CERTIFIED FINANCIAL PLANNER CERTIFICATION
PROFESSIONAL EDUCATION PROGRAM
Estate Planning
Final Review Questions
Class 17
©2015, College for Financial Planning, all rights reserved.
Class 17 Question 1
Belinda Carr, a widow, wants to make equal
gifts totaling $8 million outright to her four
grandchildren in 2015.
If Belinda has not made any prior taxable gifts,
what amount of gift tax, if any, would she owe?
a. $0
b. $989,800
c. $1,005,600
d. $1,077,600
Class 17 Question 2
Using the facts in Question 1, which one of the
following is a correct statement regarding the
application of the generation-skipping transfer tax
(GSTT) to these transfers?
a. These are examples of direct skip transfers.
b. These are examples of taxable distributions.
c. These are examples of indirect skip
transfers.
d. These are examples of taxable terminations.
Class 17 Question 3
In 2004, Mary Nixon made a $16,000 taxable gift to her
son. In 2005, she paid $12,000 to World College for her
daughter’s tuition. In 2010, she made a cash gift of
$28,000 to her daughter. Her husband consented to gift
splitting only for the gift made in 2010.
What gift tax applicable credit amount does
Mary have available to offset gifts in 2015?
a.
b.
c.
d.
$ 1,327,600
$1,342,600
$1,995,800
$ 2,114,600
Class 17 Question 4
Ira Saliman wants to provide financial assistance to his grandchildren. His
objectives are:
•
to set aside assets that he alone would control during his life
•
minimize setup costs and avoid any gift tax
•
to make gifts from the assets as long as he is alive
•
when he dies, he wants the assets transferred outright to his
grandchildren while avoiding probate
Which one of the following strategies is most appropriate to meet all of Ira’s
goals?
a. Ira should place the assets in a P.O.D. (payable-on-death) account
with his grandchildren.
b. Ira should establish Uniform Transfers to Minors Act (UTMA) accounts
naming each of his grandchildren as beneficiaries, and himself as
custodian.
c. Ira should place the assets in a separate bank account that is solely in
his name.
d. Ira should place the assets in a joint and survivor bank account that
names both Ira and the grandchildren as account holders.
Class 17 Question 5
Richard has been given a non-cumulative power to require the
trustee of an irrevocable trust established and funded by his sister
to distribute not more than $15,000 of trust income or principal per
calendar year to any of his sister’s nieces and nephews as
necessary for their maintenance and support.
Which one of the following statements regarding this power is
correct?
a. Richard has a special power of appointment over the trust.
b. If Richard appoints $15,000 of the trust property
to his daughter, he will be deemed to have made a
completed gift.
c. Richard may have to include up to $15,000 in his gross
estate because of this power.
d. If Richard does not appoint any of the property
in the current year, he will be deemed to have
made a completed gift.
Class 17 Question 6
Carlyle, age 75, gave his ex-wife, age 35,
$6 million in the current year.
How much gift tax does Carlyle owe on this
transfer after application of the gift tax applicable
credit amount, if this is his first taxable gift?
a. $0
b. $222,400
c. $788,480
d. $1,076,250
Class 17 Question 7
Bryan Hampstead and his wife, Teresa, have combined gross estates of
$6.5 million, all of which is owned in joint tenancy with right of
survivorship. If either had died in 2015, his or her estate would owe no
estate tax. However, if the surviving spouse continued to hold the
combined property in sole ownership, his or her estate (assuming death
in 2015) would have owed $428,000 in estate tax (assuming no adjusted
taxable gifts).
The Hampsteads might title their assets so that one-half will be solely
titled in each of their names. Then, they could execute wills that would
pass each spouse’s share to a trust. The trust would not qualify for the
marital deduction.
With the new plan, what, if any, would the estate tax savings be on their
combined estates of $6.5 million, assuming that Bryan and Teresa both
died in 2015?
a. $0
b. $157,500
c. $428,000
d. $780,800
Class 17 Question 8
Pam Trucker and her brother, Mac, purchased and own a small office building
currently valued at $750,000. She holds a 60% tenancy in common interest.
Last year, when Mac was having financial problems, Pam agreed that Mac
should take half of the $74,000 rental income from the building. Pam is
contemplating gifting 2% of her interest to each of her two children. Pam has
made no other gifts to her children this year.
