EXAM #1 – Quizzes (CH. 1-7) Flashcards
TRUE OR FALSE:
Estate planning is not the process of accumulation, management, conservation, and transfer of wealth considering legal, tax, and personal objectives.
FALSE
TRUE OR FALSE:
The estate planning process is fairly simple and can generally be completed by a financial planner without any assistance from a licensed attorney or CPA.
FALSE
TRUE OR FALSE:
Any individual who currently owns assets may be in need of estate planning, regardless if those asset values are in excess of the applicable estate tax credit equivalency amount.
TRUE
Which of the following is a common estate planning goal?
A. Minimizing transfer taxes
B. Providing for liquidity at death.
C. Fulfilling client’s healthcare decisions.
D. All of the above.
All of the above
You are opening a new financial planning practice and you would like to put together a team of experts to help your clients with estate planning. Which of the following groups represents the best team to help your clients?
A. Financial planner, CPA, and attorney
B. CPA, psychiatrist, and insurance salesman
C. Financial planner, attorney, and real estate agent
D. Attorney, insurance salesman, and Enrolled Agent
A. Financial planner, CPA, and attorney
The best team for your client would include a financial planner, CPA, and attorney. A licensed insurance specialist is also a good asset to an estate planning team, but the team described in option b is not as good of a team overall as the team in option a.
TRUE OR FALSE:
A holographic will is a handwritten will that is written, dated, and signed by the testator.
TRUE
TRUE OR FALSE:
A disclaimer clause attempts to discourage disappointed heirs from contesting the will by substantially decreasing or eliminating a bequest to them.
FALSE
This is the definition of a no-contest clause. A disclaimer clause’s function is to remind any heirs that they can disclaim a bequest, while still allowing the testator to direct the distribution of disclaimed property.
TRUE OR FALSE:
A limited power of appointment subject to an ascertainable standard results in inclusion of the assets subject to the power in the agent’s gross estate.
FALSE
Property subject to a limited power of appointment is not included in the agent’s gross estate. In addition, property subject to a general power of appointment limited by an ascertainable standard does not result in inclusion in the agent’s gross estate.
Kent, age 38, recently came to you for estate planning advice. He has never executed any estate planning documents. During the client interview, you learned that Kent has never been married and has a six-year-old daughter, Kerstin, with his previous girlfriend, Karen. Karen is Kerstin’s custodial parent and Kent sees Kerstin every other weekend. While Kent and Karen are cordial, the relationship was recently strained when Karen began dating Kent’s business partner, Bobby. Kent is in good health and participates regularly in automobile racing competitions. While Kent often wins in competitions, he has wrecked his car several times and has been seriously injured. Because Kent has had so many wrecks, he invested a majority of his $500,000 net worth in a closely held company to develop a revolutionary steel product that will not bend, crumble or catch fire. Kent and his business partner, Bobby, are sure that all race car companies will buy the steel product because their initial tests established that nine out of ten times a car made with the product that was in a wreck did not even get a dent. Although they plan to take their product to market in a few months, Kent and his partner have had several disagreements. Which of the following statements is true?
A. If Kent died today, there would not be any liquidity issues because Kent’s share of the closely held company could easily be sold for fair market value.
B. Since the value of Kent’s net worth is below $12,060,000 (2022), there is no need for estate planning.
C. If Kent were in a coma as a result of a racing accident, Karen would be able to access his accounts to retrieve the child support payments he is legally required to pay each month.
D. If Kent were to die today, his assets would transfer via state intestacy laws with Kerstin being the most likely heir.
D. If Kent were to die today, his assets would transfer via state intestacy laws with Kerstin being the most likely heir.
Explanation:
Since Kent has not executed any estate planning documents, his estate will transfer via state intestacy laws. When an individual is not married, their children are generally the next in line to inherit under state intestacy laws. Option a is incorrect because the ability to quickly sell a closely held business for fair market value is always questionable regardless of how good the products are. Option b is incorrect because Kent’s net worth is irrelevant as to whether he needs estate planning. He has a child that needs to be cared for and assets that will need to be transferred, thus he needs estate planning. Option c is incorrect because without a durable POA, an agent will not be able to continue making these payments while Kent is in a coma.
You recently had lunch with an estate planning attorney during which she made several statements regarding the estate planning process. Of the statements listed below, which would you consider inappropriate from an estate planning perspective?
A. “I frequently request copies of any long-term care or disability policies the client has.”
B. “A current balance sheet and income statement are helpful when beginning the estate planning process.”
C. “In all my years of experience I have learned to discount the client’s transfer wishes when drafting the will. They are not paying me to make sure little Suzi gets the china, they are paying me to save them money.”
D. “While the probate process is expensive and time consuming for many people, a financial planner should weigh the cost of the necessary planning devices needed to avoid probate against the cost of actually going through probate before determining with the client if probate should be avoided.”
C. “In all my years of experience I have learned to discount the client’s transfer wishes when drafting the will. They are not paying me to make sure little Suzi gets the china, they are paying me to save them money.”
Rizzo is getting ready for her first meeting with her new financial planner, Didi. What information does Rizzo not need to bring to this meeting?
A. Previously filed income tax and gift tax returns.
B. A copy of her current will.
C. A detailed list of Rizzo’s assets and liabilities.
D. Rizzo should bring all of the above information to her first meeting with Didi.
Rizzo should bring all of the above information to her first meeting with Didi.
Which of the following are parties to a power of attorney?
A. The principal’s mother, even though she is not named as the principal’s agent.
B. The guardian ad litem.
C. The principal, or person granting the power.
D. The attorney who prepares the power of attorney.
C. The principal, or person granting the power.
Piper’s will leaves all of her property to her husband, Alex. If he does not survive her by more than eight months, the property will transfer to Piper’s only daughter, Lorna. Piper dies on May 1 and Alex dies on the following December 1. Of the following statements, which is correct?
A. Piper’s property will transfer to Lorna and the property will be eligible for the unlimited marital deduction in Piper’s estate.
B. Piper’s property will transfer to Lorna and the property will not be eligible for the unlimited marital deduction in Piper’s estate.
C. Piper’s property will transfer to Alex and the property will be eligible for the unlimited marital deduction in Piper’s estate.
D. Piper’s property will transfer to Alex and the property will not be eligible for the unlimited marital deduction in Piper’s estate.
B. Piper’s property will transfer to Lorna and the property will not be eligible for the unlimited marital deduction in Piper’s estate.
Explanation:
Piper’s property will not transfer to Alex because he failed to survive her for at least eight months. Therefore, both answer c and answer d are incorrect. Option a is incorrect because the property that transfers to Piper’s daughter, Lorna, will not be eligible for the unlimited marital deduction in Piper’s estate. For transfers to a surviving spouse to qualify for the unlimited marital deduction, the survival period in the survivorship clause cannot exceed six months. Due to the length of the survivorship clause, the property would not have qualified for the unlimited marital deduction even if Alex survived Piper by more than eight months.
Eugene is considering having his attorney prepare a springing power of attorney in which his gives his friend, Patty, the power to handle his finances. Why should Eugene include such a document in his overall estate plan?
