Which of the following is an example of a taxable gift for federal gift tax purposes?
- A . A father gives his 19-year-old daughter a note promising to give her his Rolls Royce when she reaches the age of 21.
- B . Instead of parents paying an outside executive $60,000, a son runs their business for 8 months without charging a fee.
- C . The parents of a married son permit their son and his family to use a summer cottage that rents for $3,000 per month on a rent-free basis.
- D . A father cancels a $50,000 note his daughter gave him when he made a loan to her 2 years ago.
The following are facts concerning a decedent’s estate:
Taxable estate $1.700, 000
Pre-1977 taxable gifts 200, 000
Post-1976 adjusted taxable gifts 50, 000
Post-1976 gifts made to a qualified charity 100, 000
The tentative tax base of this estate is
- A . $1,700,000
- B . $1,750,000
- C . $1,850,000
- D . $1,900,000
An executor elects to value the assets of the estate at the alternative valuation date 6 months after death.
Which of the following statements concerning the estate tax value of assets included in this estate is correct?
- A . An annuity included in the gross estate that diminishes with the mere passage of time is includible at the date of death value.
- B . Property sold before the alternate valuation date is valued at the alternate valuation date.
- C . Property that has increased in value since the date of death may be valued at the date of death if the executor so elects.
- D . Property distributed under the will before the alternate valuation date is valued at the date of
death.
An executor elects to value the assets of the estate at the alternative valuation date 6 months after death.
Which of the following statements concerning the estate tax value of assets included in this estate is correct?
- A . An annuity included in the gross estate that diminishes with the mere passage of time is includible at the date of death value.
- B . Property sold before the alternate valuation date is valued at the alternate valuation date.
- C . Property that has increased in value since the date of death may be valued at the date of death if the executor so elects.
- D . Property distributed under the will before the alternate valuation date is valued at the date of
death.
An executor elects to value the assets of the estate at the alternative valuation date 6 months after death.
Which of the following statements concerning the estate tax value of assets included in this estate is correct?
- A . An annuity included in the gross estate that diminishes with the mere passage of time is includible at the date of death value.
- B . Property sold before the alternate valuation date is valued at the alternate valuation date.
- C . Property that has increased in value since the date of death may be valued at the date of death if the executor so elects.
- D . Property distributed under the will before the alternate valuation date is valued at the date of
death.
An executor elects to value the assets of the estate at the alternative valuation date 6 months after death.
Which of the following statements concerning the estate tax value of assets included in this estate is correct?
- A . An annuity included in the gross estate that diminishes with the mere passage of time is includible at the date of death value.
- B . Property sold before the alternate valuation date is valued at the alternate valuation date.
- C . Property that has increased in value since the date of death may be valued at the date of death if the executor so elects.
- D . Property distributed under the will before the alternate valuation date is valued at the date of
death.
The interest rate for loans from the Federal Land Sank is 8 percent.
For federal estate tax purposes, the farm method valuation formula would result in a current use value for the farm of
- A . $500,000
- B . $600,000
- C . $700,000
- D . $820,000
Which of the following types of real properly ownership will be deemed to be a tenancy in common?
- A . Two brothers own equal amounts of all the common stock in a corporation, the only asset of which is real property.
- B . Two brothers own equal undivided interests in a piece of real properly, with each brother being able to divest himseIf of his interest by sale, gift, or will.
- C . Two brothers are equal partners in a general partnership that owns a piece of real property used in the partnership business.
- D . Two brothers own equal fractional interests in a piece of real property and at the death of one of the brothers the survivor will own the entire piece of property.
Which of the following statements concerning property ownership by a married couple residing in a community-property state is correct?
- A . All property owned by the couple is community property.
- B . Community property loses its identity when a couple moves from a community-property state to a common-law state.
- C . Property inherited by one spouse during a marriage becomes community property
- D . Income earned by one spouse becomes community property.
Which of the following statements concerning a simple trust is correct?
- A . Income and principal may be distributed to a qualified charily.
- B . It receives a special tax deduction for income distributed to its beneficiaries.
- C . Income is accumulated at the discretion of the trustee.
- D . It limits the number of permissible beneficiaries.
On the advice of their attorney and accountant, Betsy and John have decided to make substantial transfers. They would like to pass most of their considerable wealth to their grandchildren.
Which of the following statements concerning gifts made to their grandchildren is correct?
- A . The GSTT annual exclusion may be utilized by Betsy and John for each grandchild during life time and at death.
- B . The value of Betsy and John’s GSTT exemption amounts are slightly increased when used at death rather than during life time.
- C . The GSTT annual exclusion is unavailable for years in which Betsy and John make tuition gifts for the grandchildren.
- D . Betsy and John may elect to split any GSTT transfers to the grandchildren.
The decedent, D, died this year.
The facts concerning D estate are:
Gross estate $3,400,000
Marital deduction 0
Charitable deduction 600,000
Funeral & administration expenses 00,000
Gifts made after 1976 170,000
State death taxes payable 192,000
What is D taxable estate?
- A . $2,138,000
- B . $2,358,000
- C . $2,528,000
- D . $2,720,000
On January 1, 2004 a father gave his daughter a $200,000 straight (ordinary) life insurance policy on his life. Premiums are paid annually. The pertinent facts about the policy are: Date of issue: July 1, 1992
Premium paid on July 1, 2003 $3200
Terminal reserve on July 1, 2003 20,000
Terminal reserve on July 1, 2004 24,000
What is the value of the policy for federal gift tax purposes?