Which one of the following statements is correct concerning the tax
implications of Pam’s tenancy in common ownership and the actions described?
a. If Pam were to die before making the gifts to the children, one-half of
the value of the property would be included in her gross estate since
she is one of two tenants in common.
b. Last year Pam made a gift of $7,400 to Mac.
c. If Pam made the gifts to her children, they would be taxable gifts that
she must report.
d. If Pam were to die before making the gifts to the children, the full
value of the rental property would have to be included in Pam’s gross
estate, unless her personal representative could show that her
proportional contribution was less than 100%.
Class 17 Question 9
Amy Plante owns several hundred vending machines. Amy’s son,
Ben, could use additional income to supplement the income from
the business he started last year. Since Amy needs only part of
the income, she would like to transfer some interest in the
machines and their income to Ben, but without giving up total
ownership and control of the machines during her lifetime.
Which one of the following is the most appropriate way for Amy
to transfer an interest in the property to Ben?
a. an exchange for a private annuity
b. an outright gift to Ben with a leaseback
c. an installment sale
d. a minority interest in a family partnership created by Amy
Class 17 Question 10
During his lifetime, Basil Boast has made the following
transfers: $17,000 in cash to his mother in 1983, $15,000
in bonds to his wife in 1985, $14,000 to his son’s college
for tuition in 1988, $17,000 to United Charities in 1991, and
$32,000 in growth stock to a Section 2503(c) trust for his
granddaughter in 2015. His wife consented to gift-splitting
only for the gift made in 2015.
What is Basil’s cumulative gift tax prior to use of the
applicable credit amount?
a. $720
b. $1,620
c. $2,400
d. $2,800
Class 17 Question 11
Gunter, a resident non-U.S. citizen, established and funded a power of
appointment trust with his wife as the income beneficiary, and his
children as remainder beneficiaries. Gunter’s wife is also a resident
non-U.S. citizen. Gunter funded the trust with $100,000 of incomeproducing securities.
Which one of the following statements regarding this transaction is
correct?
a. If Gunter has not made any other gifts to his wife in the
current year, no part of the income interest will be taxable
because of the annual exclusion.
b. No part of this transaction will be taxable under any
circumstances because of the marital deduction.
c. No part of this transaction will be taxable if the property is
placed in a qualified domestic trust (QDOT) and the
appropriate election is made on the gift tax return.
d. The transaction is not subject to gift tax because Gunter is not
a U.S. citizen.
Class 17 Question 12
Ernie Green, a married individual, died in the current year with a gross
estate valued at $12.6 million. The majority of his estate consists of
personal use assets and publicly traded stock, which has rapidly
declined in value since his death. Ernie’s will splits his estate equally
between his wife and his nephew. During the last year of his life, Ernie
incurred medical expenses of $50,000, all of which were reimbursed
through health insurance. Two years before his death, he gifted
$20,000 to his nephew and filed a gift tax return without Ethyl’s
consent to split gifts.
Which one of the following is a postmortem election that can minimize
tax liability for Ernie’s estate or its beneficiaries?
a. a claim of medical expenses on his final income tax return
b. making an election to pay estate taxes in installments under
IRC Section 6166
c. filing of a gift tax return with Ethyl’s consent to split gifts
d. use of the alternate valuation date election for estate assets
Class 17 Question 13
Your client, Robin Loxley, has the following goals for a parcel of real estate that he owns:
•
to provide his daughter, Chelsey (age 7), with a discretionary income from the
real estate
•
to receive an annual exclusion for each dollar of value transferred to Chelsey
•
to provide Chelsey with the right to dispose of her interest in the property
when she reaches age of majority as determined by state law
•
to remove the entire $100,000 value of the property from his gross estate
either immediately, or over several years
Given his goals, the most appropriate gifting strategy for Robin is to
a. transfer an amount equal to the maximum annual exclusion each year to a
UTMA (Uniform Transfers to Minors Act) custodial account for Chelsey with
someone else named as custodian
b. transfer the entire property interest to a UGMA (Uniform Gifts to Minors Act)
custodial account for Chelsey this year with someone else named as custodian
c. transfer the entire property interest to a Section 2503(b) trust with Chelsey as
both the income and remainder beneficiary with someone else named as
custodian
d. transfer an amount equal to the maximum annual exclusion each year to an
irrevocable trust that names someone else as trustee, and give Chelsey a
Crummey power to withdraw limited to the greater of 5% of each contribution
or $5,000
Class 17 Question 14
Diane’s will states that her entire probate estate is to go to her sister if her
sister survives her by at least five days. The Uniform Simultaneous Death Act
(USDA) as adopted by Diane’s state of domicile (and the state in which all of
her property is located) states that if a beneficiary who receives property as
the result of another’s death, survives the testatrix by any ascertainable period,
the beneficiary shall be entitled to take the property of the testatrix. Diane and
her sister were riding in the same car when her sister lost control causing a
wreck. Diane was killed instantly. Diane’s sister died two days later.
