CH 10 Unlimited Marital Deduction

Question 1

Unless the inherited property has been consumed, a second-to-die spouse must include the property in their gross estate if the first-to-die spouse elected the marital deduction on the property.

a. True b. False

Answer 1

True

Question 2

Use of the marital deduction will defer the payment of estate tax on property transferred to the surviving spouse until the surviving spouse’s death.

a. True b. False

Answer 2

True

Question 3

A terminable interest is any interest in property passing from the decedent to their surviving spouse where the surviving spouse’s interest in that property will terminate at some point in the future.

a. True b. False

Answer 3

True

Question 4

A terminable interest in a general power of appointment trust that distributes income to the surviving spouse will qualify for the unlimited marital deduction.

a. True b. False

Answer 4

True

Question 5

If the deceased spouse’s will directs their executor to use property in the estate to purchase an annuity for the surviving spouse, the unlimited marital deduction is not available for that property.

a. True b. False

Answer 5

True

Question 6

If a will includes a survival contingency longer than six months, the unlimited marital deduction will not apply to the transfer.

a. True b. False

Answer 6

True

Question 7

Ken’s survivorship clause requires his surviving spouse to outlive him by more than eight months. The property will not qualify for the marital deduction, even if his surviving spouse lives for 20 years after his death.

a. True b. False

Answer 7

True

Question 8

A QTIP trust allows a decedent to qualify a transfer for the marital deduction at their death yet still control the ultimate disposition of the property.

a. True b. False

Answer 8

True

Question 9

The income from a lifetime QTIP trust must be paid to the surviving spouse at least annually for the trust to qualify for the unlimited gift tax marital deduction.

a. True b. False

Answer 9

True

Question 10

For direct transfers from a decedent’s estate to qualify for the marital deduction, the property must transfer to a surviving spouse who is a U.S. citizen.

a. True b. False

Answer 10

True

Question 11

In order for transfers to a QDOT to qualify for the unlimited marital deduction, the executor of a citizen spouse’s estate must elect to have the marital deduction apply.

a. True b. False

Answer 11

True

Question 12

A distribution to a surviving spouse of the principal of a QDOT will be subjected to estate tax.

a. True b. False

Answer 12

True

Question 13

A properly created Irrevocable Life Insurance Trust (ILIT) will avoid inclusion in the decedent’s gross estate and the surviving spouse’s gross estate.

a. True b. False

Answer 13

True

Question 14

An estate is overqualified when too many assets pass to a surviving spouse in a qualifying way.

a. True b. False

Answer 14

True

Question 15

A bypass trust can provide the surviving spouse with income for the rest of their life and avoid inclusion in the surviving spouse’s gross estate.

a. True b. False

Answer 15

True

Question 16

Jeremy and Rosa were married forty years ago after meeting on the beaches of Cozumel. Rosa moved to the U.S. with Jeremy, but she never applied for U.S. citizenship. If Jeremy is concerned about using the marital deduction for the fair market value of the property he bequeaths to Rosa, which of the following techniques could he use?

a. Qualified Terminable Interest Trust (QTIP).
b. Section 2503(b) Trust.
c. Section 2503(c) Trust.
d. Qualified Domestic Trust (QDOT).

Answer 16

The correct answer is d.

In order to use the unlimited marital deduction for any transfers to Rosa, Jeremy would have to create a Qualified Domestic Trust (QDOT).

A QDOT will allow the U.S. government to subject any assets remaining at Rosa’s death to estate taxation. In order to qualify the QDOT for the unlimited marital deduction, the following requirements must be met:

1. At least one of the QDOT trustees must be a U.S. citizen or U.S. domestic corporation.
2. The QDOT must prohibit a distribution of principal unless the U.S. citizen trustee has the right to withhold estate tax on the distribution.
3. The trustee must keep a sufficient amount of the trust assets in the U.S. to ensure the payment of federal estate taxes, or the trustee must have a minimum net worth sufficient to assure the payment of estate
   taxes upon Rosa’s death.
4. Jeremy’s executor must elect to have the marital deduction apply to the trust

Question 17

An executor may elect the unlimited marital deduction for which of the following transfers?

1. Decedent’s will directs the creation of a CRAT and the decedent’s nonresident alien spouse is the income beneficiary. The trustee of the CRAT is a citizen of the United Kingdom.
2. Bequest to U.S. citizen spouse of the right to use property for the remainder of her life. Executor has elected QTIP on the property.
3. A payment of $650,000 to fulfill a specific bequest to decedent’s U.S. citizen spouse. Decedent’s spouse became a U.S. citizen two months before the filing of the decedent’s estate tax return.
4. A payment of $250,000 to fulfill a specific bequest to decedent’s resident alien spouse.

a. 2 only.
b. 2 and 3.
c. 3 and
4. d. 1, 2, and 3.

