Estate Planning

Question 1

To qualify for the marital deduction, qualified terminable interest property (QTIP) must meet which of the following conditions?

1. The surviving spouse must have a general power to appoint the property.
2. All of the income must be paid out either to the surviving spouse or to the children of the decedent and the surviving spouse at least annually.
3. The executor must make the QTIP election.
4. The surviving spouse must be entitled to make lifetime gifts to family members directly from the QTIP.
   A.I, II and III only.
   B.I and III only.
   C.II and IV only.
   D.III only.

Answer 1

Solution: The correct answer is D.

The surviving spouse generally has no dispositive powers in a QTIP trust. The surviving spouse must be the SOLE income beneficiary who must receive ALL income from the trust at least once each year for the rest of his/her life.

Question 2

Your client, Zoe, has established a revocable grantor trust, naming a bank as the trustee. Pursuant to the terms of the trust document, your client receives all the income annually generated by the trust assets during her life. The assets placed into the trust consist of Zoe’s mutual fund portfolio, her personal residence, a rental property located in another state, and two installment notes held by Zoe. Upon your client’s death, all of the assets remaining in the trust are to be distributed to Zoe’s two children. Upon Zoe’s death, the assets remaining in the trust will:

1. Be included in Zoe’s gross estate.
2. Be subject to the probate process.
3. Receive a new income tax basis equal to the fair market value at death or her alternate valuation date if properly elected.
4. Be distributed as directed by Zoe’s will.
   A.I only.
   B.I and III only.
   C.I, II and III only.
   D.I, II, III and IV.

Answer 2

Solution: The correct answer is A.

Grantor trusts do not remove assets from the grantor’s gross estate, but do allow assets to pass outside of probate. Installment notes are IRD property and therefore do not get a step to fair market value. The trust document will determine how the assets are distributed, not the will.

Question 3

Which of the following accurately reflect characteristics of a Grantor Retained Annuity Trust (GRAT)?

1. The trust must be irrevocable.
2. The trustee has no discretion to withhold annuity payments from the grantor.
3. Additional contributions may be made to the trust after the inception.
4. The value of the assets in a GRAT will be included in the grantor’s gross estate if the grantor dies prior to the end of the trust term.
   A.I and IV only.
   B.I, III and IV only.
   C.I, II and IV only.
   D.I, II, III and IV.

Answer 3

Solution: The correct answer is C.

No additional contributions can be made to GRAT.

Question 4

Which of the following accurately describes a Will substitute?

A.Property passes outside of probate.
B.A will substitute is open to the public.
C.A will substitute permits testamentary control of the distribution of assets.
D.A will substitute can be “overridden” by a specific bequest.

Answer 4

Solution: The correct answer is A.

A Will substitute avoids public scrutiny, testamentary control, and cannot be overridden by bequests. An example might be a contractual agreement as a life insurance beneficiary.

Question 5

Which of the following are characteristics of a private annuity?

1. Title to the property is conveyed to the individual responsible for making annuity payments at the time of the transaction.
2. It involves a promise on the part of the individual receiving the property to make an annuity payment to the transferor, usually secured by the transferred property.
3. The individual responsible for making annuity payments can deduct the interest portion of those payments.
4. Each payment received by the annuitant is divided into gain, interest income, and a non-taxable recovery of basis.
   A.I and II only.
   B.I and IV only.
   C.II, III and IV only.
   D.I, III and IV only.

Answer 5

Solution: The correct answer is B.

The private annuity cannot be secured by the transferred property and the interest portions of payments to the annuitant cannot be deducted by the transferee.

Question 6

Which of the following accurately describes Community Property:

1. Is available only to legal and lawful spouses.
2. Property acquired during marriage by either spouse’s industry is community property.
3. Community property cannot be transferred without the consent of all community property owners (except at death in some states).
4. Property acquired by gift or inheritance during marriage is generally not community property.
   A.I and IV only.
   B.I and II only.
   C.I, III and IV only.
   D.I, II, III and IV only.

Answer 6

Solution: The correct answer is D.

All statements accurately describe community property. Property acquired by gift or inheritance, unless commingled with community property, is generally the separate property of the recipient.

Question 7

Making arrangements to deal with the possibility of physical or mental incapacity is an important area of estate planning. Which of the following arrangements may be used to deal with unexpected incapacity?

Springing durable power of attorney
Revocable living trust
Fee simple
Living will
A.1 only
B.2 & 4
C.1, 2 & 4
D.1, 2, 3, & 4

Answer 7

Solution: The correct answer is C.

Fee simple ownership is not an arrangement that helps to deal with unexpected incapacity. All of the other arrangements are methods of dealing with unexpected incapacity.

Question 8

Elizabeth has drafted her own will using the “EZ Wills” software that she purchased on the internet and sends it to you for a review. In your first review of the will, you look for which of the following most common provisions?

A.A statement of the domicile of the testator
B.A secondary clause
C.A specific bequest of property owned tenancy by the entirety
D.A disclosure clause

Answer 8

A statement of the domicile of the testator is a provision that is commonly found in a will. Neither a secondary clause nor a disclosure clause exist. Property owned tenancy by the entirety transfers by operation of law and is not disposed of through a will.

Question 9

John has a general power of appointment over his father’s assets. Which of the following is not true regarding the power?

A.John can appoint his father’s money to pay for the needs of his father.
B.John can appoint money to John’s creditors.
C.John must only appoint money using an ascertainable standard.
D.If John predeceases his father, John’s gross estate would include his father’s assets even though they had not been previously appointed to John.

Answer 9

Solution: The correct answer is C.

Answers A, B, and D are all true. Because John has a general power of appointment over his father’s assets, John may appoint those assets to anyone for any reason and is not limited by an ascertainable standard such as health, education, maintenance, or support.

Question 10

Claude decides to prepare his will, but does not want to seek the help of an attorney. Claude handwrites all of the provisions of the will and does not have it witnessed by anyone. What type of will does Claude have, if any?

A.Holographic
B.Nuncupative
C.Statutory
D.Claude does not have a will

Answer 10

Solution: The correct answer is A.

A holographic will is one that is handwritten. Answer b is incorrect because a nuncupative will, which is not valid in all states, is an oral will. Answer c is incorrect because a statutory will must generally be prepared by an attorney and must be witnessed.

Question 11

Automatic survivorship feature

A.JTWROS and Tenancy by the Entirety
B.Tenancy in Common and JTWROS
C.Fee Simple
D.Tenancy by the Entirety and Community Property

Answer 11

Solution: The correct answer is A.

Question 12

Can partition property without consent

A.JTWROS and Tenancy by the Entirety
B.Tenancy in Common and JTWROS
C.Fee Simple
D.Tenancy by the Entirety and Community Property

Answer 12

Solution: The correct answer is B.

