CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAM Estate Planning

1. CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAMEstate Planning Final Review QuestionsClass 18

2. Class 18 Question 1 • Hobart died. • Which of the following are included in his gross estate? • a bonus Hobart had earned, but not received at his death. • the value of a trust created by Hobart’s mother giving Hobart a life income interest. • gift tax paid in the amount of $23,000 for gifts made two years before his death. • the fair market value of a trust created by Hobart’s uncle, which states “Hobart can withdraw as much income or principal as he desires, as long as he obtains my prior consent.” • I and II only • I and III only • II and IV only • III and IV only

3. Class 18 Question 2 • Robert has recorded a deed giving his son a remainder interest in a parcel of real property that he owned in his sole name. • Which of the following statements are correct regarding this transaction? • Robert has made a completed gift and may take one annual exclusion in computing his gift tax liability. • Robert and his son now own the property as joint tenants with right of survivorship. • Robert has made a completed gift, and will still have to report all income produced by the property. • Robert has removed this asset from his probate estate. • I and II only • II and III only • III and IV only • I, III, and IV only

4. Class 18 Question 3 • Kim Collins would like to transfer some business assets to her children while still retaining an income stream from the assets. • Which of the following strategies could she use without having to pay increased gift taxes due to the IRC Chapter 14 valuation rules? • a partnership recapitalization with a noncumulative preferred interest retained by Kim and transfer of nonpreferred partnership interests to the children • A grantor-retained income trust with remainder to the children • a single life private annuity to Kim and the assets to the children • a stock recapitalization with a cumulative preferred stock interest retained by Kim and transfer of common stock to the children • I and III only • I and IV only • II and III only • III and IV only

5. Class 18 Question 4 • Alvin Donahue created an irrevocable trust and funded it with income-producing securities valued at $530,000. He reserved a right to take income from the trust for the next 10 years, with the remainder to go to his three children. Alvin named his brother as trustee. • Which one of the following statements is correct concerning the federal tax implications of this transaction? • If Alvin dies four years after funding the trust, the value of the trust will be excluded from his gross estate. • The transfer to the trust will not be a taxable gift because it can be completely offset with annual exclusions. • Alvin will report trust income only to the extent that it is actually received. • If Alvin dies at any time before the trust term ends, the full date-of-death fair market value of the trust will be included in his gross estate because of his retained income interest.

6. Class 18 Question 5 • Rudi titled some real estate that had previously been in his sole name in his and his son's names as equal joint tenants with right of survivorship. The son furnished no consideration for this transfer. The FMV of the entire parcel at the time of gift was $180,000. Rudi had purchased the real estate four years ago for $140,000. Rudi and his son now want to sell the parcel for $190,000. • What is Rudi's son’s basis in the real estate for the purpose of computing his potential gain? • $70,000 • $90,000 • $85,000 • $95,000

7. Class 18 Question 6 • Assume the facts stated in Question 5, except that Rudi dies in the current year, prior to sale of the property. The FMV of the entire property at Rudi's death was $190,000, and the property was valued in Rudi’s estate at its date of death value. • What is the basis of Rudi's son in the property when he sells it after Rudi's death? • $70,000 • $140,000 • $165,000 • $190,000

8. Class 18 Question 7 • Mary Duncan is considering a private annuity with her son that will pay her fixed payments for the remainder of her life. • Which of the following are correct statements about the tax implications of a private annuity? • For installment recognition of gain, the sole requirement is that a payment must be received in a tax year other than the year of sale. • Mary cannot avoid immediate taxation of capital gains if the transaction is unsecured. • Mary cannot avoid immediate taxation of capital gains if the transaction is secured. • The present value of any future payments outstanding at Mary’s death will be in her gross estate. • I and IV only • II and III only • III and IV only • I, II, and IV only

9. Class 18 Question 8 • Shirley is a Certified Financial Planner certificant, but is not a licensed attorney. • In which of these activities has Shirley engaged in the unauthorized practice of law while advising her client, Carole? • advised Carole to rescind her current will • gave Carole a brochure describing the duties of a personal representative and the process of probate in Carole’s state • advised Carole regarding the federal income tax deduction she can expect if she makes an outright gift to a qualified charity • drafted a durable power of attorney for healthcare for Carole to sign • I and IV only • II and III only • II and IV only • I, II, and III only

10. Class 18 Question 9 • Sarah gave her daughter 100 shares of publicly traded stock for which Sarah paid $45,000 five years ago. The stock was worth $100,000 at the time of gift. Sarah had to pay $40,000 in gift tax out of pocket as a result of this gift. • What is the daughter's basis in the property? • $45,000 • $55,000 • $70,581 • $72,850

