Mid-Term Exam

Mid-Term Exam

This is a Mid-Term Exam practice for Estate Planning FIN4330 Finance class, and there are 80 multiple choice questions, please place the right answers for these question in the answer sheet which is last page of the Word document file.

Estate Planning
FIN4330

Mid-Term Exam

Name:_________________________________________

Mid-Term Exam

(13 points each)
1. All the following statements concerning the major steps in the estate planning process are correct EXCEPT:
A. It is necessary to gather data, establish objectives, and rank them in the order of their priority.
B. The selected estate planning technique must be implemented.
C. The estate plan must be monitored for changes.
D. The estate planning technique must be selected to meet all of a client=s objectives.

2. Which of the following statements concerning the role of the financial planner in estate planning is (are) correct?
I The planner can help the client to identify his or her financial problems.
II The planner may offer a legal opinion as to the reliability of the estate plan.
III The planner=s participation in the estate planning process may range from
no involvement to total involvement.
A. I only
B. II only
C. II and III only
D. I and III only

3. Which of the following statements concerning a Will are correct?
I A Will can be altered, amended, or completely rewritten at any time before a person=s death.
II A Will cannot be rewritten but can be amended at any time by a codicil.
III A will must be signed by the maker and usually must be witnessed by two or three people.
IV A Will assures a testator of orderly disposition of his or her property, because the Will is effective as soon as it is signed and witnessed.
A. I and II only
B. I and III only
C. II and III only
D. III and IV only

4. Which of the following Wills may be entirely handwritten and need not be witnessed but may be effective for disposing of the testator=s property?
A. A holographic will
B. A living will

C. A nuncupative will
D. A pour-over will

5. Gary Chapelle owns a duplex with his brother in joint tenancy with right of survivorship. Gary would like to pass his interest in the property to his son, Bill, and Gary has provided in his Will that his interest in the duplex will pass to Bill. Which of the following statements concerning the transfer of Gary=s interest to his son, Bill, is correct?
A. Gary=s interest in the duplex will pass to Bill by operation of law, because the survivorship feature is a Will substitute.
B. Gary=s interest in the duplex will pass to his brother and not under the Will.
C. Gary=s interest in the duplex will pass to Bill under Gary=s Will.
D. Gary=s interest in the duplex will pass first to Gary=s brother and then at his death under Gary=s Will to Bill.

6. Which of the following factors need to be monitored to determine if an estate plan needs to be revised?
I Changes in the client’s estate planning objectives
II Changes in the client’s personal situation
III Changes in the relevant tax or other laws
A. I, II, and III
B. I and II only
C. II and III only
D. I and III only

7. Intestacy is the condition of dying with a will, and testacy is the condition of dying without a will. (True or False)

A. False
B. True

8. Survivorship is a method of receiving property from a decedent through probate, while succession is the method or receiving property by operation of law and outside probate. (True or False)
A. False
B. True

9. Raff created a joint bank account for himself and his friend’s son, Dave. There is a gift to Dave when:
A. Raff creates the account.
B. Raff dies.
C. Dave is notified by Raff that the account has been created.
D. Dave draws on the account for his own benefit.

10. Which of the following represent taxable gifts?
I Transfer of monies to a dependent family member that represents support.
II Payment of son’s tuition to SMU Law School.
III Payment of $10,000 of medical bills to Dr. Jones for a friend.

A. None of the above is a taxable gift.
B. Only I is a taxable gift.
C. Only II is a taxable gift.
D. Both II and III are taxable gifts.

11. Mary made the following gifts:
Gift Donee Value
Cash Son $14,000
6-month certificate of deposit Daughter 6,000
Antique furniture Sister 24,000
Stocks in trust: Life estate Brother 78,000
Remainder Daughter 22,000

Mary’s taxable gifts total:

A. $128,000
B. $114,000
C. $ 96,000
D. $ 86,000

12. Nancy, who is single, made the following gifts:
Paid $12,000 in medical bills for her friend. The payment were paid directly to her friend’s doctor.
$15,000 to her mother to help her with rent and groceries.
$20,000 to her nephew, Tom, to get him started in business.
Nancy also has made a $50,000 interest-free demand loan to her nephew, James. The loan
is still outstanding. The applicable federal interest rate remained constant at 5%.

