Estate Planning

Question 1

Which assets would be classified as community property in a community property state? Home, term life insurance policy on H, H’s IRA, W’s CD and 2 cars

Answer 1

All of them because community property emphasizes efforts of both spouses to acquire property

It’s not only the assets owned jointly

Question 2

Which assets would be subject to probate in a community property state if H dies? Home, term life insurance policy on H with beneficiary designation, H’s IRA with beneficiary designation, W’s CD and 2 cars

Answer 2

Home, W’s CD and 2 cars because all community property (even W’s CD)

Life insurance and IRA pass by beneficiary designation

Question 3

Which assets would get a full step up in basis in a community property state if H dies? Home, term life insurance policy on H with beneficiary designation, H’s IRA with beneficiary designation, W’s CD and 2 cars

Answer 3

Home and life insurance - only appreciated property gets full step up (life ins. DB is step up in basis because may only have paid one premium and receive DB)

Not CD or vehicles (vehicles depreciate in value)

Not IRA because individually owned so don’t get FULL step up by both spouses (although still get a stepped up basis because inherited the IRA funds)

Question 4

H and W live in community property state. W buys real estate in common law state using her income earned during marriage. Is the property community property? Will it go through probate?

Answer 4

Community property because purchased with earned income

Asset will go through probate in W’s estate and ancillary probate because out of state real estate

Question 5

A business is started before marriage in a community property state. During the marriage, earnings from the business are used to start a Roth IRA which is contributed to annually. Is the Roth IRA community property?

Answer 5

Yes, earnings received from the business during marriage are community property money even though business was started prior to marriage so Roth IRA is community property

Question 6

Does property owned by a testamentary trust avoid probate?

Answer 6

No, because testamentary trusts are created within a Will and the Will must be probated

Question 7

Can a special power be exercised in favor of a holder or the financial equivalent of a holder?

Answer 7

No, it is typically the children of the holder or someone other than the power holder

A special power is not the same as an ascertainable standard although neither is considered a general power

Question 8

If a power exercised in favor of a holder is subject to an ascertainable standard can it be a general power?

Answer 8

No, and it must state health, education, maintenance and support to be ascertainable; wellbeing isn’t an ascertainable standard

Medical is the same as health for HEMS standard

Question 9

In the current tax year, what is the amount that can be given to one individual (donee) without causing a federal gift tax?

Answer 9

$14,909,000

Annual exclusion ($19,000) + gift exemption ($13,990,000)

Question 10

Crummy trust - 1st year contribute $119,000 and 2nd year contribute $0 because trust grew to $160,000 and generated $5k in income. How much can beneficiary withdraw in 2nd year?

Answer 10

$0 because lesser of $19k or contribution amount, which was $0 in year 2

Question 11

QTIP trust provision states that estate tax attributable to QTIP must be borne by Wife’s estate and not QTIP assets. If Wife dies, what will be the tax result?

Answer 11

W’s estate won’t bear the burden, but will instead receive reimbursement from QTIP trust for estate tax incurred by the QTIP property - the QTIP has to bear the burden for its share of W’s estate taxes

Question 12

W’s estate $20M and H’s estate $2M. If H dies first will W have an estate tax problem?

Answer 12

No, because H & W have combined $27,980,000 exemption (not just W’s $13,990,000). If H leaves $2M to W or family members, portability of unused exemption applies

Question 13

A trust that permits trustee to have discretion to determine whether beneficiary needs income only at a particular time has which provision?

Answer 13

Sprinkling or spray provision because discretion and income only

Not Discretionary provision because that is income or principal

Question 14

If income beneficiary of trust worth $100,000 with 5 or 5 power and beneficiary exercises 5 or 5 power in year that she dies, what amount must be included in gross estate?

Answer 14

$0 because exercises 5 or 5 right

Not $5,000

Question 15

E purchases property for $15,909,000 and gifts to son when FMV is $14,909,000. If E not use any of his annual or lifetime gift exemption, what amount of gift tax did E pay in 2025?

Answer 15

14,909,000 - (($19k + $13.99M) = $900,000

$900,000 * .40 =$360,000

Question 16

E purchases property for $15,909,000 and gifts to son when FMV is $14,909,000. If son sells property for $15,327,000, what was son’s amount of capital gain or loss he will realize?

Answer 16

$0 because sale price is between $15,909,000 and $14,909,000

Question 17

What is the exemption amount allowed against federal estate tax in 2025?

Answer 17

$13,990,000

Question 18

Which will be included in gross estate of grantor?

Pourover Will assets
PV of survivor benefit from a joint and annuity
Gift to charitable remainder trust at death for benefit of grantor’s spouse
Assets funded in revocable trust
Assets funded in irrevocable trust

Answer 18

All but irrevocable trust

The annuity is included and so is gift at death even if made to charity or spouse

Question 19

Father and mother want to give daughter a gift in an UTMA for college education purposes. Which investment strategy most appropriate is in 35% tax bracket?

