1. A stock redemption agreement helps to establish the value of a business for federal estate tax purposes providing the price is fixed by the agreement or the agreement contains a formula or method for determining the price.
2. Which statement regarding a business continuation agreement is not correct?
| The business may purchase life insurance and disability insurance to buy the owner’s stock in the event of disability or death. |
| The agreement can provide contingency plans that address divorce, bankruptcy or professional misconduct. |
| A business continuation agreement applies only to an incorporated business, not to a partnership. |
| A buy-sell agreement prevents the owner’s stock from passing through probate.
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3. In a stock redemption plan the corporation is the owner and beneficiary of the policy and pays the part of the annual premium that equals the current year’s increase in the cash surrender value.
4. When one partner receives a payment in recognition of services rendered during the relationship, that partner could have taxable income.
5. Domestic partners can undertake a split-interest purchase of property and normal valuation rules would apply because the partners are not family members.
6. A wealthier partner may establish a GRIT and name his partner as remainder beneficiary of the trust. Which statement is not characteristic of a GRIT?
| A grantor can transfer a business interest to the trust. |
| The taxable gift is equal to the value of the assets placed in trust. |
| A GRIT can reduce transfer taxes and increase the less wealthy partner’s estate to utilize that partner’s $5,340,000 exclusion. |
| A beneficiary does not pay gift taxes on trust property received after a grantor’s income interest ends. |
7. Amos owns several storage units that provide him with monthly rental payments. He wants to remove this property and its future appreciation from his estate by transferring the property to his 14 year old son, Leroy. Amos does not want the rental income taxed to him and he does not want the rental income to be distributed to Leroy every year. However, Amos would like Leroy to receive the units and any undistributed income at age 21. The age of majority in the state where they reside is age 18. What planning technique will meet Amos’s objectives?
| Transfer the storage units to a UGMA. |
| Transfer the storage units to a UTMA. |
| Transfer the storage units to a 2503(c) trust. |
| Transfer the storage units to a 2503(b) trust. |
8. Donovan owns all of the common stock in a software company he founded eight years ago, which is valued at $3 million. His estate, which includes the value of his company, is worth $4.8 million, and is growing rapidly. Donovan wants to remove a portion of the business and its appreciation from his gross estate, and he wants to share the future appreciation of his company with his three children who work in the business. Donovan is hesitant to gift some of his stock to his children because he needs the income until he is ready to retire, and he also does not want to cede control of the management of the company to his children. What planning technique might accomplish Donovan’s objectives?
| A preferred stock recapitalization |
| A split-interest purchase of the business |
9. Implementation and monitoring responsibilities to enact estate planning recommendations are determined exclusively by the financial planner and the client.
10. Personal and economic assumptions a client makes can affect the outcome of both an estate plan and a financial plan.