What is the amount of Nancy’s taxable gifts?
A. $39,000
B. $ 7,000
C. $12,000
D. $10,000

13. Mr. C, a U.S. citizen, made the following gifts:
$15,000 cash to his son; $50,000 to his wife, also a U.S. citizen.
Equipment to his brother (fair market value $12,000; adjusted basis $8,000).
$100,000 cash to City W for construction of a new city park.

Without considering gift-splitting, what is the total of Mr. C’s exclusions and deductions for his gift tax return?
A. $160,000
B. $168,000
C. $174,000
D. $177,000
E. $176,000

14. Blum who is single, gave an outright gift of $50,000 to a friend, Gould, who needed the money to pay medical expenses. In filing the gift tax return, Blum was entitled to a maximum exclusion of:
A. $50,000
B. $22,000
C. $14,000
D. $ 0

15. Mr. C made the following gifts:
$12,000 to a university to pay tuition costs for his niece.
An undeveloped tract of land to his sister that had an adjusted basis to Mr. C of $4,000 and a
fair market value of $25,000.
Various shares of stock to his wife that had an adjusted basis to Mr. C of $15,000 and a
fair market value of $40,000.

Mr. C did not consent to gift-splitting. What is the total amount of taxable gifts?
A. $ 0
B. $27,000
C. $11,000

D. $77,000

16. Mr. C died in the current year. Based on the following facts, compute Mr. C’s gross estate.
In 1993, C gave cash of $50,000 to his friend. No gift tax was paid on the gift.
C held property jointly with his brother. Each paid $30,000 of the total purchase price of $60,000 .
When C died it was valued at $100,000. In 1992, C purchased a life insurance policy on his life
and give it as a gift to his sister. C retained the right to change the beneficiary. Upon C’s death,
his sister received $150,000 under the policy.

In 1985, C gave his son a summer home (fair market value in 1985 – $125,000). C continued to
use it until his death pursuant to an understanding with his son. Fair market value at date of death
was $175,000.

A. $375,000
B. $200,000
C. $250,000
D. $415,000

17. All the following statements concerning the unified estate and gift tax system are correct EXCEPT:
A. The annual exclusion is cumulative and is available for lifetime gifts or testamentary gifts.
B. The applicable credit amount can be used to offset either gift tax liability or estate tax liability.
C. The amount of any adjusted taxable gifts made since 1976 must be added to the taxable estate in computing the estate tax due.
D. An unlimited marital deduction is available under both the gift and estate tax rules.

18. Which of the following statements concerning the unified system of estate and gift taxation are correct?
I Lifetime gifts are taxed at a flat rate, and testamentary gifts are taxed at progressive rates.
II A taxpayer making lifetime taxable gifts may elect to apply the applicable credit amount against those gifts, or the taxpayer can pay gift tax and conserve the credit to offset estate tax liability.
III An estate of $200 million can pass tax-free to the decedent=s spouse.
IV A gift that qualifies for and does not exceed the annual exclusion is not added to the taxable estate as an adjusted taxable gift in computing the estate tax.

A. I and II only
B. I and IV only
C. II and III only
D. III and IV only

19. Which of the following statements concerning differences between the estate and gift tax rules is (are) correct?
I Gift-splitting is permitted with lifetime gifts but not with testamentary bequests.
II The annual exclusion is available to reduce taxable lifetime gifts but not with testamentary bequests.
III The estate tax is tax-exclusive, while the gift tax is tax-inclusive.
A. I only
B. I and II only
C. III only

D. I, II, and III

20. Which of the following statements best describes the Aexemption equivalent@?
A. All lifetime gifts are credited against estate tax liability under the unified tax system.
B. A donor may give $14,000 per person tax-free to as many donees as the donor wishes.
C. An applicable credit amount permits each individual to make lifetime transfers of up
to $5.43 million currently or testamentary bequests of up to $5.43 million currently without payment of estate or gift taxes.
D. Both estate and gift tax rates are progressive.

21. All the following statements describe characteristics of the unified estate and gift tax system EXCEPT:
A. The applicable credit amount may be used by a donor or by the estate.
B. The annual exclusion may be used by a donor or by the estate.
C. The marital deduction may be used by a donor or by the estate.
D. The tax rate on a $100,000 taxable gift is the same as the tax rate on a $100,000 asset in the taxable estate.