A. In the event that Eugene becomes disabled, Patty will be able to pay Eugene’s bills.
B. Patty is not legally competent.
C. Patty is only 16 years old.
D. Eugene wants Patty to be able to handle all of his finances immediately.
A. In the event that Eugene becomes disabled, Patty will be able to pay Eugene’s bills.
Explanation: Eugene should not make Patty the agent of his springing power of attorney if she is not legally competent or is not of the age of majority. If Eugene wants Patty to be able to handle his finances immediately, he should not use a spring power of attorney, which only becomes effective upon the principal’s disability or incapacity.
Hope, age 63, is in the process of updating her estate planning documents following the recent death of her spouse. Which of the following information is important for Hope to provide to the agent named in her durable power of attorney?
I. Health insurance information.
II. Location of important documents, such as marriage certificate and military discharge records (DD 214).
III. Lists of assets and liabilities.
VI. Instructions for caring for Hope’s beloved pets.
A. 1 and 4.
B. 2 and 3.
C. 2, 3, and 4.
D. 1, 2, 3, and 4.
D. 1, 2, 3, and 4.
Explanation: Communication with named fiduciaries allows them to fulfill their duties in the most effective manner. All of the items listed (and numerous others) are important information for Hope to share with her named agent.
TRUE OR FALSE:
The “actual contribution rule” do not apply to spouses who are named as joint tenants.
TRUE
TRUE OR FALSE:
Property held as a tenancy in common may not be owned by two or more related or unrelated parties.
FALSE
This is the definition of “tenancy in common.”
TRUE OR FALSE:
At the death of the first spouse, only the community property included in the decedent’s gross estate is stepped-to fair market value.
FALSE
Ralphie, a real estate mogul, dies owning a great deal of real property. Which of the following would be included in Ralphie’s probate estate?
A. A building owned in sole ownership by Ralphie’s wife. Ralphie and his wife do not live in a community property state.
B. A vacant lot owned joint tenancy with rights of survivorship by Ralphie and his brother.
C. A beach house owned tenancy in common by Ralphie and his mother.
D. An office building owned tenancy by the entirety by Ralphie and his wife.
C. A beach house owned tenancy in common by Ralphie and his mother.
Explanation: Option a is incorrect because the property of Ralphie’s wife would not be included in his pro-bate estate. Option b is incorrect because property owned JTWROS passes outside of probate. Option d is incorrect because property owned tenancy by the entirety passes outside of pro-bate.
Which of the following accurately describes a life estate?
A. An interest in property for a specified number of years.
B. An interest in property that ceases upon the death of the measuring life of the life estate.
C. An undivided interest in property held by two or more related or unrelated persons.
D. A complete interest in property with all the rights associated with outright ownership.
B. An interest in property that ceases upon the death of the measuring life of the life estate.
Which of the following states is not a community property state?
A. Louisiana.
B. Idaho.
C. Wisconsin.
D. Florida
D. Florida
Kathi and Darrin, who are married, own their home together as community property. They purchased the home 17 years ago for $100,000. After many improvements and a surge in the market, the home is now worth $200,000. If Darrin died today and left his share of the home to his daughter Elizabeth, what is Kathi’s basis in the home?
A. $50,000
B. $100,000
C. $150,000
D. $200,000
B. $100,000
Explanation: Kathi’s one-half interest in the home will have a basis of $100,000 due to a step-to fair market value of both halves at Darrin’s death because the property is owned as community property.
Eric and Ariel made the following gifts this year:
. Eric gave their son, Sebastian, a car worth $4,000 owned as community property. Eric also gave Sebastian his stamp collection (separate property) valued at $60,000.
. Eric gave his brother, Max, $20,000 of Eric’s separate property so Max could purchase a new home.
. Eric gave his sister, Alana, $4,000 in cash from his and Ariel’s joint checking account which consists only of community property. He also gave Alana a piece of land he purchased before his marriage to Ariel, valued at $49,000.
After the gift, how is Sebastian’s ownership of the car classified?
A. Sole ownership.
B. Joint tenancy with Eric.
C. Tenancy in common with Eric and Ariel.
D. Community property with Sebastian’s wife, Barbie.
A. Sole ownership
Explanation: The car is owned by Sebastian as sole owner. There is no indication that Eric or Ariel retained any interest in the car after the gift. Even though Eric is married, a gift to an individual would not be community property.
Kate and her brother Rustin own a piece of property in Dallas as tenants in common valued at $50,000. Kate owns a 75% interest and Rustin owns a 25% interest. During Mardi Gras, Rustin went down to New Orleans and decided he loved it there. The next week he purchased a house on St. Charles Avenue right across from the Mardi Gras parade route. Unfortunately, Rustin did not get an appraisal and learned later that he significantly overpaid for the property. In addition, the home was much too expensive for Rustin and shortly after the purchase Rustin defaulted on the loan. Even after the bank seized the home, there was a $50,000 debt remaining. Assuming the bank received a default judgment against Rustin and could seize the Dallas property, what portion of the property could be seized to satisfy Rustin’s debt?
A. 0%
B. 25%
C. 50%
D. 100%
B. 25%
Explanation: Co-owners of tenancy in common property are not liable for the debts of their co-owners. Thus, the bank can only seize Rustin’s portion of the property to satisfy his debt.
Jasmine and Merida, who are not married, own farmland as joint tenants with right of survivorship. Jasmine contributed $60,000 and Merida contributed $40,000. The land is currently valued at $1,000,000 and each of them has a 50% interest in the property. If Jasmine died today, what amount of the value of the farmland would be included in her gross estate?
A. $0
B. $500,000
C. $600,000
D. $1,000,000
C. $600,000
Explanation: Property owned JTWROS follows the actual contribution rule for inclusion in the gross estate. Therefore, since Jasmine contributed 60% of the property, her estate will include 60% of the fair market value (60% x $1,000,000 = $600,000).
If a person dies without a will, a probate court will appoint an executor when the probate process is initiated.
FALSE
If a person dies without a will, a probate court will appoint an administrator. A testator appoints or names their executor in their will.
TRUE OR FALSE:
Retirement plans, such as IRAs, SEPs, and SIMPLEs, with named beneficiary designations pass outside of the probate process.
TRUE
Creditor protection is one of the disadvantages of the probate process.
FALSE
Willow and Callie are not married and have been in a long-term, non-traditional relationship. Willow wants to make sure that if she dies first, Callie will be provided for. Which of the following would you be likely to recommend fulfilling Willow’s goal of transferring assets to Callie at Willow’s death?
A. Name Callie as the beneficiary of Willow’s retirement plan.
B. Transfer the ownership of Willow’s real estate investments into tenancy by the entirety.
C. Advise Willow against writing a will that specifically bequeaths assets to Callie.
D. Recommend that Willow and Callie move to a community property state.
A. Name Callie as the beneficiary of Willow’s retirement plan.
Which of the following empowers an executor to act as the agent of a probate court?
A. Surety Bond
B. Letters of Administration
C. Letters Testamentary
D. Intestacy Laws
C. Letters Testamentary
Which of the following is not a method for transferring property outside of the probate process?
