Estate Flashcards by Kaylee U

Which of the following types of property is included in the probate estate?
A. Life insurance owned by a decedent with a named beneficiary
B. A pension plan account with a named beneficiary
C. A corporation owned by the decedent
D. A brokerage account held in joint tenancy with son and daughter

C
Assets passing by beneficiary designation are not subject to probate. Stock owned by a sole owner is subject to probate.

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Mr. and Mrs. Neal live in California, a community property state. They have been buying stock for years. The stock is currently held in an account with a major brokerage company. Their basis in the stock is $500,000.
The stock is now worth $1,000,000. If either spouse dies, what amount will be the survivor’s basis?
A. $O
B. $250,000
C. $500,00
D. $750,000
E. $1,000,000

E
Appreciated community property receives a full step-up in basis at the death of the first spouse (Reference
Chapter 1).

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Bob and Beverly Ramirez (married) own the following property interests:
2 cars (JT)
$50,000
IRA (Bob)
$200,000
IRA (Beverly)
$200,000
Checking/money market (JT)
$50,000
Mutual funds (Beverly)
$200,000
Common stock (Bob)
$100,000
Life insurance (Bob) (owner/insured)
$20,000 CV

If Bob dies first, what would be the value of his gross estate?
A.
$300,000
B. $500,000
C. $600,000
D. $700,000
E. $720,000

Question 7: D
Separately held
½ of joint held Life Insurance
Gross Estate
$300,000
+$200,000
+$200,000

= $700,000

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Grandpa Goodguy dies in 2025. Which of the following items can be included in his gross estate?
I. $108,000 in gift tax paid this year
II. A $2 million life insurance policy bought by a grandson on his life 2 years ago Ill. His claim for an income tax refund not yet received
IV. $5 million in his revocable living trust
V. A taxable gift of $14,009,000
A. 1, II, IV, V
B. I, III, IV
C. I, IV
D. III, IV
E. IV

B. The $108,000 paid in gift tax is subject to the “gross-up” rule. The taxable gift is included in the estate’s tax
base but not in the gross estate.

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On what form is the federal estate tax filed?
A. Form 706
B. Form 709
C. Form 712
D. Schedule E
E. Form 709-A

Question 8: A
The Federal estate tax form is Form 706. The transferor is six feet under ©
The 709 is for gift tax and GSTT.

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Question 10
What is the exemption amount allowed against federal estate tax for 2025?
A.
$19,000
$38,000
C.
$5,596,000
D. $13,990,000

Question 10: D
The exemption amount of $13,990,000.

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Tom, age 50, is wealthy and owns different classes of assets. He wants to gift the following assets to various family members. Match each asset to the most appropriate family member.
• Real estate still subject to depreciation
• Dividend paying growth stocks
• Municipal bonds
• High yield corporate bonds
Who should receive the dividend paying growth stocks?
A. His sister (in a high tax bracket)
B. His mother (in a low tax bracket)
C. His son who has just graduated from college
D. His two-year-old grandson

Question 13: C
The mother can use taxable income (high yield bonds). The sister can use the depreciation (Real Estate). The son can use income plus growth (Dividend paying stocks). The grandson can use tax-free income. The kiddie tax applies until the child turns age 24. This is a test-writers’ evaluation question/answer. With the information provided, Answer C is the best answer.

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Ted has been declared legally incompetent. What type of documents can be drawn up by his attorney to help take care of him and his assets now?
I. A durable power of attorney
II. A living will IlI. A revocable trust
IV. A durable power of attorney for health care
A. All of the above
B. 1, IV
D. Ill
E. None of the above

E. To be valid, the documents must be executed prior to the principal’s incapacity.

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C. The mother can use taxable income (high yield bonds). The sister can use the depreciation (Real Estate). The son can use income plus growth (Dividend paying stocks). The grandson can use tax-free income. The kiddie tax applies until the child turns age 24. This is a test-writers’ evaluation question/answer. With the information provided, Answer C is the best answer.

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Why is a revocable living trust generally regarded as a more effective incapacity planning technique than a durable power of attorney (DPOA) for property?
A. The trust is easier to establish than the DPOA
B. The trust is more likely to be recognized in more states than the DPOA
C. The trust can generally be created without incurring attorney costs because it is revocable
D. Only spouses may be named as attorney-in-fact under durable powers of attorney

Question 6: B
Trust instruments are generally recognized in all states. Durable powers of attorney are state specific forms and may not be recognized in multiple states. Trusts are not easier to establish than durable powers. Creating a trust entails the services and costs of an attorney.