22. All the following statements concerning the income tax consequences of a lifetime gift or testamentary gift of property are correct EXCEPT:
A. Lifetime gifts and bequests are not income to the recipients.
B. The donee=s basis in a lifetime gift is the lesser of the donor=s adjusted basis or the fair market value at the time the gift is made.
C. The basis of inherited property is generally the fair market value at the date of death.
D. Both lifetime gifts and testamentary gifts receive a step-up in basis.

23. Jim Haggerty bought 1,000 acres of farmland for $300,000. When his oldest son married, Jim gave him 400 acres for a farm. When Jim died, the remaining 600 acres were divided in Jim=s Will between his two younger sons. The 600 acres had a fair market value at Jim=s death of $600,000. Which of the following statements concerning the sons= basis in the farmland are correct?
I The oldest son will have a basis of $120,000 in the 400 acres.
II The younger sons will have a basis of $180,000 in the 600 acres.
III The younger sons will have a basis of $600,000 in the 600 acres.
IV The oldest son will have a basis of $400,000 in the 400 acres.

A. I and II only
B. I and III only
C. II and IV only

D. III and IV only

24. Which of the following statements concerning the valuation of estate assets for federal estate tax purposes is (are) correct?
I Fair market value on date of death is used most frequently.
II The alternate valuation date would reduce the taxable estate if stock prices increased substantially following the owner=s death.
III The alternate valuation date is used only when estate taxes and value of gross estate will be reduced.
A. I only
B. I and II only
C. I and III only
D. II and III only
E. I, II, and III

25. Which of the following statements concerning valuation of assets for the federal gift tax is correct?
A. Assets placed in a revocable living trust are valued for gift tax purposes as of the date the trust is created.
B. A home placed in joint ownership WROS with the owner=s son will be valued for gift tax purposes as of the date of the owner=s death.
C. For gifts given within three years of death, the valuation is made as of the date of death or six months later.
D. Each gift of shares of stock will be valued separately as of the date of the irrevocable transfer to a donee.

26. For federal estate tax purposes, what is the proper method of valuation for a whole life insurance policy on the life of a person other than the decedent?
A. Replacement cost
B. The gross premium paid
C. The interpolated terminal reserve plus the unearned portion of the most-recently-paid premium
D. The unearned portion of the most-recently-paid premium

27. For federal estate tax purposes, what is the proper method for valuing an established term insurance policy on the life of a person other than the decedent?
A. Replacement cost
B. The gross premium paid
C. The interpolated terminal reserve plus the unearned portion of the most-recently-paid premium
D. The unearned portion of the most-recently-paid premium
28. For federal estate tax purposes, what is the proper method for valuing an established single-premium or paid-up policy on the life of a person other than the decedent?
A. Replacement cost
B. The gross premium paid
C. The interpolated terminal reserve plus the unearned portion of the most-recently-paid premium
D. The unearned portion of the most-recently-paid premium

29. Sam McBuck has an estate of $10 million and would like to leave it to his nephews. The property in Sam=s estate includes the following assets:
– An apartment building in downtown New York that Sam owns with three partners, each of whom wants to buy Sam=s interest.
– 500 shares of MegaSounds, Inc., which represents a one-third interest in this closely-held corporation.
– 5,000 shares of General Motors stock.
– A joint survivor annuity with each of his three nephews; each annuity pays Sam $6,000 per month and will pay each nephew $4,000 per month after Sam=s death.

At Sam=s death, which of the following valuation methods is most likely to reduce the value of his gross estate?
A. The alternative valuation date, because the annuities are declining in value with each passing month.
B. The blockage discount, because the sale of the General Motors stock is likely to depress the price.
C. The lack of marketability discount, because of the partial interest in the apartment building.
D. The minority discount, because Sam owns less than a controlling interest in MegaSounds, Inc.
30. What is the tax effect of a lapse of a “crummey” withdrawal power?
I Lapse will result in a gift tax.
II Lapse results in gift tax only if value of property not appointed was in excess of $5,000 or 5% of the total value of the property subject to the power.
III Lapse is treated like a release and not an exercise of a power; thus it is nontaxable.
A. I only.
B. I and II only.
C. III only.
D. II only.