Question 13

Value included in gross estate is 50% deemed contribution rule

A.JTWROS and Tenancy by the Entirety
B.Tenancy in Common and JTWROS
C.Fee Simple
D.Tenancy by the Entirety and Community Property

Answer 13

Solution: The correct answer is D.

The deemed contribution rule ALWAYS applies between spouses so it must be used for community property and TE since the marital relationship is a requirement of the ownership interest. JTWROS can be between spouses, and then it is assumed a 50% contribution rule too, BUT JTWROS can also be used by non-spouses and then the actual contribution rule applies

Question 14

Natalie and Ashley own farm land as Joint Tenants with Rights of Survivorship. Natalie contributed $60,000 and Ashley contributed $40,000. The land is currently valued at $1,000,000 and each of them own 50% of the property. If Natalie died today, what amount of the value of the farm land is included in her gross estate?

A.$60,000
B.$500,000
C.$600,000
D.$1,000,000

Answer 14

Solution: The correct answer is C.

Property owned JTWROS follows the actual contribution rule for inclusion in the gross estate. Therefore, since Natalie contributed 60% of the property, her estate will include 60% of the Fair Market Value (60% × $1,000,000 = $600,000).

Question 15

Sherri purchased a home many years ago for $40,000. She married Gary five years ago when the house was worth $150,000. Sherri and Gary live in a community property state. Assume Sherri died today and gave her interest in the property to her son Casey. The property is currently valued at $200,000. What is Gary’s basis in the home after Sherri’s death?

A.$0
B.$75,000
C.$100,000
D.$200,000

Answer 15

Solution: The correct answer is A.

Gary does not own any interest in the property. Sherri purchased the home before she was married to Gary. At the time of marriage, the property remained Sherri’s separate property. When Sherri died, her interest (100%) transferred to Casey. Thus, Gary does not own any of the property and does not have any basis in the property. Casey will have a basis of $200,000.

Question 16

Jaime, a wealthy doctor, wrote a will many years ago after his first child was born. His will leaves his home on Drury Lane to his daughter, Taylor. Jaime sold the home on Drury Lane last year and purchased a new home on Mulberry Lane. The extinction of Taylor’s legacy is called what?

A.Abatement
B.Ademption
C.Surety
D.Letters testamentary

Answer 16

Solution: The correct answer is B.

Abatement is the reduction in an estate when there is insufficient assets to satisfy all legatee provisions. A surety bond is a bond posted by the administrator of the probate process. Letters testamentary is the document given to the executor from the probate court authorizing the executor to act on behalf of the estate.

Question 17

Which of the following assets will pass through probate?

A.A house subject to a mortgage and owned fee simple by the decedent.
B.Property held tenancy by the entirety.
C.Bank accounts with named beneficiaries.
D.None of the above will pass through probate.

Answer 17

Solution: The correct answer is A.

Answers B and C will not pass through probate because they pass by operation of law or state contract law. Answer A will pass through probate because it is owned fee simple by the decedent. The fact that the house is subject to a mortgage does not affect whether it passes through probate.

Question 18

Karen, age 58, recently visited her attorney to discuss the appropriate estate planning documents she needed to effectuate her estate planning goals. Which document is appropriate to effectuate the goal: To clarify Karen’s burial wishes.

A.Do Not Resuscitate Order.
B.Last Will and Testament.
C.Living Will.
D.Power of Appointment.
E.Side Instructional Letter.

Answer 18

Solution: The correct answer is E.

The side instructional letter is the appropriate place to identify Karen’s burial wishes.

Question 19

Karen, age 58, recently visited her attorney to discuss the appropriate estate planning documents she needed to effectuate her estate planning goals. Which document is appropriate to effectuate the goal: To direct and provide for the future care of her minor child, Josh, in the event of her death.

A.Do Not Resuscitate Order.
B.Last Will and Testament.
C.Living Will.
D.Power of Appointment.
E.Power of Attorney for Health Care.

Answer 19

Solution: The correct answer is B.

The will is the appropriate place to direct and provide for a minor child. The non-Will documents or powers listed will not assist in providing for the child.

Question 20

Karen, age 58, recently visited her attorney to discuss the appropriate estate planning documents she needed to effectuate her estate planning goals. Which document is appropriate to effectuate the goal: To avoid being placed on an artificial breathing machine if Karen is terminally ill and meets the requirements of the state statute.

A.Do Not Resuscitate Order.
B.Last Will and Testament.
C.Living Will.
D.Power of Appointment.
E.Power of Attorney for Health Care.

Answer 20

Solution: The correct answer is C.

The living will allows Karen to avoid doctors using an artificial breathing machine if Karen is terminally ill. The power of attorney for health care does not generally cover life sustaining treatment and the DNR only covers the denial of CPR.

Question 21

Which of the following statements relating to qualified transfers for gift tax purposes is not correct?
A. A.A qualified transfer does not take the relationship between the donor and the donee into account.
B. B.A payment made directly to an individual to reimburse him for medical expenses is a qualified transfer.
C. C.The exclusion for a qualified transfer is in addition to the annual exclusion.
D. D.A payment made to a qualified education institution for tuition costs is a qualified transfer

Answer 21

Solution: The correct answer is B.
A payment made directly to an individual to reimburse him for medical expenses is not a qualified transfer. To be a qualified transfer, the payment must be made directly to the healthcare provider. All of the other options are true.

Question 22

Jane transferred a piece of real estate to her son Christopher 6 months ago. Jane purchased the real estate for $90,000 six years ago and the property was valued at $65,000 on the date of transfer. Jane paid $26,000 in gift tax on the transfer. All of the following statements are true, except:

A.If Christopher were to sell the property for $60,000 today, then the loss is a short term loss.
B.Christopher’s basis will be adjusted for a portion of the gift tax paid.
C.Christopher will have a dual basis for income tax purposes.
D.If Christopher sold the property for $120,000 after holding it for 5 years, then his gain would be $30,000.

Answer 22

Solution: The correct answer is B.

Because Jane’s basis in the property was greater than the FMV of the property on the date that she gifted the property, Christopher will be subject to the double basis rules.

All but “B” are correct; it’s important to remember that double basis gifts will NEVER be adjusted for gift tax paid since there was no appreciation on the transfer date.

Question 23

Chris and Jenn, a married couple, made the following gifts this year:

Chris gave their son, Evan, a car worth $4,000 owned as community property. Chris also gave his son his stamp collection (separate property) valued at $62,000.
Chris gave his brother Stephen $22,000 of Chris’ separate property so Stephen could purchase a new home.
Chris gave his sister Heather $4,000 in cash from his and Jenn’s joint checking account which consists only of community property. He also gave Heather a piece of land he purchased before his marriage to Jenn, valued at $51,000.
Assuming Jenn did not want to split gifts, what is Chris’ total taxable gifts after taking into account any available deductions or exclusions and ignoring the $13,990,000 (2025) exemption equivalent.

