Fundamentals of Estate Planning test (HS330) Free Practice Test

Question 1

Tax benefits of making lifetime gifts in excess of the gift tax annual exclusion include all the following EXCEPT:

A. Gift taxes are payable at the same tax rate as estate taxes.

B. Appreciation in the value of a gift of real property after the date of the gift increases the donor's federal estate tax liability.

C. Income taxes can be saved if a high-income donor gives income-producing property to a lowincomedonee.

D. The gift tax paid on a gift made more than 3 years prior to the death of the donor avoids inclusion the donor's gross estate.

Correct Answer: B

Question 2

All the following statements concerning an estate for a term of years are correct EXCEPT:

A. An interest may extend beyond the lifetime of the grantor.

B. The tenant has the right to possess the property during the term of his interest.

C. The tenant may transfer the property at the end of the term of his interest.

D. It is an interest in property established for a specific duration.

Correct Answer: C

Question 3

Mr. Conrad died early this year. Under the terms of his will, he left all his real estate and tangible personal property to his son. All the remainder of his probate estate was left to his wife, Mrs. Conrad. The following is a list of Mr. Conrad's probate assets and their fair market values at the time of his death:
*Commercial real estate $150,000
*Furniture and fixtures 50,000
*Listed common stock 100,000
*Other securities 200,000
In addition, Mr. Conrad also owned a $300,000 life insurance policy on his life with Mrs. Conrad designated as beneficiary. Based on this information, what is the amount of property in Mr. Conrad's estate qualifying for the federal estate tax marital deduction?

A. $800,000

B. $400,000

C. $600,000

D. $300,000

Correct Answer: C

Question 4

All the following are conditions that must be met if an otherwise nonqualified terminable interest is to qualify (as QTIP) for the federal estate tax marital deduction EXCEPT:

A. The surviving spouse must make a qualified disclaimer to all other property in the deceased spouse's estate within 9 months of death.

B. No person can be given the right to direct that the property go to anyone other than the surviving spouse as long as the surviving spouse is alive.

C. The surviving spouse must be given a lifetime right to receive all the property's income at least annually.

D. The deceased spouse's executor must make an irrevocable election to have the property includible in the surviving spouse's gross estate.

Correct Answer: A

Question 5

A father deeded a house as a gift to his daughter in 1990 but retained the right to live in it until his death. He died this year while still living in the house. The following are relevant facts: The father bought the property in 1980 for $130,000. The fair market value of the property when the gift was made in 1990 was $150,000. The father filed a timely gift tax return but paid no gift tax because of the applicable credit amount. The fair market value of the property at the father's death was $220,000. The daughter sold the property 3 months after her father's death for $220,000. She had a gain of

A. $120,000

B. 0

C. $140,000

D. $220,000

Correct Answer: B

Question 6

All the following factors are important in assessing liquidity needs in estate planning EXCEPT the

A. ages of the residuary estate beneficiaries

B. types of assets that comprise the estate

C. projected estate tax liability

D. marital status of the testator

Correct Answer: A

Question 7

A single man with substantial assets and income is supporting his 80-year-old partially senile mother with monthly cash gifts. He is trying to find a practical way to support his mother while at the same time saving federal gift and income taxes without giving up ultimate control of any assets. Which of the following courses of action will best accomplish these objectives?

A. Purchase corporate bonds that pay interest in an amount sufficient for her to support herself and assign the interest payments to her

B. Make her an interest free loan with a principal amount large enough to produce sufficient income for her support when invested in corporate bonds

C. Make her annual gifts of enough interest income from the tax free municipal bonds in his portfolio so that she will be able to support herself

D. Make her a gift of enough corporate bonds from his portfolio so that she will be able to support herself from the interest payments

Correct Answer: C

Question 8

All the following statements concerning an entity-purchase buy-sell agreement for a partnership are correct EXCEPT:

A. It is the surviving partners who purchase the decedent's business interest so that the partnership can afford to pay the decedent's estate.

B. The partnership, in effect, liquidates the interest held by the decedent-partner's estate.

C. The partnership makes payments to the decedent-partner's estate to liquidate the partnership interest held by the estate.

D. Both the partners and the partnership are parties to the agreement that provides for business continuation.

Correct Answer: A

Question 9

Which of the following statements concerning a grantor-retained annuity trust (GRAT) is correct?

A. If the grantor dies before the retained interest term ends, the estate tax benefits are reduced.

B. The trust is used as a device for shifting income tax on the current trust income to theremainderperson(s).

C. The transfer of property to the trust becomes a completed gift for gift tax purposes only at the termination of the grantor's retained interest term.

D. The grantor retains control of the trust property until revocation or death.

Correct Answer: A

Question 10

Which of the following transfers will be successful in removing property from a grantor's gross estate?
1.A grantor's transfer of property to a revocable trust if the grantor lives three years after the transfer.
2.A grantor's transfer of a personal residence to a qualified personal residence trust if the grantor survives the retained interest term.

A. 1 only

B. Neither 1 nor 2

C. 2 only

D. Both 1 and 2

Correct Answer: C

Question 11

A man recently died with only probate assets. Under the terms of his will, he left his entire probate estate outright to his wife. The following are relevant facts about the estate:
*Gross estate $2,000,000
*Estate administration expenses 50,000
*Debts of decedent 200,000
*Allowable funeral expenses 5,000
The amount of the allowable marital deduction is

A. $1,800,000

B. $1,745,000

C. $1,795,000

D. $1,750,000

Correct Answer: B

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American College Fundamentals of Estate Planning test (HS330) Free Practice Test