G.62 Postmortem estate planning techniques

Question 1

Mr. Jones passed away without any estate planning documents. He left behind an estate valued at $3 million, including a primary residence, stocks, and bonds. He is survived by his wife and two adult children from a previous marriage. Which of the following is the most likely outcome?

A. His entire estate will go to his wife
B. His estate will be divided evenly among his wife and two children
C. His estate will be distributed according to the intestacy laws of his state
D. His wife will automatically get the primary residence, while the children will split the stocks and bonds

Answer 1

C. His estate will be distributed according to the intestacy laws of his state

G.62 Postmortem estate planning techniques

Question 2

Mrs. Smith recently lost her husband and wants to make sure that her estate will bypass probate upon her death. Which of the following strategies would best achieve this goal?

A. Having a will
B. Creating a revocable living trust
C. Assigning a power of attorney
D. Gifting all her assets before death

Answer 2

B. Creating a revocable living trust

G.62 Postmortem estate planning techniques

Question 3

After the death of Mr. Thompson, his family discovered he had a large collection of valuable artwork. None of these pieces were specifically mentioned in his will. What will likely happen to this collection?

A. The artwork will be sold, and the proceeds will be distributed according to the will
B. The artwork becomes the property of the state
C. The artwork will be distributed as part of the residuary estate
D. The artwork will be donated to a museum

Answer 3

C. The artwork will be distributed as part of the residuary estate

G.62 Postmortem estate planning techniques

Question 4

Mrs. Daniels died with an outstanding mortgage on her home. She left the home to her daughter in her will. What will happen to the mortgage?

A. The mortgage is forgiven upon her death
B. The mortgage holder will inherit the home
C. The mortgage is paid from the assets of the residuary estate before distribution
D. The bank takes possession of the house

Answer 4

C. The mortgage is paid from the assets of the residuary estate before distribution

G.62 Postmortem estate planning techniques

Question 5

Mr. and Mrs. Gonzalez set up an AB trust as a part of their estate plan. Upon Mr. Gonzalez’s death, what happens to the assets in his portion of the trust?

A. They are transferred to Mrs. Gonzalez’s trust
B. They are directly distributed to the beneficiaries
C. They remain in his trust, with income usually provided to Mrs. Gonzalez during her lifetime
D. They are donated to charity

Answer 5

C. They remain in his trust, with income usually provided to Mrs. Gonzalez during her lifetime

G.62 Postmortem estate planning techniques

Question 6

Mr. Harper, a widower with three adult children, passed away owning property in three different states. He had a will in place, which was created in his home state. How will the out-of-state properties be handled upon his death?

A. The properties will be subject to ancillary probate in their respective states
B. The properties will automatically transfer to his children
C. The home state’s probate process will address all properties
D. The out-of-state properties are exempt from probate due to their locations

Answer 6

A. The properties will be subject to ancillary probate in their respective states

G.62 Postmortem estate planning techniques

Question 7

Ms. White, a single woman, passed away with a payable-on-death (POD) bank account naming her niece as the beneficiary. How will these funds be treated?

A. They will be distributed as part of the residuary estate
B. They will bypass probate and go directly to her niece
C. They will be used to pay off any of Ms. White’s debts before going to her niece
D. They will be equally divided among all her living relatives

Answer 7

B. They will bypass probate and go directly to her niece

G.62 Postmortem estate planning techniques

Question 8

Mr. Green established a family limited partnership (FLP) as part of his estate planning strategy. What is the primary benefit of such a setup?

A. It ensures that the family business remains in the family after his death
B. It allows for a reduction in the value of estate assets, potentially reducing estate taxes
C. It guarantees that Mr. Green’s wishes regarding the distribution of personal items are honored
D. It ensures that all of Mr. Green’s debts are paid off immediately upon his death

Answer 8

B. It allows for a reduction in the value of estate assets, potentially reducing estate taxes

G.62 Postmortem estate planning techniques

Question 9

Mrs. Lewis had set up an irrevocable life insurance trust (ILIT) prior to her passing. Which of the following is a primary reason for doing so?

A. To provide immediate cash for her heirs upon her death
B. To change the beneficiaries of her life insurance policy anytime she wants
C. To ensure the life insurance proceeds are not included in her taxable estate
D. To borrow against the life insurance policy during her lifetime

Answer 9

C. To ensure the life insurance proceeds are not included in her taxable estate

G.62 Postmortem estate planning techniques

Question 10

Mr. Patel, upon reviewing his estate planning documents, realizes he has named his minor granddaughter as the beneficiary of a substantial asset. Concerned about her receiving this outright at a young age, he should consider:

A. Disinheriting her entirely
B. Establishing a custodial account under the Uniform Transfers to Minors Act (UTMA)
C. Setting up an annuity that pays her a monthly amount
D. Naming his eldest son as the beneficiary instead

Answer 10

B. Establishing a custodial account under the Uniform Transfers to Minors Act (UTMA)

G.62 Postmortem estate planning techniques

Question 11

John passed away, leaving behind a substantial estate and a poorly drafted will. Which postmortem planning technique could potentially minimize estate taxes?