31. AS@, a widower, age 65, makes the following gifts: (a) $82,000 of listed securities to his son, (b) $17,000 cash to his daughter, (c) $6,000 to his granddaughter, and (d) $14,000 to his church. What is the amount of AS=s@ taxable gifts?
A. $63,000
B. $71,000
C. $77,000
D. $83,000

32. In Question 31, assume that AS@ has remarried when he makes the four gifts. What would be the value of the taxable gifts made by AS@ and his wife, if she joins in the gifts?
A. Zero
B. $54,000
C. $71,000
D. $96,000

33. For which of the following gratuitous transfers must a gift tax return be filed?
A. A contribution to a political organization
B. Payment to another person=s legal fees
C. Payment of another person=s hospital bills
D. Payment of educational tuition for another person

34. Richard Poore gave gifts of $30,000 each to his church, his wife, his son, and his mother. Poore also created a trust for his wife with a life income interest valued at $175,000, and his daughter was to receive the remainder interest valued at $7,000. What is the total amount of the annual exclusions used by Richard Poore?
A. $11,000
B. $33,000
C. $56,000
D. $44,000

35. All the following items will be included in AM=s@ gross estate at his death EXCEPT:
A. Municipal bonds exempt from federal income taxes.
B. One-half the value of the residence he owns in joint tenancy with Mrs. AM@.
C. The right to the income for his lifetime derived from a Kansas wheat farm willed to AM@ by his father.
D. A general power of appointment over trust property.
E. A $100,000 life insurance policy owned by AM@ and payable to his wife under a lump sum settlement arrangement.

36. Knowing death was imminent, AX@, a widower, gave $5,000 to each of his four children only a few months before his death. What dollar value would be included in AX=s@ gross estate for these gifts made in contemplation of death?
A. Zero
B. $12,000
C. $16,000
D. $20,000

37. AH@ gave $30,000 cash to his son two years ago, a $50,000 life insurance policy to his sister one year ago, and $6,000 cash to his wife five years ago. He made no other lifetime gifts. AH@ died yesterday. Under these circumstances, which of the following would be included in AH=s@ gross estate?
A. $10,000 of the gift to AH=s@ son
B. The $30,000 gift to his son
C. The life insurance gift to his sister
D. The $30,000 gift to his son and the life insurance gift to his sister

38. AX@, a widower, made a cash gift to his son of $1,000,000 two years before he died and paid a $345,000 gift tax. What is included in his gross estate?
A. $172,500
B. $345,000
C. $1,000,000
D. $1,345,000

39. By the terms of his Will, AK@ gave his wife the right to live in their home until her death. AK=s@ daughter by a former marriage was to have the property upon Mrs. AK=s@ death. Under these circumstances, which of the following statements is correct?
A. The property would be included in Mrs. AK=s@ gross estate.
B. The property will be excluded from AK=s@ gross estate

C. Mrs. AK@ has a contingency interest in the property.
D. Mrs. AK=s@ interest terminates at her death.

40. AR@, age 70, placed $100,000 of securities in an irrevocable trust to provide a lifetime income for his sister, age 60. For purely sentimental reasons, AR@ provided that the securities were to be returned to him if his sister failed to survive him. As expected, AR@ died several years before his sister. Why might the IRS include the value of the securities in AR=s@ gross estate?
A. Because AR@ lived beyond his life expectancy.
B. Because AR=s@ reversionary interest is valued at greater than 5%.
C. Because of the present value of the income in respect of a decedent.
D. Because AR@ had the right to specify who will possess or enjoy the income from the securities.