- A . $ 21,600
- B . $23,200
- C . $23,600
- D . $200,000
A married man has two adult sons. His entire estate is in excess of $1,500,000 and consists entirely of probate assets. He wants to make certain that if he predeceases his wife she will receive all estate income as long as she lives, and the assets remaining at her death will pass equally to their two sons. He wants to pass all assets to this wife and sons as free of federal estate taxes as possible.
To best accomplish these objectives, the man should include which of the following estate plans in his will?
- A . Establish a QTIP trust for haIf his estate and bequeath the remainder to his wife
- B . Establish a marital deduction trust with a general power of appointment for haIf his estate and place the remainder in a QTIP trust
- C . Establish a bypass trust equal to the applicable exclusion amount and place the remainder of his estate in a QTIP trust
- D . Establish a QTIP trust for his entire estate
Among the assets in a decedent’s gross estate is stock in a closely held corporation that was left to a
nephew. The interest passing to the nephew is required to bear the burden of all estate taxes and
expenses.
The relevant facts about this estate are:
Adjusted gross estate $1,200,000
Fair market value of stock in the
closely held corporation 500,000
Administration and funeral expenses 25,000
State inheritance taxes 40,000
Federal estate taxes 160,000
What amount of closely held corporate stock may be redeemed under IRC Section 303 so that the redemption will be treated as a sale or exchange rather than a dividend distribution?
- A . 0
- B . $ 65,000
- C . $225,000
- D . $500,000
A married man died this year leaving a gross estate of $3,200,000.
Additional facts concerning his estate are:
Administration expenses and debts $ 250,000
Marital deduction 1,200,000
Applicable credit amount (2005) 555,800
Applicable exclusion amount (2005) 1,500,000
State death taxes payable 20,400
Under the Unified Rate Schedule for computing estate taxes if the amount with respect to which the tentative tax to be computed is over$1,000,000 but not over $1,250,000, the tentative tax is $345,800, plus 41 percent of the excess of such amount over $1,000,000. If the amount is over $1,250,000 but not over $1,500,000, the tentative tax is then $448,300, plus 43 percent of the excess of such amount over $1,250,000. If the amount is over $1,500,000 but not over $2,000,000, the tentative tax is then $555,800 plus 45% of the excess of such amount over $1,500,000.
Based on these facts, the net federal estate tax payable is
- A . 0
- B . $103,320
- C . $123,720
- D . $128,280
Which of the following statements concerning both estates and complex trusts is correct?
- A . Both must have more than one beneficiary.
- B . Both come into being by operation of law.
- C . Both are monitored by the courts.
- D . Both are required to file income tax returns.
A widow made the following cash gifts during the current year:
Donee Amount of Gift
A qualified charity $40000
A close friend 30,000
Her sister 5,000
Her daughter 15,000
Her brother 10,000
The total amount of the taxable gifts made this year was
- A . $23,000
- B . $45,000
- C . $52,000
- D . $95,000
A man is planning to establish and fund a 20-year irrevocable trust for the benefit of his two sons, aged 19 and 22, and plans to give the trustee power to sprinkle trust income.
From the standpoint of providing federal income, gift, and estate tax savings, which of the following would be the best choice of trustee?
- A . The grantor of the trust
- B . The grantor’s 70-year-old father
- C . The grantor’s 22-year-old son
- D . A bank or trust company
A man died in February of this year. Last year, when he learned that he had a terminal illness, he immediately made the following gifts and filed the required gift tax return:
Fair Market Value
Gift of listed stock to a
qualified charity $100,000
Gift of listed bonds to his wife 200,000
Gift of a boat to his son 10,000
Gift of a sports car to his daughter 10,000
What amount must be brought back to the man’s estate as an adjusted taxable gift in the calculation of his federal estate taxes?
- A . 0
- B . $ 90,000
- C . $280,000
- D . $320,000
A widower dies leaving a net probate estate of $300,000.
At the time of his death, his descendants are as follows:
A son, Joe, who has no children;
A deceased daughter, Mary, whose two children, Irene and Sally, survive; and A daughter, Anne, who has one child, Harry
Assuming that the widower’s will provides for the distribution of his assets in equal shares to his children, per stripes, which of the following correctly states the amounts each descendant will receive?
- A . $100,000 to Joe, $50,000 to Irene, $50,000 to Sally, and $100,000 to Anne
- B . $100,000 to Joe, $50,000 to Irene, $50,000 to Sally, $50,000 to Anne, and $50,000 to Harry
- C . $ 75,000 to Joe, $75,000 to Irene, $75,000 to Sally, and $75,000 to Anne
- D . $ 60,000 to Joe, $60,000 to Irene, $60,000 to Sally, $60,000 to Anne, and $60,000 to Harry
Which of the following areas of consideration present common ethical issues for the estate planner?
- A . Contracts
- B . Compatibility
- C . Consistency
- D . Compensation
A father deeded a house as a gift to his daughter in 1990 but retained the right to live in it until his death. He died this year, while still living in the house. The following are relevant facts: The father bought the property in 1980 for $140,000. The fair market value of the property when the gift was made in 1990 was $170,000. The father filed a timely gift tax return but paid no gift tax because of the applicable credit amount. The fair market value of the property at the father’s death was $200,000. The daughter sold the property 3 months after her father’s death for $200,000.
She had a gain of
- A . 0
- B . $130,000
- C . $160,000
- D . $200,000
The Decedent, T, died this year.
