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Estate Planning for Financial Advisors

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									                           Estate Planning for Financial Advisors
                                      Midterm Exam

Question 1                                                 1 points                                 Save
             Which of the following terms refers to the property of a decedent reverting to his or her
             state of domicile?

                    (A) intestate

                    (B) succession

                    (C) apportionment

                    (D) escheat

Question 2                                                 1 points                                 Save
             Which of the following interests in real property gives the owner of the interest the most
             control over the property?

                    (A) a life estate

                    (B) a remainder interest

                    (C) a retained interest

                    (D) a fee simple estate

Question 3                                                 1 points                                 Save
             A wife owns a $100,000 whole life insurance policy on her husband's life. She has
             named her son as revocable beneficiary. Which of the following statements concerning
             the life insurance is correct?

                    (A) If the husband dies before the wife, the wife will have made a $100,000 gift to
                    her son.
                    (B) The annual premium payments by the wife are gifts to her son.

                    (C) If the husband dies before the wife, the wife will have made a gift to her son
                    equal to the difference between the interpolated terminal reserve and the face
                    amount of the policy.
                    (D) If the wife dies before the husband, the value of the policy will be excludible
                    from her estate.
Question 4                                                 1 points                                 Save
             A wife makes outright gifts of $96,000 to her son, and her husband agrees to split the
             gifts with her. Which of the following correctly states the amount of the taxable gifts?

                    (A) wife-$26,000, husband-$46,000

                    (B) wife-$36,000, husband-$36,000

                    (C) wife-$46,000, husband-$46,000

                    (D) wife-$72,000, husband-$0
Question 5                                                1 points                                 Save
             Which of the following items is a deduction from a decedent's gross estate in determining
             the adjusted gross estate?

                   (A) foreign death taxes

                   (B) state excise taxes

                   (C) claims against the estate

                   (D) the marital deduction

Question 6                                                1 points                                 Save



                     On July 1 of last year, a father gave his daughter a $100,000 ordinary life
                           insurance policy on his life and filed a timely gift tax return. Premiums are
                           paid annually. The pertinent facts concerning the policy are the following:

                       Date of issue:          January 1, 15 years ago
                     Premium paid on January 1 of last year                                    $ 1,600
                     Terminal reserve on January 1 of last year                                10,000
                     Terminal reserve on January 1 of this year                                12,000

                              What is the value of the policy for federal gift tax purposes?

                   (A) $11,000

                   (B) $11,600

                   (C) $11,800

                   (D) $12,000

Question 7                                                1 points                                 Save
             Which of the following statements concerning guardians is correct?

                   (A) A guardian for personal care is called a guardian ad litem.

                   (B) A special guardian can be appointed by the court to protect a minor's rights in
                   a legal proceeding.
                   (C) A guardian named in a deceased parent's will is binding on the court.

                   (D) A guardian receives the legal authority to act from the deceased parent's will.

Question 8                                                1 points                                 Save
             Henry, Harry, and Hobie form a closely held corporation, XYZ Corp. Each one receives
             100 shares of stock. The three shareholders enter into a stock redemption (entity
             purchase) buy-sell agreement so that when one dies, the remaining shareholders can
             continue the business in coequal ownership. If Henry dies prematurely, which of the
             following statements concerning this arrangement is correct?
                   (A) Harry and Hobie now own 150 shares of XYZ.

                   (B) Harry and Hobie are obligated to purchase Henry's shares from his estate.

                   (C) Harry and Hobie continue to own the same number of shares as they did prior
                   to Henry's death.
                   (D) There are 300 shares of stock outstanding in XYZ Corp.

Question 9                                                1 points                                  Save
             A widower made the following cash gifts in the current year:

                     Donee                               Amount of Gift

                                   His daughter                       $15,000
                                   A qualified charity                          20,000
                                   His sister                                     5,000
                                   His brother                                  10,000
                                   His mother                                   25,000
                              The total amount of the taxable gifts made was


                   (A) $16,000

                   (B) $26,000

                   (C) $36,000

                   (D) $75,000

Question 10                                              1 points                                   Save
              Which of the following statements concerning a fiduciary relationship is correct?

