Review Questions Flashcards by Michael Byrns

Which of the following statements is/are correct?

I. The value of a CRAT where the decedent was the only non-charitable beneficiary is included in the gross estate of the decedent.

II. Gift taxes paid two years prior to the death of the decedent for gifts made four years ago are included in the gross estate of the decedent under the gross up rule.

I only

Only gift taxes paid on gifts made within three years are included under the gross up rule.

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Your client, Simon Legree, has one child Donna (age 6). He has a rental property valued at $100,000. Simon has the following goals:

Get discretionary income to Donna, immediately

Avoid all gift taxes

Preserve his applicable estate credit

Allow access to all principal and interest at her age of 18 for college expenses

Remove the property from his gross estate

Which of the following will accomplish his goals?

A. Establish 2502(b) trust with Donna as income and remainder beneficiary, gifting $15,000 interest in the property per year to the trust.

B. Establish UTMA custodial account for Donna and fund with a $15k interest in the property each year

C. Establish UGMA custodial account and transfer entire property into the account

D. Establish a crummey trust with a %+% power for Donna’s benefit

A 2503(b) requires mandatory income distribution annually.

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Which of the following statements is NOT correct about trusts?

A. A sprinkling provision allows the trustee to make payments of income or corpus to beneficiaries based upon specific needs

B. A discretionary provision allows trustees to distribute corpus or income, ,or not, as they determine is most prudent

C. A spendthrift provision prohibits a trust beneficiary from assigning interests in the trust corpus

D. The CRUT is subject to a test for remainder interest of 10% and the probability test

The CRAT but not the CRUT is subject to the probability test

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Which of the following is NOT a disadvantage of UGMA/UTMA custodial accounts?

A. The assets are owned by the student for financial aid purposes.

B. The custodian loses control of the asset at time of maturity

C. The assets are included int he donor’s gross estate until maturity

D. The assets are non-transferable

A- these account can severely reduce the child’s ability for financial aid

B - the custodian no longer has any control oer the assets upon maturity. The child may or may not choose to use the assets wisely

D - The assets placed in this account may not be transferred or revoked

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Which of the following trusts can permit the trustee to invade the principal for HEMS support for all beneficiaries presuming each trust is structured the same way with the grantor the decedent, the spouse of the grantor the income beneficiary, and the children of the grantor the remainder beneficiaries?

ILIT
A bypass Trust
A GPOA Trust

1 + 2

Statements 1 and 2 are the nonmarital trusts and therefore the trustee can have the power to invade for all beneficiaries.

The GPOA trust is a marital trust and the trustee would be redirected to invade for the spouse only or the trust would not qualify for the marital deduction

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Jack and Jill have 6m in a bank titled as JTWROS and 20m in other assets. Which of the following planning techniques can Jack and Jill use to reduce total estate taxes for both spouses?

A. A corporate redemption (303)

B. A charitable bequest

C. A testamentary credit shelter trust

D. A power of appointment trust

While a credit shelter trust will provide an exclusion at the first death it does not reduce the tax of BOTH spouses.

An “A” or POA trust does not reduce estate taxes.

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A testator-selected survivorship clause inserted ina Will is preferable to a state’s Uniform Simultaneous Death Act (USDA) because:

A. Most states don’t have a USDA

B. The USDA always creates the presumption that the husband died first

C. The USDA presumption will not apply if the order of deaths can be determined

D. The USDA presumption, when applicable, almost always results in higher estate taxes

C - The presumption under USDA applies only when the order of death is not known

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Which of the following accurately describe a Charitable Lead Trust?

A. At the end of the trust term, the remainder interest must be returned to the grantor

B. The grantor can be any form of entity, e.g corporation, LLC, etc.

C. If a unitrust, additions to corpus may be placed in the trust.

D. The grantor will always get an immediate charitable income tax deduction

A corporation cannot be the grantor.

the grantor will only get a charitable deduction if the grantor elects trust status.

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Dawson recently prepared a last will and testament in which he left all of his assets to his girlfriend, Jen. Dawson and Jen broke up last night and now Dawson wants to leave all of his worldly possessions to his best friend Joey. What can Dawson do to prevent Jen from receiving any of his assets?

A. Dawson can shred the will under which Jen receives all of his assets

B. Dawson can send Jen an email telling her that he has revoked the will

C. Dawson can simply handwrite a new will, sign and date it.

D. Dawson can give the old will to Joey with a codicil changing the universal legatee to Joey.

D. Any of the above

The handwritten will may or may not be effective and may not be found

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An installment sale has which of the following characteristics?

I. Allows pro-rata recognition of profits in the year payments are received

II. Multiple Payments received in the same calendar year qualify for installment sale treatment

III. Has a fixed selling price contractually agreed to by both parties

IV. Installment sale tax treatment is optional under the IRC

I and III only

Installment sale treatment is mandatory but need not be a sum certain at time of sale.

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George Beatty wants to establish a single trust with the following characteristics and provisions:

the income will be distributed to his grandchild at the discretion of the trustee until the grandchild reaches age 21
the remaining trust assets will then be distributed equally between his children and grandchildren
George would be entitled to the maximum annual exclusion for any assets placed in the trust.

Which one of the following trusts can have all these characteristics or provisions?

A. A Crummey Trust

B. Section 2503b

C. Section 2503c

D. An unfunded ILIT

b - it requires annual income distributions
c - it permits accumulation of income and then distribution of assets to the beneficiary

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Which of the following are elements required in a valid trust?

I. Grantor having an intent to create it
II. Trustee who holds legal title to all assets in the trust
III. Beneficiary who holds equitable title to the assets
IV. property in the trust
V. Fiduciary relationship between the trustee and the beneficiary

All of them

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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, her personal presidence, 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:

I. be included in Zoe’s gross estate
II. Be subject to the probate process
III. Receive a new income tax basis equal to the FMV or AVD
IV. Be distributed as directed by Zoe’s will

I only

Installment notes are IRD and do not get a step up to FMV

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Your client, Zoe, has established a 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, her personal presidence, 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. Which of the following statements is/are correct?

