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1. Mrs. Haynes had the following factors in her estate after her death last year. Her executor must determine the adjusted gross estate for the purposes of determining qualification for various estate relief provisions:

​Cash and securities​ $2,500,000

​Residence. ​$ 600,000

​Funeral expenses. ​$ 10,000

​Personal debts. ​$ 300,000

​Charitable bequests. ​$ 150,000

​Executor’s fees. ​​$ 200,000

​Final income taxes. ​$ 60,000

Her adjusted gross estate is?

(A)​$2,380,000
(B)​$2,530,000
(C)​$2,730,000
(D)​$2,790,000


B

1

​2.​Which of the following statements concerning the situation when a decedent-insured policyowner designates his estate as the beneficiary of life insurance proceeds is correct?

(A)​The federal estate taxes are increased.
(B)​The proceeds are not subject to the costs of administration.
(C)​The proceeds are not subject to an executor’s fees.
(D)​The proceeds could be subject to claims by the of the insured’s creditors.


D

2

3.​Marty died last year holding ABC, Inc. stock among the assets of his estate. The stock was valued at $5 million at the time of his death. The market was going through a severe correction just after his death and the stock's value was $3,500,000 6 months after the date of Marty's death. To solve liquidity problems, Marty's executor sold the stock for $4 million 3 months after Marty's death. If the executor elects the alternative valuation date for valuing the assets in Marty's estate, the amount included for the ABC stock is?

(A)​$3,500,000
(B)​$4,000,000
(C)​$4,500,000
(D)​$5,000,000

B

3

​4.​Sara and Adam Casey were residents of a community-property state before and after their marriage. Prior to the marriage Sara owned a piece of land valued at $40,000 and a savings account of $16,000, while Adam owned a rental commercial building valued at $70,000, a car valued at $12,000, and savings of $20,000. During their marriage they purchased a $200,000 home, another car for $14,000, and stock for $12,000, and Sara received an inheritance of $90,000 on the death of her uncle. Based strictly on the above figures and disregarding depreciation, inflation, and interest, what amount of community property belongs to Sara?

(A)​$113,000
(B)​$158,000
(C)​$237,000
(D)​$474,000

A

4

​5.​Which of the following statements concerning sales of property for private annuities is correct?

(A)​The private annuity is generally a favorable estate-freezing technique for sales of property to family members when the Section 7520 valuation interest rate is relatively low.
(B)​The value of the private annuity is included in the seller's estate at the time of the seller's death.
(C)​The private annuity is a favorable income-tax savings technique with rules identical to the installment sale.
(D)​Private annuities are often used in estate planning for sales of property between unrelated individuals.

A

5

​6.​Paul Simmon’s last will contained a provision that created a testamentary trust. Mr. Simmon’s son, Roger, was to receive all income generated by the trust for life, with the principal to pass to Roger’s son, Ross, at Roger’s death. If Roger dies and Ross receives the trust property, which of the following generation-skipping transfers will have taken place?

(A)​direct split
(B)​taxable termination
(C)​direct skip
(D)​taxable distribution

B

6

​7.​Which of the following statements concerning the Crummey withdrawal power is correct?

(A)​It is generally recommended that the Crummey withdrawal power provide the beneficiary at least 15 days to withdraw his or her share of the contribution to the ILIT.
(B)​The insertion of an effective Crummey provision into the terms of a will assures the availability of the federal estate tax marital deduction to the testator’s estate.
(C)​The insertion of an effective Crummey provision into the terms of a deed will assure the property owner that creditors may never attach the property.
(D)​The insertion of an effective Crummey provision into the terms of an irrevocable life insurance trust (ILIT) will assure the grantor of the trust the availability of the federal gift tax annual exclusion regardless of the amount of the premium.

A

7

​8.​Which of the following statements concerning nonqualified deferred-compensation plans is correct?

(A)​The employer enjoys a federal income tax deduction while it places funds aside to finance its future obligations under the plan.
(B)​While the employee is actively employed, he or she is required to include in gross income that portion of compensation that is covered by the plan.
(C)​Any benefits from the plan received by the employee’s named beneficiaries avoid federal estate taxation.
(D)​When the employer’s obligations under a plan are financed with life insurance and the employer receives a lump-sum payment on surrender of the policy at the employee’s retirement, the amount exceeding the employer’s cost is taxed as ordinary income.

D

8

​9.​Which of the following statements concerning qualified personal residence trusts (QPRTs) is correct?

(A)​A grantor may create an unlimited number of QPRTs at any time.
(B)​The creation of a QPRT is a completed gift that is eligible for the annual gift tax exclusion for gift tax purposes.
(C)​Estate inclusion for the residence will occur if the grantor dies before the QPRT terminates.
(D)​The gift to a QPRT is determined by discounting the remainder interest at the current average home mortgage interest rate.

C

9

​10.​Which of the following statements concerning the federal estate tax treatment of life insurance is correct?

(A)​Life insurance is excluded from the gross estate if paid to a surviving spouse.
(B)​Life insurance is generally subject to the claims of the decedent’s creditors if paid to a family member.
(C)​A life insurance beneficiary may be responsible for the estate taxes caused by the life insurance unless the decedent-insured had directed a different tax apportionment in his or her will.
(D)​A life insurance policy is not subject to state inheritance taxes under any circumstances.

C

10

​11.​Mr. Donor contributes a life insurance policy valued at $75,000 to The American College. He paid the annual premium of $5000 immediately after assigning the policy. Which of the following statements concerning the tax treatment of this transaction is correct?

