fractional interest
Number of owners
Though the IRS Valuation Manual states that the fractional interest discount is generally based on the cost of dividing the land, such as survey costs, court costs, and legal fees, the following other factors must be considered:
* Size of the fractional interest
* Number of owners
* Size of tract and likelihood of partition
* Use of land
* Access to financing
51
Each of the following is an allowable deduction from the gross estate to arrive at the adjusted gross estate EXCEPT:
* Funeral and administrative expenses
* Debts including certain taxes
* A charitable deduction
* Casualty and theft losses
A charitable deduction
* Once the gross estate is calculated, certain deductions are allowed in arriving at the adjusted gross estate. These deductions fall into three categories:
* Funeral and administrative expenses,
* Debts including certain taxes, and
* Casualty and theft losses.
* A charitable deduction is a potential deduction from the adjusted gross estate to arrive at the taxable estate.
52
Tenancy in common is appropriate when a client wishes to achieve each of the following except
* Reduce any income tax liability
* Reduce potential estate tax liability
* Reduce administrative expenses and costs
* Ensure that the property is transferred to a designated beneficiary
Reduce administrative expenses and costs
* Tenancy in common is appropriate when a client wishes to:
* Reduce potential estate tax liability
* Reduce any income tax liability
* Ensure that the property is transferred to a designated beneficiary
Tenancy in common will lead to increased administrative expenses and costs as property passes via a will through the probate process.
53
The recipient of property through a life estate has each of the following rights except
* The immediate right to enjoy the property while alive
* The right to derive income from the property
* A future interest to possess the property
* Exclusion of the property from their gross estate.
A future interest to possess the property
* If you receive a life estate in property by gift or inheritance, you have the immediate right to
* possess, enjoy or derive income from the property while you are alive.
* at death interest in the property ends, and
* the property will not be included in the gross estate.
54
To qualify for the charitable income tax deduction, the donation must involve a __ ____??____ __ gift.
* present interest
* retained interest
* deferred interest
* future interest
present interest
* To qualify for the charitable income tax deduction, the donation must involve a present interest gift.
* Future interest gifts of property to a charity ordinarily do not qualify for the charitable income tax deduction.
55
The Executor or Executrix is typically named by the __ ____??____ __ in the will.
* testator
* remainderman
* trustee
* courts
testator
* The Executor(trix) typically has been named by the testator in the will. Once the letters testamentary have been issued, administration of the probate estate begins.
56
Each of the following elements should be included in the powers of attorney EXCEPT:
* 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.
* Verbiage dealing with gifting powers such as annual exclusions and/or lifetime gifts.
* Authority to transfer assets into a trust created by the principal.
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.
57
Identify the qualification requirements for special use valuation under Section 2032(A).
I. The qualified property in the decedent's estate must equal at least 50% of the decedent's gross estate.
II. At least, 25% of the gross estate must be qualified farm or closely held business real property.
III. Property must pass to a qualified heir.
IV. On the date of the decedent's death, the property must be involved in a qualified use.
* I, II, III, and IV
* I and II
* I, III, and IV
* IV only
I, II, III, and IV
58
Select the type of GST where the taxation is tax-exclusive.
* Direct skip
* Trust corpus distribution
* Taxable termination
* Taxable distribution
Direct skip
* The tax in a direct skip is tax-exclusive. In other words, the tax is paid by the transferor or the estate and the taxable amount does not include the amount of generation-skipping tax.
59
__ ____??____ __ is a procedure that disposes of real estate of the decedent that is located in a state other than that of the decedent's residence.
* Informal probate
* Summary administration
* General administration
* Ancillary probate
Ancillary probate
* Ancillary probate is a procedure that disposes of real estate of the decedent that is located in a state other than that of the decedent's residence.
60
An individual who has died without a will has left a(n) __ ____??____ __ estate.
* taxable
* testate
* gross
* intestate
intestate
* An individual who has died without a will has left an intestate estate.
61
In the absence of a market for real property, the greater of the following will control the valuation:
I. The highest price available
II. The salvage value
* I only
* Both I and II
* II only
* Neither I nor II
Both I and II
In the absence of a market for such property, the greater of the following will control the valuation:
* The highest price available, or
* The salvage value.
