Estate

Question 1

Which of the following property is included in Lucy’s probate estate?

1. property held by tenancy by the entirety
2. Life insurance owned by lucy on her husband
3. a POD account
4. A Totten trust

Answer 1

2. The life insurance policy is subject to probate unless there is a contingent owner (very rare). The probate process determines the new owner of the policy. TIC is subject to probate, but not TBE.
   Est 1-2

Question 2

Mr. and Mrs. Kent live in a community property state. When Mr. Kent dies, which of the assets are subject to probate?

1. $1M home
2. $500,000 term life policy on Mr.Kent, beneficiary is Mrs. Kent
3. $400,000 in Mr. Kent’s IRA (Mrs. Kent is beneficiary)
4. $100,000 in a CD registered to Mrs. Kent
5. $50k Lexus and $40k BMW

Answer 2

1, 4, & 5. The IRA and life insurance have beneficiaries. All the assets are community property, even the CD that is titled to Mrs.Kent only. Est 1-5

Question 3

Mr Lay, age 60, and Mrs Lay, age 62, live in a community property state. Before marriage, they both acquired assets in their own names. Which of the following could be classified as community property is they have only been married for 10 years?

1. Mr Lay started AL Inc 30 years ago. All of the stock is in his name.
2. Mr. Lay started a Roth IRA 10 years ago with the earnings (comp) from AL Inc. He contributes to the account annually.
3. Mrs Lay has 10,000 shares of a non-dividend paying stock that she received as part of her divorce settlement froma prior marriage.
4. Mrs Lay has a frozen 401(k) QDRO account that was distributed to her when her ex-husband turned 55 eight years ago.. It is now in an IRA in her name.

Answer 3

2. AL Inc was started before their marriage. Unless Mrs Lay performs services for the company, the business will not be community prop. However, the earnings he receives are community property and will cause the Roth to become community property. Mrs Lay’s assets are separate property acquired before the marriage.
   Est 1-14

Question 4

Which of the following phrases describes a special power of appointment? Power that can be exercised…

1. for the holder’s comfort, welfare, and happiness
2. in favor of the creditors of the holder’s estate
3. in favor of the holder for the holder’s education
4. in favor of the holder’s children only

Answer 4

4. A special power may not be exercised in favor of the holder or the financial equiv of the holder. The holder is not one of the grantor’s children. Answer 1 & 2 is General power, 3 is Ascertainable standard (HEMS).
   Est 2-13

Question 5

Kelly purchased stock for $50k. At the date she gifted the stock to her daughter, the stock’s FMV was $25k. What amount was a taxable gift?
If the daughter sells the stock two years later for $70k, what are the tax implications?

Answer 5

$10,000 taxable gift. (FMV $25k less the annual exclusion $15k)
$20,000 LTCG.
Est 3-4

Question 6

Paul purchased a property for $1.5M. A few years later he gift it to his son (FMV $1.265M), using his annual exclusion. His son sells the property 2 years later for $1.1M. What amount of gift tax must Paul pay?

Answer 6

$0. The question does not indicate that he used his $11.7M exemption, therefore it is available. The question asked “gift tax payable” NOT “taxable gifts made”. Est 3-12

Question 7

Lucy (AGI $200,000) wants to gift her universal life policy to a public charity. If the face value is $500,000, the cash value is $75,000, and the basis is $50,000, what is the amount of the charitable income tax deduction that Lucy can claim?

Answer 7

$50,000. The charitable contrib is the cash value ($75,000) or the cost basis ($50k), whichever is less. The deduction is further limited to 50% of her AGI. Life insurance is an ordinary income type of asset. It is not a LTCGs type that can be valued at FMV for charitable income tax deduction purposes. EST 3-12