A. State contract law.
B. State intestacy law.
C. State property titling law with survivorship feature.
D. State trust law.
B. State intestacy law
Nate owns the following property:
. A personal residence titled fee simple valued at $500,000.
. A $500,000 life insurance policy on his own life. The only named beneficiary is Nate’s brother Jaime, who died 6 months ago leaving two children, Michael and Kristi.
. A car valued at $15,000 titled JTWROS with Nate’s mother.
. An IRA valued at $400,000 with Nate’s mother as the named beneficiary.
What is the current value of Nate’s probate estate?
A. $500,000
B. $1,000,000
C. $1,400,000
D. $1,415,000
B. $1,000,000
Explanation: The probate estate will include the personal residence and the life insurance policy. The life insurance policy is included because the named beneficiary was already dead at Nate’s death. The car is not included because of the JTWROS ownership; thus, it transfers by operation of law. The IRA is not included because there is a living named beneficiary and thus will transfer via contract law.
Uncle Joey died recently leaving two nieces, Stephanie and Kimmie. Uncle Joey owned the following property at his death.
. A house he inherited from his parents.
. A car.
. A life insurance policy on his own life. Uncle Joey’s two nieces are the named beneficiaries of the policy.
. A 401(k) plan without a listed beneficiary.
Uncle Joey’s will left the house to his favorite niece Stephanie and the car to his other niece Kimmie. He did not use a residuary clause. Which of the following statements is correct?
A. All assets will be transferred via the will.
B. All assets will be transferred via the state’s intestate probate laws.
C. Some assets will be transferred via the will and the remaining assets will transfer outside the probate process.
D. Some assets will be transferred via the state’s intestate probate laws, some assets will transfer via the will, and some will transfer outside the probate process.
D. Some assets will be transferred via the state’s intestate probate laws, some assets will transfer via the will, and some will transfer outside the probate process.
Explanation: The house and the car will transfer under the will. The life insurance policy will transfer outside the probate process because of the named beneficiaries. The 401(k) plan will transfer to Uncle Joey’s probate estate because there is no listed beneficiary. Since the will does not cover the 401(k) plan, the asset will transfer via the state’s intestate succession laws.
Omar, 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. Omar 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
B. Ademption
Which of the following items 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.
A. A house subject to a mortgage and owned fee simple by the decedent.
Explanation: 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.
TRUE OR FALSE:
Transfers that include a revocable beneficiary designation or a transfer to a revocable trust are incomplete transfers, which are not gifts for gift tax purposes.
TRUE
TRUE OR FALSE:
To qualify for the annual gift tax exclusion, a gift can be of a present or future interest.
FALSE
TRUE OR FALSE:
The IRS generally has three years from the date a gift tax return has been timely filed to assess additional gift tax.
TRUE
Tom loans $11,000 to his son, Jerry. Why would interest not be imputed on this loan?
A. Interest would not be imputed because the loan is less than the amount of the annual exclusion.
B. Interest would not be imputed because loans of $100,000 or less are exempt from both income tax and gift tax consequences.
C. Interest would not be imputed because Jerry has unearned income of $500.
D. Interest would not be imputed because Jerry’s earned income is less than $1,000.
C. Interest would not be imputed because Jerry has unearned income of $500.
Option a is incorrect because the annual exclusion is not relevant to imputed interest. Option b is incorrect; loans of less than $10,000 are exempt from both income tax and gift tax consequences. Option d is incorrect because whether interest is imputed on this loan is based on Jerry’s level of unearned income, not earned income.
Donald has created a trust for the benefit of his three nephews, Huey, Dewey, and Louie, who are all minors. Donald plans on making annual contributions to the trust. Donald would like at least some of his annual contributions to the trust to qualify for the annual exclusion. What would be the best way to accomplish this goal?
A. Donald should make sure that he does not contribute more than $16,000 for each nephew, or $48,000 in total, each year.
B. Donald should give his nephews an unlimited ability to remove funds from the trust.
C. Donald should give his nephews the right to remove some or all the annual contribution from the trust for a limited period of time.
D. Donald’s annual contributions to the trust will not qualify for the annual exclusion under any circumstances.
C. Donald should give his nephews the right to remove some or all the annual contribution from the trust for a limited period of time.
Explanation: Option c describes a Crummey provision, which converts what otherwise would have been a gift of a future interest, which would not be eligible for the annual exclusion, into a gift of a present interest, which is eligible for the annual exclusion. Option a is incorrect because without a Crummey provision, the annual contribution does not qualify for the annual exclusion, regardless of the amount. Option b is incorrect because even though this would qualify for the annual exclusion, giving minors the unfettered right to remove funds from the trust is not as good of a solution as a Crummey power. Option d is incorrect.
Drew decides to set up a trust for the benefit of his two sons, Brady and Carson. Drew makes an annual contribution to the trust in the amount of $32,000 and gives each son the right to withdraw up to $16,000. In the current year, when the total trust assets are $52,000, Brady decides to withdraw $16,000, but Carson does not withdraw anything. What is the result of Carson’s decision not to withdraw any of Drew’s contribution to the trust?
A. Carson has made a taxable gift to Brady of $5,500.
B. Brady has made a taxable gift to Carson of $16,000.
C. Drew has made a taxable gift to Brady of $16,000.
D. All the above.
A. Carson has made a taxable gift to Brady of $5,500.
Explanation: This question addresses the 5/5 Lapse Rule. The 5/5 Lapse Rule states that a taxable gift has been made where a power to withdraw in excess of $5,000 or 5% of the trust assets is lapsed by the powerholder. In this case, Carson has allowed his power to withdraw $16,000 to lapse. As a result, Carson has made a gift to himself of $5,500 ($8,000-($5,000/2)) and a gift to Brady of $5,500 ($8,000-($5,000/2)).
Which of the following statements relating to qualified transfers for gift tax purposes is not correct?
A. The relationship between the donor and the donee is irrelevant with a qualified transfer.
B. A payment made directly to an individual to reimburse them for medical expenses is a qualified transfer.
C. The exclusion for a qualified transfer is in addition to the annual exclusion.
D. A payment made to a qualified education institution for tuition costs is a qualified transfer.
B. A payment made directly to an individual to reimburse them for medical expenses is a qualified transfer.
A payment made directly to an individual to reimburse them for medical expenses is not a qualified transfer. To be a qualified transfer, the payment must be made directly to the healthcare provider. All the other options are true.
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 $20,000 in gift tax on the transfer. All 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 capital 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, his gain would be $30,000.
B. Christopher’s basis will be adjusted for a portion of the gift tax paid.
Explanation: 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 and will receive no adjustment in basis for gift tax paid.
Will and Grace, who are married to each other, made the following gifts in 2022:
. Will gave their son, Jack, a car worth $4,000 owned as community property. Will also gave Jack his stamp collection (separate property) valued at $60,000.
. Will gave his brother, Elliott, $20,000 of Will’s separate property so Elliott could purchase a new home.
. Will gave his sister, Karen, $4,000 in cash from his and Grace’s joint checking account which consists only of community property. He also gave Karen a piece of land he purchased before his marriage to Grace, valued at $49,000.