The facts concerning T estate are:
Gross estate $2,700,000
Marital deduction 900,000
Charitable deduction 110,000
Gifts made after 1976 130,000
State death taxes payable 165,000
What is T taxable estate?
- A . $1,285,000
- B . $1,395,000
- C . $1,525,000
- D . $1,655,000
When the owner of a closely held business dies, the payment of a portion of the federal estate tax may be deferred for a period of several years if the estate otherwise qualifies under the provisions of IPC Section 6166.
Which of the following statements concerning this deferral of federal estate tax is correct?
- A . The interest rate on the deferred tax is determined by the prime rate in effect on the date of death.
- B . The interest on the unpaid estate tax is payable over the first 10 years, after which the tax plus interest on the balance is payable in equal installments for the last 5 years.
- C . To qualify for the tax deferral, the closely held business must represent more than 50 percent of the value of the decedent’s adjusted gross estate.
- D . Under certain circumstances, the estate will forfeit its right to tax deferral, and all the remaining unpaid estate tax will become due and payable immediately.
Which of the following statements concerning property is correct?
- A . A mortgage on real estate is real property.
- B . A tree growing on land is tangible personal property.
- C . Any property that is not real property is personal property.
- D . A bond issue secured solely by a corporation asset is tangible personal property.
Which of the following statements concerning property is correct?
- A . A mortgage on real estate is real property.
- B . A tree growing on land is tangible personal property.
- C . Any property that is not real property is personal property.
- D . A bond issue secured solely by a corporation asset is tangible personal property.
Which of the following statements concerning property is correct?
- A . A mortgage on real estate is real property.
- B . A tree growing on land is tangible personal property.
- C . Any property that is not real property is personal property.
- D . A bond issue secured solely by a corporation asset is tangible personal property.
Which of the following statements concerning property is correct?
- A . A mortgage on real estate is real property.
- B . A tree growing on land is tangible personal property.
- C . Any property that is not real property is personal property.
- D . A bond issue secured solely by a corporation asset is tangible personal property.
A$40,000 bank account. Mr. and Mrs. Allen own the account jointly with the right of survivorship even though Mrs. Allen made all the deposits.
What amount of the family property will be included in Mr. Allen’s gross estate for federal estate tax purposes?
- A . $220,000
- B . $400,000
- C . $500,000
- D . $520,000
Under the terms of his will, a man left his residuary estate to a testamentary trust for the benefit of his wife.
Which of the following powers with respect to the trust will cause the entire trust principal to be includible in the gross estate of the widow for federal estate tax purposes?
- A . The power of the widow each year to direct the trustee to pay her the greater of 5 percent of the trust principal or $5,000
- B . The power of the trustee in its sole discretion to distribute trust assets to the widow for any reason satisfactory to the trustee
- C . The power of the widow to direct the trustee to use trust assets to pay her personal debts
- D . The testamentary limited or special power of the widow to direct the trustee to distribute trust assets to her heirs.
Mr. Barlow died early this year. Under the terms of his will he left all his real estate and tangible personal property to his son. All the remainder of his probate estate was left to his wife, Mrs. Barlow. The following is a list of Mr.
Barlow’s probate assets and their fair market values at the time of his death:
Commercial real estate $200,000
Furniture and fixtures 100,000
Listed common stock 150,000
Notes receivable 250,000
In addition, Mrs. Barlow owned a $400,000 life insurance policy on Mr. Barlow’s life with Mr. Barlow’s estate designated as beneficiary. Based on this information, what is the amount of property in Mr. Barlow’s estate qualifying for the federal estate tax marital deduction?
- A . $150,000
- B . $400,000
- C . $800,000
- D . $1,100,000
A married man died intestate, in addition to his wife, he was survived by two minor children and both his parents.
Which of the following statements describes the typical intestate distribution in this situation?
- A . The widow receives at least one-third of the estate and the children divide the remainder of the estate equally.
- B . The widow receives one-third of the estate and the remainder is divided equally among the two children and the parents of the decedent.
- C . The widow receives the entire probate estate as trustee for the benefit of the two minor children.
- D . The widow receives haIf the estate and the remaining halt is divided equally between the decedent’s parents.
It a grantor establishes an irrevocable trust; the income of the trust will be taxed to the grantor if it is used to pay premiums for life insurance on the life of
- A . a child of the grantor
- B . the spouse of the grantor
- C . a grandchild of the grantor
- D . the father of the grantor
Which of the following statements concerning ownership of property under a tenancy by the entirety is correct?
- A . One tenant can freely transfer his or her property interest to a third person.
- B . It is a form of property ownership available only to married persons.
- C . The property will be in the probate estate of the first joint tenant to die.
- D . It is a form of property ownership that applies only to personal property.
Which of the following statements concerning state death taxes is correct?
- A . A deduction for the full amount of state death taxes paid by a decedent estate is allowed on a decedent federal estate tax return.
- B . A state estate tax is imposed on the right of heirs to receive property from the deceased.
- C . A state inheritance tax is imposed on the right of the deceased to leave property to heirs.
- D . State estate and inheritance taxes are generally imposed at the same rate regardless of the relationship of the deceased to the beneficiary.
Which of the following statements concerning revocable trusts is correct?
- A . The transfer of properly to a revocable trust is typically motivated by non tax reasons.
- B . A transfer of property to a revocable trust is treated as a completed gift.
- C . A transfer of income-producing properly to a revocable trust will result in favorable income tax treatment for the grantor.
- D . Property of a revocable trust will be included in the grantor’s probate property.