A.$14,500
B.$82,000
C.$86,000
D.$143,000

Answer 23

Question 24

When Ronnie died seven months ago, he left his prize art collection to his daughter, Kate. Three months before his death, Ronnie purchased an enchanting oil painting for $4,000. Kate has been offered $100,000 for the painting. Kate is extremely excited because the painting was only valued at $15,000 when her father died. If Kate sold the painting today, what would her taxable gain be for income tax purposes.

A.$85,000 short term gain
B.$85,000 long term gain
C.$96,000 short term gain
D.$96,000 long term gain

Answer 24

Solution: The correct answer is B.

Inherited property is always treated as long-term capital gains, regardless of how long the heir holds it.

Question 25

Petra, single with 2 children died this year. She has a gross estate plus adjusted taxable gifts valued at $11.5 million. When is her Form 706 and payment of any estate tax owed due? A.9 months after the decedent's date of death. B.15 months after the decedent’s date of death. C.24 months after the decedent's date of death. D.No due date since the estate is below the estate tax exemption.

Answer 25

Solution: The correct answer is D. Gross estate over the exemption amount requires filing Form 706 and payment of tax within 9 months. Petra's estate is below the annual exemption. Choice A is incorrect. With a taxable estate over the annual estate tax exemption, Form 706 and payment of any tax owed is due 9 months after date of death. This does not apply since her estate is below the estate tax exemption. Choice B is incorrect. 15 months would require an extension to file and pay. This does not apply since her estate is below the estate tax exemption. Choice C is incorrect. 24 months is only allowed as an extension for a simplified filing to elect portability when no estate tax is due. This does not apply since her estate would not file for portability.

Question 26

Which of the following must be included in a decedent's gross estate? A.The value of any gifts made within 3 years of death, excluding the gift tax paid on those gifts. B.The gift tax paid on any gifts made within 3 years of death. C.The value of life insurance policies transferred within 3 years of death, excluding the death proceeds. D.The value of any gift made within 3 years of death that does not have a retained or reversionary interest.

Answer 26

Solution: The correct answer is B. IRS Section 2035 requires any gift tax paid on gifts made within 3 years of death to be included in the gross estate (the gross-up rule). Choice A is incorrect. Only the gift tax paid, not the full value of the gifts, must be included for gifts made within 3 years of death. Choice C is incorrect. The full death proceeds of life insurance transferred within 3 years of death is included, not just the value when transferred. Choice D is incorrect. A completed gift where the decedent does not have a retain interest will not be included in the gross estate.

Question 27

To avoid inclusion in a power holder’s gross estate, a power should limit the appointment of property to the power holder for the sole purpose of: A.Pleasure. B.Support. C.Wealth. D.Happiness.

Answer 27

Solution: The correct answer is B. A power of appointment which limits the holder’s benefit to support is not included in the power holder’s gross estate. As a general rule, a power which limits the power holder’s benefit to health, education, maintenance, or support (or any combination of those listed) is not included in the power holder’s gross estate.

Question 28

In the current year, Jerry loaned his daughter, Charisse, $15,000 to purchase a new car. The loan was payable on demand, but there was no stated interest rate. The applicable federal rate for the current year was 10%, and Charisse had $900 of net investment income for the year. For gift tax purposes with regards to this loan, how much has Jerry gifted Charisse during the current year? A.$0 B.$900 C.$1,500 D.$15,000

Answer 28

Solution: The correct answer is A. Because the loan is for less than $100,000 and Charisse has less than $1,000 in net investment income, Jerry does not have to impute any interest on the loan and, as such, has not made a gift of interest to Charisse during the current year.

Question 29

In August of the current year, Jim died of lung cancer. Jim’s son, Doug, has decided to prepare his father’s estate tax return, but has come to you for clarification on whether the following list of assets are included in Jim’s gross estate. After reviewing the list, which assets will you tell Doug to exclude from Jim’s gross estate? A.A life insurance policy on the life of Jim’s wife owned by Jim. B.A check from Doctor’s Hospital for the refund of medical expenses that Jim initially paid, but were subsequently paid for by Jim’s health insurance company. The reimbursements were due to Jim before his death. C.A check from ABC Corporation for dividends in the amount of $15,000 declared September 23rd (the month after Jim’s death). D.A payment of $500,000 from Mutual Life Insurance of America representing the proceeds of a life insurance policy owned by Jim.

Answer 29

Solution: The correct answer is C. Jim died in August. The dividends from ABC Corporation in the amount of $15,000 are not included in Jim’s gross estate because they were not declared until September. The life insurance policy in answer a is included in Jim’s gross estate as all property owned by the decedent at his date of death is included in the decedent’s gross estate. The check from the hospital detailed in answer b is included in Jim’s gross estate because the payments were due to him before his death. The life insurance policy in answer d is included in Jim’s gross estate because life insurance owned or transferred within three years of a decedent’s date of death are included in the decedent’s gross estate.

Question 30

Melissa is a very generous single woman. Before this year (2025), she had given $13,990,000 in taxable gifts over the years and has completely exhausted her applicable credit amount. In the current year, Melissa gave her daughter Riley $100,000 and promptly filed her gift tax return. Melissa did not make any other gifts this year. How much gift tax must Riley pay the IRS because of this transaction? A.$0 B.$19,000 C.$32,400 D.$40,000

Answer 30

Solution: The correct answer is A. Riley will not pay the gift tax on this transaction because Melissa is responsible for the tax incurred. While this question may seem to be a trick question, a similar question has appeared on previous CFP® Certification Exams. Choice B is incorrect. $19,000 is the annual exclusion amount (2025). Choice C is incorrect. $32,400. If the question has asked about Melissa's gift tax liability, this is the correct calculation of the $100,000 gift less the annual exclusion of $19,000 (2025) = $81,000 x 40% tax rate = $32,400. Because the problem states that she has given over one million dollars in taxable gifts, this current year taxable gift will be taxed at the maximum rate of 40%. Notice that the $19,000 annual exclusion (2025) is deducted to determine the taxable gift. This step is missed in many gift tax liability questions. Choice D is incorrect. If the question has asked about Melissa's gift tax liability, $100,000 x 40% = $40,000 is a common error to make. This is an error because the gift is not reduced by the annual exclusion amount.

Question 31

Gina, age 79, recently had a stroke. Afraid that she may not live long enough to see her family enjoy it, she would like to transfer the beach house she owns to her daughter, Taylor. While Gina is willing to make the transfer gratuatous in whole or part, Gina does not want to pay any gift tax or utilize any of her lifetime credit amount. Which of the following techniques, if used by Gina to transfer the beach house to Taylor, will not result in a taxable gift? A.GRAT B.QPRT C.SCIN D.GRUT

Answer 31

Solution: The correct answer is C. A SCIN is a note with a self canceling premium payment attached so that the note will cancel at the transferor’s death. The GRAT, QPRT and the GRUT are irrevocable trusts and will result in a current taxable gift.