Assuming Grace did not want to split gifts, what is Will’s total taxable gifts after taking into consideration any available deductions or exclusions.
A. $48,000
B. $85,000
C. $133,000
D. $137,000
B. $85,000
Which of the following is true concerning the 5/5 Lapse Rule?
A. The 5/5 Lapse Rule deems that a taxable gift has been made where a power to withdraw in excess of $5,000 or five percent of the trust assets is lapsed by the powerholder.
B. The 5/5 Lapse Rule only comes into play with a single beneficiary trust.
C. Amounts that lapse under the 5/5 Lapse Rule qualify for the annual exclusion.
D. Gifts under the 5/5 Lapse Rule do not have to be disclosed on a gift tax return.
A. The 5/5 Lapse Rule deems that a taxable gift has been made where a power to withdraw in excess of $5,000 or five percent of the trust assets is lapsed by the powerholder.
The valuation of property included in a decedent’s gross estate is either the fair market value at the date of death or, if properly elected, the value at the alternate valuation date (nine months from the date of death).
FALSE
The value of property over which the decedent held a general power of appointment will be included in the decedent’s gross estate, regardless of whether the decedent exercised the power.
TRUE
The taxable estate of a decedent is the adjusted gross estate less the marital, charitable, and state death tax deductions.
TRUE
Which of the following is not a reason that the proceeds of a life insurance policy would be included in a decedent’s gross estate?
A. The proceeds of the policy are payable to the estate.
B. The decedent transferred the ownership of the policy to his daughter six years before his death but retained the right to change the beneficiary of the policy.
C. The decedent transferred the ownership of the policy to his son six months before his death.
D. The decedent transferred the ownership of the policy to his wife four years ago.
D. The decedent transferred the ownership of the policy to his wife four years ago.
Fred, the founder and CEO of WonderCo, recently passed away. At his death, Fred owned 80% of the stock of WonderCo and was still actively involved in the business; and the WonderCo stock was his only asset. WonderCo is not a publicly traded company. Which of the following discounts would be applicable to Fred’s WonderCo stock?
A. Key Person Discount.
B. Minority Discount.
C. Both a and b.
D. Neither a nor b.
A. Key Person Discount
Lola died eight months ago, and her executor is finalizing her estate tax return. The executor has determined that Lola’s adjusted gross estate is $15,830,000 and that her estate is entitled to a charitable deduction in the amount of $500,000. Calculate the estate tax liability for Lola’s estate for 2022.
A. $0
B. $1,226,200
C. $1,308,000
D. $6,077,800
C. $1,308,000
Explanation: Subtract the charitable deduction from the adjusted gross estate to get the taxable estate ($15,830,000 - $500,000 = $15,330,000). The tentative tax on the taxable estate is $6,077,800 ($345,800 + 0.40 ($14,330,000)). Subtract the applicable estate tax credit to determine the federal estate tax liability ($6,077,800 - $4,769,800 = $1,308,000).
Mario’s executor determined that the estate tax liability for Mario’s estate is $600,000. However, Mario’s executor forgot to file the estate tax return and filed and paid 65 days late. Calculate the penalties that Mario’s estate will now have to pay.
A. $81,000
B. $90,000
C. $99,000
D. $690,000
B. $90,000
Explanation: The failure-to-file penalty of $90,000 (5% x $600,000 x 3 months) is reduced by the failure-to-pay penalty of $9,000 (0.5% x $600,000 x 3 months), creating an adjusted failure-to-file penalty of $81,000. Adding the failure-to-pay penalty of $9,000 to the adjusted failure-to-file penalty creates a total penalty of $90,000. Option d is incorrect because the question asks only for penalties. $690,000 is penalties plus tax.
Maxwell died August 8, 2022. Of the following transfers made during his life, which is included in his gross estate?
A. The transfer of a whole life insurance policy on Maxwell’s life to an ILIT on September 16, 2018.
B. The sale of his term insurance policy to his brother, Donald, for fair market value on August 12, 2018.
C. The transfer of a whole life insurance policy on Maxwell’s life (face value $150,000) valued at $20,000 to his son on September 16, 2021.
D. A gift of $15,000 to Maxwell’s sister on August 7, 2022. No gift tax was due on the gift.
C. The transfer of a whole life insurance policy on Maxwell’s life (face value $150,000) valued at $20,000 to his son on September 16, 2021.
Explanation: The transfer to his son would be included in Maxwell’s gross estate because transfers of life insurance on the decedent’s life within three years of the decedent’s date of death are included in the decedent’s gross estate. Option a is incorrect because the transfer is not included in Maxwell’s gross estate because the transfer was completed more than three years prior to Maxwell’s date of death. Option b is incorrect because the sale of an insurance policy for fair market value removes the asset from the gross estate. Option d is incorrect because gifts, other than life insurance, within three years of the decedent’s date of death are not included in the decedent’s gross estate. Gift tax paid on gifts made within three years of the decedent’s date of death is included in the decedent’s gross estate, but in this case no gift tax was paid.
Eric died on Saturday, July 24, 20xx. At the time of his death, he owned 1,000 shares of Jefferson Crab stock. Given the daily trade prices for Jefferson Crab surrounding Eric’s date of death, at what value will the Jefferson Crab be included in Eric’s gross estate?
A. $103,000
B. $103,290
C. $103,500
D. $103,715
B. $103,290
Explanation: Since the stock is not traded on the date of Eric’s death, the value is determined utilizing the artificial valuation formula in the text, the average of the high and low for the two relevant dates, Monday and Tuesday. [($103 x 5) + ($104 x 2)]/7 = $103.29. $103.29 x 1,000 shares = $103,290. Saturday and Sunday are not counted as trading days for purposes of the calculation.
When Devon died seven months ago, he left his prized art collection to his daughter, Tia. Devon had a fantastic eye for selecting artwork by unknown painters, buying the painting cheap, and then selling them for a high profit once the painter was recognized by the general public. Three months before his death, Devon purchased an enchanting oil painting of a beautiful woman that Devon claimed would be “as famous as the Mona Lisa” for $4,000. Tia has been exhibiting the painting since her father’s death and a local art collector offered her $100,000 for the painting. Tia is extremely excited because the painting was only valued at $15,000 when her father died. If Tia sold the painting today, what would her taxable gain be for income tax purposes.
A. $85,000 short-term capital gain
B. $85,000 long-term capital gain
C. $96,000 short-term capital gain
D. $96,000 long-term capital gain
B. $85,000 long-term capital gain
Explanation: Tia’s basis in the property is equal to the date of death value. The holding period for inheritances is long-term regardless of how long the decedent or the legatee held the property. Thus, her gain is $100,000 (sale price) - $15,000 (Tia’s basis in the property). Her holding period is a long-term capital gain.
Simply not listing an heir in a will is sufficient to disinherit that heir.
FALSE
Gus, a single man, owned a building with a fair market value of $2,000,000. Gus’s adjusted basis in the building was $1,000,000. This year, Gus agreed to sell the building to his adult son, Kal, for $1,300,000. Gus made no other gifts or sales to Kal this year. What is the amount of Gus’s taxable gift?