62
A sprinkling trust can distribute __ ____??____ __ to beneficiaries.
I. income
II. corpus
* Both I and II
* Neither I nor II
* I only
* II only
I only
* A sprinkling trust can distribute income to beneficiaries and a spray trust can distribute both income and corpus.
63
In addition to an outright transfer of assets to an individual, gifts can take which of the following forms:
I. The forgiveness of a debt
II. Foregone interest on an intra-family, interest-free or below market loan
III. The assignment of the benefits of an insurance policy
IV. The transfer of property to a trust
* I only
* III and IV
* I, II, III, and IV
* II only
I, II, III, and IV
In addition to an outright transfer of assets to an individual, gifts can take other forms. These include:
* The forgiveness of a debt
* Foregone interest on an intra-family interest-free or below market loan
* The assignment of the benefits of an insurance policy
* The transfer of property to a trust.
64
The highest gift and estate tax rate is currently __ ____??____ __.
* 35%
* 37%
* 40%
* 28%
40%
* The highest gift and estate tax rate is currently 40%.
* The Transfer Tax System is cumulative and progressive, taxable gifts made during the lifetime will increase the estate tax rate imposed on transfers of property made after death.
65
A husband and wife bought twenty-five acres of undeveloped land for $50,000 and titled the property JTWROS. The husband paid 60% and the wife paid 40%.
The husband died in 2021 the lot was valued at $160,000. The wife received the husband's share and now has sole ownership of the property.
What is the wife’s current basis?
* $116,000
* $105,000
* $160,000
* $50,000
$105,000
* Calculation of the step-up amount for spousal JTWROS property and JTWROS property owned by non-spouses is different.
* Although the husband and wife paid different amounts, spousal property is treated as equally owned. As a result, both husband and wife have an original basis of $25,000 ($50,000 (original purchase) x 0.50)).
Based on her original basis of $25,000 plus the husband's share of property that was stepped-up in basis to $80,000 (0.50 x $160,000).
$25,000 + $80,000 = $105,000
The wife's new basis is $105,000.
66
Under which of the following situations can life insurance be considered an indirect gift?
I. The purchase of a policy for another person's benefit
II. The assignment of an existing policy
III. The purchase of an individual policy
IV. Payment of premiums
* III only
* II and IV
* I, II, and IV
* I only
I, II, and IV
* Life insurance or life insurance premiums can be the subject of an indirect gift.
This may happen in three types of situations:
* The purchase of a policy for another person's benefit
* The assignment of an existing policy
* Payment of premiums
67
Property in which the decedent's interest was obtained from someone else and was limited to lifetime enjoyment is
a terminable interest.
a partial interest.
included in the decedent’s gross estate.
not included in the decedent’s gross estate.
* II and IV
* I and IV
* I and III
* II and III
I and IV
* No inclusion is required for property in which the decedent's interest was obtained from someone else and was limited to lifetime enjoyment. This means that an interest that terminated at the decedent's death and that the decedent had no right to transmit at death will not be included.
* This is known as having a terminable interest in property.
68
Each of the following will be included in the gross estate of a decedent EXCEPT:
* Property owned outright by the decedent
* Life insurance in which the decedent possessed no incidents of ownership
* General powers of appointment
* Gratuitous lifetime transfers over which the decedent retained the right to alter, amend or revoke the gift
Life insurance in which the decedent possessed no incidents of ownership
* Life insurance in which the decedent possessed incidents of ownership or which was payable to or for the benefit of the decedent's estate will be included in the gross estate.
69
Each of the following bypass the probate process EXCEPT:
* Property within a trust.
* Fractional interests held in Tenancy-in-Common property.
* Contracts payable to named beneficiaries.
* Assets passing by operation of law
Fractional interests held in Tenancy-in-Common property.
* Many financial planners assist their clients in creating estate planning strategies to ensure that their property interests will avoid probate. They will make use of techniques known as will substitutes which bypasses probate administration.
**Examples of a will substitute include**:
* property that passes by operation of law,
* property that is contained within a trust, and,
* property that is transferred to a named beneficiary.