(A)​his federal income tax deduction is limited to 20% of his contribution base
(B)​he receives a current federal income tax deduction of $5000
(C)​he receives a current federal income tax deduction of $75,000
(D)​he receives a current federal income tax deduction of $80,000

D

11

​12.​Mark and Melissa Megabucks are a married couple with a high net worth. Their financial advisor recommended that they reduce the size of their estate through lifetime gifts. Mark and Melissa have five children and 10 grandchildren. They would also like to benefit three of their siblings. During a tax year when the indexed amount for the annual gift tax exclusion is $14,000 and the applicable gift tax exclusion amount is $5,250,000. Ignoring the GSTT, what is the maximum amount of gifts that Mark and Melissa could give to the family members without incurring gift taxes?

(A)​$252,000
(B)​$504,000
(C)​$5,754,000
(D)​$11,004,000

D

12

​13.​Which of the following statements concerning the valuation of partial interests in property for tax purposes is correct?

(A)​The valuation of life estates and remainder interests is based on the average prime interest rates and gender-discriminatory mortality tables.
(B)​The new rules for valuing such interests provide that partial interests will be valued based on 10 percent interest rate tables contained in the estate and gift tax regulations.
(C)​Sec. 7520 mandates that such interests be valued based on a interest rate that fluctuates monthly equal to 120 percent of the applicable federal midterm rate.
(D)​the IRS district director must approve all partial interest valuations.

C

13

​14.​Mrs. Wolfe, a widow, had the following assets at the time of her death:

​Roth IRA account​$250,000

​Funds in revocable trust​$800,000

​Personal property​$100,000

​In addition, Mrs. Wolfe held a power to appoint property from a trust left to her by her father. The power of appointment permitted her to appoint the property to her father’s lineal descendants, but she could not appoint the property to herself, her estate, her creditors, or the creditors of her estate. She exercised the power of appointment in her will in favor of her nephew for $1million. The size of Mrs. Wolfe’s gross estate for federal estate tax purposes is?

(A)​$900,000
(B)​$1,150,000
(C)​$1,900,000
(D)​$2,150,000

B

14

​15.​A donor contributed a life insurance policy to a qualified public charity four years ago. Since then, the donor has paid all premiums for the policy. Which of the following statements concerning the federal tax treatment of this transaction is correct?

(A)​when the donor dies, the policy proceeds will be included in the donor's gross estate and trigger a federal estate tax charitable deduction
(B)​the premium payments will not be deductible unless the donor contributes the funds directly to charity
(C)​the contribution will generate both a federal income tax and gift tax deduction
(D)​the donor's family will generally find this transaction less favorable than if the donor had made the gift from accumulated wealth

C

15

​16.​Fran Bates, aged 60, created a grantor-retained annuity trust (GRAT). The GRAT is funded with $1 million in income-producing assets. Fran retains the right to receive $75,000 annually from the trust for the next 10 years. At the termination of the GRAT, her son Danny receives the remainder of the principal. Assume the retained annuity is worth $488,122 for tax purposes and that Fran has made no other taxable gifts. Which of the following statements concerning this transaction is correct?

(A)​The value of the taxable gift to Danny is $511,878.
(B)​Fran will have to pay gift taxes when the GRAT is created.
(C)​The first $13,000 of the value of the gift qualifies for the annual gift tax exclusion.
(D)​The GRAT principal is removed from Fran’s gross estate regardless of when her death occurs.

A

16

​17.​Chuck Valor dies in early 2013. The following are some of the facts concerning the settlement of his estate:

​Federal estate tax before credits​$3,545,800
​Applicable credit amount​$2,045,800
​State death tax payable​​$ 405,000
​Administration expense​$ 320,000

The total cash needs of Chuck Valor’s estate are

(A)​$405,000
(B)​$725,000
(C)​$2,225,000
(D)​$4,270,800

C

17

​18.​Roger Remick transferred his personal residence, currently worth $500,000, into a qualified personal residence trust, retaining the right to use the residence for 10 years with a remainder to his children. His cost basis in the residence is $200,000. If Roger dies 7 years after the transfer, which of the following statements is correct?

(A)​The residence is excluded from Roger’s gross estate.
(B)​The children take the residence with a cost basis of $200,000.
(C)​The original gift is ignored for estate tax purposes and the residence is included in Roger’s estate at its date-of-death value.
(D)​The residence is included in Roger's gross estate as an adjusted taxable gift of $500,000.

C

18

​19.​Which of the following statements concerning a family partnership is correct?

(A)​The purchase of life insurance on a partner’s life by the partnership is rarely advisable.
(B)​Gifts of the family partnership interests are effective for shifting income taxes to a donee partner if capital is a material income-producing factor.
(C)​The family partnership avoids the estate-freeze rules of Chapter 14.
(D)​The family partnership can be designed to completely remove the value of life insurance proceeds from an insured-partner’s gross estate.

B

19

​20.​Which of the following strategies will generally lead to an eventual reduction in future estate tax liabilities?

(A)​gifts to a revocable trust
(B)​lifetime transfers to the donor's spouse sheltered by the marital deduction
(C)​designating the trustee of an irrevocable trust as beneficiary of a life insurance policy owned by the insured
(D)​the assignment of a life insurance policy owned by the insured to an irrevocable trust

D

20

​21.​An employer purchased a $75,000 straight life insurance policy on his employee’s life to fund a nonqualified deferred-compensation plan. Upon the employee’s retirement several years later, the employer surrendered the policy for its cash value of $45,000. At the time of surrender, the employer had paid net premiums of $25,000. What were the federal income tax consequences to the employer upon receipt of the cash surrender value?