I. Upon the transfer of the installment notes to the trust, any deferred gain will be recognized as taxable income

II. After the transfer to the trust, the income from the mutual funds will continue to be reported on Zoe’s tax return

III. Upon the transfer of the rental property to the trust, all the excess prior year’s depreciation will be recaptured as ordinary income

IV. After the transfer, the $250,000 exclusion from capital gains remains available for the personal residence

II and IV

I - deferred gain is not recognized as taxable income until such time as it is received.

III - would be ordinarily true except that this is a grantor trust with control remaining with the grantor and all rental income taxable to the grantor. Thus no true transfer which would cause deprecation recapture has taken place

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Which of the following is not necessary to carry out a Section 303 stock redemption?

A. The value of the stock must be greater than 35% of the decedent’s AGE, including fits made in the last 3 years

B. The 303 redemption can only be used if the corporation has the cash to redeem the shares

C. The 303 redemption can be made even without a positive earnings and profits account

D. The section 303 redemption is limited to an amount that cannot exceed the death taxes of the estate, plus funeral and administrative expenses for which the decedent is liable

The closely-held stock must make up 35% of the decedents adjusted gross estate value and must be the stock of a closely-held firm. The E and P account must be positive or there is no need for a 303 redemption

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John was married to Holly. All of their jointly held assets were community property. Recently Holly died. John was Holly’s only legatee. They had 2 children, Patrick (deceased) and Mary, Age 44. John wrote a will some years ago and included was a testamentary trust. Which of the following assets of Johns will be included in the testamentary trust as of John’s death?

A. An IRA with Holly named as the beneficiary and Mary the contingent beneficiary

B. One half of a Qualified Plan that named Holly as the beneficiary with no contingent beneficiary

C. All of the assets included in an intervivos trust created by Holly for her separate property with John as the only income beneficiary and the children living as remainder beneficiaries

D. None of the above choices

The IRA will pass via contract law.

All, not half of the qualified plan will be inclued in the testamentary trust

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Of the following, which property transfers at death by contract?

A. A Roth IRA

B. JTWROS

C. An irrevocable living trust

D. A GRAT

Only the Roth IRA transfers property at death by contract.

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Which of the following would not be an allowable distribution under the ascertainable standard of a trust?

A. Medical expenses due to a car accident

B. Credit card payment for the purchase of a computer for school

C. Tuition payment to finish a course for a bachelor’s degree

D. Rent payment on the apartment the holder lived in for the past 10 years

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Jenny gave her $750,000 whole life insurance policy on her life to her older sister as a gift. The gift tax value of the policy is the:

A. Surrender Value of the Policy

B. Cash Value of the policy

C. Interpolated terminal reserve, plus the unearned premium

D. Death benefit less any outstanding loans

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Prairie Dog Corporation (PDC) has “key person insurance” variable universal life policy on Digger, who’s the VP of drilling operations. The owner and beneficiary of the policy are the corporation. Which of the following is correct?

A. Premiums paid by PDC are taxable income to Digger

B. Premiums paid by PDC are considered gifts to Digger

C. Premiums paid by PDC are tax deductible as a business expense

D. Any DB paid will be nontaxable to PDC

PDC is the owner and beneficiary, and “key Person” life insurance premiums are not deductible as a business expense.

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Eric and Tawny gift $120,000 to an ILIT with Crummey provisions. The trust has, as beneficiaries, their three children. A few weeks later, Eric Dies in an auto accident. Tawny is calculating Eric’s gross estate. How much of the gift will be brought back into Eric’s gross estate?

A. 0

B. 21000

C. 42000

D. 102000

The gift was of cash. Therefore non of it will be included in Eric’s gross estate as the trust is irrevocable.

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When a question says the client wants to “provide for some control over assets”, what does that eliminate?

CRATs

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Which of the following are parties to a power of attorney?

A. The principal and the principal’s agent.

B. The Guardian ad litem who is the agent.

C. The principal

D. the attorney who prepares the POA

E. All of the above

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Which of the following tasks are the primary responsibility of the PR?

I. Inventory of the estate

II. File income tax returns for all beneficiaries

III. Contest payment of all debts of the estate

IV. Probate the will

I and IV

The beneficiaries file their own returns and all legitimate debts are paid without contest.

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Which of the following is not a characteristic of a testamentary trust? A. Is created under a last will and testament B. It shifts the income tax burden to a lower-bracket taxpayer C. The assets are included in the gross estate D. It is included in probate

B All of the other answers are characteristics of a testamentary trust

Which of the following is false regarding a bargain sale? A. The difference between the FMV 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 not advisable if the buyer of the property is a family member D. If the property is sold for more than the seller's basis in the property, taxable income will result.

C Bargain sales usually occur among related parties.

Dirk Houston is a 60-year old widower in good health. dirk owns rental properties that generate income in excess of $150,000 per year. Dirk needs only a portion of the rental income to maintain his lifestyle. In order to transfer a portion of his assets and income to his only son, Travis, while maintaining complete control over the assets during his lifetime, which of the following transfer devices is most appropriate. A. A Gift-Leaseback to Travis B. A private annuity with travis C. A FLP with Travis D. An installment sale with travis

C Dirk wants Travis to have income, not ownership Dirk would like to maintain complete control over the assets during his lifetime, this would exclude answers A, B and D

Which of the following are characteristics of a Private Annuity? I. Title to the property is conveyed to the individual responsible for making annuity payments at the time of the transaction II. 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 III. The individual responsible for making annuity payments can deduct the interest portion of those payments IV. Each payment received by the annuitant is divided into gain, interest income, and non-taxable recovery of basis

I and IV The private annuity interest portion of payments to the annuitant cannot be deducted by the transferee

Devon Wright asked if you could help him structure an irrevocable trust. His ultimate goal is to remove the trust corpus from his gross estate while still reporting income taxes on any income generated by the trust during his life. His best choice of trust to accomplish this is? A. A chapter 14 trust B. A Defective Grantor Trust C. A crummey trust D. A Bypass Trust E. A GRAT

B. A grantor trust is treated as a grantor trust for income tax purposes but as a completed gift for gift and estate tax purposes

Tenancy by entirety may be terminated in which of the following ways? I. Death, whereby the survivor takes the entire tenancy II. Mutual Agreement III. Divorce, which converts the tenancy into a tenancy in common or joint tenancy IV. Severance, whereby one tenant transfers his or her interest to a third party with or without the consent of the other tenant

I, II, III The interest of one spouse cannot be terminated or severed without the consent of the other spouse.