A. Disclaiming interests
B. Utilizing alternate valuation
C. Filing for portability
D. All of the above

Answer 11

D. All of the above

Disclaiming interests can redirect assets in a more tax-efficient manner. Utilizing alternate valuation dates can lower the estate’s value if market conditions have declined. Filing for portability allows a surviving spouse to utilize any unused estate tax exemption of the deceased spouse, thus potentially lowering future estate taxes.

G.62 Postmortem estate planning techniques

Question 12

Sara’s husband recently died and she discovered that his estate exceeds the federal estate tax exemption limit. Which postmortem technique can she use to reduce her future estate tax liability?

A. Elect portability
B. File a gift tax return
C. Increase her annual gifting
D. Renounce her inheritance

Answer 12

A. Elect portability

Electing portability allows Sara to add any unused federal estate tax exemption from her deceased husband to her own, reducing her potential estate tax liability when she passes away.

G.62 Postmortem estate planning techniques

Question 13

Tom died in January 2024. His estate includes a large stock portfolio that lost value by the date of the estate tax filing. What should the executor consider to potentially reduce estate taxes?

A. Sell the stocks before filing the estate tax return
B. Use the alternate valuation date
C. Reinvest the dividends
D. Allocate the losses to the next fiscal year

Answer 13

B. Use the alternate valuation date

By choosing the alternate valuation date, the estate can be valued six months after death rather than at the date of death, which might be beneficial if the asset values have dropped, thus lowering the overall estate tax.

G.62 Postmortem estate planning techniques

Question 14

Mary is the executor for her brother’s estate. She discovers that he made several large gifts in the year prior to his death that were not included in his taxable estate. What should she do?

A. File an amended income tax return for the deceased
B. Add the value of the gifts to the estate tax return
C. Seek reimbursement from the gift recipients
D. Ignore the gifts as they are no longer relevant

Answer 14

B. Add the value of the gifts to the estate tax return

Large gifts made within a certain period before death can be brought back into the estate for tax purposes to ensure they are properly accounted for in calculating estate taxes.

G.62 Postmortem estate planning techniques

Question 15

Alice’s deceased husband had a large unused estate tax exemption. Which form must Alice file to ensure she can use this exemption for herself in the future?

A. Form 706
B. Form 1040
C. Form 709
D. Form 1041

Answer 15

A. Form 706

Form 706 is the United States Estate (and Generation-Skipping Transfer) Tax Return, which is used to elect portability of a deceased spouse’s unused exclusion amount to the surviving spouse.

G.62 Postmortem estate planning techniques

Question 16

An executor is considering the use of disclaimers in postmortem estate planning. What is the primary purpose of this technique?

A. To increase the tax liability
B. To redirect inheritance to more tax-efficient beneficiaries
C. To fulfill the last wishes of the deceased
D. To register a formal complaint against the will

Answer 16

B. To redirect inheritance to more tax-efficient beneficiaries

Disclaimers can be used to refuse an inheritance, allowing it to pass to the next beneficiary in line under the terms of the will or state law, potentially resulting in more tax-efficient distribution.

G.62 Postmortem estate planning techniques

Question 17

The estate of a deceased artist includes several paintings that have increased in value. If the executor uses the alternate valuation date, what is a potential risk?

A. Increased estate taxes due to higher valuation
B. Decreased estate taxes due to lower valuation
C. Legal challenges from unhappy beneficiaries
D. Overpayment on the estate’s income tax return

Answer 17

A. Increased estate taxes due to higher valuation

If the value of the paintings increases further by the alternate valuation date, the estate might face higher estate taxes than if the estate were valued at the date of death.

G.62 Postmortem estate planning techniques

Question 18

Paul is the executor of his uncle’s estate, which includes a farm that has depreciated in value since his uncle’s passing. What postmortem option could potentially benefit the estate?

A. Claiming a special use valuation
B. Rezoning the farm before sale
C. Increasing crop production
D. Dissolving the estate early

Answer 18

A. Claiming a special use valuation

Special use valuation allows certain types of real estate to be valued based on its current use rather than its highest and best use, potentially lowering estate taxes if the property has depreciated.

G.62 Postmortem estate planning techniques

Question 19

Henry is managing an estate that includes a substantial amount of debt. What postmortem strategy can he employ to address this issue without diminishing the estate’s assets too greatly?

A. Negotiate with creditors for a reduction in the debt
B. Increase the estate’s income through investments
C. Disclaim some of the estate’s valuable assets
D. Sell all assets immediately

Answer 19

A. Negotiate with creditors for a reduction in the debt

Negotiating with creditors can potentially reduce the overall debt burden without the need to liquidate estate assets, preserving more for the beneficiaries.

G.62 Postmortem estate planning techniques

Question 20

An executor finds that the deceased had substantial medical expenses in the final year of life. How can these expenses impact the estate?

A. They can be deducted on the estate’s income tax return
B. They must be reimbursed by the healthcare provider
C. They can be ignored as they are not part of the estate
D. They can be claimed as a credit on the estate tax return

Answer 20

A. They can be deducted on the estate’s income tax return

Medical expenses incurred before death can be deductible on the decedent’s final income tax return if paid out of the estate within one year of death, potentially reducing the overall taxable income.

G.62 Postmortem estate planning techniques