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Exam 25: Transfer Taxes and Wealth Planning of the Cfa Institute

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Question 41

Multiple Choice

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Ethan owned a vacation home at the time of his death. Which of the following is a true statement if Ethan was married to Emma and resided in a common law state at the time of his death?

A) Ethan can claim a marital deduction for the vacation home if he bequeaths it to Emma.
B) Ethan cannot claim a marital deduction if he bequeaths a life estate in the vacation home to Emma.
C) Ethan can claim a marital deduction for half the value of the vacation home if it was owned with Emma in joint tenancy with the right of survivorship.
D) Ethan can claim a charitable deduction if he bequeaths it to a qualified charity.
E) All of these are true.

F) B) and C)
G) B) and D)

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Question 42

Multiple Choice

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The estate and gift taxes share several common features. Which of the following characteristics is common to both the estate and gift taxes?

A) A marital deduction and a deduction for casualty losses.
B) A marital deduction for transfers of all terminable interests.
C) The tax rate schedule for calculating gross transfer taxes.
D) A charitable deduction and an annual exclusion.
E) None of these list characteristics common to both the gift and the estate tax.

F) A) and B)
G) C) and D)

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Question 43

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Natalie transferred $500,000 of bonds to a revocable trust with directions to the trustee to pay income to her aunt for five years after which the corpus is to be distributed to Natalie's niece. At year end, the trustee paid $15,000 of income to the aunt. Which of the following is a true statement?

Eric has $5 million of property that he wants to leave to his four children. He is considering making a current gift of the property (rather than leaving the property to pass through his will). Eric has made many prior taxable gifts and additional taxable transfers will be subject to the highest transfer tax rate. Determine how much estate tax Eric will save if he gifts the property now and survives at least three years, during which time the property appreciates to $5.5 million. Ignore the time value of money in your calculation.

At his death Trevor had a probate estate consisting of $4 million of property. Which of the following is a true statement about Trevor's estate or estate tax?

This year Anthony transferred $250,000 of bonds to a trust with directions to the trustee to pay income to his son for the next 20 years. After 20 years the trust corpus would revert to Anthony. Which of the following is a true statement?

Matthew and Addison are married and live in Michigan, a common-law state. For the holidays Addison gave cash gifts of $30,000 to each of her two sons, and Matthew gave $40,000 to his daughter. What is the amount of Addison's taxable gifts if Matthew and Addison opt to gift split?

Proceeds of life insurance paid due to the death of the decedent are included in the decedent's gross estate if the decedent had the right to designate the beneficiary of the policy.

At her death Tricia owned a life insurance policy on her life that paid her daughter $500,000 upon her death. The policy was only valued at $25,000 prior to Tricia's death. What amount, if any, is included in Tricia's gross estate?

This year Don and his son purchased real estate for an investment. The price of the property was $500,000, and the title named Don and his son as joint tenants with the right of survivorship. Don provided $320,000 of the purchase price and his son provided the remaining $180,000. Has Don made a taxable gift and, if so, in what amount?

The executor of Isabella's estate incurred administration expenses of $32,000 and paid $5,000 in funeral expenses. The executor charged the estate for $24,000 in fees. What is the maximum amount Isabella's estate can deduct in computing the adjusted gross estate?

Only complete gifts are subject to the Federal gift tax.

A gratuitous transfer of property made during the lifetime of the donor is called:

Joshua and David purchased real property for $500,000 as equal tenants in common. Although they are listed as equal co-owners, Joshua was only able to provide $200,000 of the purchase price. David treated the additional $100,000 of his contribution to the purchase price as a gift to Joshua. If the property is worth $2.5 million at Joshua's death, what amount would be included in Joshua's estate?

The Federal transfer taxes are calculated using cumulative lifetime transfers.

A bypass provision in a will requires a decedent to have a taxable estate in order to use a unified credit to reduce total estate taxes on a married couple.

The unified credit is designed to allow a minimum amount of lifetime transfers without triggering the imposition of a transfer tax.

Life insurance is an asset that can be used to fund a trust to support a surviving spouse and, yet, may not be included in the decedent's gross estate.

Grace transferred $800,000 into trust with the income to be paid annually to her spouse, Isaiah, for life and the remainder to Taylor. Calculate the amount of the taxable gifts from the transfers.

At his death Stanley owned real estate worth $345,000 with two other individuals as equal tenants in common. Stanley contributed $50,000 to the $100,000 total cost of the property. What amount, if any, is included in Stanley's gross estate?