(A)​The employer received the entire $45,000 tax free.
(B)​The employer received $25,000 as a tax-free return of basis and $20,000 as ordinary income.
(C)​The employer received $20,000 tax free and $25,000 as ordinary income.
(D)​The employer received the entire $45,000 as ordinary income.

B

21

​22.​The federal estate tax marital deduction would be unavailable in which of the following circumstances?

(A)​The decedent was a citizen of the United States and left his entire estate to a surviving spouse who intends to reside in the United States but is not a citizen.
(B)​The decedent owned a life insurance policy payable to a qualified terminable interest property (QTIP) trust benefiting the decedent's surviving spouse.
(C)​The decedent left property to a surviving spouse who was estranged from the decedent at the time of death.
(D)​The decedent was a noncitizen resident of the United States but left property to a surviving spouse who is a citizen.

A

22

​23.​Which of the following would result in the inclusion of life insurance policy proceeds in the insured’s gross estate?

(A)​The insured is required to pay the annual premium.
(B)​The insured is permitted to borrow against the policy.
(C)​The insured’s spouse owns the policy.
(D)​The death benefit is payable to the insured’s spouse.

B

23

​24.​Which of the following statements concerning a revocable trust is correct?

(A)​Income tax liability for the trust's earnings is shifted to the recipient of trust distributions
(B)​The trust property is excluded from the grantor's gross estate.
(C)​The provisions of the trust cannot be changed without the consent of the beneficiaries.
(D)​The trust permits significant flexibility to the grantor while alive but avoids the expense and publicity of probate after the grantor's death.

D

24

​25.​Which of the following property items is usually the most difficult to value for estate valuation purposes?

(A)​patents
(B)​closely held corporations
(C)​marketable securities
(D)​pension funds

B

25

​26.​Herb Gerrison owned several pieces of commercial real estate within a closely held corporation. Two months after his death, one of the most valuable pieces of real estate inside the corporation was destroyed by flood. The property was uninsured for this hazard. Which of the following techniques is the most likely to be helpful for the purposes of settling Herb's estate?

(A)​paying the estate tax in installments under Sec 6166
(B)​a buy-sell agreement for the stock
(C)​requesting a hardship determination letter from the IRS
(D)​electing alternate valuation date for valuing the stock in Herb's estate

D

26

​27.​Which of the following statements accurately describes the federal tax treatment of a death-benefit-only plan?

(A)​The death benefit paid to the beneficiary of the employee under a death-benefit-only plan will be excluded from the gross estate of the employee for federal estate tax purposes.
(B)​If the plan is funded with life insurance, the arrangement will incur current federal income tax when premiums are paid.
(C)​Because the death-benefit-only plan is considered to pass directly from the employer to the family member-beneficiary of the employee, the generation-skipping transfer tax will be imposed.
(D)​Payments to the employee’s beneficiaries under the plan avoid federal income taxation.

A

27

​28.​Mr. A, a U.S. citizen, owns a life insurance policy on his life as follows:

​Face amount of policy​$1,000,000
​Interpolated terminal reserve​$150,000
​Cash surrender value​$140,000
​Gross premiums paid​$125,000
​If Mr. A dies this year with the proceeds payable to Mrs. A, a resident-alien, what amount from the policy qualifies for the estate tax marital deduction?

(A)​$0
(B)​$125,000
(C)​$150,000
(D)​$1,000,000

A

28

​29.​A second-to-die policy is most useful in which of the following situations?

(A)​ funding a deferred-compensation agreement between an employer and a key employee
(B)​when a death benefit is needed at the death of the first and second spouse to die
(C)​when the estate tax marital deduction will not be used at the death of the first spouse to die
(D)​for funding estate taxes at the survivor’s death in the husband-wife situation

D

29

​30.​Which of the following charitable vehicles will allow a taxpayer to enjoy a current federal income tax deduction?

(A)​the contribution base charitable trust
(B)​the nonpublic charitable trust
(C)​the charitable remainder unitrust
(D)​the split-interest control trust

C

30

​31.​Which of the following factors would be considered by an appraiser when placing a value on a closely held corporation for federal estate tax purposes?

(A)​The company's liquidation potential.
(B)​The economic outlook for the specific industry
(C)​The salary paid to the senior management
(D)​The other assets included in the decedent’s estate

B

31

​32.​Marvin Wolf has gross income of $150,000 for the taxable year. He paid $10,000 in business expenses and $20,000 in alimony. What is the maximum amount of the federal income tax charitable deduction if Marvin chooses to make gifts to public charities?

(A)​ $36,000
(B)​ $60,000
(C)​ $120,000
(D)​ $150,000

B

32

​33.​Which of the following statements concerning the beneficiary designations for a qualified plan is correct?

(A)​A living trust can be a designated beneficiary only if it is irrevocable at the time the designation is made.
(B)​The benefits will be income-tax free if the surviving spouse is the designated beneficiary due to the marital deduction.
(C)​In most instances, the surviving spouse should be the designated beneficiary.
(D)​It is impermissible to designate a charitable organization as beneficiary because the plan assets are generally nonalienable.

C

33

​34.​Which of the following statements concerning the estate planning considerations for a married couple is correct?

(A)​The citizenship of either spouse is irrelevant
(B)​It is important that each spouse has sufficient property in his or her gross estate if the couple’s wealth is significantly larger than the applicable exclusion amount (unified credit equivalent)
(C)​Tax planning should generally be more important than achieving dispositive goals
(D)​A complete forecasting process will limit the view to assuming that the older spouse dies first.

