41. AK@ has funded a trust with $300,000 of listed common stocks. AK=s@ three ch
ID: 2709622 • Letter: 4
Question
41. AK@ has funded a trust with $300,000 of listed common stocks. AK=s@ three children are to share equally the trust income for their lifetimes. Any corpus remaining at the death of the three children is to go to their issue per stirpes. AK@ retained the right to terminate the trust at any time. Under these circumstances, which of the following statements is (are) correct?
I If AK@ should die today, none of the corpus would be included in his gross estate.
II If any one of the three children should die today, none of the corpus would be included in his or her gross estate.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
42. During the twenty-year period, AA@ and Mrs. AA@ bought and paid for their home exclusively out of AA=s@ earnings. They own the fully-paid-for home now, as joint tenants with right of survivorship. They did not treat AA=s@ payments as a gift to Mrs. AA@. If $130,000 is the value of the home, which of the following statements is correct? (Assume this is a noncommunity property state.)
A. If Mrs. AA@ dies first, $130,000 would be included in her gross estate, if it could not be shown AA@ contributed to the purchase price.
B. If AA@ dies first, only $65,000 would be included in his gross estate.
C. At the moment of death, AA@ will be considered to have made a taxable gift of $65,000 to Mrs. AA@.
D. Since AA@ paid for the house, its full value will be included in his estate, regardless of who dies first.
43. Bill Jones and his brother, both unmarried, purchased an apartment house in joint tenancy with right of survivorship. Bill paid the entire purchase price of $200,000. His brother managed the apartment. At Bill=s death, the apartment was valued at $400,000. Under these circumstances, what is includible in Bill=s gross estate?
A. $100,000
B. $200,000
C. $300,000
D. $400,000
44. Mary willed an apartment house to her husband, Fred, in trust with income payable to Fred for life. The terms of the trust provided that Fred could appoint the property in his Will to any of their five children. Under these circumstances, which of the following statements is (are) correct?
I Fred has a general power of appointment.
II The value of the apartment will be included in Fred=s gross estate.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
45. Which of the following is a general power of appointment for federal estate tax purposes?
A. Power exercisable in favor of the holder for support in the holder=s accustomed manner of living.
B. Power exercisable only in the favor of creditors of the holder=s estate and to the holder=s estate.
C. Power exercisable in favor of the holder for the holder=s health, maintenance, and support.
D. Power exercisable in favor of the holder only with the consent of the power=s creator.
E. Power exercisable in favor of the holder for support in reasonable comfort.
46. Proceeds of a life insurance policy payable to the estate's executor, as the estate's representative, are:
A. Includible in the decedent's gross estate only if the premiums had been paid by the insured.
B. Includible in the decedent's gross estate only if the policy was taken out within 3 years of the insured's death under the "contemplation of death" rule.
C. Always includible in the decedent's gross estate.
D. Never includible in the decedent's gross estate.
47. In connection with a "buy-sell" agreement funded by a cross-purchase insurance arrangement, business associate Adam bought a policy on Burr's life to finance the purchase of Burr's interest. Adam, the beneficiary, paid the premiums and retained all incidents of ownership. On the death of Burr, the insurance proceeds will be:
A. Includible in Burr's estate if Burr owns 50% or more of the stock in the corporation.
B. Excludible from Burr's gross estate.
C. Includible in Burr's estate if Adam has the right to veto Burr's power to borrow on the policy that Burr owns on Adam's life.
D. Includible in Burr's estate only if Burr purchased similar policy on Adam's life for the same purpose.
48. Which type of minor' trust requires income distributing annually in order to qualify for the annual exclusion?
A. Crummey Trust
B. 2503(c)
C. 2032A
D. 2503(b)
49. John and Mary are in the process of divorce. If John transfers a $50,000 whole life policy on his life to Mary as part of their property settlement, are there any income tax implications to either party?
A. Yes, when the policy matures at John's death, Mary will have to recognize income since the policy was transferred for valuable consideration (i.e., other assets conveyed to John).
B. Yes, $25,000 since spouse is deemed to own one-half under IRC 2040(a).
C. No, because insurance benefits are income tax free.
D. No, transfer for value exception applies.
50. John has AIDS and sells a $20,000 paid up policy on his life to Jim for $4,000 which is equal to its cash surrender value to be able to pay for some medical payments. John dies 2½ years later. What amount, if any, is Jim's income tax exposure?
A. $20,000 due to transfer for value rule.
B. $20,000 due to 3-year inclusive rule.
C. $16,000 = $20,000 less $4,000 cash value Jim bought policy for.
51. Which of the statements concerning the historical aspects of estate planning is correct?
A. Under AOld English@ common law, the term Aestate@ referred primarily to an interest in land.
B. The Code of Hammurabi is the very first example of a will.
C. Most ancient testamentary disposition schemes favored female lineal descendants.
D. The civil-law system is based on the same precepts as the common-law system.
52. Under his father's will, Craig has been given the exclusive use and possession of his father's farm for Craig's lifetime. When Craig dies, the farm will be transferred to the beneficiary named under his father's will. Which of the following statements concerning Craig's life estate is correct?