41. AK@ has funded a trust with $300,000 of listed common stocks. AK=s@ three children are to share equally the trust income for their lifetimes. Any corpus remaining at the death of the three children is to go to their issue per stirpes. AK@ retained the right to terminate the trust at any time. Under these circumstances, which of the following statements is (are) correct?
I If AK@ should die today, none of the corpus would be included in his gross estate.
II If any one of the three children should die today, none of the corpus would be included in his or her gross estate.
A. I only
B. II only
C. Both I and II
D. Neither I nor II

42. During the twenty-year period, AA@ and Mrs. AA@ bought and paid for their home exclusively out of AA=s@ earnings. They own the fully-paid-for home now, as joint tenants with right of survivorship. They did not treat AA=s@ payments as a gift to Mrs. AA@. If $130,000 is the value of the home, which of the following statements is correct? (Assume this is a noncommunity property state.)
A. If Mrs. AA@ dies first, $130,000 would be included in her gross estate, if it could not be shown AA@ contributed to the purchase price.
B. If AA@ dies first, only $65,000 would be included in his gross estate.

C. At the moment of death, AA@ will be considered to have made a taxable gift of $65,000 to Mrs. AA@.
D. Since AA@ paid for the house, its full value will be included in his estate, regardless of who dies first.

43. Bill Jones and his brother, both unmarried, purchased an apartment house in joint tenancy with right of survivorship. Bill paid the entire purchase price of $200,000. His brother managed the apartment. At Bill=s death, the apartment was valued at $400,000. Under these circumstances, what is includible in Bill=s gross estate?
A. $100,000
B. $200,000
C. $300,000
D. $400,000

44. Mary willed an apartment house to her husband, Fred, in trust with income payable to Fred for life. The terms of the trust provided that Fred could appoint the property in his Will to any of their five children. Under these circumstances, which of the following statements is (are) correct?
I Fred has a general power of appointment.
II The value of the apartment will be included in Fred=s gross estate.

A. I only
B. II only
C. Both I and II
D. Neither I nor II

45. Which of the following is a general power of appointment for federal estate tax purposes?
A. Power exercisable in favor of the holder for support in the holder=s accustomed manner of living.
B. Power exercisable only in the favor of creditors of the holder=s estate and to the holder=s estate.
C. Power exercisable in favor of the holder for the holder=s health, maintenance, and support.
D. Power exercisable in favor of the holder only with the consent of the power=s creator.
E. Power exercisable in favor of the holder for support in reasonable comfort.

46. Proceeds of a life insurance policy payable to the estate’s executor, as the estate’s representative, are:
A. Includible in the decedent’s gross estate only if the premiums had been paid by the insured.
B. Includible in the decedent’s gross estate only if the policy was taken out within 3 years of the insured’s death under the “contemplation of death” rule.
C. Always includible in the decedent’s gross estate.
D. Never includible in the decedent’s gross estate.

47. In connection with a “buy-sell” agreement funded by a cross-purchase insurance arrangement, business associate Adam bought a policy on Burr’s life to finance the purchase of Burr’s interest. Adam, the beneficiary, paid the premiums and retained all incidents of ownership. On the death of Burr, the insurance proceeds will be:
A. Includible in Burr’s estate if Burr owns 50% or more of the stock in the corporation.
B. Excludible from Burr’s gross estate.
C. Includible in Burr’s estate if Adam has the right to veto Burr’s power to borrow on the policy that Burr owns on Adam’s life.
D. Includible in Burr’s estate only if Burr purchased similar policy on Adam’s life for the same purpose.

48. Which type of minor’ trust requires income distributing annually in order to qualify for the annual exclusion?
A. Crummey Trust
B. 2503(c)
C. 2032A
D. 2503(b)

49. John and Mary are in the process of divorce. If John transfers a $50,000 whole life policy on his life to Mary as part of their property settlement, are there any income tax implications to either party?
A. Yes, when the policy matures at John’s death, Mary will have to recognize income since the policy was transferred for valuable consideration (i.e., other assets conveyed to John).
B. Yes, $25,000 since spouse is deemed to own one-half under IRC 2040(a).
C. No, because insurance benefits are income tax free.
D. No, transfer for value exception applies.

50. John has AIDS and sells a $20,000 paid up policy on his life to Jim for $4,000 which is equal to its cash surrender value to be able to pay for some medical payments. John dies 2½ years later. What amount, if any, is Jim’s income tax exposure?
A. $20,000 due to transfer for value rule.
B. $20,000 due to 3-year inclusive rule.
C. $16,000 = $20,000 less $4,000 cash value Jim bought policy for.