B

34

​35.​Danny Donor was to provide his wife, Donna, with an adequate retirement during her lifetime. At Donna's death, Danny wants his estate assets to pass to his alma mater. Danny transfers $2 million to a trust that will provide Donna with 7% annually of the initial amount contributed to the trust by Danny. At Donna's death, the trust terminates and the remaining funds will be distributed to Danny's alma mater. This arrangement provides Donna with a fixed certain sum of money as long as the trust has sufficient assets. This charitable arrangement is known as a


(A)​charitable remainder unitrust
(B)​charitable lead annuity trust
(C)​pooled-income fund
(D)​charitable remainder annuity trust

D

35

​36.​Which of the following statements concerning an installment sale of property to a family member is (are) correct?

​I.​The purchaser can immediately resell the property without affecting the original seller's income tax treatment.
​II.​The value of the installment note is excluded from the seller's gross estate regardless of when the seller's death occurs.

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

D

36

​37.​Which of the following statements concerning the pooled-income fund is (are) correct?

​I.​The pooled-income fund is directly operated or controlled by the charitable organization.
​II.​The fund must invest in tax-exempt securities.

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

A

37

​38.​Which of the following statements concerning a charitable remainder trust is (are) correct?

​I.​The donor of the property is entitled to receive a federal income and gift tax deduction for the actuarial value of the remainder interest.
​II.​If the donor retained a life interest, the underlying trust property is included in the donor’s gross estate and a federal estate tax charitable deduction is allowed for the amount passing to a qualified charity.

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

C

38

​39.​In which of the following circumstances will the property in an irrevocable trust be excluded from the gross estate of the beneficiary of the trust?

​I.​The beneficiary has a life income interest and has the power to invade the trust principal for his or her comfort, welfare, or happiness.
​II.​The beneficiary has a life income interest and the right to receive principal distributions for any amount or any reason as determined by an independent trustee.

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

B

39

​40.​Which of the following statements concerning the Crummey irrevocable life insurance trust (ILIT) is (are) correct?

​I.​The use of the full annual gift tax exclusion may create gift tax problems for beneficiaries who lapse the Crummey power for amounts that exceed the greater of 5percent of the ILIT principal or $5000.
​II.​Crummey withdrawal powers generally cause an ILIT to be exempt from generation skipping transfer taxes.

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

A

40

​41.​Which of the following statements concerning the use of life insurance in a nonqualified retirement plan is (are) correct?

​I.​The payment of premiums by the employer is not deductible and will not generally be taken into income by the participant when the premium payments made.
​II.​The receipt of the insurance proceeds at the death of the participant will not be a taxable event to the employer, but the employer will receive an income tax deduction for any benefits paid to the participant's heirs.

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

C

41

​42.​Which of the following statements concerning the valuation of an annuity policy owned by the decedent at the time of his death is (are) correct?

​I.​the annuity is valued under the partial interests valuation rules that mandate the use of the Sec. 7520 interest rate and current mortality tables
​II.​the annuity policy is valued at the insurer's replacement cost of annuity payments left to survivors

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

B

42

​43.​At the death of a policyowner-insured, which of the following describes the amount included in the insured’s gross estate?

​I.​the face amount of the policy
​II.​the interpolated terminal reserve plus unearned premiums at the time of death
(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

A

43

​44.​Which of the following statements concerning estate and gift tax reduction techniques is (are) correct?

​I.​a taxpayer may come out ahead economically by paying a future estate tax rather than paying a present gift tax due to time value of money concepts
​II.​it makes good sense to make lifetime gifts and intentionally occur gift tax at a lower bracket

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

A

44

​45.​Prerequisites to the creation of a community-property interest include which of the following?

​I.​All property acquired by a spouse in a community-property state must be community property.
​II.​The property in question must have actually been acquired during the marriage while the couple resided in the community-property state.

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

B

45

​46.​A grandmother created an irrevocable trust for the benefit of her granddaughter. The independent trustee was instructed to pay income to the granddaughter until age 21 at which time the trustee was to pay the entire principal to the granddaughter. The granddaughter’s mother (the daughter of the grantor) was given an absolute power to withdraw any or all of the trust principal for her own personal use or benefit. The granddaughter's mother died and failed to exercise this power before her death. The trustee then paid all income to the granddaughter as directed. Which of the following statements concerning this transaction is (are) correct?

​I.​The trustee is taxed on all income of this trust.
​II.​The principal of the trust is excluded from the mother’s gross estate at the time of her death because the granddaughter is the primary beneficiary of the trust.

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

D

46

​47.​Disadvantages of electing to defer federal estate taxes caused by the inclusion of a closely held business under the provisions of Internal Revenue Code Sec. 6166 include which of the following?

​I.​The estate remains open for a longer period of time.
​II.​Additional fees for advisers such as attorneys and accountants will be incurred.

(A)​I only
(B)​II only
(C)​Both I and II
() Neither I nor II

C

47

​48.​Which of the following statements concerning the transfer of a life insurance policy incident to a divorce property settlement is (are) correct?

​I.​There is taxable gain to the transferor if the fair market value of the policy exceeds the transferor's basis at the time the policy is assigned.
​II.​There is a federal income tax deduction for the premiums paid by the transferor if the transferor is required to pay the premiums as a result of the settlement agreement.

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

B

48

​49.​The disadvantages of spousal cross-ownership of life insurance for the purpose of avoiding incidents of ownership for federal estate tax purposes include which of the following?

