Lesson 7: Estate Tax Flashcards
Which of the following incidents of ownership held during the three-year period before death will cause the inclusion of life insurance proceeds in the gross estate?
A) The right to change the beneficiary.
B) The right to borrow against the policy.
C) The right to convert group coverage to an individual contract.
D) Any of the above incidents of ownership would be enough to bring the proceeds into the gross estate.
The correct answer is (D).
Any incident of ownership will bring the proceeds into the gross estate.
The alternate valuation date is exactly _______ month(s) following the date of death?
A) 1.
B) 3.
C) 6.
D) 12.
The correct answer is (C).
The alternate valuation date is six months after death.
Which of the following is not a deduction from the gross estate?
A) Estate tax marital deduction.
B) Estate tax charitable deduction.
C) Gift tax deduction.
D) State death tax deduction.
The correct answer is (C).
There is no deduction for gift tax.
The executor elects to use the alternate valuation date. Which of the following statements is incorrect?
A) This election is irrevocable.
B) This election applies to all property included in the estate.
C) The executor makes this election to decrease the value of the gross estate.
D) The executor makes this election in order to obtain a higher stepped-up basis for income tax purposes.
The correct answer is (D).
The executor cannot elect the alternate valuation date for the purpose of obtaining a higher stepped-up basis.
At the time of her death, Kathy owned an annuity with payments that will continue after her death to her beneficiary. What amount of the annuity, if any, will be included in Kathy’s gross estate?
A) None.
B) The present value of any future payments.
C) The full initial value of the annuity.
D) It depends on whether the annuity is from an IRA, a tax-sheltered annuity, or a qualified plan.
The correct answer is (B).
The present value of future payments will be included in the gross estate.
Which of the following is the most appropriate strategy for a small estate?
A) Maximize annual gifting under the annual exclusion each year.
B) Implement irrevocable trusts for marital transfers.
C) Name a relative as power of attorney to handle all healthcare and estate matters.
D) Create healthcare planning documents and create an estate plan that minimizes the probate estate while ensuring the estate has sufficient liquidity to satisfy state death taxes.
The correct answer is (D).
Statement (D) The last choice addresses healthcare planning and planning for costs. Statement (A) The first choice is incorrect because gift tax is not an issue with small estates. Statement (B) The second choice is incorrect because irrevocable trusts are only necessary for large estates. Statement (C) The third choice is incorrect because creating a power of attorney is not a substitute for a healthcare and estate plan.
A minority interest discount may be available when all of the following conditions apply to the holder of a limited partnership interest EXCEPT:
A) No voting control.
B) A minor management role in the limited partnership.
C) The ability to dissolve the FLP.
D) The ability to require a return of his or her capital contributions.
The correct answer is (B).
A minority interest discount depends on the holder of the limited partnership, along with other criteria, not having any management role or control over the operations of the FLP.
Of the following is an allowable deduction from the adjusted gross estate to arrive at the taxable estate?
A) Applicable credit for the lifetime exemption.
B) Gift of $350,000 to non-citizen relative living overseas.
C) Deduction of each gift made under the annual exclusion.
D) Transfers to the decedent’s spouse totaling $450,000 during their marriage.
The correct answer is (D).
Transfers between spouses are deductible via the marital deduction. The applicable credit is applied after the calculation of the tentative tax before credits. Gifts to non-spouse relatives are not deductible. Gifts made under the annual exclusion are not taxable and are not included in the taxable estate calculation, and are therefore not deductible.
Grant inherited an art collection valued at $450,000 from his aunt Beatrix. She acquired the collection 20 years ago for $130,000. Within 1 month of inheriting the property, Grant sold the collection for $455,000. What is Grant’s taxable gain for income tax purposes?
A) $5,000 short-term capital gain.
B) $5,000 long-term capital gain.
C) $320,000 short-term capital gain.
D) $320,000 long-term capital gain.
The correct answer is (B).
Grant’s basis in the property is equal to the date of death value, of $450,000. The holding period for inheritances is long term regardless of how long the decedent or the legatee held the property. Thus, his gain is $5,000: $455,000 (sale price) - $450,000 (his basis in the property). His holding period is a long-term capital gain.
Which of the following statements is true regarding the gross estate?
A) The gross estate includes property that avoids probate, such as life insurance proceeds payable to a named beneficiary.
B) The gross estate only consists of taxable probate property.
C) The gross estate excludes marital deduction property.
D) The gross estate is calculated after deducting administrative expenses, debts, and losses.
The correct answer is (A).
Statement (B) is incorrect because the gross estate consists of probate and non-probate property. Statement (C) is incorrect because the gross estate includes marital deduction property. Statement (D) is incorrect because those expenses are subtracted from the gross estate to calculate the adjusted gross estate.