                     (A) A guardian of a minor is responsible for the ward personally and for the
                     ward's property.
                     (B) An executor named in the will has a fiduciary relationship with the
                     beneficiaries.
                     (C) A trustee is generally given authority to act by the courts.

                     (D) A trustee may ignore the trust terms since his or her loyalty is to the
                     beneficiaries.
Question 11                                                1 points                                 Save
              Which of the following statements concerning executors is correct?

                     (A) An executor can be given broad and discretionary powers with respect to the
                     management of estate assets.
                     (B) An executor is chosen by the beneficiary of a will shortly after the decedent's
                     death.
                     (C) An executor must be an individual rather than an entity or institution.

                     (D) An executor is answerable only to the beneficiary and not to the court having
                     jurisdiction over the probate of the estate.
Question 12                                                  1 points                               Save
              Which of the following is a gift for federal gift tax purposes?

                     (A) Without compensation a carpenter builds a chicken shed for a neighbor.

                     (B) A valuable oil painting owned by a father is delivered to his son to be
                     displayed at the son's residence with a provision that the painting is to be
                     returned to the father on demand.
                     (C) A father tells his son that he need not pay interest on a $50,000 interest-
                     bearing note evidencing a loan that the father made to his son.
                     (D) A mother promises to give her son her new car as soon as the odometer
                     reads 50,000 miles.
Question 13                                                  1 points                               Save

                       John Jenkins, a widower, made the following gifts last year:
              - $50,000 in cash to his son
              -$15,000 in cash to the American Cancer Society
              -stock worth $20,000 to his grandson (The stock was originally purchased for $10,000.)
              -bonds worth $90,000 to the University of Pennsylvania development fund (The bonds
              were originally purchased for $100,000.)
                                What is the total amount of taxable gifts made by John?


                     (A) $37,000

                     (B) $46,000

                     (C) $129,000

                     (D) $163,000

Question 14                                                  1 points                               Save
              Which of the following statements concerning a testamentary trust is correct?

                     (A) It is an inter vivos trust.

                     (B) It is created by will.

                     (C) It cannot exist for more than 5 years.

                     (D) At its termination the trust property must revert to the grantor.

Question 15                                                  1 points                                                Save

              A father and son have been farming land owned by the father for the past 12 years. Just prior to his death
              the father was offered $1 million for his farm because of its possible use as a shopping center. The son
              would like to continue to farm the land if it can be included in his father's estate at its current-use value.
              Additional facts are as follows:
                                    Average annual gross rentals from nearby farms of similar acreage are $60,000.
                                    Average annual state and local real estate taxes on the farm are $12,000.
                                    The interest rate for loans from the Federal Land Bank is 8 percent.
                      For federal estate tax purposes, the farm-method valuation formula would result in a current-use
                            value for the farm of


                    (A) $400,000

                    (B) $600,000

                    (C) $750,000

                    (D) $850,000

Question 16                                                 1 points                                Save
              Which of the following statements concerning qualified disclaimers of gifted property is
              (are) correct?

              I. The disclaimer must be in writing.

              II. The person making the disclaimer may direct who is to be the recipient of the gifted
              property.

                     (A) I only

                     (B) II only

                     (C) Both I and II

                     (D) Neither I nor II

Question 17                                                 1 points                                Save
              Which of the following statements concerning valuation for gift tax purposes is (are)
              correct?

              I. The value of a life insurance contract is equal to the aggregate gross premium paid,
              regardless of when the contract was gifted.

              II. If blockage exists, a lower gift value is permitted for shares of stock because of the
              effect of dumping a large number of shares on the market at one time.

                     (A) I only

                     (B) II only

                     (C) Both I and II

                     (D) Neither I nor II

Question 18                                                 1 points                                Save
              Which of the following statements concerning wills is (are) correct?

              I. A will may be revoked by the testator prior to his or her death.

              II. An adult child may be disinherited entirely by a parent in most states.

                     (A) I only
                     (B) II only

                     (C) Both I and II

                     (D) Neither I nor II

Question 19                                              1 points                                Save
              Which of the following statements concerning tax apportionment issues in a will is (are)
              correct?

              I. Most state statutes provide for equitable apportionment of taxes, whereby each
              bequest bears the amount of tax it generates.

              II. Planners should make certain that clients carefully consider the sources from which
              tax payments will be made at death.