A. Gus has made a taxable gift of $300,000.
B. Gus has made a taxable gift of $684,000.
C. Gus has made a taxable gift of $700,000.
D. Gus has made a taxable gift of $2,000,000.
B. Gus has made a taxable gift of $684,000.
Explanation: The discount of $700,000 ($2,000,000 - $1,300,000) is treated as a gift eligible for the 2022 annual exclusion of $16,000, thus creating a taxable gift of $684,000 for 2022.
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
A. TPPT
Explanation: Option b is incorrect because Alton’s son Edgar is not a charity. Option c is incorrect because a QPRT, or qualified personal residence trust, is a special form of a GRIT to which the grantor contributes their personal residence. Option d is incorrect because a FLP would be more appropriate for transferring ownership of a family business than ownership of a painting. Option 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.
Zelda, a single woman, transferred $2,000,000 to a GRAT naming her two sons as the remainder beneficiaries, while retaining an annuity with a present value of $860,000. If this is the only transfer that Zelda made during the year, what is Zelda ‘s total taxable gift for the year?
A. $1,110,000
B. $1,140,000
C. $1,970,000
D. $2,000,000
B. $1,140,000
Explanation: The present value of the expected future remainder interest is a gift of a future interest subject to gift tax. The value of the expected future remainder interest is $1,140,000 ($2,000,000 - $860,000). Because this is a gift of a future interest, it does not qualify for the annual exclusion.
Monica made the following transfers during 2022:
. $18,000 to her grandson for his law school tuition.
. $1,000 to her neighbor to help him pay a hospital bill.
. A transfer of property valued at $100,000 to a GRAT. Monica retained an annuity valued at $40,000 and her daughter is the remainder beneficiary.
What is the total amount of Monica’s taxable gifts for 2022?
A. $48,000
B. $60,000
C. $62,000
D. $65,000
C. $62,000
Explanation: Monica’s transfers to her grandson and neighbor are not qualified transfers because the payments were not made directly to the educational or medical institution. The transfers are eligible for the 2022 annual exclusion of $16,000, though. As such, the taxable amount of each is $2,000 ($18,000 - $16,000) and $0, respectively. The transfer of the remainder interest in the GRAT to Monica’s daughter is valued at $60,000 ($100,000 - $40,000). Since it is a gift of a future interest, the transfer is not eligible for the annual exclusion. Accordingly, Monica’s total taxable gifts are $62,000 ($2,000 + $0 + $60,000).
Which of the following statements is true?
A. Angela transferred her home to a QPRT two years ago. She retained the right to live in the home for 10 years, and at the end of the term, the home transfers to Angela’s three children. Angela dies in the current year, when the home has a fair market value of $250,000. The value of the home is excluded from Angela’s gross estate because the children are the remainder beneficiaries of the QPRT.
B. Missy transfers rental property to a family limited partnership (FLP) in return for a 99% limited partnership interest and a 1% general partnership interest. Missy immediately begins a gifting program by gifting a portion of the limited partnership interests to her children and grandchildren. Six years after the initial formation of the FLP, Missy continues to own the 1% general partnership interest and 45% of the limited partnership interests in the FLP. Because Missy does not own a majority (greater than 50%) of the interest in the FLP, Missy cannot control the operations of the FLP.
C. Edna has been diagnosed with an illness that is expected to substantially reduce her life expectancy. Before she dies, Edna would like to transfer her extremely valuable art collection to her wealthy daughter. The art collection is displayed in Edna’s home, but Edna really needs money for her living expenses for the remainder of her life. A TPPT would be the most appropriate transfer device to fulfill Edna’s desires.
D. Earl has four children - Kenny, Tim, Aaron, and Cathy. Earl’s will directs all of his property to be divided equally among his four children, and if any child predeceases Earl, that child’s heirs will inherit Earl’s property per capita. Cathy died two years before Earl. Cathy had three children. At Earl’s death, Kenny will receive 1/6 of Earl’s estate. Control the operations of the FLP. Option c is incorrect because a TPPT would not fulfill Edna’s desires because the TPPT would only give Edna the right to use the art for the rest of her life and would not provide any income.
D. Earl has four children - Kenny, Tim, Aaron, and Cathy. Earl’s will directs all of his property to be divided equally among his four children, and if any child predeceases Earl, that child’s heirs will inherit Earl’s property per capita. Cathy died two years before Earl. Cathy had three children. At Earl’s death, Kenny will receive 1/6 of Earl’s estate. Control the operations of the FLP. Option c is incorrect because a TPPT would not fulfill Edna’s desires because the TPPT would only give Edna the right to use the art for the rest of her life and would not provide any income.
Maxine agrees to purchase Chase’s property utilizing a private annuity. Chase’s table life expectancy is ten years at the date of the agreement and the property has a fair market value of $400,000. The private annuity payment is $45,000 per year, and Maxine dies after making two payments. At Maxine’s death, what amount is included in her gross estate with regards to the private annuity and the transferred property?
A. $0
B. $90,000
C. $310,000
D. $400,000
D. $400,000
Explanation: Maxine bought the property utilizing the private annuity. Maxine’s gross estate will include the fair market value of the property purchased. The expected present value of the remaining private annuity payments will be a debt of the estate.
Of the following, which property transfers at death by contract?
A. Roth IRAs
B. Property titled Joint Tenancy with Right of Survivorship (JTWROS)
C. An Irrevocable Living Trust
D. A Grantor Retained Annuity Trust (GRAT)
A. Roth IRAs
Explanation: Only the Roth IRA transfers property at death by contract. The beneficiary designation is the contract, and at the death of the account owner, the account assets will be transferred to the beneficiary. All the others transfer by state property titling law or by state trust law.
Which of the following statements is false regarding a bargain sale?
A. The difference between the fair market value of the asset and the consideration received in exchange for the asset is considered a gift.
B. The gift portion of a bargain sale will qualify for the annual exclusion.
C. A bargain sale is generally inappropriate if the buyer of the property is a family member.
D. If the property is sold by the seller for more than the seller’s basis in the property, a taxable gain will result.
C. A bargain sale is generally inappropriate if the buyer of the property is a family member.
Planning 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 such unexpected incapacity?
i. A springing durable power of attorney.
ii. A revocable living trust.
iii. Fee simple titling.
iv. A living will.
A. 1 only
B. 2 and 4
C. 1, 2, and 4
D. 1, 2, 3, and 4
C. 1, 2, and 4
TRUE OR FALSE:
The property process is a legal proceeding that serves to prove the validity of any existing will supervise the orderly distribution of the decendent’s assets to their heirs and legatees, imperative creditors by showing that valid debts of the estate are paid.
TRUE
TRUE OR FALSE:
Probate is the legal process that performs the function of changing title to those properties that do not change title some other way.
TRUE
TRUE OR FALSE:
The probate process often requires the executor or administrator to advertise the upcoming probate for statutory period of time in legal newspapers to give interested parties notice to enter into the process.
TRUE
TRUE OR FALSE:
The probate process protects the decendent’s creditors by ensuring that the debt of the estate or paid prior to distributions to heirs.
