Unit 4

Question 1

A husband and wife own a property in their home state in the form of tenancy by the entirety. The husband dies and wills his entire estate to their only child. The property passes to the:

wife and child as equal partners.

wife.

child.

wife as a life estate for the benefit of the child.

Answer 1

wife.

Response Feedback:
Correct! A husband and wife own a property in their home state in the form of tenancy by the entirety. The husband dies and wills his entire estate to their only child. The property passes to the wife.

Question 2

The drawback of corporate entity ownership of an investment property is

continual life.

personal liability.

non-transferable interests.

double taxation.

Answer 2

double taxation.

Response Feedback:
Correct! The drawback of corporate entity ownership of an investment property is double taxation.

Question 3

Survivorship specifies that upon the death of a co-owner the deceased’s interest will automatically pass to the

deceased’s familial heirs.

persons named by the probate court.

surviving owners.

persons named in the will.

Answer 3

surviving owners.

Response Feedback:
Correct! Survivorship specifies that upon the death of a co-owner the deceased’s interest will automatically pass to the surviving owners.

Question 4

You buy an investment property and form a limited partnership to sell a portion of the ownership to several doctors you know. You will act as the general partner. They may choose to buy shares because of all the following reasons EXCEPT:

the impact of double taxation.

their limited personal liability.

possible high profits.

their limited responsibility for management.

Answer 4

the impact of double taxation.

Response Feedback:
Correct! You buy an investment property and form a limited partnership to sell a portion of the ownership to several doctors you know. You will act as the general partner. They may choose to buy shares because of all the following reasons EXCEPT the impact of double taxation.

Question 5

Real estate investment trusts (REITs)

generally require large initial investments for participation.

act as investment conduits for small investors.

are designed to avoid income taxes.

were eliminated under TRA ’86.

Answer 5

act as investment conduits for small investors.

Response Feedback:
Correct! Real estate investment trusts (REITs) act as investment conduits for small investors.

Question 6

Key Term: Ancillary Probate

Answer 6

Process of settling an estate when property is located in a state other than the deceased’s main residence

Question 7

Key Term: Collapsible Corporation

Answer 7

A corporation designed to exist only during the course of constructing a large project. After completion , it is dissolved.

Question 7

Key Term: Blue-Sky Laws

Answer 7

Refers to the laws targeted to control “puffing” by land promoters.

Question 8

Key Term: Conduit

Answer 8

Something through which other things travel. such as water or electricity. In tax law, a conduit is a mechanism that allows profits to travel through the vehicle that created the profits, without tax liability.

Question 9

Key Term: Curtesy Rights

Answer 9

The rights of a widower in the estate of his deceased wife.

Question 10

Key Term: Discretionary Trust

Answer 10

A trust that may be changed at the will of its owners.

Question 11

Key Term: Dower Rights

Answer 11

The rights of a wife in the estate of her deceased husband

Question 12

Key Term: Fee Simple Ownership

Answer 12

A title that is unqualified; the most complete form of ownership; conveys the highest bundle of rights. Also called fee simple absolute title.

Question 13

Key Term: Foreign Investment in Real Property Tax Act (FIRPTA)

Answer 13

A tax law that imposes U.S. income tax on foreign persons selling U.S. real estate.

Question 14

Key Term: General Partnership

Answer 14

A type of partnership wherein all the partners share in the operation, profit, and losses both jointly and severally.

Question 15

Key Term: Inheritability

Answer 15

Under our allodial system, the ability to leave property to heirs.

Question 16

Key Term: Irrevocable Trust

Answer 16

A permanent arrangement that cannot be changed until the goals of the trust have been met.

Question 17

Key Term: Joint Tenancy

Answer 17

Ownership of real estate between two or more parties; includes rights of survivorship where the deceased’s interests passes automatically to the surviving joint tenant’s.

Question 18

Key Term: Joint Venture

Answer 18

A joining of two or more people in a specific business enterprise. A common joint venture is a type of equity participation arrangement in which a lender puts up funds, a developer contributes expertise, and the two become partners in the project.

Question 19

Key Term: Limited Liability Company (LLC)

Answer 19

Enjoys a corporate form and the tax advantages of a partnership without the restrictions of an S corporation.

Question 20

Key Term: Limited Partnership

Answer 20

A legal entity that includes a general partner who actively manages the investment, and limited partners, whose only personal liability is their investments. Income taxes vest at each individual partner level.

Question 21

Key Term: Living Trust

Answer 21

An arrangement whereby legal title to property is transferred by the owner (trustor) to a third person (trustee) to be held and managed by the trustee for the trustor’s benefit and under the trustor’s control for a certain period until specific goals have been attained. Also called an inter vivos trust. Established to facilitate the management of properties during the grantor’s lives. Usually resolves into a testamentary trust on their deaths.

Question 22

Key Term: Minority Ownership Discount

Answer 22

Reflects the notion that a partial ownership interest may be worth less that its pro-rata (proportional) share of the total business.

Question 23

Key Term: Partnership

Answer 23

An association of two or more individuals who operate a business as co-owners.

Question 24

Key Term: Pierce The Corporate Veil

Answer 24

A situation in which courts put aside limited liability and hold a corporation’s shareholders or directors personally liable for the corporation’s actions or debts

Question 25

Key Term: Real Estate Investment Trust (REIT)

Answer 25

An unincorporated trust set up to invest in real estate that must have a least 100 investors, with management, control, and title to the property in the hands of the trustees.

Question 26

Key Term: Real Estate Mortgage Trust (REMT)

Answer 26

A business trust, similar to a REIT, that invests in mortgage securities rather than in real estate.

Question 27

Key Term: Regular Corporation

Answer 27

A corporation that is not an S corporation or LLC

Question 28

Key Term: Right of First Refusal

Answer 28

the right of a person to have the first opportunity to purchase or lease a specific parcel of real property

Question 29

Key Term: S Corporations

Answer 29

A corporation with a maximum of 75 shareholders that is taxed like a partnership.

Question 30

Key Term: Severalty

Answer 30

Ownership of property vested in one person alone.

Question 31

Key Term: Self-Directed IRA

Answer 31

An Indivdual Retirement Account (IRA) provided by some financial institutions in the United States that allows alternative investments for retirement savings.

Question 32

Key Term: Sole and Separate Ownership

Answer 32

Individual ownership by a married person.

Question 33

Key Term: Syndicate

Answer 33

A group of two or more people united for the purpose of owning an investment. A syndicate may operate as a corporation, general partnership, or limited partnership.

Question 34

Key Term: Tenancy by the Entirety

Answer 34

The joint ownership, recognized in some states, of property acquired by spouses during marriage. On the death of one spouse, the survivor automatically becomes the sole owner of the property.

Question 35

Key Term: Tenancy in Common

Answer 35

A form of inheritable co-ownership under which each owner hold an undivided interest in real property.

Question 36

Key Term Testamentary Trust

Answer 36

A trust that commences on the demise of the trustor.