Which of the following is a way to transfer assets out of the gross estate during a client's lifetime? A. The creation of JTWROS with the creators spouse B. A Testamentory Trust C. A GRAT with the children as beneficiaries D. A client-owned life insurance policy recently transferred to an ILIT

A 1/2 of the asset is removed from the gross estate of decedent due to the deemed contribution rule. C - because it is an incomplete gift until the grantor survives the trust term, it works, but A is a better answer

Jack is a dentist who never married. Three years before his death, he made the following gift: $300k (DB) life insurance policy on his life to his wife Molly. (The policy was worth 5k at the time of the transfer). - The only gift he made this year was: Stock worth 40k, which increased to 70k at his death and the gift of the LI to Molly. What amount will be added back to determine the estate tax base? A. 0 B. 25000 C. 40000 D. 370000

B Adjusted taxable gifts are added back to the TAXABLE ESTATE in determining the estate tax base at the dat eof gift value minus the annual gift exclusion to arrive at 25k. The gift to molly is included as a gift of the 5k transfer value, but the application of the annual gift exclusion fully offsets the gift.

All of the following are included in the gross estate except: A. Proceeds from a LI policy owner 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 a decedent C. Property where the decedent had reversionary interest of less than 10% of the value D. Gift taxes paid two year prior to the decedents date of death for gifts made four years earlier

Mrs. Bailey dies in 2021 leaving her entire 17.2m estate through her will to her penniless husband, George. His estate goes to their children at his death. He has terminal cancer with a life expectancy of 1 to 2 years. The ADV of Mrs. Bailey's entire estate is 17m. Select the post mortem technique George should utilize to reduce the overall estate tax liability of both estates: A. Elect portability B. Elect the use of the ADV C. Disclaim 7m and elect to use the ADV D. Do nothing

A You can only use the ADV if it reduces the gross estate (yes) and reduces the estate tax due (no, because it was all left to a spouse, so no estate tax is due)

An estate planning tool which permits (but does not require) invasion of principal to meet income payout requirements is known as: A. A CRUT B. A charitable annuity C. A CRAT D. A CLT

A The CRUT permits it, the CRAT requires it

A charitable trust that provides the grantor with income tax advantages and with a life income is known as: A. CRAT B. CRUT C. A and B D. A or B

Jamie, 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 and purchased a new home. The extinction of Taylor's legacy is called a what? A. Abatement B. Ademption C. Extinction Parabis D. In terrorem

B Abatement is the reduction in an estate when there is insufficient assets to satisfy all legatee provisions

Which of the following statements concerning a durable power of attorney is false? A. it becomes effective only upon determination of incompetency of the principal B. The attorney-in-fact is not obligated to utilize the DPOA C. It must be in writing D. It ceases at the death of the principal

A That is a springing DPOA

Martha and her daughter Lacy recently visited Sharon, a CFP professional, to review her estate planning documents. Martha informed Sharon that her friend Betty holds a non-durable POA over Martha's assets. A few weeks later, Martha was involved in an auto accident and was left mentally incapacitated. Sharon needs authorization to make a few transactions in Martha's portfolio. Who should Sharron contact to get the necessary approval? A. She should get approval from Martha's daughter B. She should get approval from Betty who holds a non-durable POA over Martha's assets C. A+B D. None of the choices

D NON DURABLE POA

What is a TPPT?

Tangible Personal Property Trust which is funded with personal property and the grantor retains the right to use the property that has been transferred to the trust

Which of the following statements concerning Crummey powers is/are correct? I. It permits a donor to contribute 15,000 each year to a trust and utilize the annual exclusion II. Gifts must be of a present interest to qualify for the annual exclusion and utilizing the Crummey power can create a present interest III. For withdrawal purposes, Crummey Powers are commonly used within an ILIT

I, II, III

Which of the following accurately describes a testamentary trust? A. it is created as part of a will package and takes effect when the will is executed B. Generally the assets included in a testamentary trust are subject to probate. C. It is a grantor revocable trust until death and then becomes irrevocable D. It is an irrevocable intervivos trust

B A testamentary trust does not take effect until the will is administered, not executed

Ben is interested in using a QPRT as a part of his estate plan. Which of the following is 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 either primary residences or vacation homes D. The grantor will have a taxable gift upon creation of the QPRT

Delores establishes a RLT and funds it with several apartment complexes. The trust requires that the trustee is to make annual distributions of all trust income to Delores' two nieces. Delores' sister, Hazel, is the trustee. Which of the following statements accurately reflect the tax treatment of this trust? A. Delores will owe gift taxes on the apartments placed into the trust B. Delores gross estate will be reduced by the value in the trust at her death C. Income distributed will not be subject to gift tax as long as it qualifies under the annual exemption or unified credit D. The income will be reported on the niece's tax return

C This is a grantor trust, so the income will be reported on Delores tax return

A simple trust has a LTCG that can be allocated to corpus of 12,500, dividends from a taxable domestic C-Corp of 7500 and interest income of 5000. What is the trust's distributable net income? A. 5000 B. 7500 C. 12500 D. 25000

C Cap gains aren't distributed in a simple trust?