A man recently died with only probate assets. Under the terms of his will, he left his entire probate estate out right to his wife.
The following are relevant facts concerning the estate:
Gross estate $2,400,000
Estate administration expenses 85,000
Debts of decedent 100,000
Allowable funeral expenses 10,000
The amount of the allowable marital deduction is
- A . $2,205,000
- B . $2,215,000
- C . $2,305,000
- D . $2,315,000
A wife makes outright gifts of $40,000 to her son this year, and her husband agrees to split the gifts with her.
Which of the following correctly states the amount of the taxable gifts?
- A . Wife 0, husband $18,000
- B . Wife $9,000, husband $9,000
- C . Wife$19,000, husband$19,000
- D . Wife $18,000, husband 0
A woman is the income beneficiary of an irrevocable trust.
Which of the following powers given to her will cause all the assets in the trust to be includible in her gross estate for federal estate tax purposes?
- A . The testamentary power to direct the trustee to use trust assets to pay her estate taxes
- B . The power to direct the trustee to pay trust assets to her limited in amount to an ascertainable standard relating to her health and education
- C . The power each year to direct the trustee to pay her an amount of trust assets not exceeding the greater of $5,000 or 5 percent of the assets held by the trust
- D . The testamentary special or limited power to direct the trustee to distribute trust assets to her children
A single man with substantial assets and income is supporting his 80-year-old partially senile mother with monthly cash gifts. He is trying to find a practical way to support his mother while at the same time saving federal gift and income taxes without giving up ultimate control of any assets.
Which of the following courses of action will best accomplish these objectives?
- A . Make her an interest free loan with a principal amount large enough to produce sufficient income for her support when invested in corporate bonds
- B . Make her annual gifts of enough interest income from the tax free municipal bonds in his portfolio so that she will be able to support herseIf
- C . Make her a gift of enough corporate bonds from his port folio so that she will be able to support
herseIf from the interest payments - D . Purchase corporate bonds that pay interest in an amount sufficient for her to support erseIf and assign the interest payments to her
An individual who is a resident of State W is also the sole proprietor of a business located in State W. He owns real property located in State X that is used by the proprietorship. While on vacation in State Y, the individual meets an untimely death. Under the terms of his will, his entire estate is bequeathed to a resident of State Z.
Which state will tax the real property used by the proprietorship?
- A . State W
- B . State X
- C . State Y
- D . State Z
Which of the following life insurance settlement options will qualify for the federal estate tax marital deduction?
l. Proceeds left to the surviving spouse under the interest option, with interest payable to the surviving spouse who has the unrestricted right to withdraw proceeds and with any proceeds not withdrawn payable equally to her children per stripes
ll. Proceeds left to the surviving spouse under an installment option, with any installments remaining at her death to be commuted and paid to her estate
- A . l only
- B . II only
- C . Both l and ll
- D . Neither l nor ll
Which of the following statements concerning a power of appointment is (are) correct?
l. A power of appointment can be designed to restrict the donee’s right to appoint the property in favor of a specific class of recipients.
ll. A power of appointment can be designed to restrict the time period during which the donee may exercise the power.
- A . l only
- B . II only
- C . Both l and II
- D . Neither I nor II
Which of the following statements concerning ante nuptial agreements is (are) correct?
l. They are frequently used to protect the interests of children of former marriages.
II. They can legally deprive a surviving spouse of his or her elective share of a deceased spouse’s estate.
- A . l only
- B . II only
- C . Both l and ll
- D . Neither I nor II
Which of the following statements concerning the joint tenancy with right of survivorship form of real property ownership is (are) correct?
l. The property is part of the probate estate of the first tenant to die.
ll. An owner can sell his interest in the property at any time without destroying the form of ownership.
- A . l only
- B . II only
- C . Both l and ll
- D . Neither I nor II
A number of states have passed statutes governing “living wills.”
Which of the following statements concerning a living will is (are) correct?
l. A living will is an alternative to an inter vivos trust under certain circumstances.
ll. A living will is an oral will made by the testator during a final illness when it is impossible to write one.
- A . l only
- B . II only
- C . Both l and ll
- D . Neither I nor Il
Which of the following actions on the part of a trustee is (are) a breach of his duties?
I. Placing substantial amounts of cash from the sale of securities in a no interest bearing checking account for a period of years
II. Investing all trust assets in securities that favor income beneficiaries to the detriment of remainder persons
- A . l only
- B . II only
- C . Both l and ll
- D . Neither I nor II
Which of the following are ways of passing property from a deceased spouse to a surviving spouse so that the properly will qualify for the federal estate tax marital deduction?
I. When the surviving spouse receives the property by electing to take against the deceased spouse’s will
ll. When the surviving spouse receives the property as a consequence of the qualified disclaimer of another beneficiary
- A . l only
- B . II only
- C . Both l and ll
- D . Neither I nor II
Which of the following statements concerning wills is (are) correct?
l. A will should be reviewed periodically to assure that the property owner’s most recent intentions are honored at death.
ll. Once signed, a will’s provisions may not be changed without the consent of all the beneficiaries under the will.
- A . l only
- B . II only
- C . Both l and ll
- D . Neither I nor II
Which of the following statements concerning the generation-skipping transfer tax (GSTT) is (are) correct?
