You have met with an elderly client for estate planning. She provided you with a summary of

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You have met with an elderly client for estate planning. She provided you with a summary of her assets which consist of a home with net equity of $300,000; a life insurance policy with a face amount of $100,000 with a beneficiary designation to her daughter, Sally; an investment account with a balance of $150,000 which is owned in joint tenancy with a right of survivorship with her other daughter, Betty (who has not contributed to the account); and a mountain home with a net equity of $400,000 that is owned as tenants in common with her son, Andy because she gifted him his one-half interest for his last birthday. Your client has a will which leaves all her assets to her three children equally in value (she doesnt care if they share all assets equally). She has advised you that it is her primary goal to leave everything equally to her three children counting any life time gifts she has given to them. Assuming for purposes of this question only that the values of all the above assets will stay constant and she has no concern over the type of assets she leaves any of the children, which of the following would be your recommendation to her to achieve that goal in the easiest manner?

a. Leave everything the way it is now since her will leaves all her assets to her three children equally.

b. Change her beneficiary designation of her life insurance policy to make the proceeds payable to her estate.

c. Change her beneficiary designation of her life insurance policy to make the proceeds payable equally to Betty and her estate and modify her will to add a specific legacy of her interest in the mountain home to Sally.

d. None of the above.

Bob had a will drafted which formed a trust for his wife that would be funded with a million dollars at his death. The trust is required to give her all income annually and allows her to designate who among their children will receive the trust principal outright as a distribution free and clear of any trust at her death. Bobs wife possesses a:

a. A special power of appointment

b. A general power of appointment

c. A special power of appointment that is subject to a 5 or 5 general power of appointment

d. A general power of appointment that is an exception to the general rule of estate inclusion under IRC 2041.

In appointing a trustee, which of the following clauses is an inappropriate clause?

a. The appointment clause in which the grantor designates at the time of the creation of the trust, his choices for the trustee, as well as his choices for possible successor trustees in the event the original trustee can no longer serve for any reason.

b. The ability for the heirs to agree by a majority vote to remove a trustee in the event there is agreement that the trustees services are inadequate.

c. A clause that awards a corporate trustee fees in accordance with the fee schedules customarily charged in that geographic location.

d. A clause in an irrevocable trust created to remove appreciating assets from the grantors estate by gifting them into the trust under the shelter of the unified credit applicable exclusion amount, a clause that allows the grantor to remove and replace the trustee.

Prior to his death, Jay set up a $2 million irrevocable trust for his beloved daughter, Rebecca. The trust gave Rebecca a life estate in all income from the trust and when Rebecca died the remainder would go to Jays son, Andy. However, Jay kept the right to have the property go instead to Rebeccas daughter, his granddaughter, if he was alive at the time of Rebeccas death. Jay passed away before Rebecca, which secured Andys right to receive the remainder of the trust. Will any of the trust be included in Jays gross estate?

a. Yes

b. No

Suzy owns an insurance policy insuring her husbands life. Suzy names her two adult children as the beneficiaries. Suzys husband dies in 2006 and each child collects $250,000. Which of the following is not a correct statement about the tax consequences of this transfer of insurance proceeds to the children?

a. The $250,000 collected by the children is not subject to income taxes.

b. Suzy has made a taxable gift to each of her children of $250,000.

c. Suzys husbands federal gross estate will include the $500,000 face value of the life insurance policy.

d. All of the above statements are correct.

Which of the following alternative overall coverage tests must a qualified plan satisfy?

(1) ratio percentage test

(2) average benefit test

(3) usual, reasonable and customary test

(4) ADL minimum qualification trigger test

a. (1) only

b. (1) and (2) only

c. (1) (2) and (3) only

d. (2) (3) and (4) only

Suzy inherited her mothers mountain home, which her grandfather had given to her mom. The grandfather had bought the property for $100,000 twenty years ago prior to the gift. At the time of the gift to Suzys mom, Suzys grandfather paid approximately $5,000 in gift taxes, $3,000 of which was attributable to the appreciation on the house at the time the gift was made. At the time of Suzys moms death, the house was worth $500,000. Suzy then sold the home to move to California for net proceeds of $700,000. What is Suzys gain on the sale of the mountain home?

a. $600,000

b. $200,000

c. $597,000

d. None of the above.