Question 32

Ben is interested in using a Qualified Personal Residence Trust (QPRT) as part of his estate plan. Which of the following are false regarding QPRTs? A.At the end of the trust term, the house will revert back to the grantor. B.With a QPRT, the grantor must survive the trust term to realize any estate tax savings. C.A QPRT can be used with either primary residences or vacation homes. D.The grantor will have a taxable gift upon the creation of the QPRT.

Answer 32

Solution: The correct answer is A. At the end of the trust term, ownership of the house is transferred to the beneficiaries of the QPRT. All of the other statements are true.

Question 33

In 2013, Price funded a bypass trust with $5,250,000, the applicable estate tax credit equivalency amount at that time. At Price’s death in 2025, his will included a testamentary bypass trust and a residual bequest to his U.S. citizen wife. If Price’s net worth at his death was $15,000,000, how much will be transferred to the bypass trust to maximize its benefits? A.$8,740,000 B.$8,448,200 C.$13,990,000 D.$15,000,000

Answer 33

Solution: The correct answer is A. Price's executor would fund the testamentary bypass trust with the difference between the applicable estate tax credit equivalency at Price's death (2025 - $13,990,000) and the funding amount of the inter vivos bypass trust in 2013 ($5,250,000). In this case, the amount would be $8,740,000 ($13,990,000 - $5,250,000).

Question 34

Which of the following techniques can be used to lower the value of an individual’s gross estate? 1. Totten Trust 2. Qualified Personal Residence Trust 3. Family Limited Partnership 4. Irrevocable Life Insurance Trust A.1 only. B.1 and 2. C.2, 3 and 4. D.1, 3 and 4.

Answer 34

Solution: The correct answer is C. Totten trusts are used to avoid probate, not to lower the value of the gross estate. All of the other techniques can be used to lower the value of an individual’s gross estate.

Question 35

Robbie transferred $100,000 to an irrevocable trust for the benefit of his minor child, Dominic. The transfer was eligible for the annual exclusion. The trust permits the trustee to accumulate the trust income within the trust, and only make distributions to Dominic based upon an ascertainable standard until Dominic is 21 years old. When Dominic attains the age of 21, the trust must terminate and the trust assets must be distributed to Dominic. Which type of trust has Robbie created? A.2503(b) Trust. B.2503(c) Trust. C.Totten Trust. D.Intentionally Defective Grantor Trust (IDGT).

Answer 35

Solution: The correct answer is B. Robbie has created a 2503(c) trust. A 2503(c) trust allows income to be accumulated within the trust until the minor beneficiary attains the age of majority and the transfer of property to the trust qualifies for the annual exclusion. A 2503(b) trust requires the trustee to make annual income distributions to the minor beneficiary. A Totten Trust is a bank account which includes a payable on death clause. An IDGT is a grantor trust which requires the grantor to pay the income tax on the income of the trust.

Question 36

A trustee is subject to which of the following? A.Prudent Man Rule. B.Trustee’s Ethical Code. C.Uniform Trustee Provisions. D.Fiduciary Responsibilities Doctrine.

Answer 36

Solution: The correct answer is A. A trust fiduciary must follow the Prudent Man Rule demonstrating a duty of loyalty and duty of care on behalf of the trust’s beneficiaries. The Prudent Man Rule specifically states that the trustee, as fiduciary, must act in the same manner that a prudent person would act if the prudent person was acting for his own benefit after considering all of the facts and circumstances surrounding the decision. None of the other options are existing codes, provisions, or doctrines.

Question 37

Maxwell and Jim have resided together for several years, but are not married. They cannot rely on the state intestacy laws to transfer assets to each other at the death of either. Additionally, Maxwell is concerned that if he dies first, his family may contest the transfer of his assets to Jim through his will so he wants to avoid any transfers through his will. Of the following options, which transfer arrangements would ensure that Maxwell’s assets will be transferred to Jim at Maxwell’s death? 1. Qualified Personal Residence Trust (QPRT). 2. Irrevocable Trust. 3. Revocable Living Trust. 4. Testamentary Trust. A.II only. B.I and III only. C.II and IV only. D.I, II and III only.

Answer 37

Solution: The correct answer is D. The QPRT, Irrevocable Trust, and Revocable Living Trust would ensure that Jim would receive Maxwell’s assets at Maxwell’s death because the assets will transfer per the trust document. A testamentary trust will not ensure that Jim will receive Maxwell’s assets because a testamentary trust would be created in Maxwell’s will and therefore transferred via probate. The family could contest the will and block the transfer to the testamentary trust. In such a case, Jim would not receive the assets.

Question 38

Carolyn made the following transfers during her life: The transfer of her home to an irrevocable trust for the benefit of her four children on January 1, 2021. Carolyn retained the right to live in the home for the remainder of her life. The fair market value of the home at the date of the transfer to the trust was $1,000,000. The fair market value of the home at Carolyn’s date of death was $1,200,000. A transfer of $44,000 to an irrevocable trust for the benefit of her four children on January 2, 2020. Carolyn retained the right to a 4% annuity payment from the trust for the years 2020 and 2021. At Carolyn’s date of death, the trust had a value of $62,000. If Carolyn died on July 13, 2025, with regard to the above transfers, how much is included in Carolyn’s gross estate? A.$0 B.$1,044,000 C.$1,200,000 D.$1,262,000

Answer 38

Solution: The correct answer is C. Carolyn’s gross estate would include the fair market value of the home at her date of death, but not the value of the trust listed in #2. The transfer listed as #1 would be included in Carolyn’s gross estate because Carolyn retained an interest in the home that terminated at her death. Therefore, the full fair market value of the transferred property would be included in the transferor’s gross estate at the time of the transferor’s death. No amount related to the transfer listed as #2 would be included in Carolyn’s gross estate because the annuity interest terminated before Carolyn’s death.

Question 39

Alton would like to transfer the ownership of his Picasso painting to his son Edgar, but Alton would like to continue to have the painting hanging in his house. Which of the following would you recommend to Alton? A.TPPT B.CRAT C.QPRT D.FLP

Answer 39

Solution: The correct answer is A. Answer b is incorrect because Alton’s son Edgar is not a charity. Answer c is incorrect because a QPRT, or Qualified Personal Residence Trust, is a special form of a GRAT to which the grantor contributes his personal residence. Answer d is incorrect because a FLP would be more appropriate for transferring ownership of a family business than ownership of a painting. Answer a is correct because TPPTs or Tangible Personal Property Trusts are funded with personal property and the grantor retains the right to use the property that has been transferred to the trust.

Question 40

Which charitable trust allows the donor to make an additional contribution during the year? A.Revocable Living Trust B.CRAT C.CLT D.CRUT

Answer 40

Solution: The correct answer is D. CRUTs pay a fixed percentage each year based on holdings so new additions are allowed.