TRUE
TRUE OR FALSE:
Because of the early administration, the probate process is private.
FALSE
TRUE OR FALSE:
Because of the orderly administration, the probate process is quick.
FALSE
TRUE OR FALSE:
If a partner of a nontraditional unmarried couple wishes to passes to the surviving partner here she should plan to avoid probate.
TRUE
TRUE OR FALSE:
The probate court provides an appointed administrator with certain powers represented by letters testamentary.
FALSE
TRUE OR FALSE:
All executors are chosen by the probate court.
FALSE
TRUE OR FALSE:
Court-appointed administrators must generally post a bond.
TRUE
TRUE OR FALSE:
Letter testamentary provide the holder with the legal authority to perform the functions of executor.
TRUE
TRUE OR FALSE:
In the event a decedent dies without a valid will, the probate court appoints an administrator.
TRUE
TRUE OR FALSE:
A decedent’s interest in property owned “joint tenancy with right of survivorship” with his surviving brother will not pass through probate.
TRUE
TRUE OR FALSE:
A revocable living trust is a device that may be used to avoid the probate process.
TRUE
TRUE OR FALSE:
Life insurance proceeds payable to the decendent passing the probate process.
TRUE
TRUE OR FALSE:
Property held “tenancy by the entirety” will pass through probate for retitling.
FALSE
TRUE OR FALSE:
A banking account with a listed pay on death beneficiary avoids the probate process.
TRUE
TRUE OR FALSE:
If Kyle pays Cristl‘s car note and there’s no consideration from Christl to Kyle Kyle had made a gift to Christl.
TRUE
TRUE OR FALSE:
The lender of a $150,000 no interest gift loan will always impute interest.
TRUE
TRUE OR FALSE:
The donee of a gift is primarily liable for any gift tax due on the transfer.
FALSE
TRUE OR FALSE:
Generally, gift taxes is calculated based on the fair market value of the property at the date of the gift.
TRUE
TRUE OR FALSE:
A donor’s gross estate will not include the fair market value of lifetime gifts that qualify for the annual exclusion.
TRUE
TRUE OR FALSE:
If the annual exclusion is not used during the year, it does not carry over to the following year.
TRUE
TRUE OR FALSE:
An individual who gets a total of $100,000 split equally between 11 donees is not required to file a tax return.
TRUE
TRUE OR FALSE:
The amount of annual exclusion for transfers to a non-citizen bounce is $164,000 for 2022.
TRUE
TRUE OR FALSE:
A gift of a remainder interest in a trust qualifies for the annual exclusion.
FALSE
TRUE OR FALSE:
A Crummey provision is the explicit rate of a trust beneficiary to withdraw some or all of any contribution to a trust for a limited period after the contribution.
TRUE
TRUE OR FALSE:
Qualified transfers are limited to the annual exclusion amount.
FALSE
TRUE OR FALSE:
If a payment is made directly to an educational institution, the portion of the payment that applies to Room and board is not excluded from gift tax.
TRUE
TRUE OR FALSE:
Reimbursing individual for medical expenses that they paid directly to the hospital is a qualified transfer.
FALSE
TRUE OR FALSE:
To be eligible for the unlimited marital deduction, the donee spouse must be a citizen of the United States.
TRUE
TRUE OR FALSE:
A donor must file a gift tax return within 3 and 1/2 months of making a taxable gift.
FALSE
TRUE OR FALSE:
If at the date of a gift, the fair market value of the gifted property is greater than the donor’s adjusted basis in the gifted property, the donee’s basis in the properties received will be the fair market value at the date of the gift.
FALSE
TRUE OR FALSE:
If at the date of a gift, the fair market value of the gifted property is less than the donor’s adjusted basis in the gifted property, the donee will be subject to the double-basis rule.
TRUE
TRUE OR FALSE:
If the overall objective of a client is federal gross estate reduction, the client should make cash gifts.
FALSE
TRUE OR FALSE:
The donor of income-producing property will include the post-gift income on their income tax return.
FALSE
Grandmother Jones contributed $2,500,000 to a revocable trust. She has a life expectancy of 24 years and she will receive an 8% per year annuity from the trust. At her death, the corpus will be paid to her granddaughter, Lisa. What is grandmother Jones’ taxable gift?
A. $0
B. $2,094,752
C. $2,484,000
D. $2,500,000
A. $0
In the current year, Liam loaned his daughter, Miley, $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 Miley had $900 of net investment income for the year for gift tax purposes with regards to this loan, how much has Liam gifted Miley during the current year?
A. $0
B. $900
C. $1500
D. $15,000
A. $0
Lola and Rico would like to give the maximum possible gift that they can to their son without having to pay gift tax. Lola and Rico have never filed a gift tax return and live in a community-property state. How much can they transfer in 2022 to their son free of tax?
A. $32,000
B. $4,769,800
C. $12,060,000
D. $24,152,000
D. $24,152,000
During the year, Sean made the following gifts to his daughter: 1) an interest free loan of $6000 to purchase an SUV. The applicable federal rate was 6%. The loan has been outstanding for two years. 2) a corporate bond with an adjusted basis of $16,000 and a fair market value of $20,000. 3) a portfolio of stock with an adjusted basis of $10,000 and a fair market value of $25,000.
Sean’s wife agrees to elect gift splitting for the year, but she did not make any gifts of her own. What is the amount of total taxable gifts made by Sean during the year?
A. $6500
B. $9500
C. $29,000
D. $35,000
A. $6500
Romeo and Juliet have lived in Louisiana their entire marriage. Currently their combine net worth is $4 million and all of their assets are community property. After a meeting with their financial advisor, Romeo and Juliet begin a plan of lifetime gifting to reduce their gross estates. During 2022 they made the following cash gifts:
- Son: $80,000
- Daughter: $160,000
- Republican national committee: $75,000
- Granddaughter: $15,000
What is the amount of the taxable gifts to be reported by Juliet?
A. $79,500
B. $88,000
C. $127,500
D. $255,000
B. $88,000
TRUE OR FALSE:
A sale with Mitchell transfer between individuals of assets with equal fair market values.
TRUE
TRUE OR FALSE:
Individuals may enter into arms length transactions with loved ones
FALSE
TRUE OR FALSE:
A sale qualifies for the annual exclusion.
FALSE
TRUE OR FALSE:
A private annuity can be secured.
FALSE
TRUE OR FALSE:
A SCIN is the same as an installment sale.
FALSE
TRUE OR FALSE:
The SCIN level premium is like a term insurance premium over a declining value.
TRUE
TRUE OR FALSE:
A SCIN payment terminate, sent the death of the buyer.
FALSE
TRUE OR FALSE:
The value of a GRIT is calculated by using the FMV less the present value of the retained interest.
TRUE
TRUE OR FALSE:
At the day the GRAT is funded, the value of the remainder interest that the excess of the value of the contribution to the trust over the present value of the annuity stream.
TRUE
TRUE OR FALSE:
At the end of the QPRT term, the annuitant must sell the home.
FALSE
TRUE OR FALSE:
A family, limited partnership utilizes lack of control and marketability discounts to transfer the partnership interest and a reduced transfer tax cost.