Answer 17

The correct answer is b. 2 and 3

Statement 2 is eligible for the marital deduction because the surviving spouse’s right to use the property for life is a qualifying interest for life, and the executor made a QTIP election on the property.

Statement 3 is eligible for the marital deduction because at the time of the distribution, prior to the filing of the estate tax return, the spouse was a U.S. citizen

. Statements 1 and 4 are not eligible for the marital deduction because if
the spouse is a nonresident or non-citizen, a QDOT must be used for a transfer to qualify for the marital deduction. The CRAT in statement 1 does not qualify as a QDOT because the trustee is not a U.S. citizen.

Question 18

If a decedent bequeaths the outright ownership of their house to their children subject to their spouse’s right to live in that house for the remainder of the surviving spouse’s life, which of the following statements is correct?

a. If the surviving spouse disclaims their interest in the house, the house is not included in the decedent’s taxable estate.

b. If the children disclaim their interest in the house, the house will automatically transfer to the decedent’s spouse as the life estate beneficiary.

c. If the decedent’s spouse is a resident alien of the U.S., a QTIP election over the property will allow a marital deduction equal to the fair market value of the property.

d. If the executor makes a QTIP election on the house, the house is not included in the decedent’s taxable estate.

Answer 18

The correct answer is d.

Option d is a true statement.
Option a is a false statement. If the decedent’s spouse disclaims their interest in the property, the property will transfer to the children without being subject to the surviving spouse’s life estate. In this case, the transfer would not be eligible for any deductions and would be fully included in the decedent’s taxable estate.

Option b is a false statement. If the children disclaim their outright ownership in the house, the outright ownership of the property will transfer according to the disclaimer clause in the will.

If the will does not include a disclaimer clause, the outright ownership of the house will transfer according to the residuary heirs of the estate. Option c is a false statement. A QTIP election will not qualify a bequest to a non-U.S. citizen spouse for the unlimited marital deduction. Only a transfer to a qualifying QDOT will qualify a bequest to a non-U.S. citizen spouse for the unlimited marital deduction.

Question 19

Of Piper’s $10,000,000 federal gross estate, her will includes one specific bequest of $7,500,000 to her wife, Alex, and directs the debts and other expenses of $1,000,000 to be payable from the residuary of the estate. The residuary heirs are Piper’s children.
What is the amount of the marital deduction included on Piper’s federal estate tax return?

a. $0.
b. $6,500,000.
c. $7,500,000.
d. $8,500,000.

Answer 19

The correct answer is c. $7,500,000

Since the debts and expenses are payable from the residuary of the estate, the marital deduction is equal to the specific bequest to the surviving spouse. An allocation of the debts, expenses, and taxes only offsets the marital deduction when the surviving spouse is the residuary beneficiary or the will directs the bequest to the surviving spouse to bear the debts, expenses, and taxes attributable to their share

Question 20

Drew died in the current year. He had inherited the following property from his wife in 1999: Asset

                               Fair Market Value at        FMV at
                              Wife’s Date of Death        Drews Date of Death  Life Estate in Home* $240,000                           $600,000 Cash                          $450,000                          $250,000 1991 Chevrolet IRA   $14,000                            sold in year 2000 *No QTIP election.    $380,000                          $500,000

Considering only the property listed above, what is the value of the property included in Drew’s gross estate?

a. $250,000.
b. $704,000.
c. $750,000.
d. $1,350,000.

Answer 20

he correct answer is c.

Property inherited by a surviving spouse is only included in their gross estate to the extent the asset has not been consumed. It is included at the fair market value at surviving spouse’s date of death. If a surviving spouse inherits terminable interest property and the QTIP election was made on the property, the surviving spouse must also include the fair market value of the QTIP property.

Accordingly, Drew’s gross estate will include the value of the cash at his date of death and the value of the IRA at his date of death.

$250,000 + $500,000 = $750,000.

The life estate in the home is a terminable interest, and the QTIP election was not made so the value of the property is not included in Drew’s gross estate, and Drew did not own the Chevrolet at his date of death.

Question 21

Which of the following property arrangements can qualify for the unlimited marital deduction?