Question 41

A donor wants to create a revocable trust, naming the donor as the income beneficiary and a charity as the remainder beneficiary. Which type of trust is appropriate? A.Revocable Living Trust B.CRAT C.CLT D.CRUT

Answer 41

Solution: The correct answer is A.

Question 42

Match the following descriptions with the correct order of trusts: Allows naming donor as income beneficiary and charity as remainder beneficiary. Trust pays fixed annuity to donor based on the initial fair market value of trust Charity receives the income and the remainder is left to a non charity Allows the donor to make an additional contribution during the year A.Revocable Living Trust, CRUT, CRAT, CLT B.CRAT, CLT, Revocable Living Trust, CRUT C.Revocable Living Trust, CRAT, CLT, CRUT D.CLT, Revocable Living Trust, CRUT, CRAT

Answer 42

Solution: The correct answer is C. In order: Revocable Living Trust: Allows naming donor as income beneficiary and charity as remainder beneficiary CRAT: Trust pays fixed annuity to donor based on the initial fair mkt value of trust CLT: Charity receives the income and the remainder is left to a non charity. CRUT: Allows the donor to make an additional contribution during the year

Question 43

Caroline transfers $87,000 of stock to a charitable organization in return for a life annuity on her life valued at $40,000. With regard to this transfer, how much is Caroline’s charitable income tax deduction? A.$0 B.$40,000 C.$47,000 D.$87,000

Answer 43

Solution: The correct answer is C. When an individual transfers property in exchange for a charitable annuity, the value of the property less the value of the retained annuity is the value of the charitable deduction. In this case, $87,000 - $40,000 = $47,000.

Question 44

Chelsea graduated from the University of Alabama. Each year, football season tickets are sold only to those who make a contribution to the university of $2,000 or more. Chelsea contributes $2,000, so that she meets the requirements to purchase season tickets, and also spends $500 on the season tickets. How much is her deductible charitable contribution for the year? A.$0 B.$1,600 C.$2,000 D.$2,500

Answer 44

Solution: The correct answer is A. For a contribution to a university where the donor receives the right to purchase tickets to athletic events, none of the contribution will be allowed as a charitable contribution. The price of the actual tickets is not deductible.

Question 45

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 45

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 46

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 46

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 47

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 47

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.

Question 48

Your client was visited by Al State, the local insurance salesman. Al convinced your client he needed to buy a new life insurance policy on your client’s three month old baby’s life. The policy has a $10,000 death benefit. Your client is the owner of the policy, the policy is on child’s life, and your client’s spouse is the beneficiary. Your client paid his first premium payment then had a heart attack and died. Which of the following statements is correct? A.The interpolated terminal reserve plus any unearned premium will be included in your client’s gross estate. B.The death benefit will be included in your client’s gross estate. C.The replacement cost will be included in your client’s gross estate. D.The policy will not be included in your client’s gross estate because he is not the beneficiary.

Answer 48

Solution: The correct answer is A. The interpolated terminal reserve plus any unearned premium will be included in your client’s gross estate. In this instance, the value is probably zero because only one premium payment had been made.

Question 49

Sarah, age 90, would like to spend the few years she has left enjoying her life. She is currently unable to eat and bathe without assistance. She would like to use her life insurance policy to fund the remainder of her life. Which of the following statements is correct? A.If Sarah surrenders her policy for accelerated death benefits, she will be subject to income tax on the gain because she is not terminally ill. B.Sarah could exchange the policy in a 1035 exchange for an annuity without being subject to income tax on the transfer. C.If Sarah borrows from the policy, then the loan will be considered a taxable distribution. D.If her son purchases the policy from Sarah at the fair market value, he will receive the insurance proceeds income tax free at Sarah’s death.

Answer 49

Solution: The correct answer is B. Sarah can exchange the policy for an annuity income tax free. While Sarah is not terminally ill, she is chronically ill because she is unable to perform 2 of the 6 activities of daily living (eating and bathing). Thus, surrendering her policy for accelerated benefits will not cause her to be subject to income tax. The loan is not considered a taxable distribution because the policy is not a MEC. If her son purchases the policy then Sarah has transferred the policy for value. This will cause the policy to be taxed in the son’s income when Sarah dies.

Question 50

Which of the following statements is true regarding Crummey powers and estate tax implications for ILIT beneficiaries? A.Beneficiaries who possess Crummey powers have no estate tax exposure regardless of the amount they can withdraw from the trust annually. B.If the annual amount subject to a beneficiary's Crummey power is limited to the greater of $5,000 or 5% of the trust assets, there will be no estate tax exposure for the beneficiary. C.Crummey powers always cause estate tax inclusion for beneficiaries unless the trust assets are less than the estate tax exemption amount when the beneficiary dies. D.Beneficiaries must withdraw the full amount subject to their Crummey power each year, or the entire trust corpus will be included in their taxable estate.

Answer 50

Solution: The correct answer is B. The Five-and-Five exception prevents estate tax inclusion for beneficiaries if their annual withdrawal power is limited to the greater of $5,000 or 5% of trust assets. Choice A is incorrect. Beneficiaries can have estate tax exposure from Crummey powers regardless of the withdrawal amount. The Five-and-Five exception prevents inclusion for powers limited as described. Choice C is incorrect. Crummey powers do not necessarily cause estate inclusion if structured properly using the Five-and-Five exception. Choice D is incorrect. Beneficiaries are not required to exercise their withdrawal rights over the annual contribution. The lapse of the power triggers the Five-and-Five exception.

Question 52

Which of the following is not a requirement of the unlimited marital deduction? A.In order to claim a marital deduction, the decedent must have been married as of the date of his death. B.The surviving spouse must receive property through the estate. C.The surviving spouse must be a U.S. citizen. D.The gross value of qualifying property left to the surviving spouse is included in the marital deduction.

Answer 52

Solution: The correct answer is D. Options A, B & C are all requirements of the unlimited marital deduction. Option D is incorrect because only the net value, not the gross value, of qualifying property left to the surviving spouse is included in the marital deduction. The term “net value” for marital deduction purposes equals the gross value of the qualifying property left to the surviving spouse less any taxes, debts, or estate administration expenses payable out of the spousal interest.

Question 53

Which of the following accurately describes a QTIP Trust? A.A QTIP is sometimes called a “B” or “Q” Trust. B.Trust income must be paid to the spouse or other designated beneficiary at least annually. C.The trust assets will be included in the gross estate of the surviving spouse. D.The surviving spouse designates the remainder beneficiaries of the QTIP.

Answer 53

Solution: The correct answer is C. Option A is incorrect because a QTIP is not the same as a “B” trust. Option B is incorrect because the income of the trust must be paid to the spouse, not to any other beneficiary. Option D is incorrect because the surviving spouse does not choose the remainder beneficiaries of the QTIP.