Joan is married to Perry, a citizen of Great Britain. She passed away unexpectedly in a car crash owning $5 million in assets in 2006. Unaware of the problems associated with marriage to a non-citizen, she did not plan to minimize the estate taxes due when a non-citizen receives a distribution from an estate. Based on these facts, which of these are accurate statements:

a. Perry has no choice but to pay estate tax on the $5 million he inherited outright from Joans estate without the benefit of any unified credit.

b. Perry can create a QDOT and transfer the $5 million to this QDOT and the assets will avoid estate tax completely although they will be available for distribution of income to him and principal invasions for his health, support and maintenance can be paid to him as well without any estate tax consequence.

c. Perry can create a QDOT and he will only pay estate tax on all the distributions to him from the QDOT.

d. None of these are accurate statements.

Sue decides she will give her farm to her daughter since it is rapidly appreciating as the city moves further and further into what used to be the country. She has her local attorney complete the deed by which she transfers all of her ownership rights to her daughter. She places the deed in her safe deposit box and proceeds with life forgetting all about it. When she dies and her daughter cleans out the safe deposit box, the daughter finds the deed. She takes it to the attorney who advises her that it doesnt matter that she found this deed. He states that the property will still be included in her mothers gross federal estate because there was no completed gift. Which of the following is the best explanation as to why the attorney is correct that there is no completed gift?

a. Because Sue did not have a gratuitous intent when she prepared the deed to transfer it to the daughter.

b. Because Sues daughter never had an opportunity to formally accept the gift.

c. Because Sue never gave up control and dominion of the real estate for the deed was never delivered and recorded to give up ownership rights of the real estate.

d. None of these statements are correct.

Indicate which of these will not qualify as a marital deduction trust?

a. a trust that provides income to the surviving spouse for his life with a power for the spouse to allocate the trust principal among the decedents children at the surviving spouses death by provision in the surviving spouses will, but passes all of the trust property to the decedents children equally at the surviving spouses death in the event she fails to exercise the power to allocate the trust among the children in her will.

b. a trust that provides all income to the surviving spouse for life with a power for the spouse to allocate the trust principal to her creditors.

c. a trust that provides the following: for all income to be paid to the surviving spouse at least annually; for the spouse to have the power to require the trustee to convert trust property to income-producing; that no one can appoint any trust property away from the spouse; that the spouse has the ability to allocate the trust property among the decedents children; and the executor makes a QTIP election.

d. a trust that provides all income to the surviving spouse for life and requires that any trust assets at the time of the surviving spouses death must be paid to the surviving spouses estate.

Sandi wants to convert her traditional IRA to a Roth IRA. The current IRA account value is $100,000. If Sandi follows through, how will the conversion be taxed?

a. $100,000, as capital gains

b. $100,000, as ordinary income

c. $90,000, as capital gains with $10,000 carry-forward

d. $10,000, as ordinary income with $90,000 carry-forward

Which of the following statements is an incorrect statement about an advantage of the use of the qualifying-interests: GRATs, GRUTs, PRTs, and QPRTs?

a. a GRAT or GRUT can be used to remove appreciation on the transferred property which accrues after the GRAT or the GRUT is created.

b. a GRAT gives the holder of the term interest the right to an irrevocable right to receive a fixed amount no less than annually.

c. this technique requires the use of a revocable trust.

d. all of the above statements are correct.

Which of the following types of credit are normally used with cash balance plans?