A. Craig owns the largest, most complete interest in this property
B. Craig holds the property in the fee simple form of ownership
C. Craig has been given an estate for a term of years
D. Craig owes certain duties to the remainder person regarding the property
53. Cathy is given property for life. After Cathy's death, Mike will receive his interest in the property only if he survives Cathy. If Mike dies before Cathy, the property will go to Nancy at Cathy's death. Which of the following statements concerning this arrangement is correct?
A. Nancy has a contingent remainder interest in the property.
B. Mike has an indefeasibly vested life estate in the property.
C. Nancy has a present legally enforceable right to possess and enjoy the property in the future.
D. Cathy has a fee simple absolute interest in the property.
54. Which of the following transactions is a gift for gift tax purposes?
A. Someone purchases a bond and titles it jointly between the purchaser and another.
B. A father lends his son a substantial amount of money and takes back a note from the son.
C. A creditor tears up a debtor's note in return for services rendered by the debtor.
D. The author of a new book gives his son the right to future royalties.
55. On January 1, 2011, a father gave his son a $150,000 straight (ordinary) life insurance policy on his life. Premiums are paid annually. The pertinent facts about the policy are as follows:
Date of issue: July 1, 1992
Premium paid on July 1, 2010 $ 2,200
Terminal reserve on July 1,2010 14,000
Terminal reserve on July 1,2011 17,000
What is the value of the policy for federal gift tax purposes?
A. $15,100
B. $15,500
C. $16,600
D. $150,000
56. Which of the following statements concerning fiduciaries is correct?
A. Trustees are required to account regularly to a court.
B. All fiduciaries derive their powers from statutory law.
C. Executors are discharged from their fiduciary duties by the estate beneficiaries.
D. Trustees' fiduciary duties and powers continue until termination of the trust.
57. Hansel placed a rental property he owns in trust under the following terms. The income from the trust is to be provided for Hansel's wife, Gretel, for life, and at her death Gretel is given the power to appoint the property to any of Hansel and Gretel' s children then living. Which of the statements concerning this arrangement is correct?
A. Gretel holds a general power of appointment.
B. The power will lapse if Gretel fails to exercise the power in her will.
C. The children are contingent donees of the power.
D. Gretel is the donor of the power since she can pass the property to the children.
58. A widow dies leaving a net probate estate of $900,000. At the time of her death, her descendants are as follows:
A son, Mark, who has one child, Terri
A daughter, Claire, who has no children
A deceased daughter, Helen, who is survived by three children, Jennifer, Matthew, and Chad
Assuming that the widow's will provides for the distribution of her assets per stirpes, which of the following correctly states the amounts each descendant will receive?
A. $150,000 to Mark, $150,000 to Terri, $150,000 to Claire, $150,000 to Jennifer, $150,000 to Matthew, and $150,000 to Chad
B. $300,000 to Mark, $300,000 to Claire, $100,000 to Jennifer, $100,000 to Matthew, and $100,000 to Chad
C. $450,000 to Mark and $450,000 to Claire
D. $225,000 to Terri, $225,000 to Jennifer, $225,000 to Matthew, and $225,000 to Chad
59. Husband makes outright gifts of $230,000 to his son, and his wife agrees to split the gifts with him. Which of the following correctly states the amount of the taxable gifts?
A. husband $109,000, wife $109,000
B. husband $114,000, wife $114,000
C. husband $101,000, wife $101,000
D. husband $206,000, wife 0
60. A mother bought a vacation home for $90,000 and gave it to her daughter when it was worth $250,000. The mother paid no gift tax on the transfer. Three years after the gift, when the daughter sold the vacation home for $310,000, her income tax basis was
A. 0
B. $90,000
C. $250,000
D. $310,000
61. A widower made the following cash gifts in one tax year:
Donee Amount of Gift
A qualified charity $30,000
His best friend 50,000
His brother 10,000
His nephew 15,000
His daughter 25,000
The widower's total amount of taxable gifts made was
The widower's total amount of taxable gifts made was
A. $48,000
B. $57,000
C. $76,000
D. $130,000
62. Which of the following statements regarding gift splitting is/are true?
I. The annual gift tax exclusion allows spouse who consent to split their gifts to
transfer up to $28,000 to any one person during any calendar year without gift
tax liability if the gifts are of a present interest.
II. To qualify for gift splitting, a couple must be married at the time the gift is made.
III. For gift tax purposes, a husband and wife must file a joint income tax return to
qualify for the gift-splitting benefits.