TRUE
TRUE OR FALSE:
Only a limited partner can manage a family limited partnership.
FALSE
TRUE OR FALSE:
Affirmation of a family, limited partnership, the founder is subject to the gift tax on the transfer of the property interest to the family limited partnership.
FALSE
TRUE OR FALSE:
Mika owns a home worth $250,000, which has a $50,000 mortgage. Mika could still qualify for Medicaid.
TRUE
TRUE OR FALSE:
The Medicaid look back period is six years.
FALSE (5 years)
TRUE OR FALSE:
A testamentary transfer is a transfer in a will.
TRUE
TRUE OR FALSE:
He transfer on death account transfers property through the probate process.
FALSE
Which of the following statement regarding installment sales is correct?
A. All payments received when the seller in an installment sale are considered interest income
B. At the death of the seller, the principal balance of the installment that was included in the sellers gross estate
C. The present value of the expected remainder value of the property sold in an installment sale is subject to gift tax at the transfer
D. An installment sale would never be used with a related party
B. At the death of the seller, the principal balance of the installment that was included in the sellers gross estate
In 2022, Layla paid Battlelaw University $12,000 for her nephew’s tuition and gave her nephew $26,000 in cash. Layla is single and did not make any other gifts during the year. What is the amount of Layla’s taxable gifts for the year?
A. $0
B. $2000
C. $10,000
D. $24,000
Todd purchased his mother’s home through use of a SCIN. under the terms of the SCIN, Todd wants to pay his mother $20,000 plus interest per year for 10 years. If Todd’s mother died after four payments were made, what would be Todd’s adjusted basis in the home?
A. $0
B. $80000
C. $160,000
D. $200,000
Jocelyn, age 60, owned 400 shares of ABC Corporation, which she expects to increase 300% over the next four years. Jocelyn eventually wants to transfer the stock in ABC corporation to our son, Stevie, but Stevie is currently incapable of managing the stock or the income from the stock. Jocelyn expects Stevie to be responsible in five years. Of the following, which transfer method would work best to remove the expected appreciation of the stock from Jocelyn’s gross estate and protect the property for Stevie?
A. Private annuity
B. SCIN
C. GRAT
D. QPRT
Of the following statement regarding a qualified personal residence trust QPRT, which is true?
A. At the end of the QPRT term, the residence reverts to the grantor
B. At the creation of the QPRT, the grantor has a taxable gift to the remainder of beneficiary eligible for the annual exclusion
C. At the end of the QPRT term, the grant term must be getting paid rent and the remainder beneficiaries of the QPRT if he continues to live in the residence.
D. A QPRT is ideal for a personal residence that is expected to appreciate a lower rate than the section 7520 rate.
At the end of the QPRT term, the grant term must be getting paid rent and the remainder beneficiaries of the QPRT if he continues to live in the residence.
Which of the following statements is false?
A. Jesse gave his mom property valued at $100,000 six months before her death. Jesse’s adjusted basis in the property was $45,000. Jesse was the sole heir of his mother’s estate, and the same property was distributed from his mother’s estate to him. At his mom’s date of death, the property had a fair market of $105,000. Jesse’s adjusted basis in this property is $45,000.
B. The unlimited marital deduction is a deduction from a decedent’s adjusted gross estate to arrive at the decedent’s taxable estate. The unlimited marital deduction is limited to the value of the assets included in the decedent’s gross estate which are transferred to the decedent’s surviving spouse.
C. If the sum of a decedent’s gross estate and lifetime adjusted taxable gifts is less than the applicable estate tax credit equivalency amount for the year of the decedent’s death, the executor of the decedent’s estate does not have to file an estate tax return.
D. The credit for tax paid on prior transfers was repealed in 2005. At that time, the credit became a deduction.
D. The credit for tax paid on prior transfers was repealed in 2005. At that time, the credit became a deduction.
The credit for tax paid on prior transfers was not repealed in 2005. The state death tax credit was repealed in 2005 and was replaced with a deduction. All the other statements are true statements.
Yvette is a very generous single woman. Before this year, she had given $2,000,000 in taxable gifts over the years. In the current year, Yvette gave her daughter, Mandy, $100,000 and promptly filed her gift tax return. Yvette did not make any other gifts this year. How much gift tax must Yvette pay the IRS because of this transaction?
A. $25,900
B. $711,250
C. $0
D. $30,450
C. $0
The problem states that she has given two million dollars in taxable gifts therefore she has the unused amount of her $12,060,000 (2022) exclusion remains. The calculation is as follows:
$100,000 - $16,000 = $84,000 + $2,000,000 = $2,084,000 total taxable gifts (no gift tax due at this time).
Which of the following transfers would result in gift tax?
A. Dustin gifts $11,000 to his daughter, Joyce.
B. Lucas gifts $50,000 to his wife, Winona, who is a U.S. citizen.
C. Will gives his favorite employee, Noah, a new car at Noah’s retirement worth $20,000.
D. Caleb transfers $20,000 to his ex-wife, Millie. Caleb and Millie were divorced five years ago.
D. Caleb transfers $20,000 to his ex-wife, Millie. Caleb and Millie were divorced five years ago.
Option a would not result in gift tax because the gift does not exceed the annual exclusion. Option b is incorrect because a person can gift an unlimited amount to their spouse, who is a U.S. citizen, without incurring gift tax. Option c is incorrect because transfers in a business setting are presumed to be compensation. If Caleb had transferred $20,000 to Millie pursuant to a divorce decree, there would be no taxable gift, but transfers to an ex-spouse five years after the divorce was final are not considered “transfers pursuant to a divorce decree.”
Bernard made a gift of $500,000 to his brother in 1997. At the time of the gift, the applicable gift tax credit was $192,800, but due to Bernard’s prior taxable gifts he paid $200,000 of gift tax. When Bernard died in 2022, the applicable gift tax credit had increased to $4,769,800. At Bernard’s death, what amount related to the $500,000 gift to his brother is included in his gross estate?
A. $0
B. $500,000
C. $200,000
D. $153,000
A. $0
Gift tax paid on gifts made within three years of a decedent’s date of death is included in the decedent’s gross estate. In this case, Bernard made the gift more than three years before his death, so $0 is included in his gross estate related to this gift. The value of the gift, $500,000 is added to the decedent’s taxable estate to determine the tentative tax base and Bernard will get credit for the gift tax paid of $200,000.
Luis created a joint bank account for himself and his friend, Amparo. At what point has a gift been made to Amparo?
A. When Luis dies.
B. When Luis notifies Amparo that the account has been created.
C. When the account is created.
D. When Amparo withdraws money from the account for her own benefit.
D. When Amparo withdraws money from the account for her own benefit.
A completed gift does not occur until the donee withdraws money from the account for their own benefit.
Curtis, who was married, recently died owning several assets. Given the assets below, determine whether each asset should be included in Curtis’ probate estate.
A car owned jointly with his son Kevin as JTWROS.
A. Yes, this item is included in the probate estate.
B. No, this item is not included in the probate estate.
B. No, this item is not included in the probate estate.
Curtis, who was married, recently died owning several assets. Given the assets below, determine whether each asset should be included in Curtis’ probate estate.