(1) years-of-service credit

(2) pay credit

(3) interest credit

(4) supplemental benefit credit

a. (1) only

b. (1) and (2) only

c. (2) and (3) only

d. (3) and (4) only

Different types of discounts are often used in determining the ultimate value of a partnership interest. Your client, Bill, has read about these discounts in the Wall Street Journal. He is thinking about forming a family limited partnership to which 40% of Bills ownership in real estate will be contributed with the other 60% ownership of the real estate to be given to a generation-skipping trust he and his wife are creating for their grandchildren, nieces, and nephews. Bill wants to know which discounts he may be able to take advantage of when he starts giving limited partnership interests to his children. Which of the following is a discount that may be relevant to calculating the value to any gifts Bill makes in the future of limited partnership interests?

a. lack of marketability discount

b. minority interest discount

c. fractionalized discount

d. lock-in discount

e. all of the above

f. none of the above

What is the most important purpose for the attestation clause?

a. For the testator to attest that this will is his last will.

b. For the testator to attest that he has disposed of all known assets in this will.

c. For the testators witnesses to attest that they have seen the testator sign the will.

d. None of the above is the correct answer.

For a self-employed individual, which of the following is true about the use of life insurance in a Keogh plan?

(1) the entire cost of life insurance is deductible as a plan contribution

(2) the pure life insurance element of an insurance premium is not deductible

(3) the portion of the premium that exceed the pure protection value of the insurance is deductible (using Table2001)

(4) the nondeductible life insurance element essentially becomes additional taxable income

a. (1) and (2) only

b. (2) and (4) only

c. (1) (2) and (3) only

d. (2) (3) and (4) only

Which of the following statements is an inaccurate statement regarding the tax implications of the use of the IRC 2503(c) trust

a. gifts to IRC 2503(c) trusts qualify for the annual exclusion.

b. property owned by an IRC 2503(c) trust will be excluded from the donors gross federal taxable estate as long as the donor is not the trustee.

c. income earned by an IRC 2503(c) trust will generally be taxable to the beneficiary to the extent distributions are made to him, with all remaining trust income taxed to the trust.

d. all of the above statements are correct.

Papa makes a gift in trust of $1 million, arranging for the trust to pay income to his son for his life with the remaining property at his sons death passing equally to the sons children. The trustee has the right to invade the principal during the sons life for the health, support, and maintenance of any of sons children. The trustee decides to invade the principal to write checks to the colleges attended by each of the sons children for their tuition. Which type of generation-skipping transfer has occurred when the trustee makes the distribution?

a. No GST has occurred.

b. A direct skip has occurred.

c. A taxable termination has occurred.

d. A taxable distribution has occurred.

Suzy dies in 2006 with a business she built from the ground up by herself and which she owns 100% at her death. The value of the business is $2.5 million according to an independent appraisal and the total value of her adjusted gross estate is $10 million with the other assets constituting real estate. Suzys taxable estate is $ 9 million after reduction for a charitable bequest she made to Habitat for Humanity. Suzy has some liquidity problems in her estate and her executor wants to automatically qualify for the IRC 6166 installment method of paying federal estate taxes. Will Suzys estate automatically qualify to use this installment method for paying federal estate taxes?

a Yes, because she exceeds the threshold 35% requirement which is $2.1 million in these facts.

b Yes because even though she does not meet the 35% requirement which is $3.15 million in these facts, she has liquidity problems in her estate and this will automatically qualify her for this deferral.

c No, because she does not meet the required threshold.

d None of these answers are correct.

Your clients will contains a clause leaving his farm to his sister, Sally, for life and at her death to his nephew, Bill. The type of property interest that Sally receives is called a

a. time-line Estate

b. Remainder

c. Life Estate

d. None of the above.

A creates an ILIT and donates $10,000 for the trustee to acquire a life insurance policy on As life and pay the first years premium. The beneficiaries of the ILIT are As three children, who are all in college and who are given the right to receive principal distributions in the event the trustee deems it appropriate in his sole discretion. The trustee receives As check for $10,000 on May 1st and immediately pays the life insurance premium. No further action is taken by the trustee with regard to the trust during the year. Which is a correct statement?

a if A dies, the death benefits will be included in his estate?

b A correctly files a Form 709, gift tax return by April 15th of the next year reporting the gift of $10,000 and claiming a $10,000 annual exclusion.

c As children were given a reasonable period of time to withdraw the gift so they have received the benefit of a Crummey withdrawal right.

d none of the above is correct.