​I.​The transfer of a policy from one spouse to another could create federal gift tax issues.
​II.​When the first spouse dies, the surviving spouse will encounter federal income tax problems.

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

D

49

​50.​Which of the following statements concerning a qualified domestic trust (QDOT) is (are) correct?

​I.​The trust must be designed as a trust generally qualifying for the federal estate tax marital deduction.
​II.​The trust may have a foreign trustee as the sole trustee.

(A)​I only
(B)​II only
(C)​Both I and II
() Neither I nor II

A

50

​51.​Which of the following statements concerning the design flexibility of a charitable remainder annuity trust (CRAT) is (are) correct?

​I.​Annual distributions to the individual beneficiaries must be greater than 5 percent cannot exceed 50 percent of the initial value of the contributed property.
​II.​The remainder interest provided to charity must be valued at 10 percent or more of the contributed property at the time the trust is created or the trust will fail to qualify as a CRAT.

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

C

51

​52.​Which of the following statements concerning lifetime gifts to a grantor-retained annuity trust (GRAT) is (are) correct?

​I.​there is no limit to the term of years that can be retained by the grantor
​II.​the trustee of the GRAT can generally invest the trust funds in any legal investment

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

C

52

​53.​Emma was advised by her financial planner to reduce the size of her estate in order to lower future estate taxes. Following this advice, Emma transferred all the life insurance coverage she held on her life to an irrevocable life insurance trust 4 years before she died. Which of the following provisions can be placed into the ILIT without causing adverse estate tax consequences?

​I.​A provision permitting the trustee to use ILIT funds to purchase assets from the grantor's estate.
​II.​A provision that eliminates the beneficial interest of Emma's husband if divorce occurs after the transfer of the policy to the ILIT.

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

C

53

​54.​Which of the following statements concerning the tax treatment of a qualified retirement plans is (are) correct?

​I.​There is an income tax deduction available when distributions are taken for the estate taxes caused by the inclusion of the plan in the participant's gross estate.
​II.​There is an estate tax exclusion for the first $5,000 of retirement plan survivor benefits lifetime the decedent.

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

A

54

​55.​Which of the following statements concerning the federal estate tax charitable deduction is (are) correct?

​I.​The amount of the federal estate tax charitable deduction is not limited to the value of property included in the decedent’s gross estate.
​II.​The deduction is available if the decedent left the discretion to the executor to make a contribution from probate property and the executor actually makes the charitable contribution.

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

D

55

​56.​Which of the following statements concerning life insurance in a community property state is (are) correct?

​I.​Life insurance acquired with community funds while the couple resides in a community property state will be deemed to be owned one-half by each spouse.
​II.​The allocation of premium rule causes the policy ownership to be vested solely in the hands of the policy owner.

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

A

56

​57.​Which of the following provisions in an ILIT will cause adverse estate tax consequences for the grantor-insured?

​I.​a provision directing the trustee to pay the settlement costs of the grantor's estate
​II.​a provision that permits the grantor-insured to become trustee of the ILIT

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

C

57

​58.​Which of the following statements concerning the five and five rule with respect to limited withdrawal powers is (are) correct?

​I.​The five and five rule is an exception to the general rule that the lapse of a general power of appointment is treated as a taxable gift.
​II.​The five and five rule provides that the right to withdraw the lesser of 5% of the trust corpus or $5000 can be lapsed by the holder of the power with no adverse gift tax consequences.

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

A

58

​59.​Gary Grantor created an irrevocable life insurance trust (ILIT) five years ago for the benefit of four children. The ILIT's policy currently has a fair market value of $60,000. Gary contributes $40,000 to the ILIT each year to pay the annual premium. Each beneficiary is given the annual Crummey withdrawal power for 30 days after which the power fully lapses. Which of the following statements concerning the Crummey withdrawal power held by each child is (are) correct?

​I.​the lapse of the power to withdraw more than $5000 in the current year will result in a taxable gift by the beneficiary
​II.​each beneficiary should have the right to withdraw $40,000 in the current year

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

A

59

​60.​Which of the following assets will potentially qualify for a reduction in value due to the special-use valuation of assets in the gross estate?

​I.​manufacturing machines and equipment used in a closely held business.
​II.​real property used in a closely held business or family farm that is valued in its current use below full fair market value

(A)​I only
(B)​II only
(C)​Both I and II
() Neither I nor II

B

60

​61.​Which of the following statements concerning the income tax compliance rules for a charitable deduction is (are) correct?

​I.​A contemporaneous receipt from the charity is required to substantiate a donation of $250 or more.
​II.​With some limited exceptions, property donations of $5,000 or more must be substantiated with a qualified appraiser’s report.

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

C

61

​62.​Which of the following statements concerning the estate planning implications of employee benefit plans is (are) correct?

​I.​Qualified retirement plan benefits are the most efficient means to provide inheritances for the participant's heirs.
​II.​Retirement plans and other executive benefits rarely provide an opportunity for supplementing death benefits with life insurance.

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

D

62

​63.​Which of the following tax consequences concerning an irrevocable trust is (are) correct?

​I.​The annual gift tax exclusion is available if the transfers provide a present interest to the beneficiaries of the trust.
​II.​Appreciation in the value of the property will not be brought back into the settlor’s gross estate.

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

C

63

​64.​Which of the following statements concerning the special provision in the tax law that forgives the gift tax result on transfers of property incident to a divorce settlement agreement is (are) correct?

​I.​Although it is always best to have a written property settlement agreement, it is not a prerequisite to the use of the safe harbor.
​II.​If a divorce occurs within the 3-year period beginning one year before the spouses execute the property settlement, the safe harbor will apply.