1. Tenants by the entirety
2. QDOT
3. QTIP trust
4. POA trust
5. Joint tenancy with rights of survivorship

1, 3 and 5.
1, 2, 4 and 5.
1, 3, 4 and 5.
All of the above.

Answer 21

All of the above.
Rationale

All of the property arrangements can qualify for the unlimited marital deduction.

Question 22

Which of the following is not a benefit of the unlimited marital deduction?

The estate tax on property can be deferred until the death of the second-to-die spouse.

The unlimited marital deduction can fund the applicable estate tax credit of the surviving spouse.

The use of the unlimited marital deduction can shelter the future appreciation of an asset from estate taxes at the death of the second-to-die spouse.

The unlimited marital deduction can ensure the surviving spouse has sufficient assets to support her lifestyle.

Answer 22

The use of the unlimited marital deduction can shelter the future appreciation of an asset from estate taxes at the death of the second-to-die spouse.
Rationale

Property that transfers to the second-to-die spouse is eligible for the marital deduction and, to the extent it is not consumed, will be included in the second-to-die spouse’s gross estate at the fair market value at his or her date of death, including any appreciation that may have occurred since the first-to-die spouse’s estate. If the first-to-die spouse had transferred the property to other beneficiaries, such as children, at the death of the second-to-die spouse, the assets would have only been subjected to estate tax in the first-to-die spouse’s estate. All of the other statements are benefits of the unlimited marital deduction.

Question 23

Do the assets in a revocable trust that requires the trustee to create a QTIP trust for the benefit of the spouse at the death of the grantor automatically qualify for QTIP treatment?

Yes, because the beneficiary of the revocable trust is the surviving spouse.

No, the QTIP is funded by probate assets only.

Yes, that is the purpose of a QTIP.

No, the executor must elect QTIP assets on the 706.

Answer 23

No, the executor must elect QTIP assets on the 706.

Rationale

There must be an election of QTIP assets by the executor.

Question 24

When a U.S. citizen married to a resident alien dies, what is the maximum value of a specific, outright bequest of property that can qualify for the unlimited marital deduction without a QDOT?

$0.
$5,389,800.
$13,610,000.
The marital deduction is unlimited

Answer 24

$0.
Rationale

An outright specific bequest of property from a U.S. citizen to their resident alien spouse does not qualify for the marital deduction. As such, the unlimited marital deduction is not available.

Question 25

Given only the following information, which would qualify for the estate tax unlimited marital deduction?

Property transferring to a surviving spouse as beneficiary of an irrevocable trust created six years ago. At the time of the trust’s creation, the gift was complete, but the decedent did not pay any gift tax as the only beneficiary of the trust was the decedent’s spouse.

A bequest of 2,000 shares of Holiday Incorporated stock to a surviving spouse. The surviving spouse is a U.S. citizen.

The bequest of the life estate interest in a home to the surviving spouse. The decedent bequeathed the remainder interest to his children.

A bequest of property with a fair market value of $10,000 to a surviving spouse. The surviving spouse disclaims the interest and the property transfers to the decedent’s residual heirs, his children.

Answer 25

A bequest of 2,000 shares of Holiday Incorporated stock to a surviving spouse. The surviving spouse is a U.S. citizen.

Rationale

For a transfer to qualify for the estate tax unlimited marital deduction, the property interest must meet three requirements.

First, the property must be included in the decedent’s gross estate.

Second, the property must be transferred to the surviving spouse who is a U.S. citizen.

Third, the interest must not be a terminable interest.

Utilizing only the information in each of the above options, only option b describes property that would qualify for the unlimited marital deduction. The property is included in the decedent’s gross estate, transfers to the surviving spouse, the surviving spouse is a U.S. citizen, and the property interest transferred is outright ownership, not a terminable interest. Option a is incorrect as a completed transfer of property to an irrevocable trust is not included the decedent’s gross estate, and therefore will not qualify for the unlimited estate tax marital deduction. Option c is incorrect as the interest transferred is a terminable interest. Option d is incorrect because the surviving spouse disclaims the interest and the property transfers to the decedent’s children. To qualify for the unlimited marital deduction, the surviving spouse must inherit the property.

Question 26

When a U.S. citizen dies and bequeaths property to his U.S. citizen spouse, the marital deductions is limited to the following amount:

$0.
$5,389,800.
$13,610,000.
The marital deduction is unlimited.

Answer 26

The marital deduction is unlimited.

Rationale

An individual is generally permitted to leave an unlimited amount of property to their U.S. citizen spouse at death without incurring any federal estate tax. For a transfer to qualify for the marital deduction, the property interest must meet three requirements.
First, the property must be included in the decedent’s gross estate. Second, the property must be transferred to the surviving spouse.
Third, the interest must not be a terminable interest.