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Distributed net income (DNI) is a concept that has been developed for which of the following purposes except?
A. Limiting the amount of distributions that may be taxable to the beneficiaries.
B. Advising beneficiaries of the amount of income the trust has earned that represents their interest.
C. Establishing the character of the amount taxable to the beneficiaries.
D. Limiting the deduction, a trust may receive for amounts distributed to beneficiaries.

Question 5: B
DNI accounts for the income to the beneficiary as well as the corresponding deduction for the trust.

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John loves his 12-year-old daughter. He and his wife want to give her a gift in a UTMA account for college education purposes. Which of the following investment strategies would be most appropriate if John is in the 35% marginal tax bracket?
A. Preferred stock paying a 6% dividend worth $30,000
B. A 5-year CD ($30,000) with a 6% rate
C. Waiting until his daughter turns age 24
D. A corporate bond paying 7% worth $30,000

Question 11: B
The $1,800 is under the level of unearned income where the kiddie tax starts ($2,700). Also consider the investment time horizon. His daughter will be going to school in approximately 5 years when the CD will mature for face value. John should not wait until his daughter is age 24. This is a favorable tax situation. The corporate bond ($2,100) and the preferred stock are exposed to interest rate risk.

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Which of the following statements about trusts are correct?
I. The three parties to a trust are the trustor, the grantor and the beneficiary.
Il. Living (inter-vivos) trusts are irrevocable by nature.
III. Testamentary trusts can be established at death.
IV. A trust must name only one beneficiary.
V. The trustee holds legal title to the property held in the trust.
A. 1, III
B. III, V
C. III, IV, V
D. I1, II١, IV
E. 1, II, V

Question 1: B
The trustor and grantor are the same person. At death a revocable living trust becomes irrevocable. Trusts can generally specify multiple beneficiaries.

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Charitable lead trust
A. A charitable trust arrangement in which a fixed-income interest (worth at least 5% of the initial net FMV of the property paid in trust) passes at least annually to one or more non-charitable beneficiaries and at the death of the last income beneficiary, the remainder interest passes to a heir
B. A charitable trust arrangement in which a fixed percentage (at least 5% of the net FMV of the trust assets as revalued annually) is paid at least annually to one or more non-charitable income beneficiaries and at the death of the last income beneficiary, the remainder interest passes to a heir A fund maintained by a qualified charity that contains commingled donations from many sources and that allows a donor’s estate an estate ta x charitable deduction for the remainder interest
D. A tax planning device in which the donor transfers property inter vivos or by will to a trust whose earnings go to a charity for a certain period after which the trust corpus reverts to the donor or some other party
E. A tax-exempt organization operated exclusively for charitable purposes as specified in Section 501(c)(3)

Question 12: D
A charitable lead trust distributes the income (the lead interest) to the charity for a term with the remaining principal going to a non-charitable beneficiary. Note: Answer E is a private foundation.

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Question 5
Anna, a retired attorney, has an estate of $10 million with an AGI of $500,000. Sadly, Anna is now terminally ill. She is inclined to give a portion of her estate to charity. What would you recommend?
A. Gift a portion to charity now
B. Establish a CRAT now
C. Enter into a charitable gift annuity now
D. Specify her interest in her will/trust

Question 5: A
By gifting now, Anna will be able to see the results of the gift while living, and she will be able to claim a charitable income tax deduction. If she waits, she will not see either of these results at death.

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Which of the following insurance policies will be included in the decedent’s gross estate?
1. A $500,000 life insurance policy on the decedent that was transferred to an irrevocable life insurance trust two years before the decedent’s death.
I1. A $500,000 life insurance policy on the decedent that was transferred to the decedent’s wife two years
before the decedent’s death.
III. A $500,000 life insurance policy on the decedent that was transferred to the decedent’s wife four years before the decedent’s death where the decedent retained the right to change the beneficiary.
IV. The decedent gave his children $20,000 two years before his death. The $20,000 was used by the
children to buy a $500,000 policy on the life of the decedent.
A. All of the above
B. 1, II, III
C. 1, III, IV
D. II, IV

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B. The three-year rule applies to all transfers including those made to a life insurance trust or to a spouse. Any incident of ownership, such as the right to change the beneficiary includes the policy in the estate. Answer IV has no incident of ownership by the decedent.