Question 54

Which of the following requirements must be met for a disclaimer to be considered qualified for estate tax purposes? A.The disclaimer must be made within 6 months of the transfer. B.The disclaimant can specify who will receive the disclaimed property. C.The disclaimer must be in writing. D.The disclaimant can accept benefits from the disclaimed property prior to disclaiming.

Answer 54

Solution: The correct answer is C. The disclaimer must be in writing to be acknowledged. Choice A is incorrect. The disclaimer must be made within 9 months, not 6 months. Choice B is incorrect. The disclaimant cannot specify who will receive the disclaimed property. Choice D is incorrect. The disclaimant cannot accept any benefits from the disclaimed property prior to disclaiming.

Question 55

Which of the following statements does not correctly reflect the rules applicable to the alternate valuation date? A.The general rule is the election covers all assets included in the gross estate and cannot be applied to only a portion of the property. B.Assets disposed of within six months of decedent’s death must be valued on the date of disposition. C.The election can be made even though an estate tax return does not have to be filed. D.The election must decrease the value of the gross estate and decrease the estate tax liability.

Answer 55

Solution: The correct answer is C. The election must be made on Form 706 to be valid. Therefore, statement C is incorrect. Statements A, B, and D are correct.

Question 56

Of the following statements, which is not true regarding selling an estate’s assets to generate cash? A.The estate may have income tax consequences. B.The assets may not be sold at full, realizable fair market value. C.Any losses on the sale of the assets are deductible as losses on the estate tax return. D.Any selling expenses are deductible on the estate tax return.

Answer 56

Solution: The correct answer is C. Any losses on the sale of the assets are income tax losses and are deductible on the estate’s income tax return. All of the other answers are true statements.

Question 57

Assume Brandon died last year. He is survived by his spouse, Betty and his 30 year old son, Steve, who is married and healthy. Which filing status can Betty use on her current year income tax return? A.Single B.Head of Household C.Married Filing Jointly D.Qualifying Widow

Answer 57

Solution: The correct answer is A. The facts do not indicate that Betty has a qualifying dependent that would allow her to claim Head of Household or Qualifying widow.

Question 58

Lane established a trust with $500,000. The terms of the trust say that Lane’s son Anthony will receive the income for his life and Lane’s grandson Brady will receive a $50,000 principal distribution at age 25 and the remainder of the trust when Anthony dies. What type of Generation Skipping Transfer occurs when the distribution is made to Brady at age 25? A.Direct Skip B.Taxable Termination C.Taxable Distribution D.This is not a generation skipping transfer

Answer 58

Solution: The correct answer is C. The payment of the remainder is a taxable termination. The distribution at age 25 is a taxable distribution.

Question 59

Which statement is incorrect concerning the GST tax? A.GSTT system has an annual exclusion. B.GSTT is a progressive tax similar to the estate tax. C.GSTT has a lifetime exemption D.GSTT has an exemption for qualified transfers.

Answer 59

Solution: The correct answer is B The GSTT rate is a flat tax rate equal to the maximum estate tax rate. Choice A is a true statement. GSTT does not apply to annual exclusion gifts. Choice C is a true statement. GSTT does not apply to gifts that qualify for the lifetime exemption. Choice D is a true statement. GSTT does not apply to qualified transfers.

Question 60

Which of the following statements is true regarding allocation of the GSTT exemption for direct skips during life? A.The transferor's GSTT exemption is automatically allocated to all lifetime direct skips. The transferor must opt out if they do not want their exemption allocated. B.The transferor must affirmatively elect to allocate their GSTT exemption to lifetime direct skips. If they do nothing, no exemption will be allocated. C.The transferor's GSTT exemption is automatically allocated to the first $1 million in lifetime direct skips only. For larger transfers, they must affirmatively allocate additional exemption. D.The transferor's GSTT exemption cannot be allocated to lifetime direct skips. It can only be allocated at death on the estate tax return.

Answer 60

Solution: The correct answer is A The transferor's unused GSTT exemption is automatically allocated to lifetime direct skips. To avoid allocation, the transferor must opt out. Choice B is incorrect. The GSTT exemption is automatically applied without an affirmative election. Choice C is incorrect. The full amount of direct skips is automatically covered by the GSTT exemption, not just the first $1 million. Choice D is incorrect. The transferor can allocate their GSTT exemption to lifetime direct skips. It does not have to wait until death.

Question 61

Which of the following statements concerning taxation issues for direct skips is incorrect? A.The trustee is responsible for paying (from the trust) the GSTT on a taxable termination. B.The transferee is liable for paying the GSTT on a taxable distribution. C.If both gift tax and GST taxes are due, the transferee must include the GSTT paid as an additional taxable gift when calculating their gift tax for the year of the transfer. D.The transferor (or the transferor’s estate, for direct skips at death) is liable for the GSTT on a direct skip, unless the direct skip is made from a trust.

Answer 61

Solution: The correct answer is C. If both gift tax and GST taxes are due, the transferOR must include the GSTT paid as an additional taxable gift when calculating their gift tax for the year of the transfer. Choice A, B, and D are all true statements concerning the taxation to direct skips.

Question 62

Upon what form is a lifetime GST reported? A.Form 1040. B.Form 709. C.Form 706. D.Form 1041.

Answer 62

Solution: The correct answer is B. Any lifetime GST is reported on Form 709, the United States Gift and Generation-Skipping Transfer Tax Return.

Question 63

Within how many months must an heir file a qualified disclaimer for it to be valid? A.6 months. B.9 months. C.12 months. D.15 months.

Answer 63

Solution: The correct answer is B. In order for a disclaimer to be valid, the disclaimer must be in writing, must be filed within 9 months of the decedent’s date of death, and the disclaimant must not have benefited from the disclaimed inheritance.

Question 64

Which of the following is not a requirement of using the special use valuation of property? A.The property must be used in a farming operation or a trade or business that was actively managed by the decedent or the decedent’s family for 5 out of the 8 years immediately preceding the decedent’s death. B.The value of the real and personal property used in a qualifying manner must equal or exceed 50 percent of the decedent’s gross estate as adjusted. C.The value of the real property used in a qualifying manner must equal or exceed 75 percent of the value of the decedent’s gross estate as adjusted. D.The qualifying property must pass to qualifying heirs who must actively participate in the farming activity or trade or business.

Answer 64

Solution: The correct answer is C. Option C simply reads the percentage incorrectly. The value of the real property used in a qualifying manner must equal or exceed 25 percent of the value of the gross estate as adjusted.

Question 65

Which of the following elements are required in a valid trust? 1. Grantor (a.k.a. Settlor or Trustor) having an intent to create a trust. 2. Trustee who holds legal title to all assets in the trust. 3. Beneficiary (or beneficiaries) who hold(s) equitable title to the assets. 4. Property in the Trust (called corpus, res, or principal) 5. A fiduciary relationship between the trustee and the beneficiary(ies). A.I, II and IV only. B.I, III and IV only. C.I, II, III and IV only. D.I, II, III, IV and V.