                     (A) I only

                     (B) II only

                     (C) Both I and II

                     (D) Neither I nor II

Question 20                                                 1 points                                Save
              Which of the following statements concerning valuation of assets for federal estate tax
              purposes is (are) correct?

              I. The date of valuation of an estate is the date of the decedent's death or, if applicable,
              the alternate valuation date, which is 6 months later.

              II. All estate assets are valued at fair market value, which is the value placed on the
              estate assets by the executor with the advice of the attorney for the estate.

                     (A) I only

                     (B) II only

                     (C) Both I and II

                     (D) Neither I nor II

Question 21                                                 1 points                                Save
              Which of the following statements concerning ownership rights is (are) correct?

              I. If one is the legal owner of property, he or she must also be the equitable owner.

              II. A trustee has beneficial ownership of property in his or her care.

                     (A) I only

                     (B) II only

                     (C) Both I and II

                     (D) Neither I nor II
Question 22                                                 1 points                                Save
              Which of the following statements concerning a revocable trust is (are) correct?

              I. It avoids probate.

              II. It enables the grantor to save income taxes.

                     (A) I only

                     (B) II only

                     (C) Both I and II

                     (D) Neither I nor II

Question 23                                              1 points                                Save
              Which of the following statements concerning the marital deduction is (are) correct?

              I. Federal estate tax and state death taxes may be payable from a surviving spouse's
              share of the estate.

              II. Subject to certain qualifying provisions, terminable interests passing to a surviving
              spouse can qualify for the marital deduction.

                     (A) I only

                     (B) II only

                     (C) Both I and II

                     (D) Neither I nor II

Question 24                                                 1 points                                Save
              The failure of an individual to have a will can result in which of the following?

              I. Favorite relatives may be disinherited.

              II. Testamentary gifts to charity cannot be made.

                     (A) I only

                     (B) II only

                     (C) Both I and II

                     (D) Neither I nor II

Question 25                                                 1 points                                Save
              Which of the following terms is (are) relevant to the unauthorized practice of law?

              I. equitable apportionment

              II. escheat

                     (A) I only
                     (B) II only

                     (C) Both I and II

                     (D) Neither I nor II

Question 26                                              1 points                                     Save
              Which of the following statements concerning a valid written will is (are) correct?

              I. A testator's signature must be notarized when the will is executed.

              II. A testator must have testamentary capacity at the time of death.

                     (A) I only

                     (B) II only

                     (C) Both I and II

                     (D) Neither I nor II

Question 27                                                1 points                                   Save
              Which of the following statements concerning property ownership by a married couple
              residing in a community-property state is (are) correct?

              I. Income earned by one spouse becomes community property.

              II. Community property loses its identity when a couple moves from a community-
              property state to a common-law state.

                     (A) I only

                     (B) II only

                     (C) Both I and II

                     (D) Neither I nor II

Question 28                                                1 points                                   Save
              An executor may value assets as of the date of death or the alternate valuation date 6
              months after death. Assuming the executor elects the alternate valuation date, which of
              the following statements is (are) correct?

              I. Property sold by the executor before the alternate valuation date is valued at its
              arm's-length sale price.

              II. Property that has increased in value since the date of death is valued at the alternate
              valuation date.

                     (A) I only

                     (B) II only

                     (C) Both I and II

                     (D) Neither I nor II
Question 29                                                 1 points                                Save
              Which of the following statements concerning federal gift and estate taxes is (are)
              correct?

              I. The donor's gross estate includes the amount of any gift taxes paid by the donor on
              gifts made within 3 years of death.

              II. Gifts made within 3 years of death are brought back into the donor's gross estate.

                      (A) I only

                      (B) II only

                      (C) Both I and II

                      (D) Neither I nor II

Question 30                                                 1 points                                Save
              Which of the following statements concerning state death taxes is (are) correct?

              I. The federal state death tax deduction is allowed only if a federal estate tax Form 706
              return must be filed.

              II. State estate and inheritance taxes are generally imposed at the same rate
              regardless of the relationship of the deceased to the beneficiary.

                      (A) I only

                      (B) II only

                      (C) Both I and II

                      (D) Neither I nor II

Question 31                                                 1 points                                Save
              Important factors in assessing liquidity needs in estate planning include which of the
              following?