When Harry died he left a will with a trust. The terms of his will were such that his trust was to pay his widow, Patty, a payment of 50k per year. Harry also arranged for 25k to go to each of his two sons each year. There were not charitable bequests. The distributable net income of the simple trust for the current year was 96,000. What amount was Patty required to include in her gross income? A. 50000 B. 48000 C. 25000 D. 0

B The amount taxed to beneficiaries is limited to the trusts DNI. If the amount distributed is greater than the total DNI, a proportional amount is allocated to each beneficiary based on the total distributed to beneficiaries. Example: (50,000/100,000) * 96000 = 48000

The use of an ILIT can accomplish which of the following? I. Create a vehicle to avoid GSTT II. Make proceeds available to the surviving spouse III. Ensure that proceeds will be excluded from the probate of both spouses IV. Shelters cash contributed for premiums from gift taxation up to the annual exclusion amount.

All four

In a QPRT the following is true: A. A QPRT can hold up to two residences B. Any income is taxed to the donor C. The donor surrenders the tax advantages of ownership D. Any income generated in the trust must be distributed by the trust

B QPRTs can hold only one residence. You may own 2 QPRTs. The donor retains all tax advantages

Which of the various types of trusts permits income sharing? A. QTIP Trusts B. By-pass Trusts C. General Power of Appointment Trusts D. Estate Trusts

Dr. Ben Allen has two primary assets in addition to his home and personal property. He is an osteopathic physician. He owns an S Corp that is producing substantial income. He has an X-ray machine and support equipment which is full depreciated. His son, 18, has decided to go chiropractic school after graduating from college. He would like to pay for the college and chiropractic school with pre-tax dollars. Based on this information, which of the following intra-family planning techniques would be appropriate? A. Gift stock in the S Corp to his son and use the education deduction B. Sell X-ray equipment on an installment sale basis C. Gift and leaseback the equipment and X-ray machine D. Transfer the S Corp into a FLP

C Gift and leaseback addresses the means to accomplish the desired objective of using pre-tax dollars to pay his son's tuition because the lease payments are deductible business expense to the physician

Your client, Ron, is in a partnership with John and Thomas. They have all expressed an interest in keeping their business running even if one of them were to die. What action would you recommend? A. Change the partnership to a LLC B. Structure a buy-sell purchase agreement. C. Have a detailed partnership agreement including an automatic continuation agreement D. Structure a buy/sell stock redemption agreement

B Entity purchase is usually the best used where a large number of owners are trying to implement a buy-sell agreement. In this case, a cross purchase would be adequate

Which of the following accurately describes the income tax implication of a sale-leaseback using an installment payment method? I. The transferor may not be able to deduct lease payment made to a family member as ordinary and necessary business expenses. II. A fully depreciated property that is transferred by sale-leaseback to a family member can nonetheless be depreciated by the new owner III. A sale-leaseback reduces the transferor's gross estate more than a gift-leaseback would IV. The transferor of a sale-leaseback may be subject to depreciation recapture in the year of the sale

I, II, IV

Suzanne York has a personal residence that she wants to pass to her children upon her death. Rather than waiting, she gives the children the home with the stipulation that she can continue to live in the home for the rest of her life. What best describes the transaction to the children? A. A reversionary interest B. Life Interest C Term Interest D. Remainder Interest

D She has made a gift with a remainder interest. Reversionary interest would have the home ownership returning to her. A life interest would be controlling interest for life, and term interest would be a limited time.

Which of the following may result in a gift for federal gift tax purposes? A. The exercise of a durable POA for property B. the lapse of a general power of appointment which lapsed as a result of time C. The exercise of a limited power of appointment (excludes trustees). D. The simple conversion of an individual to a joint tenancy investment account with your child

The following activities may be performed by a non-attorney, financial planner who is engaged to provide estate planning, except: A. Downloading trusts and wills using computer software designed for that purpose and editing them for a client. B. Review of the client beneficiaries for IRAs and Qualified Plans C. Calculating estimated estate tax liability D. Giving advice regarding annual gift planning for the legal purpose of reducing the gross estate

A A non-attorney cannot prepare or edit wills and trusts because such activities constitute the practice of law

XYZ Corporation is a closely held corporation. McFly, along with the three other owners, set up a stock redemption agreement requiring the corporation to buy all shares of a deceased or disabled shareholder. The plan is funded by entity life insurance policies on each shareholder. Premiums are paid by the corporation. The agreement states that the share price will established by an independent, competent third party appraiser. What are the tax implications of this plan? I. A deceased shareholder's gross estate will be increased by the amount of the life insurance II. There is no step-up in basis for decedent's family on the shares of stock covered by the plan III. The corporation will owe income tax on the difference between the cash value of the policy and the death benefit amount

None of the above

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 A - is the bond that an admin must generally post. B - empowers an admin to act as the agent of a probate court D - describes the state laws that govern the disposition of a decedent's estate if he has failed to prepare a valid will

Dan Ryan wishes to estimate his probate estate. The following are assets listed on his data form. What is included in the probate estate? - 5000 Limited Partnership Interest held as JTWROS with his brother who made no contribution - 150000 home held in Tenants by entirety - 20000 municipal bonds held in a separate account - 20000 child UTMA accounts - 25000 Mutual Fund held in community property with his spouse A. 40000 B. 20000 C. 45000 D. 32500

D JTWROS and Tenants by Entirety pass outside probate. The municipal bond and one half of the community property are included in probate, equaling 325000

Ralph lives with his wife in a separate property state. He owns assets totaling 15m. Included in those assets are the following: * An automobile - titled in Ralph's name; purchased for 50k and currently worth 30k * Disneyworld Timeshare - titled as Tenants in Common with Ralph's wife; Ralph is a 50% owner, and he paid 100k for his interest, which is currently valued at 80k; requires 5k annual upkeep fee * Windfarm interest - titled as tenants in common with Ralph's brother; Ralph is a 40% owner; purchased for $400,000, currently valued at $390,000; generates 20,000 income annually * Brokerage account - titled JTWROS with Ralph's cousin; basis of 900,000, ,currently valued at 1,200,000 Which one of these assets would be most appropriate to fund a bypass trust?