Preferred stock paying 6% dividend worth $30k

5 year CD ($30k) with 6% rate

Answer 19

The CD - The $1800 is under unearned income limit where kiddie tax starts

Also consider investment horizon because daughter will be going to school in about 5 years when CD matures

The preferred stock is exposed to interest rate risk

Question 20

Aunt wants to make gifts to nieces and nephews. Will 2503(b) trust qualify for gift tax annual exclusion?

Answer 20

No, this is a future interest gift

Question 21

Which statement is not true - trust can continue for indefinite life OR trust terms can be enforced by someone other than trustee?

Answer 21

False - trust terms can be enforced by someone other than trustee

True - can have indefinite life because irrevocable remainder interest must be paid or HELD for a charity

Question 22

Land to get rid of where value of land has increased - which is better putting in CRUT or selling and donating to charity directly?

Answer 22

CRUT because can sell pretty with no capital gains taxes and invest proceeds in municipal securities

If sold and donated outright, would have to pay capital gains taxes which would reduce amount of charitable gift

Question 23

Does Pooled Income Fund provide income that rises with inflation?

Answer 23

Yes, and so does CRUT but not CRAT

Question 25

F owns land worth $500k and his basis is $50k. Current AGI is $1M. F wants to gift land and improve his children’s inheritance. Which technique is most appropriate - right gift to charity and purchase ILIT or transfer property to CLAT with stream of income to charity and remainder to children?

Answer 25

Outright gift and ILIT because get tax deduction and children get an estate and tax free death benefit CLAT is usually for large donations and $500k would be too small

Question 26

Which policy not included in estate? Key life policy owned by corp (J owns corp) on J at time of J’s death or policy purchased by daughter on J’s life where proceeds used to cover J’s estate taxes under a legal obligation

Answer 26

Key person because no incidents of ownership. However, may be indirectly included because J owns corp and corp owns policy Policy purchased by daughter included because if beneficiary is legally obligated to pay estate taxes, then includible in estate

Question 27

Mom gifts daughter land valued at $519,000. Mom already made taxable gifts of $13,990,000 to daughter. If daughter pays gift tax what will it be compared to what mom would have paid?

Answer 27

Mom: $519k - $19k annual exclusion = $500k * .40 = $200k Daughter: $200k/1.40 = $142,857 Daughter pays less due to net gift technique

Question 28

Will a post-death transfer from a citizen spouse to a resident-alien spouse qualify for the marital deduction?

Answer 28

No, only if the property passes through a QDOT will it qualify for the marital deduction

Question 29

W brought universal life insurance on H many years ago. DB = $500k and CV = $5k. H&W estate = $15M. H had heart attack and will die. W’s $500k policy will add to her estate taxes and she’s concerned so what can she do to get life insurance out of estate? Set up ILIT and gift to trust with her as beneficiary Gift to son age 50 Gift to charity

Answer 29

All of these

Question 30

Widow has used up $13.99M exemption. Has sizable estate and is growing by $500k per year. Assets include 1000 acre $3M ranch, $1M home, $500k cabin. How reduce estate taxes? Establish 10 yr QPRT on home Make charitable gift if $100k/year Make net gift of ranch Establish 10 year GRAT on ranch

Answer 30

Net gift of ranch - removes assets from estate at a discount and gift taxes paid by family member are credited against widow’s estate. Have to live 10 years for other two and subject to gift taxes and she used full exemption already $100k per year cash donation not accomplish much

Question 31

Which circumstances cause date of death value of gifted property to be included in donors gross estate? Donor retains life estate in gift property Donor dies within 3 years of date of gift

Answer 31

Transfers with retained life estate are brought back into gross estate (except for 529 plans) Donor dies within 3 years is debatable because it’s too broad an answer to be correct. But, if life insurance it would be correct

Question 32

Can all trusts own S corporation stock?

Answer 32

No, trusts such as foreign trusts or charitable remainder trusts cannot

Question 33

D owns profitable clinic that has medical equipment. He would like to gift to son age 18 for future educational needs but is short on cash. Which strategy is better? Gift medical equipment and clinic lease back or set up FLP with equipment and slowly gift interests to son over time using annual exclusion

Answer 33

FLP because can transfer equity to son factoring a discounted gift tax valuation due to lack of control and marketability If son was 23 or older the lease back would be best assuming property is fully depreciated

Question 34

If grantor dies during retained interest terms, which is true about QPRT? It leaves grantor with no greater tax liability than it would have if the QPRT had not been established The applicable exemption amount plus any gift tax paid on original transfer are lost

Answer 34

Grantor has no greater tax liability and this is same outcome as if the trust was never created Applicable exemption amount plus gift taxes paid are allowed against any estate tax due

Question 35

Match GRAT and gift leaseback - 1) transferor receives payments over time and income reported as received. If transferor dies before expiration of term, full value of property is included in transferor’s estate 2) income provided to family member in lower marginal tax bracket. Income tax deduction is available to donor’s business

Answer 35

1) GRAT 2) FLP

Question 36

Why choose a SCIN over an installment sale?