Question 27

Juan’s will creates a General Power of Appointment Trust (GPOA Trust) that distributes income to his wife annually for life and gives his wife a general power of appointment over the assets in the trust. Which of the following statements concerning a GPOA Trust is correct?

The GPOA Trust only qualifies for the unlimited marital deduction if the trustee agrees to make distributions of principal to Juan’s wife.

The unlimited marital deduction cannot be elected over the property transferred to the trust because Juan’s wife cannot appoint assets to herself, her creditors, or to anyone on her behalf.

The unlimited marital deduction is not available because Juan’s wife does not have the current right to the assets in the trust.

The GPOA Trust automatically qualifies for the unlimited marital deduction because Juan’s wife has a general power of appointment over the trust’s assets.

Answer 27

The GPOA Trust automatically qualifies for the unlimited marital deduction because Juan’s wife has a general power of appointment over the trust’s assets.

Rationale

The GPOA Trust gives Juan’s wife a general power of appointment over the trust’s assets and the ability to appoint the assets to herself, her creditors, or to anyone on her behalf. A GPOA trust that gives the surviving spouse these rights will qualify for the unlimited marital deduction. Option a is incorrect because the trustee of the GPOA Trust does not have any influence on Juan’s wife’s general power of appointment over the trust’s assets. Option b is incorrect because Juan’s wife can appoint the assets of a GPOA Trust to herself, her creditors, or anyone on her behalf. Option c is incorrect because Juan’s wife has a current right to the GPOA Trust’s assets through her general power of appointment.

Question 28

An executor may elect the unlimited marital deduction for which of the following transfers?

1. Decedent’s will directs the creation of a CRAT and the decedent’s nonresident alien spouse is the income beneficiary. The trustee of the CRAT is a citizen of the United Kingdom.
2. Bequest to U.S. citizen spouse of the right to use property for the remainder of her life. Executor has elected QTIP on the property.
3. A payment of $650,000 to fulfill a specific bequest to decedent’s U.S. citizen spouse. Decedent’s spouse became a U.S. citizen two months before the filing of the decedent’s estate tax return.
4. A payment of $250,000 to fulfill a specific bequest to decedent’s resident alien spouse.

2 only.
2 and 3.
3 and 4.
1, 2, and 3

Answer 28

2 and 3.
Rationale

Statement 2 is eligible for the marital deduction because the executor made a QTIP election on the property.

Statement 3 is eligible for the marital deduction because at the time of the distribution, the spouse was a U.S. citizen.

Statements 1 and 4 are not eligible for the marital deduction because if the spouse is a nonresident or noncitizen, a QDOT must be used for a transfer to qualify for the marital deduction. The CRAT in statement 1 does not qualify as a QDOT because the trustee is not a U.S. citizen.

Question 29

UPDATED FOR 2024:

Janice died in 2024. She had been married to Chandler for 17 years, and the two had amassed a community property estate of $29,500,000. Janice’s will directs three specific bequests to her mother, brother, and father of $700,000, $450,000, and $200,000, respectively and creates a bypass trust to receive property equal to any remaining applicable estate tax credit available after her specific bequests. The bypass trust gives Chandler the right to income for his life and the remainder of the trust to her two sons and leaves the residual of the estate to Chandler. Janice’s will directs the residual to be used to pay the estate taxes.

What is the marital deduction on Janice’s federal estate tax return?

$1,350,000.
$1,140,000.
$13,610,000.
$14,750,000.

Answer 29

$1,140,000.
Rationale

Since Janice and Chandler own the property as community property, each is deemed to own 1/2 of the property. In this case, Janice would include $14,750,000 in her federal gross estate. The three specific bequests totaling $1,350,000 are directed to non-spouse beneficiaries and are taxable transfers which, including the bypass trust, will utilize the applicable estate tax credit. The bypass trust will receive $12,260,000 ($13,610,000 - $1,350,000), an amount necessary to utilize any remaining available applicable estate tax credit and will not qualify for the marital deduction. Chandler will receive the remainder of $1,140,000, which will be eligible for the marital deduction.

                                        $14,750,000    Total Estate
                                         ($1,350,000)   Specific Bequests
                                       ($12,260,000)   Bypass Trust
                                          $1,140,000     Marital Deduction

No estate tax will be due because only an amount equal to the applicable estate tax credit equivalency transfers outside of the marital deduction. The marital deduction on Janice’s estate tax return is $1,140,000 (the gross estate of $14,750,000 reduced by the specific bequests of $1,350,000 and the additional amount transferred to the bypass trust ($12,260,000)).