Richard’s father, Joseph Leder, died and was insured by a $1,000,000 policy purchased within three years of his death. Richard’s mother was the applicant-owner and beneficiary. Joseph Leder signed as the insured.
Monthly premium payments ($3,900) were paid by a corporation wholly owned by Joseph. Was the life insurance included in the estate of Joseph?
Yes, it was included because the corporation paid the premium.
Il. Yes, it was included because Joseph died within three years of the policy issue.
IlI. No, the policy was excluded from Joseph’s estate.
IV. No, the corporations can pay premiums for their key employees, and the policies will always be
excluded from their estates.
A. I
B.1, Il
C. III
D. III, IV
E. IV

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Question 2: C
This is a famous estate planning case. IRS has not been able to enforce the premium payor rule. “Beamed theory” was the principal that the IRS used to show an incident of ownership. Mr. Leder owned the company which paid the premium. Premium payment is not an incident of ownership. Answer IV is too general an answer to be true. The word “always” makes it wrong.

Question 3
Lester Landon would like to gift $519,000 (FMV) of appreciated property (basis $200,000) to his son. Lester doesn’t want to use his liquid assets to pay the 40% gift tax. He already has gifted his full lifetime exemption.
What gifting technique makes the most sense for Lester?
A. Do not make the gift
B. Make a net gift and have the son pay the gift tax of $142,857
C. Make a net gift and have the son pay the gift tax of $147,143
D. Have the son pay the gift tax of $200,000 using a reverse gift technique
E. Use the annual exclusions only for the gift of the property

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Question 2
Richard’s father, Joseph Leder, died and was insured by a $1,000,000 policy purchased within three years of his death. Richard’s mother was the applicant-owner and beneficiary. Joseph Leder signed as the insured.
Monthly premium payments ($3,900) were paid by a corporation wholly owned by Joseph. Was the life insurance included in the estate of Joseph?
Yes, it was included because the corporation paid the premium.
Il. Yes, it was included because Joseph died within three years of the policy issue.
IlI. No, the policy was excluded from Joseph’s estate.
IV. No, the corporations can pay premiums for their key employees, and the policies will always be
excluded from their estates.
A. I
B.1, Il
C. III
D. III, IV
E. IV

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Question 3: B
The normal gift tax would be $200,000 ($500,000 x 40%). However, when the son pays the gift tax for this net gift, the amount will be $142,857 ($200,000 ÷ 1.40). The 1.40 is 1 plus the gift tax bracket (40%).

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which of the following intra-family techniques will nothing ever be included in the donor’s gross estate should he or she die?
1. QPRT
II. SCIN III. GRAT IV. S corporation
V. Gift-leaseback
A. All of the above
B. 1, I1, III, V
C. 1, III, V
D. ١١١, ١٧,٧
E. II, V

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Question 2: E
The donor must outlive the term, or the assets in the QPRT or GRAT are included in the donor’s estate. Unless the donor gives away all the S corporation stock, a certain value will be included in the donor’s gross estate. If lI and V are correct and I and Ill are wrong, the S corporation cannot be a right answer. Completed gifts, except certain life insurance transfers and gift taxes paid are not included in the gross estate. No 3-year rule applies.

Mr. Thomas, age 55. is the sole owner of a regular C corporation. His two children, ages 26 and 28, work in the corporation. He has the following objectives in planning for the corporation (currently valued at $10,000,000).
He wants to freeze the value at $10,000,000
• He wants to maintain control of the business
• He wants to gift stock equal to the annual gift tax exclusion plus his gift tax exempt amount
He wants the corporation to provide him with retirement income.
What is an appropriate business transfer technique for Mr. Thomas?
A. Establish a family-limited partnership with his children as limited partners, gifting partnership interests at a discount
B. Implement a preferred recapitalization with him retaining all the preferred shares and gifting the common shares to his children
C. Implement a recapitalization while retaining all the common shares and gifting all the nonvoting preferred shares to his children
D. Establish an LLC with his children, gifting partnership Interests to his children