              I. the amount and terms of debt of the estate owner

              II. the marital status of the testator

                     (A) I only

                     (B) II only

                     (C) Both I and II

                     (D) Neither I nor II

Question 32                                                 1 points                                Save
              Nontax benefits of lifetime gifts include which of the following?

              I. obtaining privacy that is not possible when testamentary transfers are made

              II. reducing probate and administrative costs
                     (A) I only

                     (B) II only

                     (C) Both I and II

                     (D) Neither I nor II

Question 33                                                 1 points                                 Save
              Which of the following statements concerning an irrevocable trust is (are) correct?

              I. A transfer of property to an irrevocable trust is ineffective for the purpose of reducing
              the grantor's gross estate.

              II. An irrevocable trust is treated as a completed gift for tax purposes at the time of the
              transfer.

                     (A) I only

                     (B) II only

                     (C) Both I and II

                     (D) Neither I nor II

Question 34                                                 1 points                                 Save
              A person dying without a valid will generally loses which of the following capabilities?

              I. the right to name guardians of minor children

              II. the right to name a personal representative

                     (A) I only

                     (B) II only

                     (C) Both I and II

                     (D) Neither I nor II

Question 35                                              1 points                              Save
              Which of the following statements concerning community-property law is (are) correct?

              I. Transmutation is the voluntary change of separate property and community property
              characterization by the community owners.

              II. There is no single uniform community-property system among community-property
              states.

                     (A) I only

                     (B) II only

                     (C) Both I and II
                     (D) Neither I nor II

Question 36                                               1 points                              Save
              All the following statements concerning the grantor-trust rules are correct EXCEPT

                     (A) The taxable income of a grantor trust is taxed to the grantor.

                     (B) The grantor-trust rules are avoided if the grantor's spouse has the power to
                     revoke the trust.
                     (C) The grantor who possesses a reversionary interest valued at 25 percent of
                     the trust must pay the tax on the trust's income.
                     (D) A grantor trust may be created for nontax advantages.

Question 37                                                 1 points                                 Save
              All the following are typical of the stock of a closely held corporation EXCEPT

                     (A) a limited number of stockholders

                     (B) the absence of an exchange listing or regular quotation in the over-the-
                     counter market
                     (C) the lack of restrictions on a shareholder's ability to transfer the stock

                     (D) irregular and limited history of sales or exchanges

Question 38                                                 1 points                                 Save
              All the following are advantages of a buy-sell agreement EXCEPT

                     (A) It binds the IRS to accept the value of the decedent's business interest.

                     (B) It can provide liquidity to a decedent-shareholder's estate.

                     (C) It provides for the continuation of the business.

                     (D) It makes the business more attractive to creditors.

Question 39                                                 1 points                                 Save
              All the following are principles common to fiduciary relationships EXCEPT

                     (A) The fiduciary is under a duty to act for the benefit of the other party to the
                     relationship as to matters within the scope of the relationship.
                     (B) Traditionally, under common law, a fiduciary is under a duty not to delegate
                     the performance of his or her own duties as fiduciary to a third person.
                     (C) As to matters within the scope of the relationship, the fiduciary is under a
                     duty not to profit at the expense of the other party to the relationship.
                     (D) Once a person has been nominated to be a fiduciary, the person must act in
                     a fiduciary capacity until discharged by the court.
Question 40                                                 1 points                                 Save
              All the following statements concerning a will are correct EXCEPT

                    (A) It is irrevocable once executed.

                    (B) It is a legal instrument.
                    (C) It provides for the disposition of property at death.

                    (D) It takes effect after death.

Question 41                                               1 points                              Save
              All the following statements concerning income taxation of estates and trusts are
              correct EXCEPT

                     (A) An estate is a separate tax-paying entity.

                     (B) A complex trust is a separate tax-paying entity.

                     (C) Income distributed by a trust to an income beneficiary of the trust is taxable
                     to the trust.
                     (D) The executor or administrator of an estate is responsible for filing an income
                     tax return.
Question 42                                                 1 points                              Save
              All the following are types of interests in property EXCEPT

                    (A) tenancies in common

                    (B) deeds

                    (C) life estates

                    (D) joint tenancies

Question 43                                                 1 points                              Save
              All the following statements concerning a testamentary trust are correct EXCEPT

                    (A) Its provisions are included in a decedent's will.

