Estate Final UVU Flashcards _ Quizlet

Kent, age 38, recently came to you for estate planning advice. He has never executed any estate planning documents. During the client interview, you learned that Kent has never been married and has a six-year-old daughter, Kerstin, with his previous girlfriend, Karen. Karen is Kerstin's custodial parent and Kent sees Kerstin every other weekend. While Kent and Karen are cordial, the relationship was recently strained when Karen began dating Kent's business partner, Bobby. Kent is in good health and participates regularly in automobile racing competitions. While Kent often wins in competitions, he has wrecked his car several times and has been seriously injured. Because Kent has had so many wrecks, he invested a majority of his $500,000 net worth in a closely held company to develop a revolutionary steel product that will not bend, crumble or catch fire. Kent and his business partner, Bobby, are sure that all race car companies will buy the steel product because their initial tests established that nine out of ten times a car made with the product that was in a wreck did not even get a dent. Although they plan to take their product to market in a few months, Kent and his partner have had several disagreements. Which of the following statements is true? A. If Kent died today, there would not be any liquidity issues because Kent's share of the closely held company could easily be sold for fair market value. B. Since the value of Kent's net worth is below $5,4910,000, there is no need for estate planning. C. Amounts given to Karen for Kerstin's support are deductible on Kent's income or gift tax return. D. If Kent were to die today, his assets would transfer via state intestacy laws with Kerstin being the most likely heir. The correct answer is d. Since Kent has not executed any estate planning documents, his estate will transfer via state intestacy laws. When an individual is not married, their children are generally the next in line to inherit under state intestacy laws. Option a is incorrect because the ability to quickly sell a closely held business for fair market value is always questionable regardless of how good the products are. Option b is incorrect because Kent's net worth is irrelevant as to whether he needs estate planning. He has a child that needs to be cared for and assets that will need to be transferred, thus he needs estate planning. Option c is incorrect because the amounts given for Kerstin's support are not deductible on the income or gift tax return. Estate Final UVU 6/16/24, 9:37 PM Estate Final UVU Flashcards | Quizlet https://quizlet.com/607788899/estate-final-uvu-flash-cards/ 3/18

Natalie and her younger sister Kate purchased a beach-front condominium together 15 years ago. They own the property as a joint tenancy with rights of survivorship. At the time of the purchase, Natalie, being the older sister, was in a better financial position. Therefore, Natalie contributed $300,000 and Kate contributed $100,000 to the purchase price. The property is now worth $800,000. Which of the following statements is correct? A. Natalie and Kate each own 50% of the condo. B. If Natalie were to die today, her share of the condo would transfer to her husband Brian. C. If Kate were to die today, Natalie's new basis in the property would be $400,000. D. If Natalie and Kate were to disagree on how the property was being managed, the only way they could partition their share of the property would be to find a willing buyer that would purchase both of their interests. The correct answer is a. Because the property is owned JTWROS they automatically own 50% each. Answer b is incorrect because if Natalie were to die today, then her share of the condominium would transfer to Kate. Answer c is incorrect because if Kate died today, then Natalie's new basis would be $500,000 (Natalie's original $300,000 basis and Kate's step-to fair market value basis of $200,000 based on the contribution rule). Answer d is incorrect because if they disagree on how the property is being managed then either one can easily sell their share to any person. They do not need the consent of the other party. Which of the following accurately describes a life estate? A. An interest in property for a specified number of years. B. An interest in property that ceases upon the death of the owner of the life estate. C. An undivided interest in property held by two or more related or unrelated persons. D. A complete interest in property with all the rights associated with outright ownership. The correct answer is b. Option b is the definition of a life estate. Option a is the definition of an interest for a term. Option c is the definition of tenancy in common. Option d is the definition of fee simple. Estate Final UVU 6/16/24, 9:37 PM Estate Final UVU Flashcards | Quizlet https://quizlet.com/607788899/estate-final-uvu-flash-cards/ 6/18