Question 30

Within how many months must an heir file a qualified disclaimer for it to be qualified?

6 months.
9 months.
12 months.
15 months.

Answer 30

9 months.
Rationale

In order for a disclaimer to be qualified, the disclaimer must be in writing, must be filed within nine months of the decedent’s date of death, and the disclaimant must not have benefited from the disclaimed inheritance.

Question 31

f Piper’s $20,000,000 federal gross estate, her will includes one specific bequest of $17,500,000 to her wife, Alex, and directs the debts and other expenses of $1,000,000 to be payable from the residuary of the estate. The residuary heirs are Piper’s children.
What is the amount of the marital deduction included on Piper’s federal estate tax return?

$0.
$16,500,000.
$17,500,000.
$18,500,000.

Answer 31

$17,500,000.

• Since the debts and expenses are payable from the residuary of the estate, the marital deduction is equal to the specific bequest to the surviving spouse.
• An allocation of the debts, expenses, and taxes only offsets the marital deduction when the surviving spouse is the residuary beneficiary or the will directs the bequest to the surviving spouse to bear the debts, expenses, and taxes attributable to their share.

Question 32

Which of the following statements is true?

An estate is described as overqualified when, due to a failure to make proper use of the marital deduction, too much of the property is subject to estate tax at the death of the first spouse.

An estate is described as underqualified when, due to a failure to make proper use of the marital deduction, not enough property is subject to estate tax at the death of the first spouse.

A bypass trust aids in guaranteeing the full use of an individual’s applicable estate tax credit.

An estate that does not take advantage of its available applicable estate tax credit is transferring assets at the lowest possible cost.

Answer 32

A bypass trust aids in guaranteeing the full use of an individual’s applicable estate tax credit.

Rationale

A bypass trust is generally created in a will to receive, at the decedent’s date of death, the amount of property necessary to utilize the decedent’s available applicable estate tax credit. By creating this trust in their will, the decedent is ensuring that the applicable estate tax credit will be utilized. Options a and b are the definitions of an “underqualified” and “overqualified” estate. The definitions are reversed in each answer. Option d is an incorrect statement. An estate that does not take advantage of its available applicable estate tax credit is transferring assets at a higher overall estate tax cost than necessary. In other words, the assets that are sheltered under the marital deduction could have transferred estate tax free to other heirs by utilizing the applicable credit.

Question 33

Jeremy and Rosa were married forty years ago after meeting on the beaches of Cozumel. Rosa moved to the U.S. with Jeremy, but she never applied for U.S. citizenship.
If Jeremy is concerned about using the marital deduction for the fair market value of the property he bequeaths to Rosa, which of the following techniques could he use?

Qualified Terminable Interest Trust (QTIP).
Section 2503(b) Trust.
Section 2503(c) Trust.
Qualified Domestic Trust (QDOT).

Answer 33

Qualified Domestic Trust (QDOT).
Rationale

In order to use the unlimited marital deduction for any transfers to Rosa, Jeremy would have to create a Qualified Domestic Trust (QDOT). A QDOT will allow the U.S. government to subject any assets remaining at Rosa’s death to estate taxation. In order to qualify the QDOT for the unlimited marital deduction, the following requirements must be met:
1. At least one of the QDOT trustees must be a U.S. citizen or U.S. domestic corporation.
2. The QDOT must prohibit a distribution of principal unless the U.S. citizen trustee has the right to withhold estate tax on the distribution.
3. The trustee must keep a sufficient amount of the trust assets in the U.S. to ensure the payment of federal estate taxes, or the trustee must have a minimum net worth sufficient to assure the payment of estate taxes upon Rosa’s death.
4. Jeremy’s executor must elect to have the marital deduction apply to the trust.

Question 34

UPDATED FOR 2024:

Joey and Phoebe have been married for 35 years. Joey had a net worth of $17,000,000 when he died in 2024. Which of the following scenarios would incur the lowest overall (at Joey’s death and Phoebe’s death) estate taxes assuming the property transfers at equal value at the death of both individuals and utilizing 2024 estate tax rates?
Assume that portability is not elected.

Joey’s will directs that all of his property is transferred to Phoebe.

In his will, Joey funds a trust with $13,610,000 for the benefit of his two children. Phoebe will receive an annual income distribution from the trust. All other assets will transfer to Phoebe.