**Fractional interests held in Tenancy-in-Common property are considered probate assets.**
70
To maximize the use of one's GST tax exemption, it is preferable to allocate it to which of the following? (Select all that apply)
* Direct skips
* Taxable distributions
* Taxable terminations
Direct skips
Taxable distributions
Taxable terminations
* Taxable distributions and taxable terminations are tax inclusive whereas direct skips are tax exclusive. Since the net amount for the recipient of direct skips is exclusive of the tax, then, an allocation to direct skips tends to be wasteful. Therefore, in order to maximize the use of one's GST tax exemption, it is preferable to allocate it whenever possible to what otherwise would be taxable distributions and taxable terminations.
71
When using a private annuity for intra-family transfers, once the seller's basis in the property has been returned, all remaining payments are taxed as __ ____??____ __.
* capital gains
* ordinary income
* tax-free return of basis
* passive income
ordinary income
* Once the private annuity seller's basis in the property has been returned, all remaining payments are taxed as ordinary income.
72
Each of the following gifts made by the decedent will be included back in the gross estate except
* creating a revocable trust and transferring property to the trust.
* keeping a reversionary interest in the property gifted away.
* creating a life estate and gifting the remainder interest.
* making a revocable trust irrevocable and living for at least three-years.
making a revocable trust irrevocable and living for at least three-years.
* The donor or grantor can relinquish property interests by giving up the life estate or the reversionary interest, or by making the revocable trust irrevocable. This will avoid inclusion in the grantor's gross estate if he outlives that transfer for more than three years.
73
A gift to a minor through a Section 2503(c) trust will be considered __ ____??____ __.
* a gift of present interest
* tax-exempt
* pass-through income
* a gift of future interest
a gift of present interest
* A gift to a minor through a Section 2503(c) trust will be considered a gift of a present interest (so the gift will qualify for the annual gift tax exclusion) if the income and principal is available for distribution to or on behalf of the beneficiary at any time prior to the time the beneficiary reaches age 21.
74
Which of the following do spendthrift trusts provide to beneficiaries?
* Distributions for health, education, maintenance, or support.
* Creditor protection when established solely for supplemental support.
* General power of appointment.
* Access to trust corpus through an ascertainable standard.
Creditor protection when established solely for supplemental support.
* Spendthrift trusts also provide creditor protection if they are established solely for a beneficiary's supplemental support, not for their general support. This prevents the beneficiary from compelling distributions for support in favor of creditors.
75
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
* Tenancy by the Entirety
* Joint Tenants with Rights of Survivorship
* Community Property
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.
76
Each installment note payment received by the seller is comprised of which of the following? (Select all that apply)
* Capital gains
* Additional premiums
* Interest taxed at ordinary income rates
* Tax-free return of capital
Capital gains
Interest taxed at ordinary income rates
Tax-free return of capital
Each payment received by the seller is comprised of:
* a tax-free return of capital based on the seller's adjusted basis,
* capital gains, and,
* interest taxed at ordinary income rates.
77
Identify the correct statements regarding life tenants.
I. Life tenants are responsible for for paying property taxes and homeowners insurance on the property.
II. If the property is sold before the death of the life tenant, a portion of the gain is taxed to the life tenant.
III. If the property is sold before the death of the life tenant, the life tenant's gain qualifies for the $250,000 capital gains exclusion.
IV. With real property, a life tenant cannot be forced to move out of a property.
* I and IV
* I only
* I, II, III, and IV
* II and III
I, II, III, and IV
* A person who has a life estate in property or in a trust, has the right to live in the property for life, or has the right to receive all income from the trust for life.
* An owner of property can create a life estate for themselves or give a life estate to another person.
78
If a couple moves to a non-community property state, any asset acquired during marriage while living in a community property state:
* automatically updates to separately owned.
* changes to joint tenants with rights of survivorship.
* retains its community status.
* must be retitled immediately.
retains its community status.
* While each state has local variations on the classification of assets, there are general presumptions on the classification of community property that apply in all nine of the community property states.
* It is presumed that if the couple moves to a non-community property state, any asset acquired during marriage while living in a community property state retains its community status.