11. Class 18 Question 10 • Jerri Jacobson owns 67% of the stock in JJAM, Inc., a closely held business. She is the founder, principal product developer, and marketer for JJAM, Inc. The company manufactures food products in a leased building. • Which of the following valuation discounts would her estate be able to claim? • lack of marketability discount • minority discount • blockage discount • key personnel discount • I and III only • I and IV only • II and III only • II and IV only

12. Class 18 Question 11 • Bart’s will directed that half of his probate estate should be paid to a qualified terminable interest property (QTIP) trust. • Bart’s estate can do which of the following? • take a marital deduction for the entire value of this trust • take a marital deduction for the present value of the remainder interest of this trust • take a marital deduction for the present value of the income interest of this trust • allow the entire value of the trust to be taxable • I and II only • III and IV only • II, III, and IV only • I, II, III, and IV

13. Class 18 Question 12 • Which of the following are correct statements concerning a life insurance technique? • Split-dollar life insurance death benefits provided by an employer will not be included in the employee’s gross estate. • Survivorship life insurance can be used to provide funds to pay deferred estate taxes. • Key person life insurance makes the employee the owner of an employer-paid policy on his or her life. • First-to-die life insurance can be used to fund buy-sell agreements between two owners with a minimum number of policies. • I and III only • II and IV only • I, II, and III only • II, III, and IV only

14. Class 18 Question 13 • Hortense placed all of her assets in a revocable living trust. Hortense was the sole income beneficiary and trustee of this trust. Her children are the remainder beneficiaries. • Which of the following statements regarding this trust are correct? • The assets of this trust will be included in Hortense’s gross estate. • The assets of this trust will be included in Hortense’s probate estate. • She has avoided ancillary probate if she owned real property in a state other than the state of her domicile. • The trust assets will be included in her gross estate at their value when the trust was funded. • I and III only • II and IV only • I, II, and III only • II, III, and IV only

15. Class 18 Question 14 • Which of the following are correct statements concerning gift tax deductions allowed to reduce gifts to taxable gifts? • The annual exclusion is available each tax year for a completed gift of a present interest to an unlimited number of donees. • Gift splitting occurs when all gifts made by a married couple to third parties in one tax year are split equally at the election of the donor spouse and with the consent of the other spouse. • A charitable gift tax deduction is limited to a maximum of 50% of the donor’s AGI (adjusted gross income). • The allowable annual exclusion is equal to the lesser of the value of the present interest or a maximum amount that is indexed for inflation. • I and II only • III and IV only • I, II, and IV only • I, III, and IV only

16. Class 18 Question 15 • Jack and Jill purchased a parcel of real estate as tenants in common for $200,000. Jill purchased a 75% interest and Jack purchased a 25% interest. Jill died in the current year and left her 75% interest to Jack by her will. The FMV of the parcel at the time of Jill's death was $280,000. • What is Jack's income tax basis in the property after Jill's death? • $150,000 • $230,000 • $260,000 • $280,000

17. Class 18 Question 16 • Tom would like to plan for his possible mental incompetency, but does not want to “tie up” his assets in trust unless the incompetency actually occurs. • Which of the following techniques would be most appropriate for Tom to use? • standby (contingent) trust • durable springing power of attorney • support trust • pourover trust • I and II only • III and IV only • I, II, and IV only • II, III, and IV only

18. Class 18 Question 17 • Which of the following are deductible to determine the adjusted gross estate for estate tax purposes? • a testamentary transfer to a power of appointment (A) trust • a bequest of a remainder interest in a farm to a qualified charity • the fee paid to the personal representative • unpaid prior year taxes on property in the estate • I and II only • II and III only • III and IV only • I, II, and IV only

19. Class 18 Question 18 • Which of the following are correct statements concerning a buy-sell agreement funded with life insurance? • The business is a party to the contract if a stock (entity) redemption plan is used. • With a cross-purchase plan, the surviving shareholder’s new cost basis is equivalent to his old cost basis plus the purchase price of the deceased shareholder’s interest. • With a stock (entity) redemption plan, premiums paid on life insurance to fund the purchase are taxable income to the shareholders. • Under a stock (entity) redemption plan, the value of the deceased’s business interest is included in his or her gross estate, while the life insurance proceeds used to purchase his business interest are excluded. • I and III only • II and IV only • I, II, and IV only • II, III, and IV only

20. Class 18 Question 19 • Rick Shaw had a will with the following provisions: • I leave my shares in UMT, Inc., to my son, Pete. • I leave the rest and remainder of my estate, including any disclaimed property, to my wife, Cea. • The applicable intestate statute distributes one-half of the intestate estate to the deceased’s surviving spouse and one-half to the deceased’s children on a per capita basis. Rick’s son, Pete, made a qualified disclaimer of the UMT interest. • Which one of the following statements about the implications of Pete Shaw’s qualified disclaimer is incorrect? • There are no federal gift tax implications because Pete is treated as if he had never received the UMT shares from his father, Rick. • One-half of the UMT shares will go to his mother and one-half will escheat to the state. • Pete could not make a legally binding designation of whom should receive the shares he disclaimed. • The UMT shares will be distributed to Rick Shaw’s wife.