At Joey’s death, specific bequests totaling $550,000 are transferred per the direction of the will to individuals other than Phoebe. The remainder of the assets are transferred to a trust with the income payable to Phoebe for her life and the remainder interest payable to the children at Phoebe’s death. Joey’s executor elected to treat this as a QTIP trust.

Joey’s will directs the transfer of $250,000 to each of his two children and the remainder of his assets to his wife, Phoebe.

Answer 34

In his will, Joey funds a trust with $13,610,000 for the benefit of his two children. Phoebe will receive an annual income distribution from the trust. All other assets will transfer to Phoebe.

Rationale
Answer A Answer B Answer C Answer D
Assets in Joey’s Gross Estate $17,000,000 $17,000,000 $17,000,000 $17,000,000
Unlimited Marital Deduction ($17,000,000) ($3,390,000) ($16,450,000) ($16,500,000)
Taxable Estate $0 $13,610,000 $550,000 $500,000
Estate Tax $0 $5,389,800 $174,300 $155,800
Applicable Estate Tax Credit N/A ($5,389,800) ($174,300) ($155,800)
Estate Tax Due $0 $0 $0 $0

Assets in Phoebe’s Gross Estate $17,000,000 $3,390,000 $16,450,000 $16,500,000
Estate Tax $6,745,800 $1,301,800 $6,525,800 $6,545,800
Applicable Estate Tax Credit ($5,389,800) ($1,301,800) ($5,389,800) ($5,389,800)
Estate Tax Due $1,356,000 $0 $1,136,000 $1,156,000

As depicted in the table above, Scenario b provides the lowest overall federal estate taxes because the maximum assets are transferred utilizing the available applicable estate tax credit at Joey’s death, since portability is not elected.

Question 35

Which of the following property interests qualifies for the unlimited marital deduction (assume Morgan is a U.S. citizen)?

Dexter dies and leaves his vacation home to his wife, Morgan, as trustee of a testamentary trust created for the sole benefit of his two children.

The executor of Dexter’s estate made the QTIP election for the bequest of a life estate interest in his personal residence to Morgan, Dexter’s wife.

Dexter bequeaths his interest in community property to his wife, Morgan, subject to Morgan surviving him by more than eight months.

At Dexter’s death, his will created a trust for the benefit of his wife. The trust document gives Morgan the authority to appoint assets to herself, her creditors, and her heirs with the approval of Dexter’s brother, Quinn.

Answer 35

The executor of Dexter’s estate made the QTIP election for the bequest of a life estate interest in his personal residence to Morgan, Dexter’s wife.

Rationale

Only the property interest detailed in option b would qualify for the marital deduction.
Even though a life estate is a terminable interest, which is normally not eligible for the marital deduction, the QTIP election on the property qualifies the transfer for the marital deduction. Option a does not qualify for the unlimited marital deduction because the property does not transfer to the surviving spouse. Morgan only holds an interest as trustee for Dexter’s children. Option c does not qualify for the unlimited marital deduction because the survivorship clause cannot require the spouse to survive the decedent by more than six months. Option d does not qualify for the unlimited marital deduction because the surviving spouse cannot act alone to exercise the general power of appointment. To qualify the surviving spouse must be able to exercise the general power of appointment alone.

Question 36

Which of the following statements regarding bypass trusts is false?

A bypass trust can give the surviving spouse the right to distributions of principal for an ascertainable standard without causing inclusion of the trust’s assets in the surviving spouse’s gross estate.

A surviving spouse can demand the greater of $5,000 or 5% of the trust’s principal each year without causing inclusion of the trust’s assets in her gross estate.

Distributions of trust income to the surviving spouse will not create an ownership interest in the trust’s assets.

The right to appoint the assets of the trust to themselves, their creditors, or anyone they desire will not create an interest which will cause inclusion of the trust’s assets in the surviving spouse’s gross estate.

Answer 36

The right to appoint the assets of the trust to themselves, their creditors, or anyone they desire will not create an interest which will cause inclusion of the trust’s assets in the surviving spouse’s gross estate.

Rationale

Option d describes a general power of appointment over the trust’s assets. Anyone dying with a general power of appointment over the assets of a trust will include the fair market value of the trust’s assets in his gross estate. Options a, b, and c are correct statements.

Question 37

Which of the following allows an individual to refuse property from the estate of a decedent?

Bypass trust.
Exclusionary clause.
Disclaimer.
Rejection

Answer 37

Disclaimer.