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

B

64

​65.​Which of the following statements concerning special-use valuation under IRC Sec. 2032A is (are) correct?

​I.​recapture of the benefits of special use valuation could occur unless the qualified heir or heirs meet the five of eight year test following the decedent's death.
​II.​special use valuation can be applied to gifts of farm property

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

A

65

​66.​Which of the following statements concerning the federal estate tax marital deduction is (are) correct?

​I.​In order for the federal estate tax marital deduction to be available, the surviving spouse must be a citizen of the United States.
​II.​In order for the federal estate tax marital deduction to be available, the decedent must have either been married at the date of death or divorced within 3 years of the date of death.

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

A

66

​67.​Which of the following statements concerning the sale to an intentionally defective grantor trust is (are) correct?

​I.​The transaction is ineffective for estate tax purposes because the trust property will be included in the grantor’s gross estate.
​II.​The gain from the sale of the property is incurred and paid by the trustee of the trust and not the grantor for income-tax purposes.

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

D

67

​68.​An insured assigned his life insurance policy to his daughter more than 3 years ago. In which of the following situations will policy proceeds be includible in the insured’s gross estate?

​I.​The insured might have inherited the policy at his daughter’s death if she had passed away first.
​II.​The insured reserved the right to change the beneficiary or borrow from the cash surrender value with his daughter’s consent.

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

B

68

​69.​Life insurance on the life of a nonworking spouse might serve which of the following estate planning objectives?

​I.​to provide the funds for gift-splitting with the nonworking spouse
​II.​to provide funds for the additional income taxes the survivor will have to pay after the nonworking spouse dies

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

B

69

​70.​Advantages of an irrevocable life insurance trust (ILIT) include which of the following?

​I.​Income taxes are shifted to the trust's beneficiaries prior to the grantor's death.
​II.​Gift taxes are avoided regardless of the amount of the annual premium contributed to the ILIT.

(A)​I only
(B)​II only
(C)​Both I and II
(D)​Neither I nor II

D

70

​71.​Mr. Wright has a large account balance in his IRA. He might choose to designate a testamentary charitable remainder trust as the beneficiary of the IRA for all the following reasons EXCEPT

(A)​to receive an estate tax deduction for the value of the charitable remainder
(B)​to limit the individual beneficiaries access to the account balance of the IRA after his death.
(C)​to avoid the inclusion of the IRA in his gross estate at his death
(D)​to provide a substantial benefit for a favorite charity

C

71

​72.​All the following statements concerning the federal gift tax treatment of life insurance policies are correct EXCEPT

(A)​If a policy is transferred immediately after purchase, the gift tax value of the policy is equal to the gross premium paid to the insurer.
(B)​The annual gift tax exclusion is unavailable because a policy gift will be one of a future interest until the policy matures as a death claim.
(C)​If a policy is transferred while in the premium-paying state, the gift tax value of the policy is equal to the sum of the interpolated terminal reserve and the unearned premium.
(D)​If a policy is paid up when transferred, the gift tax value of the policy is equal to the amount of premium that the company would charge for the same type of single-premium policy.

B

72

​73.​Under Section 2701 determining the gift tax value of an interest in a corporation controlled by the transferor and transferred to a member of the transferor's family generally requires that the value of the rights retained by the transferor immediately after the transfer to be deemed valued at zero. Excluded from this harsh rule are all of the following retained interests EXCEPT

(A)​when the retained interest is the same class of stock as the transferred interest.
(B)​when the retained and transferred interest are publicly traded securities.
(C)​when the retained interest is solely newly issued preferred stock providing non-cumulative dividends (a closely held Corporation).
(D)​when the retained interest is proportional in all respects to the transferred interest with respect to the classes of stock.

C

73

​74.​All the following are permissible payments to a individual beneficiary of a qualified charitable remainder trust EXCEPT

(A)​an annual payment of 10 percent of the initial value of the principal of the trust for the remainder of the beneficiary’s life
(B)​an annual payment of 6 percent of the annual value of the trust principal until the death of the survivor of three beneficiaries
(C)​an annual payment of the lesser of (1) 6 percent of the annual value of the trust’s principal or (2) the actual income earned by the trust for a period of 10 years
(D)​the actual income earned by the trust for a period of 25 years

D

74

​75.​All the following are cash needs when settling an estate EXCEPT

(A)​state death taxes
(B)​the decedent’s final income tax liability
(C)​adjusted taxable gifts
(D)​administrative expenses

C

75

​76.​All the following transfers are excluded from taxable gifts for gift tax purposes EXCEPT

(A)​the annual transfer of $20,000 of cash to a Crummey accumulation trust with four beneficiaries
(B)​the payment of a grandchild's health-insurance premiums by direct payment from the grandparent to the insurer
(C)​the transfer of a personal residence into a qualified personal residence trust (QPRT)
(D)​the payment of a grandchild's tuition by direct payment from the grandparent to the school

C

76

​77.​All the following statements concerning the estate-planning implications of group-term life insurance are correct EXCEPT

(A)​Benefits from such plans are included in the gross estate of the insured-participant unless all rights to the plan were assigned to a third-party more than three years prior to death
(B)​The benefits from such plans are a cost-effective method for solving estate tax problems that will continue throughout the insured's life
(C)​The insured-participant has incidents of ownership when he or she becomes eligible to participate because the right to name a designated beneficiary is an incident of ownership.
(D)​The insured-participant's beneficiaries receive the death benefits free from federal income tax.