21. Class 18 Question 20 • Which of the following are correct pairings of a charitable gifting technique with one of its basic features? • charitable remainder unitrust: invasion of principal to provide a fixed percentage of corpus annually is mandated by the Code • charitable bargain sale: sale to a charity at less than the fair market value; minimizes out-of-pocket cost to the charity • charitable pooled income fund: created and managed by a qualified charity to provide a variable income stream based on investment performance to a noncharitable beneficiary • Charitable stock bailout: an informal redemption by the corporation of shares gifted by a shareholder to a qualified charity to avoid the ordinary dividend income tax treatment that occurs if redemption is directly from the shareholder • I and III only • I and IV only • II, III, and IV only • I, II, III, and IV

22. Class 18 Question 21 • The will of Marie’s deceased husband left her only a modest cash bequest with the balance of his estate to her husband’s longtime attorney. Marie wants to get more of her husband’s estate. • Which of the following might accomplish her objective? • claim a community property interest in certain assets if she and her husband ever lived in a community property state • request payment under her state’s family allowance statute • invoke her state’s ademption statute • initiate a proceeding to contest the will • I and III only • II and IV only • I, II, and III only • I, II, and IV only

23. Class 18 Question 22 • Beatrice made one transfer in each of the last four years as follows. • For which of these transfers was Beatrice required to file a federal gift tax return? • payment of $40,000 to a hospital for a friend’s surgery • a gift of a remainder interest valued at $9,000 • a gift of $20,000 that Beatrice’s husband agreed to split • funded a QTIP trust with $100,000 • I and II only • III and IV only • I, II, and III • II, III, and IV only

24. Class 18 Question 23 • Blythe would like to donate some publicly traded stock that she has owned for many years to charity. She has sought your advice on tax matters. • Which of the following would be correct advice to give Blythe? • Charitable gifts are deductible for income tax purposes up to a maximum of 50% of the donor’s AGI (adjusted gross income) in the year of the gift. • She will be able to take a larger income tax deduction in the year of the gift if she contributes the stock to a private rather than public charity. • She will be able to take a larger income tax deduction if the stock is use-related rather than use-unrelated. • She will be able to take a larger percentage of her adjusted gross income as a tax deduction for the current year if she makes the contribution to a public charity and elects to deduct basis rather than fair market value. • I and II only • I and IV only • II and III only • III and IV only

25. Class 18 Question 24 • Frank N. Earnest made the following lifetime transfers: • Two years ago, he gave a qualified charity the remainder interest valued at $300,000 in his farm, and retained a life estate. • Two years ago, he assigned all incidents of ownership in a life insurance policy on his wife’s life to an irrevocable life insurance trust. • Last year, he made irrevocable the Frank N. Earnest Revocable Trust and paid gift taxes of $55,500. • If he were to die today, which of the following would be correct statements about the impact of Frank’s lifetime transfers on his estate tax liability? • The remainder interest in Frank’s farm that was gifted to charity would increase his adjusted taxable gifts. • Frank’s gross estate would include the $55,500 paid as gift taxes last year. • The date-of-death fair market value of the Frank N. Earnest Trust would be included in Frank’s gross estate. • The death benefit of the life insurance policy would be included in his gross estate. • I and IV only • II and III only • I, II, and III only • II, III, and IV only

26. Class 18 Question 25 • Hazel died. Her will funded a dynasty trust with $5.34 million for her “lineal descendants.” Hazel was survived by all of her children, grandchildren and great grandchildren. • Which of the following statements regarding this trust are correct? • This trust constitutes an indirect skip for purposes of the generation-skipping transfer tax (GSTT). • Hazel can use any unused portion of her applicable credit amount to cover any GSTT liability that cannot be avoided by application of her unused GSTT exemption. • If the trustee makes a distribution to a grandchild or great grandchild while any of Hazel’s children are alive, the recipient skip party will be responsible for any GSTT liability. • Any GSTT liability will be due with Hazel’s estate tax return. • I and III only • II and IV only • I, II, and IV only • I, II, III, and IV

27. Class 18 Question 26 • Don has made a cash gift of $50,000 to Bill on condition that Bill pay the gift tax that will result. Don has used his entire applicable credit amount on other taxable gifts, while Bill has not used any of his. • Which of the following are correct statements regarding this transaction? • This was a net gift transaction. • Bill will get a step-up in income tax basis only if he holds the gifted asset for one year or more. • Bill will be able to use his applicable credit amount in computing the gift tax due. • Don can take an annual exclusion in computing the gift tax due. • I and III only • I and IV only • II and III only • II and IV only

28. CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAMEstate Planning Final Review QuestionsClass 18End of Slides