Tom loans $11,000 to his daughter Tina. Why would interest not be imputed on this loan? A. Interest would not be imputed because the loan is less than the amount of the annual exclusion. B. Interest would not be imputed because loans of $100,000 or less are exempt from both income tax and gift tax consequences. C. Interest would not be imputed because Tina has unearned income of $500. D. Interest would not be imputed because Tina's earned income is less than $1,000. The correct answer is c. Option a is incorrect because gift loans do not qualify for the annual exclusion. Option b is incorrect; loans of less than $10,000 are exempt from both income tax and gift tax consequences. Option d is incorrect because whether interest is imputed on this loan is based on Tina's level of unearned income, not earned income. Bernard made a gift of $500,000 to his brother in 1997. At the time of the gift, the applicable gift tax credit was $192,800, but due to Bernard's prior taxable gifts he paid $200,000 of gift tax. When Bernard died in 2017, the applicable gift tax credit had increased to $2,141,800. At Bernard's death, what amount related to the $500,000 gift to his brother is included in his gross estate? A. $0. C. $153,000. D. $200,000. E. $500,000. The correct answer is a. Gift tax paid on gifts made within three years of a decedent's date of death is included in the decedent's gross estate. In this case, Bernard made the gift more than three years before his death, so $0 is included in his gross estate related to this gift. The value of the gift, $500,000 is added to the decedent's taxable estate to determine the tentative tax base and Bernard will get credit for the gift tax paid of $200,000. Which of the following is true concerning the 5/5 Lapse Rule? A. The 5/5 Lapse Rule deems that a taxable gift has been made where a power to withdraw in excess of $5,000 or five percent of the trust assets is lapsed by the powerholder. B. The 5/5 Lapse Rule only comes into play with a single beneficiary trust. C. Amounts that lapse under the 5/5 Lapse Rule qualify for the annual exclusion. D. Gifts under the 5/5 Lapse Rule do not have to be disclosed on a gift tax return. The correct answer is a. Option a is the definition of the 5/5 Lapse Rule. Option b is incorrect because the 5/5 Lapse Rule does not come into play with a single beneficiary trust because a person cannot make a taxable gift to himself. Option c is incorrect because amounts that lapse under the 5/5 Lapse Rule do not qualify for the annual exclusion. Option d is incorrect because gifts under the 5/5 Lapse Rule do have to be disclosed on a gift tax return. Estate Final UVU 6/16/24, 9:37 PM Estate Final UVU Flashcards | Quizlet https://quizlet.com/607788899/estate-final-uvu-flash-cards/ 9/18

Maxwell died August 8, 2017. Of the following transfers made during his life, which is included in his gross estate? A. The transfer of a whole life insurance policy on Maxwell's life to an ILIT on September 16, 2013. B. The sale of his term insurance policy to his brother, Donald, for fair market value on August 12, 2013. C. The transfer of a whole life insurance policy on Maxwell's life (face value $150,000) valued at $20,000 to his son on September 16, 2015. D. A gift of $14,000 to Maxwell's sister on August 7, 2017. No gift tax was due on the gift. The correct answer is c. The transfer would be included in Maxwell's gross estate because transfers of life insurance on the decedent's life within three years of the decedent's date of death are included in the decedent's gross estate. Option a is incorrect because the transfer is not included in Maxwell's gross estate because the transfer was completed more than three years prior to Maxwell's date of death. Option b is incorrect because the sale of an insurance policy for fair market value removes the asset from the gross estate. Option d is incorrect because gifts, other than life insurance, within three years of the decedent's date of death are not included in the decedent's gross estate. Gift tax paid within three years of the decedent's date of death is included in the decedent's gross estate, but in this case no gift tax was paid. In 2016, Lori assigned a paid-up whole life insurance policy to an Irrevocable Life Insurance Trust (ILIT) for the benefit of her three children. The ILIT contained a Crummey provision for the benefit of each child. At the time of the transfer, the whole life insurance policy was valued at $200,000, and since Lori had not made any other taxable gifts during her lifetime, she did not owe any gift tax. Lori died in 2017, and the face value of the whole life insurance policy of $2,000,000 was paid to the ILIT. Regarding this transfer, how much is included in Lori's gross estate at her death? A. $0. B. $164,000. C. $964,000. D. $2,000,000. The correct answer is d. The death benefit of a life insurance policy transferred within three years of the decedent's date of death is included in the decedent's gross estate. In this case, Lori transferred the policy one year before her death, so the full death benefit of $2,000,000 is included in her gross estate. Which of the following statements is false regarding a bargain sale? A. The difference between the fair market value of the asset and the consideration received in exchange for the asset is considered a gift. B. The gift portion of a bargain sale will qualify for the annual exclusion. C. A bargain sale is generally inappropriate if the buyer of the property is a family member. D. If the property is sold by the seller for more than the seller's basis in the property, a taxable gain will result. The correct answer is c. Option c is a false statement because bargain sales usually occur among related parties. All of the other options are true. Estate Final UVU 6/16/24, 9:37 PM Estate Final UVU Flashcards | Quizlet https://quizlet.com/607788899/estate-final-uvu-flash-cards/ 12/18