C The windfarm is owned as tenants in common, allowing Ralph's executor to place it in the bypass trust because it does not have right of survivorship A is incorrect because the auto would be eligible to be transferred BUT it is not appropriate for transfer. B - The timeshare could potentially deplete the trust due to the annual upkeep fee. D - The brokerage account is JTWROS, and therefore will automatically pass to Ralph's cousin by operation of law at the time of Ralph's death

Which of the following is correct about the unlimited marital deduction? A. The unlimited marital deduction applies to property included in the decedent's gross estate B. A noncitizen surviving spouse has a limited marital deduction C. The marital deduction is never available to a surviving spouse who is not a U.S citizen D. The deduction for the unlimited marital deduction is always equal to the property that qualified for the unlimited marital deduction

A Citizenship affect the application of the marital deduction; a non-us citizen must receive distributions through a QDOT to utilize the marital deduction. The deduction is not always equal to the qualified property. It is commonly equal to the qualifying property less any expenses paid by the surviving spouse

Federal estate and gift taxes are determined by the FMV of the property transferred. Which of the following statements is true? I. Asset values are based upon the FMV on the DOD or 6 months after the DOD for the gross estate II. Taxes are progressively higher as more assets are transferred during life. III. Value is determined on the date of the transfer of the assets for lifetime transfers IV. Special use valuation is always available for special use property

I, II, III only Special use valuation is only available if certain qualifications are met

Which of the following rights will not cause an insurance policy to be included in the gross estate of the owner/insured if retained within three years prior to the death of the owner/insured assuming the policy was in an ILIT? A. The right to borrow from the CV of the policy B. The right to assign the policy, but only to a qualified charity C. The right to surrender the policy, but only in case of terminal illness D. The right to change the name of a charitable beneficiary to another charitable beneficiary

D Any incidence of ownership (A,B,C) constitute incidence of ownership that would cause the policy to be included in the gross estate. The right to change a charitable beneficiary to another is not an incidence of ownership because the first charitable beneficiary may no longer exist

Carlos Fiorelli, a well-known sculptor, donated a large marble piece of his work to a public charity as part of a plan to reduce his gross estate and receive a charitable income tax deduction. He showed you this list, as a planner, and asked what the allowable charitable deductions would be from the following: - 3200 for marble and material - 600 contribution of time - 1500 modeling costs paid - 750 studio time paid. What is the amount that will be allowed as deductible contribution? A. 4700 B. 5300 C. 5450 D. 6050

A Only materials and actual costs can be used. Rental of space or time contributions are not deductible.

This estate planning tool will cause underlying assets to be included in the non-grantor holder's estate: A. An intervivos trust B. A special Power of Attorney C. The exercise of a nuncupative will D. A general power of appointment that is unexercised

Which of the following best describes a "mutual will"? A. two persons who leave all of their property to each other B. Oral instructions made in front of witnesses and each other concerning disposition of assets C. Two or more persons draw up wills to bequeath or dispose of property in a predetermined and agreed upon manner at the same time D. One will which covers both parties with the same result for the surviving party regardless of which one survives

A Answer D is considered a joint will

Which of the following relates to a will? A. A codicil B. A devisee C. A legatee D. All of the choices

All of the choices A devisee is a gift of real property through a will

Which of the following accurately reflect the characteristics of a GRAT? I. The trust must be irrevocable II. The trustee has no discretion to withold annuity payments from the grantor III. Additional contributions may be made to the trust after inception IV. 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 term trust

I, II, IV No additional contributions can be made to a GRAT

FLP provide the following, except: A. it may distribute income among owners B. Avoids the kiddie tax on owners under 19 C. Permits discounts for transfers on minority interests D. Works best when a business is transferred into the FLP

Clark and Lois Kent, spouses, own equal shares of an S corp. They have considered forming a FLP with their son, Jimmy. The S corp would be the general partner, and Clarke and Lois would gift LP interest to JImmy over the next decade. They want to maintain control of their business until they retire. They also want fixed income stream from the business. This would be considered an intra-family transfer. Which of the following accurately describes the tax implications of the transfers Clarke and Lois are considering? I. The FLP interest will be eligible for valution discounts in spite of the fact that IRC chapter 14 rules may apply. II. Income paid to Clarke and Lois after the LP is formed will be subject to double taxation, both at the partnership level and the individual level III. The control maintained by Clarke and Lois will bring the LP interest gifted to Jimmy back into their estates if made within three years IV. Lois and Clarke's right to fixed income from the partnership will be a qualified payment right when valuing the LP interest gifted to Jimmy

I and IV LP's are conduit entities and do not pay taxes. The right to the income retained in this question is considered qualified because it is income that is fixed in time and dollar amount and thus can be valued

Dave, 72 y/o client, has a portfolio of marketable securities that is valued at 850k and is rapidly appreciating. He wants to do the following: - Shift future appreciation of the portfolio to other family members - Spread income from the portfolio among family members without any preferential rights to income - Maintain control over the entire portfolio during his lifetime - Reduce his gross estate Which of the following techniques are currently being considered by Dave will meet all of his requirements? I. Installment Sale II. A partnership capital freeze III. An FLP IV. A 20-year CRUT

III only

Which of the following is true regarding a 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 assets will be included in the grantor's estate

Each of the following statements is true, except: A. Usually the PR must pay any estate taxes within 9 months of the DOD B. Gift tax returns must be filed by April 15 of the following year, with no extensions available C. up to 11.7m in transfers are exempt from GST in 2021 plus any annual exclusions D. Previous cumulative lifetime gifts are reported on each gift tax return filed

B An extension of time to file the income tax return automatically extends the time for filing gift tax returns. No separate form is required.