Which one of the following statements is correct?
a. The estate of Diane’s sister is entitled to Diane’s probate estate
because she survived Diane by an ascertainable period.
b. The estate of Diane’s sister is not entitled to Diane’s probate estate
because she did not survive by at least five days.
c. The estate of Diane’s sister is not entitled to Diane’s probate estate if
the state of Diane’s domicile has adopted a felonious homicide
statute.
d. The estate of Diane’s sister is entitled to Diane’s probate estate
because Diane’s will gives it to her.
Class 17 Question 15
Ellen died in 2015 with the following gross estate:
•
Sole property worth $4.8 million
•
Tenancy by the entirety (TBE) property with her share valued at $500,000
•
Property in a trust valued at $300,000 over which Ellen held a general power of
appointment
•
Property held in JTWROS with her son valued at $2 million; Ellen placed her
son’s name on the title five years ago without consideration; Ellen used
$192,800 of her applicable credit amount on this gift.
Ellen’s will gives $500,000 to a qualified charity. The rest of her estate goes to her son.
Assume the following:
•
•
•
•
Total indebtedness on the TBE property is $200,000. The estate will
pay Ellen’s share of this debt.
Total indebtedness on the property held in JTWROS is $500,000 .
Ellen made $500,000 in taxable gifts all attributable
to the JTWROS property.
Ellen’s funeral, administrative expenses, and state
death taxes total $300,000.
What is Ellen’s net federal estate tax?
a. $0
b. $90,000
c. $108,000
d. $322,000
Class 17 Question 15 Solution
GE
Sole Property
TBE Property
GPOA Property
JTWROS Property
Total
Deductions
Debt TBE Property
Debt JTWROS Prop.
F&A and State Taxes
Charitable Deduction
Marital Deduction
Total Deductions
Taxable Estate
$4,800,000
$ 500,000
$ 300,000
$ 2,000,000
$7,600,000
$ 100,000
$ 500,000
$ 300,000
$ 500,000
$ 500,000
($1,900,000)
$5,700,000
Class 17 Question 15 Solution
Adjusted Taxable Gifts
Tax Base
Tentative Tax
Lower Bracket Amt.
Tax on Lower Amt.
Excess Amt.
Tax Rate on Excess
Tax on Excess Amt.
Total Tentative
Credit
Net ET Due
$
0000
$5,700,000
$
1,000,000
$4,700,000
40%
Tax
$ 345,800
$1,880,000
$2,225,800
($2,117,800)
$ 108,000
Class 17 Question 16
Your client has executed a living will (LW) and durable
power of attorney for health care (DPOAHC).
Which one of the following statements is correct
regarding the advantages and disadvantages of these
two planning techniques?
a. The DPOAHC can be used in more situations than the LW
can.
b. If the two appointed agents differ in what medical
treatment should be given, the decision of the agent
under the DPOAHC will be given priority.
c. The two techniques are contradictory and each cancels
the effect of the other.
d. The authority granted under the LW takes effect
immediately, while that granted under the DPOAHC does
not.
Class 17 Question 17
California is a community property state. Pennsylvania and Ohio are common
law property states. While married and living in Pennsylvania, Hub Howard
purchased a Rolls Canardly and titled it in his name only. After moving to
California, he became ill and his wife, Winnie, became the sole breadwinner.
While living there, Hub inherited several bonds from his grandmother and
Winnie invested part of her salary in a stock portfolio solely in her own name.
Last year, the Howards moved to Ohio.
Assuming the Howards still own the assets described, which one of the
following statements concerning the classification of their assets after their
move to Ohio is correct?
a. The Rolls Canardly, which was licensed in California, is considered
community property.
b. The bonds inherited by Hub while living in California are community
property.
c. All property acquired while living in California is considered community
property even after moving to Ohio.
d. The stock portfolio acquired by Winnie is considered community
property.