Kristi transferred $10,000,000 to the Kristi Family Trust. The trust is designed as an irrevocable grantor trust. Kristi retained a 5% annuity payout from the trust for the lesser of five years after the establishment of the trust or until her date of death, and she has named her only nephew, Alex, as the remainder beneficiary of the trust. Of the following statements regarding Kristi's transfer to this trust, which is true? A. Because Kristi retained the annuity interest from the trust, if she dies during the five years after the establishment of the trust, the full fair market value of the trust assets will be included in her gross estate. B. Because Kristi retained the annuity interest from the trust, she has not made a completed transfer (for gift tax purposes) to her nephew at the date she transferred $10,000,000 to the Kristi Family Trust. C. Any income within the Kristi Family Trust is taxed to the trust. D. The Kristi Family Trust is a testamentary trust because the term of the trust relates to her death. The correct answer is a. The fact pattern describes a Grantor Retained Annuity Trust (GRAT) established by Kristi. If Kristi dies during the term of her annuity interest, the full fair market value of the trust assets will be included in her gross estate. Option b is false because the irrevocable transfer of the remainder interest in the trust is a completed transfer and therefore a gift. Option c is false because the income of a grantor trust is taxable to the grantor. Option d is false because the trust is an inter vivos trust (created during the grantor's life), not a testamentary trust (created in a decedent's will). Which of the following is an advantage of a revocable living trust? A. Reduction in federal estate taxes. B. Avoidance of probate. C. Removal of asset appreciation from the grantor's gross estate. D. Distribution of the trust assets according to the terms of the grantor's will. The correct answer is b. Option b is an advantage of using a revocable living trust. Option a is incorrect because use of a revocable living trust does not reduce the grantor's federal estate taxes because the full fair market value of the trust assets are included in the grantor's gross estate. Option c is incorrect for the same reason. Option d is incorrect because the trust agreement, not the grantor's will, controls the distribution of the trust assets. David would like to fund a charitable trust and name himself as the income beneficiary. He would like the payout from the trust each year to be constant. Given David's desires, which type of charitable trust should David fund? A. Charitable Lead Annuity Trust. B. Charitable Lead Unitrust. C. Charitable Remainder Annuity Trust. D. Charitable Remainder Unitrust. The correct answer is c. The Charitable Remainder Annuity Trust would be the best option because the charity is the remainder beneficiary and David would be the income beneficiary. The CRAT is a better option than the CRUT because the payout from the CRAT would be a fixed dollar amount, rather than a fixed percentage. David wants a stable payout each year which would lead us to a fixed dollar amount, and thus the CRAT. Estate Final UVU 6/16/24, 9:37 PM Estate Final UVU Flashcards | Quizlet https://quizlet.com/607788899/estate-final-uvu-flash-cards/ 15/18

Which of the following are characteristics of a qualified disclaimer? 1) It may not direct the bequest to another person selected by the disclaimant. It must be received by the executor of the estate within 9 months of the death of the decedent. 2) It must be written and irrevocable. 3) The disclaimant may disclaim a part of an asset. A. 1 and 2. B. 1 C. 1 and 3 D. 1, 2, 3 D. 1, 2, 3 The correct answer is d. A qualified disclaimer must be written, irrevocable and received by the executor of the estate within 9 months. It must not direct the asset and can be for any interest partial or full. The Generation Skipping Transfer Tax (GSTT) has all the following characteristics, except: A. GST gifts to direct skips qualifying for the annual exclusion are not subject to the tax. B. Assets transferred to a trust that has a grandchild as the sole beneficiary may be subject to both gift and generation skipping transfer tax. C. If all the children of a trust are grandchildren (whose parents are living) of the grantor then the trust is subject to GSTT. D. A 'skip person' is a person who is one or more generations younger than the transferor. The correct answer is d. Options a, b, and c are true but in the case of option d, a grandchild whose parent has died has moved up a generation with regard to skip-person considerations. A skip beneficiary is generally a person who is two or more generations younger than grantor. Your client, Albert, is 68-years old. He is interested in establishing a trust with a value of $6,000,000 for his family. He is aware of the Generation Skipping Transfer Tax, and he has asked you for your advice as to which of the following would be considered a skip person. Which of the following is a skip person? A. Albert's son Patrick, who is age 17. B. Albert's grandson Connor, age 14, whose mother (Albert's daughter) died in an auto accident this year. C. Albert's mother Thelma. D. A trust that Albert had established 3 years ago for Albert's favorite employee, Sam, who has just turned 20. The correct answer is d. Due to the age difference of more than 37 ½ years and the non-related party status, the trust for Sam is a skip person. The reason Patrick is not a skip person is because he is a first generation descendant. Connor is not a skip person because his mother's death moves him up a generation (predeceased parent rule). 6/16/24, 9:37 PM Estate Final UVU Flashcards | Quizlet https://quizlet.com/607788899/estate-final-uvu-flash-cards/ 18/18