I. An annual exclusion against GSTT will shelter gifts by a grandparent to a trust benefiting multiple grandchildren.
II. Tuition payments made directly by a grandparent to a university for a grandchild’s education are exempt from GSTT.
- A . l only
- B . II only
- C . Both land ll
- D . Neither I nor II
In which of the following situations will the grantor be taxed on income from trust property.
l. The grantor of a trust gives one of the trust beneficiaries the right to add or delete beneficiaries.
ll. An adverse party to the grantor holds the power to determine the timing to trust distributions to the beneficiaries.
- A . l only
- B . II only
- C . Both l and ll
- D . Neither I nor II
Which of the following statements concerning a grantor-retained annuity trust (GRAT) is (are) correct?
l. The grantor is taxed on trust income during the retained term.
II. The grantor makes an irrevocable transfer to the remainder person(s) when the trust is created.
- A . I only
- B . II only
- C . Both I and lI
- D . Neither I nor II
Alan, a widower, is a retired executive with substantial assets. He wishes to provide for the financial security of his two grandchildren since their father, Alan’s son, has always managed money poorly. This year Alan would like each grandchild to receive a substantial gift.
Which of the following statements concerning the generation-skipping transfer tax (GSTT) on these gifts is (are) correct?
I. Federal estate or gift tax will not be imposed if the gift is otherwise subject to the GSTT.
II. Assuming no prior gifts, Alan can gift a cumulative total of (not including the annual exclusion) $1.5 million to his grandchildren without the imposition of the GSTT.
- A . l only
- B . II only
- C . Both l and ll
- D . Neither l nor ll
Which of the following statements concerning filing the federal estate tax return is (are) correct?
l. The estate tax return must be filed within 9 months of death unless an extension is granted by the IRS.
ll. For persons dying this year. an estate tax return must be filed for gross estates plus adjusted taxable gifts that exceed $1.5 million.
- A . l only
- B . II only
- C . Both l and II
- D . Neither l nor ll
Which of the following statements concerning the gift or estate tax charitable deduction is (are) correct?
l. A donor is denied a charitable deduction for property that passes to a qualified charity as the result of a qualified disclaimer if the donor original transfer was to a no charitable donee.
ll. A decedent-spouse estate may obtain both marital and charitable deductions for interests contributed to a charitable remainder trust when the surviving spouse is the only no charitable income beneficiary for life.
- A . l only
- B . II only
- C . Both l and ll
- D . Neither I nor II
Which of the following statements concerning pooled-income funds are correct?
l. The fund contains commingled donations from many sources.
ll. A decedent donation purchases units in the fund which generate income that is paid at least annually to a charity.
- A . l only
- B . II only
- C . Both l and ll
- D . Neither I nor II
Which of the following factors is (are) used to make a choice between having an entity-purchase or cross-purchase partnership buy-sell agreement?
I. The cost basis of the partner’s business interests.
ll. The amount of the partner’s individual personal net worth’s
- A . l only
- B . II only
- C . Both l and II
- D . Neither l nor lI
Which of the following transfers will be successful in removing property from a grantor’s gross estate?
l. A grantor’s transfer of property to a revocable trust if the grantor lives three years after the transfer.
ll. A grantor’s transfer of a personal residence to a qualified personal residence trust if the grantor survives the retained interest term.
- A . l only
- B . II only
- C . Both l and ll
- D . Neither I nor II
Which of the following statements concerning marital transfers to a non-U.S. citizen spouse is (are) correct?
l. A marital deduction is automatically available as long as property is transferred outright to the non-citizen spouse.
Il. A marital deduction is automatically available if the transferor-decedent spouse is a U. S. citizen.
- A . l only
- B . II only
- C . Both l and ll
- D . Neither l nor ll
Which of the following statements concerning the inclusion in a decedent-employee’s gross estate of a lump-sum distribution from a qualified retirement plan to a beneficiary other than the employee’s estate is (are) correct?
l. Lump-sum distributions of payments attributable to the employer’s contributions are excluded from the gross estate.
ll. Lump-sum distributions of payments attributable to the decedent-employee’s contributions are excluded from the gross estate.
- A . l only
- B . II only
- C . Both l and II
- D . Neither I nor II
John plans to transfer his life insurance policy to an irrevocable trust for the benefit of his 19-yearold daughter, Jane.
Which of the following conditions will enable the gift to qualify for the annual exclusion?
l. Jane is the irrevocable beneficiary of the life insurance trust but cannot withdraw from the trust until the death benefits are paid.
ll. Jane is given “Crummey” demand powers permitting the withdrawal at her discretion of the annual additions to the trust.
- A . l only
- B . II only
- C . Both l and ll
- D . Neither I nor II
Which of the following statements concerning the taxation of estates and trusts is (are) correct?
l. They are taxed similarly to partnership entities.
II. They are taxed on distributable net income (DNI) that is retained.
- A . only
- B . II only
- C . Both l and lI
- D . Neither I nor II
Which of the following statements concerning pooled-income funds is (are) correct?
L. A pooled income fund is similar to a mutual fund maintained by a qualified charity.
ll. It is an irrevocable arrangement in which the remainder interest passes to charity.
- A . l only
- B . II only
- C . Both l and ll
- D . Neither l nor ll
Which of the following statements concerning ownership of property in the form of a joint tenancy with right of survivorship is (are) correct?
I. Either real or personal property may be owned as a joint tenancy with right of survivorship.
Il. Nonqualified joint tenants with right of survivorship may have unequal separate shares of the property.
- A . l only
- B . II only
- C . Both I and ll
- D . Neither I nor II
Which of the following statements concerning the methods of valuing a closely held business for federal estate tax purposes is (are) correct?
l. The capitalization-of-adjusted-earnings method uses a capitalization rate that varies inversely with the degree of risk and rate of return.