51. Which of the statements concerning the historical aspects of estate planning is correct?
A. Under AOld English@ common law, the term Aestate@ referred primarily to an interest in land.
B. The Code of Hammurabi is the very first example of a will.
C. Most ancient testamentary disposition schemes favored female lineal descendants.
D. The civil-law system is based on the same precepts as the common-law system.
52. Under his father’s will, Craig has been given the exclusive use and possession of his father’s farm for Craig’s lifetime. When Craig dies, the farm will be transferred to the beneficiary named under his father’s will. Which of the following statements concerning Craig’s life estate is correct?

A. Craig owns the largest, most complete interest in this property
B. Craig holds the property in the fee simple form of ownership
C. Craig has been given an estate for a term of years
D. Craig owes certain duties to the remainder person regarding the property

53. Cathy is given property for life. After Cathy’s death, Mike will receive his interest in the property only if he survives Cathy. If Mike dies before Cathy, the property will go to Nancy at Cathy’s death. Which of the following statements concerning this arrangement is correct?

A. Nancy has a contingent remainder interest in the property.
B. Mike has an indefeasibly vested life estate in the property.
C. Nancy has a present legally enforceable right to possess and enjoy the property in the future.
D. Cathy has a fee simple absolute interest in the property.

54. Which of the following transactions is a gift for gift tax purposes?

A. Someone purchases a bond and titles it jointly between the purchaser and another.
B. A father lends his son a substantial amount of money and takes back a note from the son.
C. A creditor tears up a debtor’s note in return for services rendered by the debtor.
D. The author of a new book gives his son the right to future royalties.

55. On January 1, 2011, a father gave his son a $150,000 straight (ordinary) life insurance policy on his life. Premiums are paid annually. The pertinent facts about the policy are as follows:

Date of issue: July 1, 1992

Premium paid on July 1, 2010 $ 2,200
Terminal reserve on July 1,2010 14,000
Terminal reserve on July 1,2011 17,000

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

A. $15,100
B. $15,500
C. $16,600
D. $150,000

56. Which of the following statements concerning fiduciaries is correct?

A. Trustees are required to account regularly to a court.
B. All fiduciaries derive their powers from statutory law.
C. Executors are discharged from their fiduciary duties by the estate beneficiaries.
D. Trustees’ fiduciary duties and powers continue until termination of the trust.

57. Hansel placed a rental property he owns in trust under the following terms. The income from the trust is to be provided for Hansel’s wife, Gretel, for life, and at her death Gretel is given the power to appoint the property to any of Hansel and Gretel’ s children then living. Which of the statements concerning this arrangement is correct?

A. Gretel holds a general power of appointment.
B. The power will lapse if Gretel fails to exercise the power in her will.
C. The children are contingent donees of the power.
D. Gretel is the donor of the power since she can pass the property to the children.

58. A widow dies leaving a net probate estate of $900,000. At the time of her death, her descendants are as follows:

A son, Mark, who has one child, Terri
A daughter, Claire, who has no children
A deceased daughter, Helen, who is survived by three children, Jennifer, Matthew, and Chad

Assuming that the widow’s will provides for the distribution of her assets per stirpes, which of the following correctly states the amounts each descendant will receive?

A. $150,000 to Mark, $150,000 to Terri, $150,000 to Claire, $150,000 to Jennifer, $150,000 to Matthew, and $150,000 to Chad

B. $300,000 to Mark, $300,000 to Claire, $100,000 to Jennifer, $100,000 to Matthew, and $100,000 to Chad
C. $450,000 to Mark and $450,000 to Claire
D. $225,000 to Terri, $225,000 to Jennifer, $225,000 to Matthew, and $225,000 to Chad

59. Husband makes outright gifts of $230,000 to his son, and his wife agrees to split the gifts with him. Which of the following correctly states the amount of the taxable gifts?