B

77

​78.​All the following statements concerning generation-skipping transfer taxation are correct EXCEPT

(A)​A taxable distribution is a distribution from a discretionary trust in favor of one of the grandchildren who is a beneficiary.
(B)​Generation-skipping transfers are taxed by their size according to a graduated schedule of rates.
(C)​The current tax law breaks generation-skipping transfers into taxable distributions, taxable terminations, and direct skips.
(D)​The current tax law provides an exemption from the generation-skipping transfer tax that is equal to the current applicable exclusion amount for estate taxes.

B

78

​79.​All the following statements concerning the tax treatment of transfers to an ILIT are correct EXCEPT

(A)​Crummey withdrawal powers should be included to ensure qualification for the gift tax annual exclusions.
(B)​The grantor must generally shelter premium gifts to the trust from generation-skipping transfer tax (GSTT) by using his or her applicable credit amount (formally unified credit).
(C)​A gift in excess of available annual exclusions can be sheltered by the grantor’s applicable credit amount for such taxable gifts.
(D) An ILIT will generally not be taxable for GSTT purposes until distributions are made to grandchildren.

B

79

​80.​All the following are relief provisions that might be helpful to reduce the estate liquidity problems facing an estate for federal estate tax liability issues EXCEPT

(A)​special use valuation of real estate
(B)​deferral of the estate tax under Sec. 6166 for an estate that includes a closely held business
(C)​the federal estate tax annual exclusion for bequests
(D)​the extension of time to pay taxes due for reasonable cause under Sec. 6161

C

80

​81.​All the following statements concerning the attractiveness of life insurance for the purposes of charitable giving are correct EXCEPT

(A)​The face amount of the life insurance policy paid to the charitable organization will not be subject to federal income taxation or probate costs.
(B)​The transfer of a life insurance policy to a qualifying charitable organization will give the donor significant tax benefits, such as having out-of-pocket costs reduced by the current income tax deduction available.
(C)​A person can make a substantial contribution to a qualifying charitable organization without a substantial out-of-pocket cost during life.
(D)​The policy will be removed from the donor's gross estate as soon as he assignment is complete.

D

81

​82.​All the following statements concerning a QDOT are correct EXCEPT

(A)​Distributions of trust principal to a resident-alien-spouse for purposes other than hardship will result in estate tax.
(B)​An election must be made by the decedent prior to death to treat the trust as a QDOT.
(C)​The decedent’s surviving spouse must be entitled to all trust income payable at least annually.
(D)​The trust must meet specific requirements to ensure the collection of any potential federal estate tax due.

B

82

​83.​All the following statements concerning community property are correct EXCEPT

(A)​The concept has no role in estate planning for a married couple with the enactment of the unlimited marital deduction.
(B)​The concept played a major role in the enactment of the federal estate tax marital-deduction provision.
(C)​The concept resulted in an inequity between residents of community-property states and common-law states.
(D)​The concept applies to property acquired during marriage while the married couple were residents of a community-property state.

A

83

​84.​Which of the following is least likely to be an important consideration for a valuation appraiser to consider in valuing a closely held business?

(A)​the assets owned by the business
(B)​the earnings capacity of the business
(C)​the total number of shares of stock outstanding
(D)​the quality of the management of the business

C

84

​85.​All the following items are deductible from the gross estate for the purposes of calculating the adjusted gross estate EXCEPT

(A)​charitable bequests
(B)​funeral expenses
(C)​executor’s commissions
(D)​attorney and appraiser fees

A

85

​86.​All the following statements concerning the forecasting and planning the estate of a married couple are correct EXCEPT

(A)​the use of an optimal marital deduction plan will often reduce total estate taxes if the couple has a net worth well in excess of the applicable exclusion amount
(B)​it is important to consider the impact of inflation on the couple’s assets
(C)​the assets included in the gross estate at death receive a stepped up basis and income tax planning should be considered before making lifetime gifts
(D)​it is typical to create a forecast that assumes both spouses die in the current year

D

86

​87.​Phil N. Thropic would like to donate his personal residence to charity at the time of his death. He changes the deed to his property retaining a legal life estate and provides a qualified charity with a vested remainder interest. All the following statements concerning this charitable transaction are correct EXCEPT

(A)​The transfer was arranged by operation of law through the terms of the deed and residence should not be placed in trust.
(B)​The residence will be excluded from his gross estate at the time of his death
(C)​The present value of the remainder interest is reduced by a depreciation factor for his remaining lifetime when determining the current federal income tax deduction.
(D)​A deduction is currently available because this is a special exception to the split interest rules for charitable contributions.

B

87

​88.​All the following statements concerning a charitable lead trust are correct EXCEPT

(A)​the donor retains an annuity or unitrust interest for a term of years
(B)​the charity receives an annuity or unitrust interest for a term of years
(C)​unlike a remainder trust, there is no limit on the term of years for the annuity or unitrust payments
(D)​the donor receives a federal income and gift or estate tax deduction equal to the present value of the charity’s current interest as determined by the rules for valuing partial interests in property provided by Sec. 7520

A

88

​89.​The transfer of a life insurance policy by the policyowner-insured to her revocable trust could result in all the following consequences EXCEPT

(A)​The trust provides more dispositive flexibility because the proceeds can be distributed under the provisions of a trust.
(B)​The insured retains the flexibility to change the plan before her death.
(C)​The federal estate taxes are increased as a result of this transfer.
(D)​No gift taxes will be due at the time of the transfer.