Curtis’ portion of acreage owned as community property with his wife.
A. Yes, this item is included in the probate estate.
B. No, this item is not included in the probate estate.
A. Yes, this item is included in the probate estate.
Curtis, who was married, recently died owning several assets. Given the assets below, determine whether each asset should be included in Curtis’ probate estate
A $500,000 life insurance policy on his own life. His daughter Ann was the named beneficiary and received the proceeds 40 days after Curtis’ death.
A. Yes, this item is included in the probate estate.
B. No, this item is not included in the probate estate.
B. No, this item is not included in the probate estate.
Curtis, who was married, recently died owning several assets. Given the assets below, determine whether each asset should be included in Curtis’ probate estate.
His personal residence worth $250,000 titled as sole ownership (fee simple).
A. Yes, this item is included in the probate estate.
B. No, this item is not included in the probate estate.
A. Yes, this item is included in the probate estate.
Under which of the following circumstances would a decedent be considered to have died intestate?
A. The decedent was not of “sound mind” when they signed the statutory will.
B. The decedent failed to prepare a last will and testament.
C. All of the above.
D. The decedent handwrote a will but did not sign or date it.
C. All of the above.
Option a describes an invalid holographic will. Option b describes a situation in which the testator is not “of sound mind” and therefore cannot make a valid will. If the decedent dies without a valid will, he is said to have died intestate.
Katarina, age 58, recently visited her attorney to discuss the appropriate estate planning documents she needed to effectuate her estate planning goals. Given the following 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. Power of Attorney for Health Care.
B. Last Will and Testament
C. Do Not Resuscitate Order
D. Power of Appointment
E. Living Will
F. Side Instructional Letter
G. Power of Attorney
B. Last Will and Testament
Katarina, age 58, recently visited her attorney to discuss the appropriate estate planning documents she needed to effectuate her estate planning goals. Given the following goals, which document is appropriate to effectuate the goal to avoid being placed on an artificial breathing machine if Katarina is terminally ill?
A. Living Will
B. Do Not Resuscitate Order
C. Power of Attorney
D. Power of Attorney for Health Care
E. Side Instructional Letter
F. Last Will and Testament
G. Power of Appointment
A. Living Will
Katarina, age 58, recently visited her attorney to discuss the appropriate estate planning documents she needed to effectuate her estate planning goals. Given the following goals, which document is appropriate to effectuate the goal to give Katarina’s husband, Teddy, the ability to gift Katarina’s assets to himself after her death?
A. Living Will
B. Do Not Resuscitate Order
C. Power of Attorney
D. Power of Attorney for Health Care
E. Side Instructional Letter
F. Last Will and Testament
G. Power of Appointment
G. Power of Appointment
Katarina, age 58, recently visited her attorney to discuss the appropriate estate planning documents she needed to effectuate her estate planning goals. Given the following goals, which document is appropriate to effectuate the goal to clarify Katarina’s burial wishes?
A. Living Will
B. Do Not Resuscitate Order
C. Power of Attorney
D. Power of Attorney for Health Care
E. Side Instructional Letter
F. Last Will and Testament
G. Power of Appointment
E. Side Instructional Letter
Ashanti was recently diagnosed with an inoperable brain tumor. While the tumor has not caused any noticeable mental problems yet, Ashanti’s brain function is expected to deteriorate substantially over the next three years, resulting in significant medical expenditures. Ashanti’s sister, Ciara, was diagnosed with the same illness 2 years ago. Ashanti’s only other surviving relatives include three brothers, two nieces, and one nephew. Although Ashanti’s brother invited her to live with him, Ashanti sold her home in Oklahoma last month and moved to an assisted living facility in South Texas that specializes in caring for patients with brain tumors. Ashanti’s gross estate is currently valued at $12,000,000, including $2,000,000 in personal property, $4,000,000 in a retirement account, and $6,000,000 in a closely held family business. The only estate planning document Ashanti currently has is a valid will that was executed a year ago. Ashanti reviewed the will after her diagnosis and is confident that all of her wishes have been properly documented. Which of the following statements is correct?
A. If Ashanti were to decide to make changes to her will utilizing a codicil, she would still have to be competent to execute such a document for it to be considered valid.
B. Ashanti should execute a general power of attorney and a durable power of attorney for health care with Ciara as her appointed agent.
C. Since Ashanti has a valid will, there is no need for her financial planner to review or update her will.
D. Ashanti should begin a gifting program of $16,000 per year per person to her surviving relatives.
A. If Ashanti were to decide to make changes to her will utilizing a codicil, she would still have to be competent to execute such a document for it to be considered valid.
Explanation: Ashanti should have her will reviewed because she moved from Oklahoma to Texas. Moving from one state to another necessitates a review of the will to ensure that all new state laws are met. A codicil is an amendment or change to the will and to be valid the testator must be competent when the codicil is executed. Option c is incorrect because a gifting program is not appropriate because of the significant medical expenses she is expected to incur over the next three years. Option d is incorrect; Ciara is not the appropriate person to be Ashanti’s agent because Ciara also has a similar brain tumor expected to result in loss of mental capacity and, therefore, could not make decisions for Ashanti.
Although he has a vast fortune, Ricky has decided not to prepare an estate plan because he believes that his surviving family members will divide up his assets appropriately. Which of the following is not a risk associated with failing to plan an estate?
A. Ricky’s estate could incur excessive transfer taxes.
B. Ricky’s current wife, Lucille, may not provide for Ricky’s children from a previous marriage.
C. Ricky’s favorite Corvette may not be transferred to his ex-wife, Carla.
D. Ricky’s insurance policy on his own life may not be paid out to the named beneficiary.
D. Ricky’s insurance policy on his own life may not be paid out to the named beneficiary.
Which of the following is not a transfer cost associated with estate planning?
A. Insurance Premiums
B. Document preparation.
C. CPA’s fees.
D. Attorney’s fees.
A. Insurance Premiums
Tracey is a financial planner who recently received his CFP® designation. Tracey does not have any other designations or licenses. Although Tracey’s expertise is investment planning, he is anxious to expand his client base and is willing to assist clients with any area of financial planning. Over the last month Tracey engaged in the following activities with Troy, a new client. (5)
- During the initial meeting, Tracey collected personal data about Troy including the estate planning documents Troy had previously executed.
- During the second meeting, Tracey recommended the use of a trust to fulfill some of Troy’s estate planning goals.
- Troy called Tracey one afternoon and asked if Tracey could explain the probate process to him, which Tracey promptly did.
- Tracey downloaded a copy of a generic will from the internet, filled in Troy’s information and gave the document to Troy to be executed.
Of the activities above, which would be considered the unauthorized practice of law?
A. 2, 3 and 4
B. 4 only
C. 1 and 2
D. 3 and 4
B. 4 only
Which of the following is not a common estate planning goal?
A. Providing for liquidity at death
B. Maximizing transfer costs
C. Minimizing transfer taxes
D. Fulfilling client’s healthcare decisions
B. Maximizing transfer costs