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Question 7: B
The word freeze suggests a recapitalization. Answer A, suggesting an FLP, is incorrect because the children cannot be limited partners and also be active in the business. Answer C is the reverse of Answer B, but when he owns the common shares, that doesn’t freeze the value. Answer D would be a good answer, but it doesn’t

Lance created an irrevocable life insurance trust that will pay income to his ex-wife for life and then to his children. Lance transferred a $1,000,000 term policy and $100,000 of high yield bonds to the trust. The income from the bonds will be used to pay the premiums on the policy, and all remaining income will be paid to his family. Which of the following statements regarding taxation on the trust’s income is correct?
A. During Lance’s lifetime, the income of the trust will be taxable to Lance.
B. During Lance’s lifetime, income from the trust will be taxable at the trust rates.
C.
During Lance’s lifetime, the income of the trust will be split: the amount paid for insurance premiums to Lance and the amount accumulated to the trust.

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Question 9: A
The trust is tainted by a combination of trust income used to pay premium and support.

Which of the following statements about a fiduciary is true? A. Executors don't need to have any particular skill or knowledge in managing or transferring estate property because they are supervised by the court. B. A trustee is granted powers by the probate court. C. An institution that holds and manages property for the benefit of another is a fiduciary. D. A trustee's investment activities are monitored by the court.

Question 5: C The executor will be called upon to take responsibility for business, financial, and administration decisions during the estate settlement period. That takes some skill and knowledge. The trustee receives his or her powers, including investment powers, from the trust instrument.

Mr. Substantial decided to gift $15,000,000 into an irrevocable trust for his daughter. He paid the gift tax. Mr. Substantial appointed an independent trustee who had discretion to distribute money to Mr. Substantial's daughter and her three children. The trust principal will be distributed to Mr. Substantial's grandchildren after his daughter's death. What is the consequence of distributing income to the daughter? A. A taxable termination occurred B. The daughter will be taxed on any income she receives C. No GSTT because Mr. Substantial paid the GSTT tax D. The trust will be taxed on the income distributed to the daughter

Question 2: B There is no GSTT tax on the distribution of income to his daughter. She is not a skip person. However, the best answer is that the income will be income taxable to the daughter.

Special use valuation can be elected for which of the following assets? 1. Real property II. A closely held business III. A farm IV. A residential development A. All of the above B. 1, III, IV C. I, IV D. |

Question 2: B Not enough is known about the closely held business. There is no indication that its assets include real property. Special use valuation can only be used for real property held in conjunction with a farm, ranch or closely held business.

Tim Foley and Alice Livingston were living together (not married) in California, a community property state. Tim and Alice bought their home in joint tenancy (JTWROS) for $200,000 some years ago. Tim died recently. Alice is going to sell the home for $1,500,000 (FMV as of the date of Tim's death). What is her tax basis if she contributed $100,000 to the original house purchase? A. $100,000 B. $500,000 C. $750,000 D. $850,000 E. $1,500,00 If Alice sells the home, what will be her recognized gain for income tax purposes? A. $0 B. $400,000 C. $450,000 D. $500,000 E. $750,000

Question 8: D The property does not get a full step-up in basis. It is not community property. They were not married. Due to joint tenancy, she gets half step-up in basis. Her basis His basis after step-up ($100,000 to $750,000) $100,000 +$750,000 $850,000 Question 9: B Her gain is calculated as follows: Sale basis less single exclusion (Section 121) $1,500,000 -$850,000 -$250,000 $400,000 Taxable gain Since her filing status is single (they were never married), the 121-exclusion amount is only $250,000.

R.J. is concerned about estate liquidity. Which of his assets will get a step-up in basis/value and will be liquid 1. Whole life insurance Il. Pension plan Ill. Stocks IV. Variable annuity V. Residence A. 1, III, IN B. 1, Ill C. II, IV, V D. III, IV E. II, II

Question 53: B The pension plan and the variable annuity will not step-up in basis and they will be subject to income tax. The residence will get a step-up in basis but will not be liquid. The life insurance face will be liquid because it is payable in cash. The premium paid is just a fraction of the death benefit is the basis. The death benefit represents a step-up in value over basis.