79
A father gives $18,600,000 to his son in an irrevocable trust. Assume this is a gift of present interest gift.
The father makes no additional taxable gifts in the current tax year and has made no taxable gifts in the past. The unified credit amount in the current year is $5,113,800 (2023).
Calculate the total gift tax payable.
* $2,265,200
* $2,272,000
* $2,074,000
* $3,990,880
$2,265,200
* Gift to daughter $18,600,000 minus the annual exclusion of $17,000 equals a taxable gift of $18,583,000.
* Total taxable gifts equal $18,583,000.
* Step 1. Compute gift tax on all taxable gifts regardless of when made. The tax on $18,583,000 is $7,379,000
* Step 2. Compute gift tax on all taxable gifts made prior to the present gifts: $0
* Step 3. Subtract Step 2 result from Step 1 result: $7,379,000
* Step 4. Enter gift tax unified credit remaining: $5,113,800
* Step 5. Subtract Step 4 result from Step 3 result to obtain gift tax payable: $2,265,200
* The father must file a gift tax return, an IRS Form 709.
80
According to IRC Section 2040(a), except for joint tenants who are married, unless the surviving owner can prove contribution toward the purchase of the asset, what percentage value of jointly held property will be included in the gross estate if the first owners die?
* 100%
* 50%
* 20%
* 80%
100%
* Unless the surviving owner can prove contribution toward the purchase of the asset, 100% of jointly held property will be included in the gross estate if the first owners die.
81
For non-spousal joint tenants, the joint tenancy status of the property
* automatically results in the inclusion of only one-half the amount of the joint tenancy property in the decedent's probate estate.
* None of these options.
* does not automatically result in the inclusion of only one-half the amount of the joint tenancy property in the decedent's gross estate.
* automatically results in the inclusion of only one-half the amount of the joint tenancy property in the decedent's gross estate.
does not automatically result in the inclusion of only one-half the amount of the joint tenancy property in the decedent's gross estate.
* For non-spousal joint tenants, the joint tenancy status of the property does not automatically result in the inclusion of only one-half the amount of the joint tenancy property in the decedent's gross estate.
82
If a taxpayer donates a highly appreciated long-term capital asset to a public charity and chooses to use the basis, the maximum deduction is __ ____??____ __ of the donor’s AGI.
* 20%
* 60%
* 50%
* 30%
50%
* A 50% of AGI maximum deduction on LTCG property may be made if the donor is willing to reduce the value of the gift to their basis in the asset.
83
Which of the following steps in the estate tax calculation occurs after arriving at the adjusted gross estate?
* Finding the net federal estate tax
* Calculating the federal estate tax payable before credits
* Applying allowable credits
* Determining the taxable estate
Determining the taxable estate
**The federal estate tax is calculated in five steps:**
1. Determining the value of the gross estate.
2. Arriving at the adjusted gross estate.
3. Determining the taxable estate.
4. Calculating the federal estate tax payable before credits.
5. Applying the allowable credits to arrive at the net federal estate tax.
84
If a taxpayer donates a highly appreciated long-term capital asset to a public charity and chooses to use the current fair market value, the maximum deduction is __ ____??____ __ of the donor’s AGI.
* 60%
* 20%
* 30%
* 50%
30%
* If the donor makes a gift of property that is a long-term capital gain asset, the value of the gift to the charity is the FMV of the asset on the date of the gift. However, for income tax deduction purposes, the value of the charitable income tax deduction for a long-term capital asset is 30% of the donor's AGI.
85
The basic factors that affect valuation of real property, where there is a market for the property include each of the following except.
* Cost to duplicate the property, taking depreciation into account.
* The price of a sale at auction.
* Zoning restrictions.
* Suitability of the property is for its actual or intended use.
The price of a sale at auction.
* The price of a sale at auction, will be accepted only if it appears that there was no other method that would have obtained a higher price.
86
Match the GST payor to the correct transfer type.
Taxable distribution
Taxable termination
Direct Skip
* Transferee
* Trustee
* Transferor
* Taxable distribution - Transferee
* Taxable termination - Trustee
* Direct Skip - Transferor