IV. Both spouses must consent to the use of gift splitting and at least one gift tax
return must be filed.
A. I only
B. I and II
C. I, II, and IV
D. II, III, and IV
E. I, II, III, and IV
63. Which of the following statements concerning the fact-finding stage of the estate planning process is (are) correct?
I In gathering facts and information, only objective information need be elicited
from the client.
II. Sending a client a fact finder to fill out alone is the recommended data- gathering process.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
64. Which of the following statements concerning the taxation of a decedent's property is (are ) correct?
I. Real estate is taxed solely by the decedent's state of domicile.
II. Any state with a reasonable connection to a decedent's intangible personal property may be able to tax its value.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
65. Under a deceased parent's will, three adult children inherited property equally. One child is wealthy and wishes to disclaim her share of the inheritance so that it will pass to her brother and sister without incurring any gift tax liability .Which of the following statements concerning the daughter's disclaimer is (are) correct? J
I. The daughter must make the disclaimer within 9 months of her parent's death.
II. The disclaimer must be in writing and expressly specify that the disclaimed property is to go to her brother and sister.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
66. For transfers by gift, one must file a gift tax return (Form 709) for which of the following?
A. A transfer of a present interest in property that is less than the annual exclusion.
B. A qualified transfer for educational or medical expenses.
C. A transfer to spouse that qualified for the unlimited marital deduction.
D. A transfer of $18,000 to a son for which spouse has agreed to gift splitting.
E. A transfer of $11,000 by a father to his son.
67. Which of the following statements concerning the federal gift tax is (are) correct?
I. It is levied on the recipient's right to gratuitously receive property from another.
II. It was designed to equalize the transfer tax treatment between taxpayers making lifetime transfers and taxpayers transferring assets at death.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
68. The Internal Revenue Service uses which of the following methods of valuing a closely held business for federal estate tax purposes?
I. over-the-counter market method
II. goodwill measurement method
A. I only
B. II only
C. Both I and II
D. Neither I nor II
69. Which of the following statements concerning the federal estate tax is (are) correct?
I. It is a tax levied on a decedent's privilege to accumulate property.
II. It is a tax levied on a beneficiary's right to inherit property.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
70. Which of the following statements concerning the ownership of real property as joint tenants with right of survivorship is (are) correct?
I. If the joint tenants are mother and son and the son contributed all the funds to
purchase the property, one-half of the property's value will be excluded from the
mother's estate if she dies first.
II. If the joint tenants are married to each other and the wife contributed all the funds to purchase the property, the entire value of the property will be in the wife' s estate if she dies first.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
71. All the following statements concerning the unauthorized practice of law are correct EXCEPT
A. The line between the unauthorized practice of law and other advice is sometimes quite
fine.
B. There is no really definitive answer to exactly what constitutes the unauthorized practice of law.
C. Knowledge of the law will in many situations allow someone other than a lawyer to give legal advice.
D. A nonlawyer may give advice on a settled area of law that is a matter of common knowledge without committing the unauthorized practice of law.
72. All the following statements concerning the categorization of property are correct EXCEPT
A. All property is either real or personal property.
B. A deed to land is real property.
C. A mobile home permanently attached to the land is real property.
D. All intangible property is personal property.
73. All the following statements concerning adequate and full consideration in money or money's worth are correct EXCEPT
A. The relinquishment of marital rights may constitute consideration in money or money's worth.
B. Transfers pursuant to compromises of bona fide legal disputes may constitute adequate and full consideration.
C. Transfers made pursuant to moral obligations usually constitute consideration in money or money's worth.
D. Transfers in satisfaction of the right to support the transferor's minor children may constitute consideration in money or money's worth.
74. All the following statements concerning charitable trusts are correct EXCEPT
A. A charitable trust may be created for an unlimited duration.
B. The basic objective of a charitable trust is to benefit society in some manner.
C. Under current law the doctrine of cy pres is applied to all charitable trusts.
D. The attorney general of a state is empowered to enforce charitable trusts.
75. Transfers at death by operation of law include all the following EXCEPT
A. life insurance proceeds
B. intestacy
C. family allowance
D. joint tenancy with right of survivorship
76. A person dying without a will loses all the following rights EXCEPT the right to
A. make testamentary charitable contributions
B. choose the person(s) to administer the estate
C. specify a marital deduction formula
D. pass property to close family members
77. Believing that his death was imminent, a widower gave his son some land 2 years ago and filed a timely gift tax return. The-widower died on January 1 of this year. The additional facts are
Widower's basis in the real estate $ 500,000
Value of the land when gifted $ 1,250,000
Value of the land on date of death $ 2,100,000
Amount of gift tax paid by widower $ 448,300
Assuming the widower made no additional gifts to his son, all the following statements concerning this situation are correct EXCEPT
A. The gift of the land is included in the calculation of the widower's federal estate tax as an adjusted taxable gift.
B. The gift tax paid is brought back into the widower's gross estate at $448,300.
C. The widower recognized no gain for income tax purposes at the time the gift
was made.