When Dwight died there was no beneficiary named for his 401(k) account. Regarding this situation, which of the following statements is true? A. The account balance will automatically pass to Dwight's widow B. The 401(k)-account balance will be subject to probate C. The account balance will not be included in Dwight's gross estate D. The account balance must be distributed to Dwight's wife as a QJSA

Question 7: B With no specific beneficiary, Clifford's 401(k) account balance is subject to probate. It is included in his gross estate. There is no requirement to name a spouse as a 401(k) beneficiary.

Grandpa Ray died while he was custodian/donor of his grandson's UTMA account. Was the UTMA account balance included in Grandpa Ray's gross estate? A. No, because Grandpa Ray only had a special power (adverse party); the UTMA account will not be included in his estate. B. Yes, because Grandpa Ray had a general power; the UTMA account will be included in his estate due to beneficial enjoyment. C. No, because Grandpa Ray only had a special power consent (of the donor); the UTMA account will not be included in his estate. D. Since the UTMA was established for educational purposes, the UTMA account will not be included in Grandpa Ray's gross estate.

Question 19: B If the donor/custodian dies before the child comes of age, it might be contended that the donor possessed a general power of appointment controlling the beneficial enjoyment of the UTMA account.

Grandpa gave you $2 million in low basis stock paying a 3% dividend. To maintain your standard of living, you need a 7% return for life. Which of the following charitable gifting techniques is most likely to meet your requirements? A. Charitable gift annuity B. Annuity Trust (CRAT) C. Unitrust (CRUT) D. Pooled Income Fund E. Charitable stock bailout

Question 21: B A CRAT must pay out a fixed percentage of the initial FMV (at least 5%). The specified amount must be paid at least annually to the non-charitable beneficiary out of income and/or principal. With a CRAT, capital gains on the low basis stock will be avoided. With a charitable gift annuity, only part of the capital gains is avoided. With a CRUT, a fixed percentage of the net FMV, as revalued annually, must be payable. 7% return is not assured.

Lamar is considering a program of lifetime giving. He plans to set up irrevocable trusts for the benefit of his grandchildren. Alice will not consent to gift splitting with Lamar. She plans to gift separately. If Lamar gifts the following amounts over the next 5 years, what will be the amount of taxable gift? Gift made: 2025 $65,000 2026 $78,000 2027 $91,000 2028 $104,000 2029 $117,000 A. $95,000 B. $190,000 C. $360,000 D. $455,000

Question 24: D The gifts are of a future interest and don't qualify for the annual exclusion [(not $455,000 - $95,000)). NOTE: An irrevocable trust does not necessarily mean that it provides Crummey rights. This is not a gift to a 2503(c) trust nor did the irrevocable trust provide Crummey provisions.

Lamar and Alice are considering gifting to their grandchildren to avoid paying estate tax. Considering their prior gifting history, which of the following statements about the GSTT would be true in 2025? 1. The generation-skipping transfer tax provides an unlimited exemption for each donee. II. The use of the $13,990,000 exemption in the generation-skipping transfer tax is elective. Ill. No annual exclusions are allowed for the generation-skipping transfer tax. IV. The generation-skipping transfer tax is integrated with the federal estate and gift taxes so as to avoid double taxation. V. The time at which the generation-skipping transfer tax is due can be at the time the donor makes the transfer or later. A. 1, III, V B. II, V C. II, V D. III, V E. IV

Question 30: C Claiming the GSTT exclusion is elective. The GSTT may be imposed years after trust property is transferred into the trust. I is false. The exemption is per donor. Il is true. Ill is false. Annual exclusions are allowable in the calculation of the generation-skipping transfer tax. IV is false. The generation-skipping tax is an additional tax and is intended to deter generation skipping transfers. V is true. Indirect skips cause the GSTT to be due later.

Lamar wants Bob (his son) and Sherrie (his daughter) to share more equity in his business possibly reducing the size of his estate. Which of the following techniques should reduce his future estate and benefit his son and daughter now? A. 2032A Special Use Valuation B. 303 Stock Redemption C. 6166 Installment Sale D. Preferred stock recapitalization

Question 32: D The preferred stock recapitalization would freeze the value of jerico, Inc. and enable Lamar's children to benefit from future growth in the common shares. Answer A is wrong. We don't know the value of the real estate, so 2032A can't apply. Answers B and C are usable only at death.

Estate Flashcards

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