George has given taxable gifts equal to his unified credit. He still wants to gift property to his favorite nephew "lucky", valued at 35k, without personally paying for any gift tax. Which of the following can be considered a correct statement about a "net gift"? A. Lucky can use his unified credit to offset the gift tax. B. Gift taxes paid by lucky cannot be used as a credit against George's estate tax C. George's PR will be required to add back the net of 35k less the taxes into his taxable estate because he did not pay any gift tax. D. George may have to recognize taxable income on the transaction.

D Lucky's unified credit cannot be used to offset the gift. Estate tax is not related to gift tax credits. The tax is to be paid out of the gift, hence the mention of "net gift" in the question. If George's adjustable taxable basis is less than the tax paid, George will have to recognize taxable income equal to the difference. Simply put: it's always based on the taxable gift as that's the only value that drives a tax. So net of the Annual exclusion

Your client, Mike Goldstein, has made a number of gifts to friends and family as described below. He wants to know which one of the following was not a completed gift: A. Stock certificates were signed and delivered directly to his nephew, James' investment account. B. Mike made an irrevocable transfer of legal title of solely owned property to his niece, Bonnie, and retained a minority interest in that property after the gift. C. Mike gave his 16 year old grandson Colin a 1969 Convertible Mustang car D. Mike funded his granddaughters education with a 529 plan. He made himself the owner of the plan so that he could personally use the funds for his own needs if the situation arose.

B The retained interest in B prevents it from being a completed gift. The 529 ownership is deemed a completed gift once made but ca be undone by withdrawing. The right to withdraw does not prevent the gift from being complete. The 529 is the only deemed gift which as this kind of capability

Which of the following statements accurately reflect the nature of buy-sell agreements? A. A stock redemption plan must have a corporation as a party to the contractual arrangement B. A stock redemption plan increases the cost basis of surviving shareholders C. Under a cross-purchase agreement plan funded with life insurance, premiums paid are tax deductible to the payor D. Proceeds of a life insurance policy owned by a surviving shareholder must be included in the gross estate of the decedent

A The corporation must be a party to the stock redemption plan. Proceeds of a policy owned by a surviving shareholder are not includable in the decedent's gross estate and premiums are not tax deductible

T/F - a stock redemption should be selected if the surviving partners expect to sell their interest during their lifetimes?

T - If you do the cross purchase then each owner would have to sell, surrender, or hold on to the policy on the departing owner. Also, the departing owner would have multiple policies, each covering the other owners that they would need to do something with.

T/F - the interest in a JTWROS property be devised?

F - A devise is a specific bequest through a Will and joint tenancy property passes outside of the will (operation of law)

Which of the following correctly describes fee simple separate property ownership: I. Not included in probate estate, but is is included in gross estate II. Can include personal property (chattel) of all types III. Is presumed in common law states IV. Is not presumed in community property law states

II, III, IV Fee simple ownership is included in probate and is not presumed in community property states

Big Mike, 65 y/o, establishes a trust for his son, James, age 40 and his 4 grandchildren ages 7,3,5,1. The provisions of the trust are that James is the income beneficiary and the grandchildren are the remained beneficiary. Which of the following is/are correct? 1. The trust is a skip person because only skip persons are the remainder beneficiaries 2. The greatest risk to this trust being a skip person is a taxable termination

2 only

Which of the following trusts might be funded with 11.7m but usually not in excess of such an amount in the year 2021? A. A standby trust B. A pour-over trust C. An asset protection trust D. A generation skipping trust

D The GSTT offers a max of 11.7m exemption and may be funded for the full exemption amount for a skip person.

Howard bought a house for 300k and transferred it to a QPRT that was to continue for a term of 12 years. At the time the QPRT was created, the house was worth 500k. Howard died 10 years later, when the house was worth 700k. What amount is included in Howards estate? A. 0 B. 50000 C. 500000 D. 700000

D Because howard did not outlive the term of the QPRT, the entire value of the house on his DOD is included in the gross estate.

Diana's will leaves all of her property to her husband, George. IF he does not survive her by more than 240 days the property will transfer to Diana's daughter. Diana dies May 1 and George dies the following Feb. 1. Of which of the following statements, which is true? A. Diana's property will transfer to her daughter and the property will be eligible for the unlimited marital deduction in Diana's estate B. Diana's property will transfer to her daughter and the property will not be eligible for the unlimited marital deduction in Diana's estate C. Diana's property will transfer to George and the property will be eligible for the unlimited marital deduction in Diana's estate D. Diana's property will transfer to George and the property will not be eligible for the unlimited marital deduction in Diana's estate

D Option C is not correct because property that transfers to George will not be eligible for the unlimited marital deduction in Diana's estate because of the survivorship clause exceeds 6 months

Which of the following techniques can be used to lower the value of an individuals gross estate? I. Totten Trust II. QPRT III. FLP IV. ILIT

II, III, IV only Totten trusts are used to avoid probate, not to lower the gross estate. All of the other techniques can be used to lower the value of an individuals gross estate

Which of the following is not a requirement for the unlimited marital deduction? A. In order to qualify for a marital deduction, the decedent must have been married, but could be separated not divorced, as the DOD B. The surviving spouse must receive property that is included in the gross estate of the decedent C. The surviving spouse must be a US citizen unless there is a QDOT D. The total value of the qualifying property received by the surviving spouse is excluded from the taxable estate by the unlimited marital deduction

D Answer D is incorrect because it's the net value, not the gross value of qualifying property left to the surviving spouse is excluded by the marital deduction

Which of the following are deducted from a decedents gross estate? I. A whole life policy that he owned on his mother II. A mortgage on community property III. A credit card balance on a sole and separate account IV. Income taxes paid earlier in the year V. Interest owed on the credit card balance

III and V only Debts and obligations of the decedent are deductible from the gross estate. Only 1/2 of the mortgage on the community property is deductible

Which of the following is NOT a terminable interest? A. An ownership interest in a life insurance policy B. A life estate in a home C. An interest in a patent D. An interest in property for a term less than an individual's life expectancy

A The ownership interest of a life insurance policy is not a terminable interest. The ownership interest does not terminate

Horatio dies during the current year while holding a note receivable from Bill for 150k. All of the following items surrounding the note could directly impact the valuation of his estate with the exception of which one? A. The maturity date of the note B. The note is forgiven in Horatio's will C. The interest rate of the note D. Bill's financial health

B If bill is in poor financial health the note may be discounted, directly impacting the value of horatio's estate.

