Lesson 2 Flashcards
Juan dies this year. Which of the following transfers at his death are part of the probate process?
A. A life insurance policy on Juan’s life that is owned by Juan and payable to his wife, Joan, as
beneficiary.
B. Investment property Juan owns with Bill, his son, as joint tenants with right of survivorship, where
Juan contributed 60% of the consideration for the investment.
C. A bank account that Bill, his son, didn’t know about, and that is owned by Juan with a TOD provision
to Bill.
D. A life insurance policy Juan owns on his wife Joan that is to be paid to a testamentary trust
Juan has established in his will since a living trust was not previously established.
D. A life insurance policy Juan owns on his wife Joan that is to be paid to a testamentary trust
Juan has established in his will since a living trust was not previously established.
Which of the following statements regarding living trusts is correct?
A. They do not avoid the probate process
B. Unlike irrevocable trusts, they can be effective without being funded
C. While they do help maintain control over assets, they do not help avoid fees or taxation
D. Living trusts become irrevocable upon the death of the grantor
D. Living trusts become irrevocable upon the death of the grantor
An irrevocable life insurance trust (ILIT) can provide which of the following advantages to the estate
planning client?
A. Shift current income taxes from the grantor-insured to the beneficiaries
B. Provide the flexibility for the grantor-insured’s access to policy values prior to the grantor’s death
C. Improve the liquidity position of the grantor-insured’s transferred wealth
D. Shift the responsibility to pay the estate taxes of the grantor-insured’s estate to the trustee of the
ILIT
C. Improve the liquidity position of the grantor-insured’s transferred wealth
Which of the following statements concerning the federal estate tax charitable deduction is correct?
A. A charitable deduction is reduced by the amount of debts and liens allocated to the
charitable bequest.
B. The charitable deduction is limited to 50 percent of the decedent’s adjusted gross estate on the
federal estate tax return.
C. It is advisable for the executor to have the charitable bequest amount included in the decedent’s
funeral and administrative expenses so that the charitable deduction will be increased by those
amounts.
D. An estate tax charitable deduction can be taken for a bequest to a needy individual if it can be
proven the individual lives in poverty.
A. A charitable deduction is reduced by the amount of debts and liens allocated to the
charitable bequest.
Bill needs approximately $500,000 of personal life insurance protection and has chosen a universal
life policy to meet this need. Assume that Bill sets up a properly drafted irrevocable insurance trust
that will apply for, own, and be the beneficiary of the policy. Which of the following statements about
this arrangement is correct?
A. The use of an irrevocable trust makes it difficult for the trustee to borrow from the policy without
adverse estate tax consequences to Bill’s estate.
B. Bill automatically obtains the benefits of the gift tax annual exclusion when paying premiums.
C. Life insurance death proceeds payable to the trust will be excluded from Bill’s gross estate
for estate tax purposes.
D. The terms of the trust instrument cannot control the distribution of the insurance death proceeds.
C. Life insurance death proceeds payable to the trust will be excluded from Bill’s gross estate
for estate tax purposes.
Kevin and Susan are currently married. The couple live in a beautiful home that is owned only by
Kevin. They have a life insurance policy that is held in a revocable insurance trust, and they have a
money market fund and a stock portfolio that are both owned jointly with right of survivorship. Assuming
that Kevin dies today and is survived by Susan, which one of the following assets will pass through
probate?
A. The personal residence owned only by Kevin
B. A money market fund owned jointly with right of survivorship
C. A stock portfolio owned jointly with right of survivorship
D. A life insurance policy held in a revocable insurance trust
A. The personal residence owned only by Kevin
Bob is married to Linda, and the couple has two children. Bob is injured and receives a $26,000,000
settlement. Linda has a whole life policy. Which of the following strategies would have the potential
to reduce the estate tax liability at the death of the surviving spouse?
I. Convert Bob’s group life coverage policy to an individual policy.
II. Transfer ownership of Linda’s whole life policy to an irrevocable life insurance
trust designed to benefit the couple’s two children.
B. II only
Thirty-five years ago, Sean purchased a $75,000 ordinary whole life policy on his own life. The policy
proceeds are payable to his wife, Sarah, if she survives Sean; otherwise they go to Colleen, the
couple’s daughter. The policy’s annual premium is $700, and its cash value is currently $45,000.
Sean and Sarah own their home free of any mortgage, and it is titled jointly with right of survivorship
(JTWROS). They have lived in it for 20 years and estimate its market value at $300,000 net of
selling expenses. Their basis in the home is $120,000.
Assuming that Sean dies today, which of the following statements with regard to the financial effects
of his death is (are) correct?
I. The life insurance on Sean would not be includible in his gross estate.
II. Sarah would receive a stepped-up basis in the home equal to its full market value.
D. Neither I nor II
The following are tax considerations in estate planning for a married couple EXCEPT:
A. a deceased spouse’s unused exclusion
B. the use of a residuary trust to receive the applicable exclusion
C. carryover basis for personal property inherited by children
D. a QTIP that provides income to the surviving spouse, but leaves the remainder to the children
C. carryover basis for personal property inherited by children
All the following statements concerning the federal estate tax marital deduction are correct EXCEPT:
A. The decedent and surviving spouse must be married at the time of the decedent-spouse’s death.
B. The deduction can be for an unlimited amount of qualifying property.
C. The deduction is allowed for property passing to a surviving spouse by will.
D. The property must pass to the surviving spouse outright rather than in trust.
D. The property must pass to the surviving spouse outright rather than in trust.