II. The adjusted-book value method involves adjusting the asset components of a business to an approximate fair market value for each component.
- A . l only
- B . II only
- C . Both l and ll
- D . Neither I nor II
Which of the following statements concerning guardians is (are) correct?
l. A guardian is appointed by a court.
Il. A guardian holds equitable title to the property he administers for his or her ward.
- A . l only
- B . II only
- C . Both l and ll
- D . Neither I nor II
Which of the following types of partial interests in property may be allowed a charitable deduction for estate tax purposes?
l. A remainder interest in the donor vacation home
ll. A testamentary gift of a percentage of a decedent entire interest in property held in trust
- A . l only
- B . II only
- C . Both l and ll
- D . Neither I nor II
A married man is the sole owner of a small business with an estate tax value of $500,000. In addition, he and his wife own an office building as joint tenants with right of survivorship which they purchased five years ago. The building has an estate tax value of $1, 50, 0000. They are considering dissolving the joint tenancy and retitling the building in the name of the husband as sole owner.
Which of the following statements concerning this action is (are) correct?
l. If the husband dies first, it would be easier to qualify his estate for a Section 303 redemption of his business interest.
ll. If the husband dies first; the probate costs of his estate could be increased.
- A . l only
- B . II only
- C . Both l and II
- D . Neither I nor II
Which of the following statements concerning certain types of property interests is (are) correct?
I. The person or entity who has title to the property is the legal owner of the property.
II. The person who has the right to all income earned on the property is the beneficial or equitable owner of the property.
- A . l only
- B . II only
- C . Both l and ll
- D . Neither I nor II
The failure of an individual to have a will can result in which of the following?
l. The state will determine the disposition of the individual’s probate estate.
ll. The decedent’s preference for a personal representative, guardian, and other fiduciary’ roles may be ignored.
- A . l only
- B . II only
- C . Both l and ll
- D . Neither I nor II
Losses resulting from which of the following occurrences constitutes a permissible deduction from a decedent’s gross estate to determine the adjusted gross estate?
l. Unreimbursed losses of estate assets due to theft.
Il. Unreimbursed losses of estate assets due to a storm.
- A . l only
- B . II only
- C . Both l and II
- D . Neither I nor II
Transactions involving a taxable gift include which of the following?
I. A father bought real estate, paid the entire $180,000 purchase price, and titled it jointly with his son with right of survivorship.
ll. A father deposited $50,000 in a bank account titled jointly with his daughter with right of survivorship and died before any funds were withdrawn from the account.
- A . l only
- B . II only
- C . Both l and ll
- D . Neither I nor II
A man established and funded an irrevocable trust and named a bank as trustee. All income from the trust is to be paid to his four grandchildren.
Which of the following powers retained by the grantor of the trust will cause all or a portion of the trust assets to be includible in his gross estate for federal estate tax purposes?
l. The power to add principal to the trust
II. The power to vary the amounts of trust income paid to each grandchild
- A . l only
- B . II only
- C . Both l and II
- D . Neither I nor II
Which of the following statements concerning federal gift, estate, and income taxes is (are) correct
I. A taxable gift of income-producing property automatically transfers income tax liability to the donee.
II. The value of gifts made within 3 years of death cannot be brought back into the donor’s gross estate.
- A . l only
- B . II only
- C . Both l and ll
- D . Neither I nor II
Which of the following provisions is (are) generally common to all buy-sell agreements?
l. Provisions specifying how the purchase price is to be funded.
II. Statement indicating the purpose of the agreement.
- A . l only
- B . II only
- C . Both l and lI
- D . Neither I nor II
A wife owns a $100,000 life insurance policy on her husband’s life. She has named her son the revocable beneficiary.
Which of the following statements concerning the life insurance is (are) correct?
l. At the husband’s death, the interpolated terminal reserve of the policy is a gift to the son.
II. The annual increase in the cash value is a gift to the son.
- A . l only
- B . II only
- C . Both l and II
- D . Neither I nor II
A father plans to create a trust for the benefit of his 22-year-old son and wishes to take advantage of the gift tax annual exclusion. He has named a bank as trustee.
Which of the following trust provisions would cause the gifts to be ineligible to qualify for the gift tax annual exclusion?
l. The trust income is to be paid to the son or accumulated at the discretion of the trustee.
II. The income is to be accumulated until the son reaches age 32 when all accumulated income and principal are to be distributed to him.
- A . l only
- B . II only
- C . Both l and ll
- D . Neither I nor II
Which of the following statements concerning the federal income taxation of estates is (are) correct?
I. An estate is entitled to a personal exemption of $300 and a standard deduction.
ll. An estate is entitled to a tax deduction for amounts of income distributed.
- A . l only
- B . II only
- C . Both l and ll
- D . Neither l nor ll
All the following factors are important in assessing liquidity needs in estate planning EXCEPT the
- A . marital status of the testator
- B . projected estate tax liability
- C . types of assets that comprise the estate
- D . ages of the residuary estate beneficiaries
All the following statements concerning a federal estate tax deduction for a bequest or gift to a qualified charily are correct EXCEPT:
- A . A life insurance policy that was assigned to a charity as a gift less than 3 years prior to the insured’s death qualifies for a charitable deduction.
- B . The amount of a charitable deduction is reduced by any taxes and administrative expenses chargeable against the bequest.
- C . An estate may deduct the value of the remainder interest in a charitable remainder trust.