Joyce's gross estate was $1m. Her funeral costs were 16k, and she left 34k to charity. Total amount of home mortgage (owned JTWROS with spouse) was 100k. The home was valued at 200k. She had personal consumer debt of 15k. Her spouse was her PR and waived his fees. She left 260k in cash outright to her spouse. What is her taxable estate? A. 525k B. 539k C. 575k D. 589k

Of the following, which is not an issue when considering whether to deduct the adjusted basis or the FMV 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 FMV of the donated property CD The capital gains rate in effect at the time of the transfer

D The answer D is not an issue when deciding whether to deducted the adjusted basis or the FMV since such a transfer doesn't create a capital gain. Interest is relevant because of the Time value of money issue and the interest earned on any possible tax deduction/refund.

All of the following apply to CLT except: A. Beneficiaries can be named as trustees of the CLT B. Property transfers to a clt are irrevocable C. The maximum period for a CLT trust is 20 years if the trust is for a fixed term. D. The ultimate recipient of the reminder interest may NOT be the grantor

D. In the case of CLT, the remainder interest may revert to the grantor as the income for the term passes to a charity.

Which of the following is not an accurate statement regarding powers? A. A release of power is a formal statement by the donee giving up the power B. A lapse is the termination of power without exercise C. Powers of appointment are presumed limited if not so state in the document in some states D. Powers of appointment can be exercised in any manner deemed convenient by the power holder

D Power holders must exercise powers in accordance with the provisions of the power, will or trust

Which of the following accurately describes special and general powers? I. The surviving spouse can be given the power to invade the entire corpus of a marital trust for an ascertainable standard II. Exercise, lapse or release of a general power of appointment are considered a transfer of the property by the power holder for gift, estate, and GSTT purposes III. The existence of a general power of appointment will cause the power holder to be considered the owner of all or part of the trust for federal estate tax purposes in the even the power holder dies IV. The existence, lapse, exercise or release of a special power will not cause inclusion in the power holder's gross esate

I, II, III, IV All of the above statements accurately describe special and general powers

Which of the following is the least important factor in choose an appropriate/competent Personal Representative? A. Being willing and able to accept fiduciary responsibility B. A trusted family member C. Having knowledge and competency in dealing with investments D. Possessing sufficient common sense to know when to retain competent legal assistance E. Being honest

C The other qualities are much more important than investment expertise which can be hired

Which of the following accurately describes a QTIP trust? A. A QTIP is sometimes called a "b" trust B. Trust income must be paid to the spouse or other designated beneficiaries at least annually C. The trust assets will be included in the gross estate of the surviving spouse and the spouses estate will pay any estate taxes D. The surviving spouse may demand that the trustee only have income producing property in the trust

D Answer C is incorrect because the remaindermen will pay any estate taxes

Which of the following apply to gifts to a 2503c trust? I. In order to qualify for the annual exclusion, Crummey powers must be used for beneficiaries under age 21 because the gift is a gift of future interest II. The annual income is usually taxed to the trust III. If annual income is used to pay for support items for the grantor, then the income is taxed to the grantor IV. Unexpended principal and income must be payable to the beneficiary at the attainment of age 21

II and IV Crummey powers are found in irrevocable life insurance trusts. The purpose of the 2503(c) trust is to reduce income tax to the grantor by naming a minor beneficiary

Jessie Jones gave a testamentary life interest in a sole and separate residence to his current wife, Jessica, until her death. Upon her passing, the children of a previous marriage who are older than Jessica will receive the home. Which of the following is correct? A. The residence is included in Jessica's estate at her death because this is effectively a QTIP B. Jessica only has an income interest in the residence and that portion will qualify for the marital deduction C. Jessica has sufficient interest in the property because the children may die before her that will qualify for the marital deduction D. Testamentary interest will not qualify for the marital deduction

D. Jessica's interest is a terminable interest. In other words, her interest terminates at her death and, as it is not a qualified terminable interest, it will not be included in her gross estate and will not qualify in his estate for the marital deduction

Which of the following statements is correct about a CRUT with husband and wife as Joint and Survivor annuitants? A. a fixed dollar amount is paid to the annuitant every year B. At the death of the first annuitant, the remaining assets are paid to the charity C. If the trust assets do not earn sufficient income to pay the required income stream, the difference must be paid from corpus D. The full value of the assets in the CRUT are included in the gross estate of the grantor (assuming they die first)

D C is incorrect because the amount paid annually varies with the annual revaluations of the trust assets. So they don't need to use corpus to make up for insufficient income payments

Your clients, Jane and Tang, are considering a corporate trustee to administer their trusts, rather than his Uncle. Which are the following reasons to favor a corporate trustee? I. Generally stronger financial security and technical skills II. Lower costs to the estate and trusts III. Closer relationship with beneficiaries IV. The corporate trustee will have specialized and sophisticated knowledge of decedent's business interest.