Answer 65

Solution: The correct answer is D. All are requirements for a valid trust.

Question 66

Laurie and Chance are considering purchasing a piece of land on which they plan to build a vacation home. Laurie and Chance are engaged to be married, so they are unsure of how they should title the property. Which of the following statements is correct regarding their ownership and titling of the land? A.Laurie and Chance cannot own the property as joint tenants until they are married because joint tenancies may only be established between spouses. B.If Laurie and Chance were married and owned the property as community property, one-half of the value of the property will be included in the probate estate of the first spouse to die without regard to the contribution of each spouse. C.If the property is held as a joint tenancy then Laurie and Chance may own different fractional interests in the property regardless of how much they contribute. D.If the property is held as a joint tenancy with right of survivorship and Chance dies first, the property will pass to Laurie unless Chance's will directs a different disposition.

Answer 66

Solution: The correct answer is B. Joint tenancy requires equal ownership therefore "C" is incorrect. Answer "A" is incorrect because joint tenancies may be established by spouses or nonspouses. Answer "B" is correct because if the two were married, each would be deemed to have contributed 50%, therefore only 50% would be included in the probate estate of the first spouse to die. Answer "D" is incorrect because if the property is held as a joint tenancy then the property will transfer automatically at the first tenant's death, regardless of what the will dictates.

Question 67

Some estate planning can occur after death (post mortem). Some post mortem techniques or tools require an executed document prior to death. Which of the following is effective without a previously executed document that is enforceable after death? 1. QTIP property election to qualify for the marital deduction. 2. Section 303 stock redemption election. 3. Election to waive the personal representative fees. 4. Election by the personal representative to use a credit shelter trust. A.I and III only. B.I, II and III only. C.II and III only. D.I, II and IV only.

Answer 67

Solution: The correct answer is C. Statement "II" is based solely on the percentage of business value to total estate and the company E and P account. Statement "III" is accomplished by the representative simply signing a waiver of fees (a disclaimer). All others must be established prior to death to be available to the personal representative on an optional basis. While the QTIP election is made by the executor the decedent must have a properly directed and executed will to leave property in a qualifying way in a QTIP. A credit shelter trust has to be provided as well, either as a standby trust or testamentary trust. Funding may be at the discretion of the executor but the trust must be in writing.

Question 68

Assume Kenny died today, and Kati is appointed executor. Unfortunately, Kati forgot to file an Estate Tax Return (Form 706) and pay the estate tax due of $580,896 until 68 days after the return’s due date. How much is the failure-to-file penalty (reduced for any concurrently running penalties if applicable)? A.$8,713.44 B.$78,420.96 C.$87,134.40 D.$110,367

Answer 68

Solution: B Failure to file is 5% per month up to 25% Failure to pay is 0.5% Subtract F2F by F2P

Question 69

Kenny, age 62, is in a committed relationship with Melissa, age 23. Kenny has adult children, Kati and Karli. He also has three minor age grandchildren, Cody, Kali, and Riley. This year, Kenny made the following gifts in 2025: $2,000,000 to Melissa, Kenny’s relationship partner, as a wire transfer to a checking account $400,000 to a new irrevocable trust, beneficiaries are grandchildren Cody, Kali, and Riley $6,000 for daughter Kati, sent directly to the private school $0 to daughter Karli $6,000 to Cody, age 3, Kati’s child sent as a check payable to Cody $0 to Kali, age 13, Kati’s child $6,000 to Riley, age 2, Karli’s adopted child, sent as a check payable to Riley What is the total annual exclusion available for the gifts made in the current year? A.$12,000 B.$19,000 C.$31,000 D.$57,000

Answer 69

Solution: The correct answer is C. The gift to Kali is a qualified transfer. The gifts to Melissa, Cody and Riley each qualify for the annual exclusion, however, the gifts to Cody and Riley are only $6,000 each. $19,000 to Melissa $ 0 for Kali, qualified transfer $6,000 to Cody $6,000 to Riley $31,000 Total Exclusions Choice A is incorrect. This is the total gifts to the two grandchildren. Choice B is incorrect. This is the annual qualified gift exclusion amount for 2025. Choice D is incorrect. There are three gifts that may be eligible for the annual gift exclusion: Melissa, Cody, and Riley. Only Melissa's gift exhausts the annual exclusion amount for that gift. The gifts to Cody and Riley are only eligible up to the amount of the gift, not the amount of the annual exclusion.

Question 70

Mrs. Riley died this year, leaving her entire $20 million estate through her will to her spouse, John. John's will states that his current estate, valued at $25,000, goes to their children at his death. John has terminal cancer with a life expectancy of only 1 to 2 years. The alternative valuation date value of Mrs. Riley’s entire estate is equal to $18,000,000. Select the post mortem technique John should utilize to reduce the overall estate tax liability of both estates. A.Elect Portability. B.Elect to use the alternative valuation date. C.Disclaim $2,000,000 and elect to use the alternative valuation date. D.Do Nothing.

Answer 70

Solution: The correct answer is A. Since the estate law permits the portability of the estate applicable exclusion between spouses, disclaiming any of the property is not necessary as Mrs. Riley's unused credit can be utilized by John in addition to his own (up to $27,980,000 in 2025). This election will reduce the overall estate tax liability of both estates. The alternative valuation can only be used if it reduces both the gross estate (yes) and reduces the estate tax due (no, because it was all left to a spouse so no estate tax would be due in either situation).

Question 71

Ben is interested in using a Qualified Personal Residence Trust (QPRT) as part of his estate plan. Which of the following is true regarding QPRTs? A.At the end of the trust term, the grantor must leave the property for the trust to remain valid. B.The grantor may only establish two QPRTs at any one time. C.With a QPRT, the grantor may die at any time after the transfer and still realize any estate tax savings. D.The grantor benefits if the value of the residence increases since the valuation is determined once the term expires.

Answer 71

Solution: The correct answer is B.

Question 72

Hazel (age 60), died leaving her wealthy second husband (age 48) and daughter (age 40). She had no previous lifetime taxable gifts and she died with a gross estate of $8 million, consisting solely of a diversified portfolio of publicly traded, income-producing stocks. Her debts were $75,000 and estate administrative expenses amounted to $50,000. Six months after her death, Hazel's estate was valued at $8.5 million. Which of the following post-mortem techniques should Hazel’s executor consider electing? A.QTIP election trust. B.The alternate valuation date. C.Deduct estate administrative expenses on the estate tax return. D.Use a Section 303 stock redemption.