C

89

​90.​All the following statements concerning a generation-skipping ILIT (a dynasty trust) are correct EXCEPT

(A)​Crummey withdrawal rights will ensure the annual gift tax exclusion for transfers to the trust.
(B)​Crummey withdrawal powers will ensure the exclusion of transfers to the trust from the GST.
(C)​The grantor’s GST exemption should be used to shelter gifts to the dynasty trust because the transfers to the trust are not direct skips eligible for the GST annual exclusion.
(D)​The dynasty trust is an excellent mechanism for leveraging the grantor’s GST exemption.

B

90

​91.​All the following statements concerning split-dollar life insurance plans are correct EXCEPT

(A)​The employee’s designated beneficiaries receive the pure insurance element at the employee’s death.
(B)​It is possible to remove the proceeds from the employee’s gross estate by placing ownership in the hands of an irrevocable trust.
(C)​There are potential gift tax implications for an employee who transfers ownership in the plan to family members or a trust.
(D)​The plan will be free of current income taxes if the employer contributes the entire annual costs of the policy premium.

D

91

​92.​All of the following statements concerning forecasting a client’s estate settlement costs are correct EXCEPT

(A)​Administrative expenses are normally forecast as a percentage of the size of the estate.
(B)​State death taxes can generally be ignored regardless of the state of domicile because there is a uniform amount deductible from the gross estate.
(C)​It is recommended to assume that either spouse could die first when forecasting a married couple’s estate.
(D)​A reasonable rate of inflation should be assumed for most assets in forecasting estate settlement expenses when the assumed date of death is several years away.

B

92

​93.​All the following statements concerning the federal tax treatment of a donation to a qualified charity are EXCEPT

(A)​the federal estate tax charitable deduction is limited and cannot reduce the gross estate to a level where no federal estate tax is paid
(B)​the federal estate tax charitable deduction is limited to the value of the property in the gross estate
(C)​a charitable deduction is available for donated property even if the donor’s sole purpose for making the contribution was the reduction of federal taxes
(D)​the federal estate tax charitable deduction is reduced if the expenses of the estate are allocated to and paid by the share bequested to charity

A

93

​94.​All the following provisions can be included in an ILIT without causing adverse estate tax consequences EXCEPT

(A)​a provision permitting the trustee to replace the life insurance policy with a more favorable policy
(B)​a provision permitting the trustee to purchase assets from the grantor's gross estate.
(C)​a provision permitting the grantor-insured to receive in force illustrations concerning the policy
(D)​a provision permitting the grantor-insured to change the beneficiaries of the ILIT

D

94

​95.​The IRS will deny the use of the special-use valuation for farmland included in a decedent's gross estate for all the following reasons except EXCEPT

(A)​the farm is not left to a qualified heir
(B)​the farm was not used in its special use for five out of the eight years prior to the decedent's death
(C)​the decedent is a nonresident alien
(D)​the decedent is a citizen of the United States but does not reside in the United States at the time of his or her death

D

95

​96.​A grantor transfers income-producing property to a trust naming his children and grandchildren as beneficiaries. The trust requires the trustee to distribute all income quarter annually in shares to be determined at the trustee's discretion. All the following statements concerning this transaction are correct EXCEPT

(A)​The trust could be made exempt from generation-skipping transfer taxes if the grantor allocates his GST exemption to all contributions to the trust.
(B)​If the trustee distributes income to a grandchild of the grantor, this will be treated as a direct skip for generation-skipping transfer tax purposes.
(C)​The income on the property contributed to the trust will be taxed to the beneficiaries who receive the income.
(D)​If the trustee distributes income to a grandchild of the grantor, this will be treated as a taxable distribution for generation-skipping transfer tax purposes.

B

96

​97.​All the following split-interest gifts to a qualified charity provide a tax deduction EXCEPT

(A)​a remainder interest in a farm
(B)​a charitable lead trust
(C)​a charitable remainder annuity trust
(D)​a remainder interest in tangible personal property

D

97

98.​All the following statements concerning the sale of family property as an estate-freezing technique are correct EXCEPT

(A)​The value of the unpaid installment payments will be included in the seller’s estate if the seller dies before the end of the installment term.
(B)​The private annuity should be selected if the seller wants a guaranteed total sum to be received by the seller or the seller’s estate.
(C)​The private annuity valuation rules cannot be used to determine the purchase payments if the seller is expected to die within one year of the sale.
(D)​The installment sale is most favorable if the buyer wants a guaranteed income-tax basis for the purchased property to permit future depreciation write-offs.

B

98

99.​All the following statements concerning a family limited partnership are correct EXCEPT

(A)​The limited interests can be gifted with a significant discount in value due to lack of marketability.
(B)​The partnership must contain an active business interest.
(C)​The use of the partnership can be a useful estate reduction technique.
(D)​The gift of the partnership interest can be designed to qualify for the annual gift tax exclusion.

B

99

​100.​Sarah Leigh passed away this year and her gross estate consisted of the following items:

​Cash​$ 100,000
​Residence​$ 600,000
​Stock in Leigh, Inc.​$2,500,000
​IRA account​$3,000,000

Her funeral and administrative expenses totaled $200,000. All the following statements concerning her estate are correct EXCEPT
(A) Her adjusted gross estate is $6,000,000
(B) Her estate qualifies for installment payments of tax under Sec. 6166 because the minimum amount of Leigh, Inc stock to make her estate eligible is $2,100,001.
(C) The full amount of estate taxes facing her estate can be deferred under Sec. 6166 for a period of 14 years and 9 months.
(D) Her residence is not eligible to be discounted under the special valuation rules.
​​

C