- D . The amount of a charitable deduction may not exceed 50 percent of a decedent’s adjusted gross
estate.
All the following statements concerning an entity-purchase buy-sell agreement for a partnership are correct EXCEPT:
- A . The partnership makes payments to the decedent-partner’s estate to liquidate the partnership interest held by the estate.
- B . Both the partners and the partnership are parties to the agreement that provides for business continuation.
- C . It is the surviving partners who purchase the decedent’s business interest so that the partnership can afford to pay the decedent’s estate.
- D . The partnership in effect, liquidates the interest held by the decedent-partner’s estate.
To determine whether a taxable gift has been made, the IRS focuses on all the following factors
EXCEPT:
- A . Was the transferred property real property or personal property?
- B . Was the value of the gift property in excess of the annual per-donee exclusion?
- C . Did the donor absolutely, irrevocably, and currently divest himseIf of dominion and control? over the property?
- D . Was the property transferred for less than an adequate and full consideration in money or money’s worth?
Ignoring the annual per-donee exclusion, all the following transfers are gifts for federal gift tax purposes EXCEPT:
- A . A creditor cancels the promissory note of a friend who recently became unemployed.
- B . A grandmother reimburses her grandson for his college tuition costs.
- C . A father lends his daughter a large sum of money interest free for a period of 2 years.
- D . An individual gratuitously performs valuable services for the benefit of a close friend.
All the following statements concerning property ownership by a married couple residing in a community-property state are correct EXCEPT:
- A . All property that is not separate property is community property.
- B . Community property loses its identity when a community-property couple moves to a common-law state.
- C . Property inherited during the marriage is the separate property of the spouse who inherited it.
- D . Income earned by one spouse becomes community property.
All the following powers held by the grantor of an irrevocable trust will cause the trust assets to be brought back into the estate of the grantor EXCEPT the power to:
- A . terminate the trust
- B . change the trust remainder persons
- C . add principal to the trust
- D . designate who shall enjoy the trust income
A father wants to accumulate funds for his 12-year-old son’s college education. On the advice of his attorney, the father establishes an IRC Section 2503(c) trust and funds it with annual gifts. All the following statements concerning this arrangement are correct EXCEPT:
- A . The trust must be irrevocable.
- B . The father’s annual gift tax exclusion must be reduced by any amount used to pay college tuition costs.
- C . Any accumulated income and all trust principal must be available for distribution to the son when he attains age 21.
- D . In the event of the son’s death prior to age 21, trust assets must either be payable to the son’s estate or be subject to a general power of appointment held by the son.
Believing that his death was imminent, a widower gave his son some real estate two years ago, and
filed a timely gift tax return. The widower died on January 1st of this year.
Additional facts are:
Widower’s basis in the real estate $150,000
Value of real estate when gifted 400,000
Value of real estate on date of death 800,000
Amount of gift tax paid by widower 121,600
Assuming the widower made no additional gifts to his son, all the following statements concerning this situation are correct EXCEPT:
- A . The gift of the real estate is included in the calculation of the widower’s federal estate tax as an adjusted taxable gift.
- B . The son’s income tax basis in the real estate is $800,000.
- C . The gift tax paid is brought back into the widower’s gross estate at $121,600.
- D . The widower recognized no gain for income tax purposes at the time the gift was made.
All the following statements concerning the ownership of real property as joint tenants with right of survivorship are correct EXCEPT:
- A . If the joint tenants are brother and sister, no portion of the value of the property will be in the sister’s estate if she dies first provided her executor proves that the brother contributed all the funds.
- B . If three sisters inherited property as joint tenants with right of survivorship, the entire value of the property will be in the estate of the first sister to die.
- C . If the joint tenants are husband and wife, because this is a qualified joint interest, one haIf the value of the property will be in the estate of the first spouse to die regardless of which spouse contributed to the purchase price.
- D . If the joint tenants are two brothers and each contributed one haIf the property’s purchases price, only one haIf the property’s value will be in the estate of the first brother to die if his executor proves that the other brother contributed haIf of the purchase price.
All the following statements concerning transfers at death under a will are correct EXCEPT:
- A . The most appropriate way to sever a joint tenancy with right of survivorship is for the joint tenant-decedent to make a specific bequest of the property under a will.
- B . If during life time a decedent disposed of property that was the subject of a specific bequest, ad emption occurs.
- C . It is common for a will to contain a clause that exempts the executor from posting bond.
- D . Specific bequests of a decedent’s property are satisfied prior to distribution of the decedents residuary estate.
Income earned but unpaid at the time of a decedent’s death is deemed to be income in respect of a decedent (IRD). All the following statements concerning IRD are correct EXCEPT:
- A . The income must be reported on the decedent’s final federal income tax return.
- B . The income is taxable to the person or entity receiving it.
- C . The income may be included on both the estate tax return and the estate income tax return with a corresponding deduction.
- D . IRD includes sales commissions earned prior to the decedent’s death and paid to the estate according to the intestacy laws.
All the following statements concerning the generation-skipping transfer tax (GSTT) are correct
EXCEPT:
- A . Tuition payments made by a grandparent directly to a university for a grandchild’s education are exempt from GSTT.
- B . Direct skip gifts by a grandparent of up to $11,000 can be made to each grandchild without GSTT liability due to an annual exclusion.
- C . Each individual has an aggregate $1.5 million exemption against GSTT.
- D . The liability for GSTT falls upon the donee regardless of the type of transfer.
All the following are steps in calculating a decedent’s maximum estate tax marital deduction EXCEPT:
- A . Compute the decedent’s gross estate.