Answer 72

Solution: The correct answer is A

Question 73

Mary’s husband, Patrick, died two years ago. Patrick’s will included the following three testamentary trusts: a trust for the benefit of Mary’s children, but giving Mary an annual income for the remainder of her life, (Irrev Trust), a bypass trust for the benefit of Mary’s children, but giving Mary a power to invade the trust assets for an ascertainable standard for the remainder of her life (Bypass Trust), and a charitable trust for the benefit of Mary’s alma mater (Charitable Trust). At Mary’s death, which of the trusts assets will be excluded from her gross estate? A.Irrevocable Trust. B.Bypass Trust. C.Charitable Trust. D.All of the above

Answer 73

Solution: The correct answer is D.

Question 74

This year, Dottie donated $15,000 in cash to her church and she also donated medical supplies with a fair market value and adjusted basis of $20,000 to the Red Cross. Dottie’s AGI for this year is $50,000. What is Dottie’s charitable income tax contribution deduction for the year? A.$35,000 B.$30,000 C.$25,000 D.$20,000

Answer 74

C Limit of 50% of AGI

Question 75

Assume Kenny had charitable inclinations and decided he wanted to bequeath something to charity. Which of the following assets would be the most advantageous to leave to the charity considering the tax effects on other non charitable beneficiaries? $60,000 in cash: Kenny is the individual owner of the checking account $60,000 in qualified plan assets: Kenny’s former spouse is the current designated beneficiary, as Kenny has never updated the beneficiary since the divorce 10 years ago $60,000 in portfolio assets: Kenny is the individual owner, currently with a Transfer On Death (TOD) account with two adult children listed as beneficiaries $120,000 boat at fair market value: Kenny and Liz, Kenny’s former spouse, own the boat at joint tenancy with rights of survivorship. Each contributed 50% of the purchase price so only $60,000 is the value of Kenny’s ownership interest. A.$60,000 in cash B.$60,000 in qualified plan assets C.$60,000 in portfolio assets. D.The boat

Answer 75

Solution: The correct answer is B.

Question 76

Kenny, age 62, and Melissa, age 23, have been dating for about a year and a half. Kenny and Melissa met when Kenny was on a vacation in the south of France. After a month-long romance, Kenny asked Melissa to return to the United States with him. Although not a United States citizen, she has maintained residence in the United States for 15 months. Melissa is expecting Kenny’s third child. Kenny has adult children, Kati and Karli, from a prior relationship. Kenny is considering changing his will today. He wants the new will to leave everything to Melissa. Which of the following statements is true? A.A no-contest clause could be added to discourage Kati and Karli from contesting the will. B.A simultaneous death clause could be used to require Melissa to survive six months. C.A guardianship clause can be used to identify Kenny’s preferred legal guardian of Kole. D.A disclaimer clause allowing Melissa to disclaim the property in favor of Kenny’s children could be used to prevent overqualification of the estate.

Answer 76

Solution: The correct answer is C.

Question 77

Kenny is confused about the rules relating to charitable contributions. He has asked you, his advisor, for more clarification regarding the issues to consider when making a contribution. Of the following, which is not an issue when considering whether to deduct the adjusted basis or the fair market value of property contributed to a charitable organization? A.The current market rate of interest. B.The donor’s current and projected adjusted gross income for the 5 years after the contribution. C.The fair market value of the donated property. D.The capital gains rate in effect at the time of the transfer.

Answer 77

Solution: The correct answer is D.

Question 78

All of the following are included in the gross estate except: A.Proceeds from a life insurance policy owned by the decedent insured that was assigned to an ILIT two years before death of the insured. B.A CRAT where the income beneficiary was the decedent. C.Property where the decedent had a reversionary interest of less than 10% of the value. D.Gift taxes paid two years prior to the decedent's date of death for gifts made four years earlier.

Answer 78

Solution: The correct answer is D. Incidence of ownership of life insurance policies assigned within three years of death are includible in the decedent's estate, as are CRATs and CRUTs. Any amount subject to the gross up rule is includible in the taxable estate but must be for gifts made within three years of death. Gift taxes paid on gifts made within 3 years of death must be added back to the gross estate but if the gift tax paid is on an older gift, it does not get added to the gross estate.

Question 79

Which of the following are characteristics of a qualified disclaimer? It may not redirect the bequest to another person selected by the disclaimant. It must be received by the executor of the estate within 9 months of the death of the decedent. It must be written and irrevocable. The disclaimant may disclaim a part of an asset. A.I and II only. B.I, II and III only. C.I, III and IV only. D.I, II, III and IV.

Answer 79

Solution: The correct answer is D. A qualified disclaimer must be written, irrevocable and received by the executor of the estate within 9 months. It must not direct the asset and can be for any interest partial or full.

Question 80

Which of the following tasks are the primary responsibilities of the personal representative? Inventory the estate. File income tax returns for all beneficiaries. Contest payment of all debts of the estate. Probate the will. A.I and IV only. B.II and III only. C.II and IV only. D.I, III and IV only. E.I, II, III and IV.

Answer 80

Solution: The correct answer is A. The beneficiaries file their own returns and all legitimate debts are paid without contest.

Question 81

Which of the following statements regarding SCINs is correct? A.If the seller outlives the SCIN term, the buyer has paid no more than the FMV. B.The payments received by the seller under a SCIN are treated as interest income. C.A SCIN can give the seller a collateral interest in the property sold. D.If the seller dies before the end of the SCIN term, the seller is deemed to have made a taxable gift to the buyer equal to the difference between the payments made and the total principal payments due on the SCIN.

Answer 81

Solution: The correct answer is C. Answer "A" is incorrect because the buyer of a SCIN pays the FMV plus the SCIN premium. Answer "B" is incorrect because each payments received by the seller consists of (1) interest income, (2) capital gain, and (3) return of adjusted basis. Answer "D" is incorrect because the transferee bought the right to cancel thus no gift.

Question 82

Which of the following items will be retitled through probate? A.A house subject to a mortgage and owned fee simple by the decedent. B.1/2 of real estate held tenancy by the entirety. C.Bank accounts with a POD designation. D.None of the above will be retitled through probate.

Answer 82

Solution: The correct answer is A. Answers "B" and "C" will not pass through probate because they pass by operation of law or state contract law. Answer "A" will pass through probate because it is owned fee simple by the decedent. The fact that the house is subject to a mortgage does not affect whether it passes through probate.

Question 83

Which of the following is true regarding a Grantor Retained Annuity Trust (GRAT)? A.At the end of the GRAT term, a taxable gift occurs. B.If the grantor dies during the trust term, a pro rata portion of the trust assets are included in the grantor’s estate. C.Interest and dividends earned by assets in a GRAT are taxed to the grantor. D.If the grantor survives the trust term, all of the trust assets will be included in the grantor’s estate.

Answer 83

Solution: The correct answer is C. Answer "A" is incorrect because a taxable gift occurs when the GRAT is established, not when the GRAT term ends. Answer "B" is incorrect because if the grantor dies during the trust term, all of the trust assets are included in his gross estate. Answer "D" is incorrect because if the grantor survives the trust term, none of the trust assets are included in his estate.