D. The son's income tax basis in the real estate is $2,100,000.
78. Jack died last month. All the following gratuitous property transfers made by Jack will be included in Jack's gross estate for federal estate tax purposes EXCEPT
A. the value of stock Jack gifted to his daughter 2 years before his death
B. the value of an apartment building subject to a general power of appointment that Jack possessed at death
C. the value of a gratuitous lifetime transfer of property in which Jack retained the right to receive income from the property for his life
D. the value of property Jack transferred to an irrevocable trust 6 years ago and in which Jack retained the power to vary the donee's shares of property
79. All the following powers held by a grantor of an irrevocable trust will cause the trust assets to
79. All the following powers held by a grantor of an irrevocable trust will cause the trust assets to be brought back into the grantor's estate for federal estate tax purposes EXCEPT
A. the power to add to the principal of the trust
A.
B. the power to change the beneficiaries' amounts of trust income
C. the power to terminate the trust
D. the power to change the trust remainderpersons
80. Estate tax considerations concerning spousal joint tenancies with right of survivorship
80. Estate tax considerations concerning spousal joint tenancies with right of survivorship generally include all the following factors EXCEPT the
A. age difference of spouses
B. health of each spouse
C. amount of each spouse's contribution
D. size of each spouse's separate estate
Explanation / Answer
B. $200,000
A. Power exercisable in favor of the holder for support in the holder=s accustomed manner of living.
B. 2503(c)
A. Yes, when the policy matures at John's death, Mary will have to recognize income since the policy was transferred for valuable consideration (i.e., other assets conveyed to John).
A. Craig owns the largest, most complete interest in this property
B. Mike has an indefeasibly vested life estate in the property.
D. The author of a new book gives his son the right to future royalties.
C. $16,600
C. Executors are discharged from their fiduciary duties by the estate beneficiaries.
B. husband $114,000, wife $114,000
D. II, III, and IV
A. I only
B. II only
A. A transfer of a present interest in property that is less than the annual exclusion.
D. A nonlawyer may give advice on a settled area of law that is a matter of common knowledge without committing the unauthorized practice of law.
D. The attorney general of a state is empowered to enforce charitable trusts.
A. The gift of the land is included in the calculation of the widower's federal estate tax as an adjusted taxable gift.
B. the value of an apartment building subject to a general power of appointment that Jack possessed at death
C. the power to terminate the trust
D. size of each spouse's separate estate
Question Answer 41 D. Neither I nor II 42 B. If AA@ dies first, only $65,000 would be included in his gross estate. 43B. $200,000
44 A. I only 45A. Power exercisable in favor of the holder for support in the holder=s accustomed manner of living.
46 A. Includible in the decedent's gross estate only if the premiums had been paid by the insured. 47 C. Includible in Burr's estate if Adam has the right to veto Burr's power to borrow on the policy that Burr owns on Adam's life 48B. 2503(c)
49A. Yes, when the policy matures at John's death, Mary will have to recognize income since the policy was transferred for valuable consideration (i.e., other assets conveyed to John).
50 B. $20,000 due to 3-year inclusive rule. 51 D. The civil-law system is based on the same precepts as the common-law system. 52A. Craig owns the largest, most complete interest in this property
53B. Mike has an indefeasibly vested life estate in the property.
54D. The author of a new book gives his son the right to future royalties.
55C. $16,600
56C. Executors are discharged from their fiduciary duties by the estate beneficiaries.
57 B. The power will lapse if Gretel fails to exercise the power in her will. 58 A. $150,000 to Mark, $150,000 to Terri, $150,000 to Claire, $150,000 to Jennifer, $150,000 to Matthew, and $150,000 to Chad 59B. husband $114,000, wife $114,000
60 C. $250,000 61 B. $57,000 62D. II, III, and IV
63A. I only
64B. II only
65 C. Both I and II 66A. A transfer of a present interest in property that is less than the annual exclusion.
67 Both I and II 68 Both I and II 69 Both I and II 70 A. I only 71D. A nonlawyer may give advice on a settled area of law that is a matter of common knowledge without committing the unauthorized practice of law.
72 B. A deed to land is real property. 73 D. Transfers in satisfaction of the right to support the transferor's minor children may constitute consideration in money or money's worth. 74D. The attorney general of a state is empowered to enforce charitable trusts.
75 B. intestacy 76 C. specify a marital deduction formula 77A. The gift of the land is included in the calculation of the widower's federal estate tax as an adjusted taxable gift.
78B. the value of an apartment building subject to a general power of appointment that Jack possessed at death
79C. the power to terminate the trust
80D. size of each spouse's separate estate
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