Answer 36

SCIN will produce a higher payout and avoid estate taxes Installment note can trigger estate taxes and recapture

Question 37

Why doesn’t the private annuity intra-family gift technique work anymore?

Answer 37

It creates phantom income

Question 38

L created ILIT that will pay income to ex-wife and then children. L transferred $1M life insurance term policy and $100k of high yield bonds into trust. Income from bonds will pay life insurance premium and remaining income will be paid to family. How will the trust’s income be taxed?

Answer 38

Taxable to L because trust is tainted by combination of trust income used to pay premiums and support

Question 39

GSTT around $5M. Will GSTT be subject to 3 year gross up rule and can an estate claim a credit for GSTT paid?

Answer 39

No and no Payment of GSTT will reduce size of a gross estate and ultimately estate taxes. But, GSTT paid are not subject to the 3 year look back rule and the estate receives no credit for GSTT paid (like you do with gift tax paid)

Question 40

Is the annual exclusion available at death?

Answer 40

No, the $19k annual exclusion is only available for gifts given while alive

Question 41

If AVD is elected, can assets be valued at dates other than 6 month alternative valuation date?

Answer 41

Yes, even when AVD is elected specific assets may be sold or distributed before the AVD occurs. Those assets are valued at their FMV as of date of distribution or sale

Question 42

Special use valuation can be elected for which assets? Real property Closely held business A farm A residential development

Answer 42

All but closely held business because there’s no indication 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

Question 43

A & B living together (unmarried) in community property state. Bought home JTWROS for $200k. A died and B is going to sell home for $1.5M (FMV as of date of A’s death). What is B’s tax basis if B contributed $100k to original purchase?

Answer 43

$100k (her basis) + $750k (his basis after step up) = $850k

Question 44

A died and as part of estate planning he transferred terminal interest in his house to his 2nd wife. Will the terminal interest qualify for the marital deduction?

Answer 44

Yes, normally a life interest (exception to terminal interest rule) requires income to be distributed. However, allowing 2nd wife to live in home is deemed to be same as laying her housing expenses

Question 45

F wants to set up UTMA account for 11 year old daughter for college education with a substantial contribution. Which investment should he purchase for the account? STRIPS High yield corporate bonds Growth stock Residential real estate

Answer 45

Growth stock given time horizon and kiddie tax exposure this makes most sense No STRIPs (govt zero coupon bonds) because creates phantom income, which is the worst No corporate bonds because creates income Real estate too long holding period and produces depreciation (deductions)

Question 46

R owns equipment for medical practice and leases to the practice. He’d like to split lease income with children without losing control of lease terms. He’d like to claim remaining depreciation and receive retirement income from asset but remove from estate. Which is best intra-family transfer technique? Private annuity or FLP

Answer 46

FLP - split income and retain control screams FLP With private annuity would lose control and any remaining depreciation plus creates compressed capital gains tax liability

Question 47

Which statements about GSTT are true? Use of $13.99M exemption for GSTT is elective No annual exclusions are allowed for GSTT The time at which GSTT is due can be at time donor makes the transfer or later

Answer 47

True: Use of $13.99M exemption for GSTT is elective True: The time at which GSTT is due can be at time donor makes the transfer or later False: No annual exclusions are allowed for GSTT - they are allowed in calculation of GSTT Also false: GSTT is integrated with federal and estate taxes to avoid double taxation - want a double tax so why hit you every generation

Question 48

T owns universal life policy with $250k DB and ex-wife is irrevocable beneficiary. When T dies how will policy affect his estate taxes?

Answer 48

It will use $250k of T’s exemption amount because it’s individually owned by Tom so included in his estate (he has incidences of ownership)

Question 49

Which assets will get step up in basis/value AND be liquid when R dies? Whole life insurance Stocks Variable annuity

Answer 49

Stocks Whole life insurance - life insurance face value will be liquid because it’s payable in cash and the DB represents a step up in value over basis (i.e. the premium paid) Variable annuity - no step up in basis and subject to income tax

Question 50

R wants to make charitable donation. Which assets should R gift? Whole life policy Appreciated mutual fund shares Partnership with a loan Loss property

Answer 50

Appreciated mutual fund shares Never gift life insurance policy - beneficiary will sue you Can’t gift a gift that is encumbered with a loan Not good to donate loss property - don’t do it