QUESTION 1

With permanent insurance, the policy owner can borrow against the cash value in the form of interest bearing loans or as surrender proceeds.

True

False

10 points

QUESTION 2

Dylan purchased a $250,000 term insurance policy on his own life, and then transferred the policy to his wife Nora two months later. The couples daughter Morgan is the beneficiary of the policy. At Dylans death, the death benefit payable to Morgan is considered a gift from Nora, subject to gift tax.

True

False

10 points

QUESTION 3

Which type of life insurance policy permits the contract owner to choose the level of premium, the death benefit amount and the duration of the premium-paying period?

A. Convertible term

A. Whole life

A. Universal life

A. Second-to-die life

10 points

QUESTION 4

Which statement describes the policy valuation for a gift or a bequest of a single-premium policy?

A. The value is the interpolated terminal reserve plus any unearned premiums.

A. The value is the unused premium amount.

A. The value is the premium paid minus expenses and mortality charges.

A. The value is the new issuance charge for a comparable contract of equal face value.

10 points

QUESTION 5

Connor had been the owner and beneficiary of a $1 million whole-life insurance policy on his sisters life. Connor gifted the policy away four years ago to his nephew but kept the right to borrow its cash value. If the policy was valued at $200,000 when Connor died, what amount attributed to the policy was included in his gross estate?

A. Nothing. The gift of the policy to his nephew was not subject to the 3 year rule therefore the policy was not included in Connors estate.

A. The $200,000 date of death value of the policy was included in Connors gross estate because he had been the owner but not the insured.

A. The $1 million death benefit was included in Connors estate because he retained an incident of ownership in the policy at his death.

A. The cash value of the policy was included in Connors gross estate.

10 points

QUESTION 6

Lyle established a revocable trust six years ago and named the trust the beneficiary of his life insurance policy. Lyles wife and child are the beneficiaries of the trust. The proceeds paid to the trust at Lyles death will not be included in his gross estate.

True

False

10 points

QUESTION 7

In a dynasty trust, once life insurance proceeds are paid to a trust, beneficiaries receive discretionary income distributions with a limited power of appointment over trust corpus.

True

False

10 points

QUESTION 8

A credit shelter trust can be the beneficiary of a life insurance policy when an insured spouse dies.

True

False

10 points

QUESTION 9

Which statement regarding an ILIT is incorrect?

Insurance proceeds paid to the trust are protected from the claims of creditors, including the decedents creditors.

The trust cannot hold a survivorship policy when a husband and wife are co-insureds.

All incidents of ownership over a policy are held by the trustee.

An ILIT allows an insured to leverage annual exclusion gifts, his unified credit and his GST exemption by gifting a policy with a low current gift value in relation to the value at the insureds death.

10 points

QUESTION 10

Hugh created an irrevocable trust five years ago and transferred a $4 million whole-life policy to the trust. His wife, Meryl, will receive the income for life, with the remainder payable to her estate. What is the consequence of this transfer?

Hugh and Meryl can offset the taxable amount of the premiums with gift-splitting and annual exclusions.

A. Assuming Meryl survives Hugh, only the trusts remainder interest is includable in her estate.

When Hugh transferred the policy to the trust, he could not offset the gift tax with a marital deduction.

Hugh can borrow from the policys cash value without adverse tax consequences,

10 points

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