Rationale

A qualified disclaimer allows an individual to refuse property from the estate of a decedent. A bypass trust maximizes the use of the available applicable estate tax credit at the death of the first-to-die spouse. The exclusion clause and rejection do not exist.

Question 38

If a decedent bequeaths the outright ownership of their house to their children subject to their spouse’s right to live in that house for the remainder of the surviving spouse’s life, which of the following statements is correct?

If the surviving spouse disclaims their interest in the house, the house is not included in the decedent’s taxable estate.

If the children disclaim their interest in the house, the house will automatically transfer to the decedent’s spouse as the life estate beneficiary.

If the decedent’s spouse is a resident alien of the U.S., a QTIP election over the property will allow a marital deduction equal to the fair market value of the property.

If the executor makes a QTIP election on the house, the house is not included in the decedent’s taxable estate.

Answer 38

If the executor makes a QTIP election on the house, the house is not included in the decedent’s taxable estate.

Rationale

Option d is a true statement.

Option a is a false statement. If the decedent’s spouse disclaims their interest in the property, the property will transfer to the children without being subject to the surviving spouse’s life estate. In this case, the transfer would not be eligible for any deductions and would be fully included in the decedent’s taxable estate.

Option b is a false statement. If the children disclaim their outright ownership in the house, the outright ownership of the property will transfer according to the disclaimer clause in the will. If the will does not include a disclaimer clause, the outright ownership of the house will transfer according to the residuary heirs of the estate.

Option c is a false statement. A QTIP election will not qualify a bequest to a non-U.S. citizen spouse for the unlimited marital deduction. Only a transfer to a qualifying QDOT will qualify a bequest to a non-U.S. citizen spouse for the unlimited marital deduction.

Question 39

Gunner is the income beneficiary of a QTIP trust, which includes a provision stating that any estate tax due on the QTIP’s assets at Gunner’s death are to be paid by Gunner’s estate and not from the QTIP assets. When Gunner dies, which of the following will occur?

The estate of Gunner will pay any estate tax due for the QTIP assets.

Gunner’s estate is entitled to be reimbursed for any estate tax paid by the estate on assets held in the QTIP trust.

Having the estate assets pay the taxes rather than the QTIP will reduce the estate tax.

Having the estate assets pay the taxes rather than the QTIP will increase the estate tax.

Answer 39

Gunner’s estate is entitled to be reimbursed for any estate tax paid by the estate on assets held in the QTIP trust.

Rationale

The QTIP is liable for its proportional share of any estate tax and will have to reimburse the estate. The taxes will be the same regardless of whether paid from estate assets or QTIP assets.

Question 40

Which of the following is not a requirement for a GPOA Trust to be eligible for the unlimited marital deduction?

No person, other than the surviving spouse, may appoint any part of the trust property to anyone other than the surviving spouse

The general power of appointment granted to the surviving spouse must be exercisable by the surviving spouse alone.

The surviving spouse’s right to the trust property must be limited to an ascertainable standard, such as health, education, maintenance, and support.

The surviving spouse must be entitled to receive all of the income from the trust, at least annually.

Answer 40

The surviving spouse’s right to the trust property must be limited to an ascertainable standard, such as health, education, maintenance, and support.

Rationale

Options a, b, and d are the requirements for a general power of appointment trust to be eligible for the unlimited marital deduction. Option c does not describe a requirement of a general power of appointment trust eligible for the marital deduction.

Question 41

Which of the following qualifies for the unlimited marital deduction?

A.Outright bequest to resident alien spouse.
B.Property passing to noncitizen spouse in QTIP.
C.Outright bequest to resident spouse who, prior to the decedent’s death was a noncitizen, but who after the decedent’s death and before the estate return was filed, became a U.S. citizen.
D.Remainder beneficiary of a CLAT who is a nonresident alien spouse.

Answer 41

Solution: The correct answer is C.

Of the options, only an outright bequest to a resident alien spouse who becomes a U.S. citizen before the estate return is filed qualifies for the unlimited marital deduction

Question 42

Of the following, which is not a benefit of the unlimited marital deduction?

A.The use of the unlimited marital deduction can shelter future appreciation of an asset from estate taxes at the death of the second-to-die spouse.

B.The estate tax on property can be deferred until the death of the second-to-die spouse.

C.The unlimited marital deduction can fund the applicable estate tax credit of the surviving spouse.

D.The unlimited marital deduction can ensure the surviving spouse has sufficient assets to support her lifestyle

Answer 42

Solution: The correct answer is A.