- B . Subtract the allowable expenses and debts to determine the adjusted gross estate.
- C . Determine the net amount of property in the gross estate that passes to the surviving spouse in a manner qualifying for the marital deduction.
- D . Subtract the applicable exclusion amount available in the year of the decedent’s death.
All the following statements concerning real property ownership by married couples as joint tenants with right of survivorship are correct EXCEPT:
- A . The deceased spouse’s interest in the property qualifies for the marital deduction since it passes outright to the surviving spouse.
- B . All benefits of ownership remain available to the surviving spouse without interruption during the administration of the deceased spouse’s estate.
- C . Jointly held property between spouses does not pass through the probate estate of the first spouse to die.
- D . In common-law states the total value of the property receives a stepped-up tax basis in the estate of the first spouse to die.
All the following statements concerning installment sale tax treatment are correct EXCEPT:
- A . If the seller has a gain, the basis portion of each installment is received tax free.
- B . The seller must pay income tax on the interest portion of each installment.
- C . The entire purchase price may be fully paid in any one taxable year other than the year in which the property is sold.
- D . Installments due after the seller’s death are excludible from the seller’s gross estate.
Tax benefits of making life time gifts in excess of the gift tax annual exclusion include all the following
EXCEPT:
- A . The gift tax paid on a gift made more than 3 years prior to the death of the donor avoids inclusion the donor’s gross estate.
- B . Appreciation in the value of a gift of real property after the date of the gift increases the donor’s federal estate tax liability.
- C . Income taxes can be saved if a high-income donor gives income-producing property to a lowincome donee.
- D . Gift taxes are payable at the same tax rate as estate taxes.
All the following statements concerning a typical pour-over trust are correct EXCEPT:
- A . Properly drawn, it eliminates the need to file a federal estate tax return.
- B . The trust is created during the life time of the grantor.
- C . It is a device to consolidate all a decedent’s assets to simplify administration.
- D . The trust is revocable during the life time of the grantor.
All the following will be brought back into the donor’s gross estate for federal estate tax purposes EXCEPT:
- A . a gratuitous transfer of real property with a reserved right to use and enjoy it for life
- B . a gratuitous transfer of real property to a revocable inter vivos trust
- C . an outright, gratuitous transfer of real property in contemplation of death
- D . the gift taxes paid last year on a gratuitous transfer of real property
Limited interests in property include all the following EXCEPT:
- A . life estates
- B . fee simple estates
- C . remainder interests
- D . reversionary interests
All the following are grounds for contesting a will EXCEPT:
- A . The instrument is a forgery.
- B . The testator executed a later valid will.
- C . The testator did not have testamentary capacity.
- D . The widow was bequeathed less than her intestate share.
All the following items will be included in a decedent’s gross estate at their date of death value for federal estate tax purposes EXCEPT:
- A . a gratuitous transfer of property taking effect at the decedent’s death
- B . a gratuitous life time transfer of property in which the decedent retained the power to revoke the transfer with the consent of another person
- C . a no-refund life annuity payable to the decedent that was purchased by the decedent from a life insurance company
- D . a gratuitous life time transfer in which the decedent retained a reversionary interest on the date of
death equivalent to more than 5 percent of the value of the property
All the following transfers are subject to the generation-skipping transfer tax (GSTT) EXCEPT:
- A . A direct cash gift of $50,000 from a grandparent to his grandchild if such grandchild’s parents are still alive.
- B . A direct cash payment of $28,000 from a grandparent to a private prep school to cover the tuition costs for her grandchild.
- C . A distribution to a grandchild from a sprinkle trust created by a grandparent to benefit both skip and non-skip beneficiaries.
- D . A termination of a trust at the death of the non skip life income beneficiary with the remainder distributed solely to skip persons.
All the following items are deductions from a decedent’s gross estate in determining his adjusted gross estate EXCEPT:
- A . state death taxes
- B . attorney fees
- C . claims against the estate
- D . estate administration expenses
Many trust instruments provide for the removal of the original trustee. All the following are valid reasons for removal of a trustee EXCEPT:
- A . A shift in trust situs is desirable because of changes in law.
- B . The beneficiary has been successful with investments and wants to manage the trust assets.
- C . The beneficiary is not able to get along with the present corporate trustee.
- D . The beneficiary has moved his or her residence to a distant state.
A father died leaving his property equally to his wealthy son and his poor daughter. The son wishes
to disclaim his share of the inheritance so that it will pass to his sister without his incurring any gift tax liability. In this situation, all the following acts on the part of the son are required EXCEPT:
- A . His refusal to accept the inheritance must direct specifically that his sister is to receive it instead.
- B . His refusal to accept the inheritance must be in writing.
- C . His refusal to accept the inheritance must be received by the executor of his father’s estate within 9 months of his father’s death.
- D . He must not have received any part of his inheritance or any income from it prior to his refusal to accept it.
All the following are conditions that must be met if an otherwise nonqualified terminable interest is to qualify (as QTIP) for the federal estate tax marital deduction EXCEPT:
- A . The surviving spouse must make a qualified disclaimer to all other property in the deceased spouse’s estate within 9 months of death.
- B . No person can be given the right to direct that the property go to anyone other than the surviving spouse as long as the surviving spouse is alive.
- C . The surviving spouse must be given a life time right to receive all the property’s income at least annually.
- D . The deceased spouse’s executor must make an irrevocable election to have the property includible in the surviving spouse’s gross estate.