I only

Sharon McRay, your client, has a large house valued at 3m and a large estate of 12m. She is 65, a widow, and already used 300k of her applicable gift exclusion credit. Which of the following transfer techniques could she use to realize the greatest reduction of her estate tax? The house is appreciating at about 9% per year. A. A residential GRIT B. A residential RIT C. A residential SPLIT D. A residential QPRT

Charles Bronson placed Blue-Chip stocks valued at 200k into an irrevocable trust. The trust must pay 7% of the trust value to charles each year for 10 years. After the 10 year period, the remainder is to be paid to his daughter. Which of the following statements are correct? I. The trust will pay income tax on earnings each year II. If charles dies before the trust term ends, the value in the trust less what he has already received will be included in his gross estate

Neither 1 or 2

With regard to the required income distribution of various types of marital trust, which of the following trusts permit accumulation of income? A. A QTIP Trust B. A TPP Trust C. A GPOA trust D. An Estate Trust

D Both the GPOA and Q-TIP require distribution of income at least annually to the spouse. The TPP Trust holds tangible personal property. Only the estate trust permits income accumulation

Julie recently hit it big at the casino. Because of her good fortune, Julie would like to begin a gifting program in which she givers her family and friends yearly gifts equal to the annual exclusion. She would like to learn more about the gift tax system and how gifts are valued. All of the following statements regarding the valuation of a gift are true, except: A. Publicly traded securities are valued at the average of the opening and closing market price for the day of the gift. B. Real estate is generally valued requiring a written, independent, appraisal C. The value of a bond is the PV of all expected future payments D. Valuation discounts may be available for lack of marketability, lack of liquidity, and for lack of control

A Publicly traded securities are valued at the average of the high and the low trading price for the day of the gift

Which of the following statements concerning the federal gift tax in 2021 is correct? A. The federal gift tax applies to all gratuitous transfers B. Joint donors can file a joint gift tax return C. The federal gift tax system prohibits gift splitting D. Taxable gifts from prior years are not added to current year taxable gifts for the determination of the applicable gift tax brack

A Federal gift tax applies to all gratuitous transfers, but the annual exclusion provides an exemption for the first 15k. Gifts can be split

Which of the following gifts would constitute a taxable gift from a single person in the current year (assuming the applicable exclusion credit has been fully utilized previously)? I. $30,000 to the donor's adult child II. 15,000 to a friend III. 35000 paid to a friend for medical purposes IV 16000 paid to a college to cover a friend's tuition

I and III only

Assuming NEITHER person has used any of his/her applicable credit, what is the maximum amount a married couple can give to a single, third-a=party donee in the current year without paying any federal gift tax? A. 30000 B. 11700000 C. 23430000 D. 23400000

C A 15000 gift may be made by each sous each under the annual gift tax exclusion amount and a 11.7m

Maria Olmsted, age 58, is the owner of a closely-held partnership business which makes up 65% of her adjusted gross estate. More than half the assets of the partnership are real estate holdings. Maria wants to undertake a transfer of some sort to her son, Ernesto, to reduce her potential income tax obligations and possible future estate tax liability. Such a transfer would accomplish both of these goals and reduce Maria's interest in the business by 35%, meaning the business would make up only 30% of her adjusted gross estate. Maria will also be bequeathing 50000 to her favorite public charity and the balance to her husband upon her death. In light of these activities and transfers, which of the following elections does Maria lose? A. Maria can no longer use the special use election B. Maria can no longer use the reverse QTIP election C. Maria can longer use the Section 303 election D. Maria gives up the right to use the 6166 election

D The amount required to use the 6166 is 35% of the estate. The section 303 is not appropriate because this is a partnership and there is not stock in partnerships

Presuming Big Mike has used his entire lifetime GSTT exemption and this year he gives his granddaughter Jordan, age 16, $1m dollars in cash after giving her 15,000 on her birthday. Big mike has the permission of both Jordan's parents to make the gift. How much is the gift tax on this gift? (The GST rate is 40%) A. There is no GST tax or gift tax B. There is no gift tax but there is 400000 GST C. 400000 gift tax D. 560000 gift tax

D - The GST tax of 400000 is added to the gift for the determination 1,400,000 * .4 = 560,000

Jean-Claude and his wife, Marie, are both resident aliens living in Ohio. He has total assets of 8m, of which 2.7m are located within the United States. Assuming Jean-Claude died today, which of the following statements is correct regarding estate tax return filing requirements for 2021? A. Jeane-Claude's estate would not be required to file an estate tax return due to the size of the estate. B. Jean-Claude's estate would not be required to file an estate tax return, because non-citizens are not required to file. C. Jeane-Claude's estate would be required to file an estate tax return, because the estate is not eligible for a marital deduction D. Jeane-Claude's estate is required to file an estate tax return because he was a resident alien

A An estate tax return is not required for a US resident alien, unless the decedent's gross estate, plus adjusted taxable gifts, exceeds the applicable exclusion amount

Which of the following assets would be considered an IRD asset, and also avoids probate? A. Life Insurance policy on the decedent's life, with the decedent's son named as beneficiary B. Traditional IRA, with decedent's surviving spouse named as beneficiary C. Employer securities in an ESOP received as lump-sum distribution two months before the date of death D. Installment note receivable with payment being made post mortem

B - traditional IRA, with decedent's surviving spouse named as beneficiary

Kenny Zee (age 65) died after creating a testamentary bypass trust with his wife, Liz (age 65), as the income beneficiary and his two children, Will (37) and Doug (35) as remainder beneficiaries. His executor funds the bypass trust with the full life time exemption for estates in 2021. The remainder of his estate he leaves as follows: * 1m outright to his wife, Liz * 2m to his girlfriend, Dolly Wink (age 27) in a GPOA trust * The other 4m in a QTIP with liz as the income beneficiary and his two children, Walter (5) and Devin (3) from his girlfriend Dolly, as the remainder beneficiaries. Which of the following statements are true? 1. Presuming no previous taxable gifts, Kenny's executor will have an estate tax liability of $800,000 2. The GPOA trust is subject to GST tax

Both are true Remember that the GST is a flat 40%, not a progressive scale and that Dolly is a skip person.