Class 17 Question 18
Which one of the following incorrectly states a rule for valuing
property interests for federal transfer purposes?
a. The replacement cost of a paid-up policy is the cost of a
policy from the issuing company based on the insured’s
age on the date of transfer.
b. A remainder interest is valued according to its present
value as determined by the length of the term interest
and the IRS-specified floating interest rate on the date of
transfer.
c. Listed stocks and bonds are valued at the mean between
the high and low selling price on the date of transfer.
d. The replacement cost of a commercial survivorship
annuity is measured by the cost of an annuity for the
survivor from the issuing company based on the donor
annuitant’s age on the date of transfer.
Class 17 Question 19
Eva Tower has the following goals:
• to provide her husband, Orval, with an income that is not
discretionary with the trustee
• to qualify at least part of her estate for a marital
deduction if an estate tax is in effect at her death
• to be assured that her daughters from her first marriage
receive whatever remains of her estate when her
husband, Orval, dies
• to fully use her applicable credit amount
Which one of the following will accomplish all of Eva’s goals?
a. a QTIP (C) trust
b. a family bypass (B) trust
c. a power of appointment (A) trust
d. an estate trust
Class 17 Question 20
J. J. Jefferson made a series of cash gifts from his solely owned
assets to his children, his wife, and to a qualified charity. His
wife, Annie, consented to split all eligible gifts. In 2001, he gave
$30,000 to his daughter, $42,000 to his son, $50,000 to his wife,
and $21,000 to the charity. In 2002, he gave $24,000 to his
daughter and $18,000 to his son. During 2015, he gave his
daughter $30,000, his son $22,000, and his wife $30,000.
Which one of the following most closely approximates J. J.’s gift
tax liability for his 2015 gifts prior to use of the applicable credit
amount?
a. $200
b. $1,000
c. $1,500
d. $3,500
Chart for Question 20
Daughter
Son
Wife
Charity
Total
Cumulative
Taxable
Gifts
2001
$5,000
$11,000
-0-
-0-
$16,000
$16,000
$3,000
2002
$1,000
-0-
-0-
-0-
$1,000
$17,000
$3,200
2015
$1,000
-0-
-0-
-0-
$1,000
$18,000
$3,400
Cumulative
Tax
Class 17 Question 21
Your client would like to create and maintain a trust
that will qualify for a charitable deduction while
immediately providing his parents with an income
stream that minimizes the possibility of depletion by
inflation.
Which one of the following is the most appropriate
charitable technique for accomplishing your client’s
goals?
a.
b.
c.
d.
a
a
a
a
charitable
charitable
charitable
charitable
pooled income fund
remainder annuity trust
lead unitrust
remainder unitrust
Class 17 Question 22
Which one of the following statements about a grantor
retained interest trust characteristic is incorrect?
a. If a grantor transfers $500,000 worth of stock to a
GRIT (grantor retained income trust) for 15 years
with the remainder to her children, she has a
taxable gift of $500,000.
b. A GRUT (grantor retained unitrust) will pay income
to the grantor based on a specified percentage of
the trust’s value on a specified date each year.
c. Gifts cannot be made to a GRAT (grantor retained
annuity trust) after it is initially funded.
d. In contrast to a GRIT, if the grantor of a GRAT or
GRUT dies during the term of the trust, there is no
inclusion in his or her gross estate.
Class 17 Question 23
Your client, who lives in a community property state that permits a
great flexibility in the ways that property may be held, has the
following goals:
• to use his gift tax applicable credit amount on any transfer
• to avoid probate
• to share income with any co-owner(s) without triggering any
gift tax regarding the income
Which one of the following would be the most appropriate way for your
client to hold his income-producing property?
a. as a sole owner, while giving his wife
one-half of the income
b. as a joint tenant with right of survivorship
with his son
c. as a joint tenant with right of survivorship
with his wife
d. as community property with his wife
Class 17 Question 24
Your client has the following goals:
• to eliminate inclusion of any value of a life insurance
policy on his life from his or his wife’s estates
• to receive an annual exclusion for gifts made to pay
premiums on the policy
Assuming he lives more than three years after taking each
action described below, using which one of the following
insurance techniques will accomplish the client’s goals?
a. assigning all incidents of ownership to his spouse
b. an unfunded irrevocable life insurance trust with
Crummey powers to beneficiaries
c. a funded irrevocable life insurance trust
d. an annually funded revocable life insurance trust
CERTIFIED FINANCIAL PLANNER CERTIFICATION
PROFESSIONAL EDUCATION PROGRAM
Estate Planning
Final Review Questions
Class 17
End of Slides
©2015, College for Financial Planning, all rights reserved.