Property that transfers to the second-to-die spouse is eligible for the marital deduction and, to the extent that it is not consumed, will be included in the second-to-die spouse’s gross estate at the fair market value at his date of death, including any appreciation that may have occurred since the first-to-die spouse’s estate. Therefore, future appreciation of an asset is not sheltered by using the unlimited marital deduction.

Question 43

Donny died on January 1, 2024, after a drunk driver hit his car. The property he owned at his death included the attached.

All property on the attached was owned in sole ownership by Donny. The annuity is a joint and survivor annuity and will continue to pay his wife, Jeanette. Donny’s will leaves all probate assets to his son and daughter in equal shares. Donny also owned a life insurance policy on his life. The basis in the policy was $89,000 and the death benefit was $1,000,000. The beneficiary of the insurance policy was Donny’s daughter, Cheryl. The family sued the drunk driver and received $500,000 for wrongful death payable to Jeanette and $200,000 for Donny’s pain and suffering payable to Donny’s estate. Donny made substantial gifts during his life. He paid gift tax of $98,000 in 2019 and $67,200 in 2021. Donny’s funeral cost $15,000. The car was sold 4/1/24 for its fair market value on that date in order to pay for Donny’s $16,000 hand-carved marble headstone. Donny had $250,000 of medical expenses from the accident, but all expenses were covered by his medical insurance. The note receivable was being paid monthly.

What is the value of Donny’s marital deduction?
Property Basis FMV on 1/1/24 FMV on 4/1/24 FMV on 7/1/24 FMV on 10/1/24 FMV on 1/1/25
House $200,000 $350,000 $354,393 $358,842 $363,346 $367,907
Boat $40,000 $38,000 $37,527 $37,060 $36,599 $36,143
Annuity $100,000 $300,000 $275,840 $251,193 $226,050 $200,401
Note Receivable $40,000 $200,000 $190,918 $181,744 $172,479 $163,121
Personal Property $100,000 $30,000 $29,627 $29,258 $28,894 $28,534
Car $47,500 $25,000 $24,689 $24,381 $24,078 $23,778
Rental Property $230,000 $400,000 $411,101 $422,510 $434,236 $446,288
Total $757,500 $1,343,000 $1,324,095 $1,304,988 $1,285,682 $1,266,172

A.$0
B.$300,000
C.$500,000
D.$800,000

Answer 43

Solution: The correct answer is B.

To qualify for the marital deduction, the asset must be included in the gross estate and transfer to the spouse. In this instance there are two assets that are transferred to the spouse, the annuity and the wrongful death award. The annuity is included in the gross estate but the wrongful death award is not because it is compensation for the spouse’s loss, not an asset attributable to the deceased.

Question 44

Which of the following is NOT required for a general power of appointment (GPOA) trust to qualify for the unlimited marital deduction?

A.The trust must grant to the surviving spouse a power to appoint the trust property to themselves, their estate, their creditors, or the creditors of their estate.

B.Only the surviving spouse and trustee may appoint the income to another beneficiary during the surviving spouse’s lifetime. 

C.The surviving spouse must have the right to request the trustee to produce additional income within the trust.

D.The power of appointment can be exercisable by the spouse both during life and at death.

Answer 44

Solution: The correct answer is B

The surviving spouse must be entitled to all income from the trust annually. No one else should be able to appoint the surviving spouse’s income.

Choice A is a requirement. The power to appoint is sufficient, it is not necessary to extend the power to all of those listed.

Choice C is a requirement, If the trust has non income producing assets the surviving spouse may request that they are sold to produce income.

Choice D is a requirement. The power can be exercisable during life, at death, or both. But lifetime alone would be sufficient.

Question 45

Which of the following is NOT a requirement for a qualified domestic trust (QDOT)?

A.The trust must prohibit distributions of principal unless the U.S. citizen trustee has the right to withhold estate tax.

B.At least one trustee must be a U.S. citizen or U.S. domestic corporation.

C.The non citizen spouse may become a US citizen before the due date of the estate tax return and maintain residency in the US.

D.The trustees must keep sufficient assets in the U.S. to pay estate tax or have adequate net worth

Answer 45

Solution: The correct answer is C.

The spouse becoming a US citizen is not a requirement of a QDOT, if the spouse is a citizen, they no longer need a QDOT.

Choice A is a requirement - the trust must allow the U.S. trustee to withhold tax on principal distributions.

Choice B is a requirement - at least one trustee must be a U.S. citizen or domestic corporation.

Choice D is a requirement - the trust must have assets or trustee net worth to pay impending estate taxes.