                    (B) It saves probate costs.

                    (C) It is revocable until the death of the testator.

                    (D) It becomes irrevocable once it is operative.

Question 44                                                 1 points                              Save
              All the following are advantages of a buy-sell agreement EXCEPT

                     (A) It guarantees the estate tax value of the decedent's interest.

                     (B) It assures a market for the business interest.

                     (C) It provides for business continuation.

                     (D) It makes the business more attractive to creditors.

Question 45                                              1 points                            Save
              All the following statements concerning powers of appointment are correct EXCEPT

                     (A) They must be created by will.
                     (B) The donor is generally the original owner of the property.

                     (C) Exercise may be immediate or may be delayed by design.

                     (D) Appointees may include the donee.

Question 46                                                1 points                                     Save
              All the following are considered real property EXCEPT

                     (A) waste dump

                     (B) large desert cactus

                     (C) vacant storage warehouse

                     (D) residence rental lease

Question 47                                                   1 points                                  Save
              All the following constitute basic elements of a gift for gift tax purposes EXCEPT

                     (A) a transfer for less than adequate consideration

                     (B) valuation on a fair-market-value basis

                     (C) delivery of the subject matter of the gift to the donee

                     (D) acceptance of the gift by the donee

Question 48                                                   1 points                                  Save
              All the following are advantages of the probate process EXCEPT

                     (A) court supervision of executor's activities

                     (B) inventory of estate assets

                     (C) privacy of decedent's will

                     (D) validation of decedent's will

Question 49                                                   1 points                                  Save
              All the following statements concerning property are correct EXCEPT

                     (A) A mortgage on real estate is real property.

                     (B) Crops growing on land are real property.

                     (C) Any property that is not real property is personal property.

                     (D) A bond issue secured solely by the assets of a corporation is intangible
                     personal property.
Question 50                                                   1 points                                  Save
              A man has established a revocable inter vivos trust and has named the trustee the
              beneficiary of all his life insurance policies. His will provides that all of his residuary
              estate will "pour over" to the trust. All the following statements concerning this
              arrangement are correct EXCEPT
                     (A) Probate costs will be eliminated in the administration of the man's estate.

                     (B) Flexibility and discretion in the administration of trust assets can be attained.

                     (C) The trust must be in existence prior to the date the man's will is executed.

                     (D) The trust can provide liquidity in the man's estate.

Question 51                                                 1 points                                Save
              All the following issues are common causes of ethics dilemmas for members of estate
              planning teams EXCEPT

                     (A) confidentiality

                     (B) lack of a code of ethics

                     (C) conflicts of interest

                     (D) compensation

Question 52                                                1 points                                 Save
              All the following testamentary transfers are considered transfers by operation of contract
              EXCEPT

                     (A) A surviving spouse is the beneficiary of a survivor annuity from his or her
                     deceased spouse's pension plan.
                     (B) An irrevocable inter vivos trust is the named beneficiary of a life insurance
                     policy on the decedent's life.
                     (C) A joint securities account becomes the sole property of a surviving account
                     holder at the death of the other joint owner.
                     (D) A surviving spouse receives his or her share of the deceased spouse's
                     estate as determined by a valid antenuptial agreement.
Question 53                                                1 points                                 Save
              All the following statements concerning gifts to minors are correct EXCEPT

                     (A) The gift generally involves some complexity since state laws often restrict the
                     titling of property in the minor's name.
                     (B) The annual gift tax exclusion is unavailable unless the minor receives the
                     property outright.
                     (C) Gifts to a Uniform Transfers to Minors (UTMA) custodial account provide for
                     the outright distribution to the minor at the time the minor reaches the age of
                     majority.
                     (D) Gifts to a Sec. 2503(c) minors trust permit the trustee to accumulate and
                     reinvest income.
Question 54                                                 1 points                                Save
              All the following statements concerning property held by a married couple as tenants by
              the entirety are correct EXCEPT

                     (A) The entire property must be included in the estate of the first to die.
(B) The property passes automatically to the survivor at the time of the first
death.
(C) Each holds an undivided interest in the whole property.

(D) Neither spouse can unilaterally transfer his or her interest.

								
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