Bob sells investment property in the city for $1.2 million in which he has a basis of $300,000 to Sue. Sue pays Bob $240,000 in cash and gives him a promissory note for $960,000 for the balance owed in the purchase. In the installment payment that is made the next year by Sue, she pays Bob a payment of which $48,000 is principal. How much gain must Bob recognize with respect to this payment?

a. $48,000

b. $0

c. $12,000

d. $36,000

e. $22,500

Sue establishes an irrevocable trust to receive 100 acres of Christmas tree land worth $1 million from which she will retain an 8% annuity for her life and at her death the remaining trust principal will be donated to the American Red Cross. Which of the following most accurately depicts the type of split interest trust that Sue has likely created?

a. charitable remainder annuity trust

b. charitable lead trust

c. wealth replacement trust

d. none of the above

Your client owns 1000 shares of BOA stock at a time when it is selling on the stock exchange for $100 per share. She bought the stock when it was at an all-time low for $35 per share. Recently she has examined her life and feels that if Bill Gates and Mr. Buffet can be so generous with their wealth, she should be as well. She consults with you about the advantages of making charitable contributions during life, as well as at death, to a private foundation managed by a successful entrepreneur in her town [the foundation channels money to rescue animals from disasters and war-torn countries]. Which of her assumptions about charitable contributions stated below are correct?

a. if she gives her stock outright to the foundation, she will get a contribution for the fair market value of the stock less the capital gains tax she will have to pay on the appreciation, or $90,250.

b. at her death, her estate will get a charitable contribution for $35,000.

c. she will not owe any gift tax if she contributes the stock.

d. all of the above are correct.

e. all of the above are incorrect.

Which of the following is the best policy to recommend for the sole purpose of providing a source of liquidity for the estate taxes that may be due at the time of the death of the last spouse?

a term life insurance policy.

b two variable life insurance policies insuring both spouses.

c endowment Insurance

d survivorship Life Insurance

a Yes, because she exceeds the threshold 35% requirement which is $2.1 million in these facts.

c No, because she does not meet the required threshold.

d None of these answers are correct.

Which of the following are true of contributions to a SIMPLE IRA?

(1) employee salary reduction contributions are subject to FICA

(2) eligible employees may make catch-up contributions of $5,000 in 2011

(3) direct employer contributions are not subject to FICA

(4) employers are required to make a contribution equal to 5% of compensation for all eligible employees

a. (1) and (3) only

b. (1) (2) and (3) only

c. (2) (3) and (4) only

d. (1) (2) (3) and (4)

Assume for the purposes herein, that Bob had a will and Bill has been appointed executor, which of the following is NOT required in a notice to creditors:

a. Name of decedent

b. Bills name as the appointed executor

c. Location where claims should be presented.

d. Date by which claims must be presented or be barred under local statutes.

e. All of the above are required in the notice.

Bob died leaving a will that passes all his assets to his wife outright, but with a provision that if she chooses to exercise a qualified disclaimer over any of his assets, all properly disclaimed assets will pass to a trust that holds the assets during his wifes life, providing her with income for life and a power to invade the principal as she needs for her health, support, and maintenance. At the time of Bobs death, the unified credit applicable exclusion amount equals $1 million since he died in 2013. Bobs estate is worth $750,000 million. The wife has an estate of approximately $500,000 she inherited from her parents.. The wife wants to control as much as possible of both of their assets. Yet, she also wants to disclaim enough assets to avoid astacking of assets in her estate which could produce a higher estate tax at her death. Her planners advise her that her projected income stream from the combined assets will be sufficient to support her lifestyle however there will not be much growth in the combined estates remaining value. What is the minimum amount of Bobs estate that his Wife should disclaim to avoid a potential stacking of assets in her estate?

a. $500,000

b. $250,000

c. $750,000

d. $1.25 million

Which of the following is NOT sufficient to revoke an entire prior will?

a. The valid execution of a subsequent will which states that all prior wills are revoked.

b. The valid execution of a codicil which expressly revokes all prior wills.

c. The intentional defacing of a prior will.

d. The execution of a codicil which changes one article from your first will leaving your beach house to your daughter instead of your son.

Posted Date: Jun 26, 2024 01:12 AM

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