A. husband $109,000, wife $109,000
B. husband $114,000, wife $114,000
C. husband $101,000, wife $101,000
D. husband $206,000, wife 0

60. A mother bought a vacation home for $90,000 and gave it to her daughter when it was worth $250,000. The mother paid no gift tax on the transfer. Three years after the gift, when the daughter sold the vacation home for $310,000, her income tax basis was

A. 0
B. $90,000
C. $250,000
D. $310,000

61. A widower made the following cash gifts in one tax year:

Donee Amount of Gift

A qualified charity $30,000
His best friend 50,000
His brother 10,000
His nephew 15,000
His daughter 25,000
The widower’s total amount of taxable gifts made was

The widower’s total amount of taxable gifts made was

A. $48,000
B. $57,000
C. $76,000
D. $130,000

62. Which of the following statements regarding gift splitting is/are true?

I. The annual gift tax exclusion allows spouse who consent to split their gifts to
transfer up to $28,000 to any one person during any calendar year without gift
tax liability if the gifts are of a present interest.
II. To qualify for gift splitting, a couple must be married at the time the gift is made.
III. For gift tax purposes, a husband and wife must file a joint income tax return to
qualify for the gift-splitting benefits.
IV. Both spouses must consent to the use of gift splitting and at least one gift tax
return must be filed.

A. I only
B. I and II
C. I, II, and IV
D. II, III, and IV
E. I, II, III, and IV

63. Which of the following statements concerning the fact-finding stage of the estate planning process is (are) correct?

I In gathering facts and information, only objective information need be elicited
from the client.
II. Sending a client a fact finder to fill out alone is the recommended data- gathering process.

A. I only
B. II only
C. Both I and II
D. Neither I nor II

64. Which of the following statements concerning the taxation of a decedent’s property is (are ) correct?

I. Real estate is taxed solely by the decedent’s state of domicile.
II. Any state with a reasonable connection to a decedent’s intangible personal property may be able to tax its value.

A. I only
B. II only
C. Both I and II
D. Neither I nor II

65. Under a deceased parent’s will, three adult children inherited property equally. One child is wealthy and wishes to disclaim her share of the inheritance so that it will pass to her brother and sister without incurring any gift tax liability .Which of the following statements concerning the daughter’s disclaimer is (are) correct? J

I. The daughter must make the disclaimer within 9 months of her parent’s death.
II. The disclaimer must be in writing and expressly specify that the disclaimed property is to go to her brother and sister.

A. I only
B. II only
C. Both I and II
D. Neither I nor II

66. For transfers by gift, one must file a gift tax return (Form 709) for which of the following?

A. A transfer of a present interest in property that is less than the annual exclusion.
B. A qualified transfer for educational or medical expenses.
C. A transfer to one=s spouse that qualified for the unlimited marital deduction.
D. A transfer of $18,000 to a son for which one=s spouse has agreed to gift splitting.
E. A transfer of $11,000 by a father to his son.

67. Which of the following statements concerning the federal gift tax is (are) correct?

I. It is levied on the recipient’s right to gratuitously receive property from another.
II. It was designed to equalize the transfer tax treatment between taxpayers making lifetime transfers and taxpayers transferring assets at death.

A. I only
B. II only
C. Both I and II
D. Neither I nor II

68. The Internal Revenue Service uses which of the following methods of valuing a closely held business for federal estate tax purposes?

I. over-the-counter market method
II. goodwill measurement method

A. I only
B. II only
C. Both I and II
D. Neither I nor II

69. Which of the following statements concerning the federal estate tax is (are) correct?

I. It is a tax levied on a decedent’s privilege to accumulate property.
II. It is a tax levied on a beneficiary’s right to inherit property.

A. I only
B. II only
C. Both I and II
D. Neither I nor II

70. Which of the following statements concerning the ownership of real property as joint tenants with right of survivorship is (are) correct?

I. If the joint tenants are mother and son and the son contributed all the funds to
purchase the property, one-half of the property’s value will be excluded from the
mother’s estate if she dies first.
II. If the joint tenants are married to each other and the wife contributed all the funds to purchase the property, the entire value of the property will be in the wife’ s estate if she dies first.

A. I only
B. II only
C. Both I and II
D. Neither I nor II

71. All the following statements concerning the unauthorized practice of law are correct EXCEPT

A. The line between the unauthorized practice of law and other advice is sometimes quite
fine.
B. There is no really definitive answer to exactly what constitutes the unauthorized practice of law.
C. Knowledge of the law will in many situations allow someone other than a lawyer to give legal advice.
D. A nonlawyer may give advice on a settled area of law that is a matter of common knowledge without committing the unauthorized practice of law.

72. All the following statements concerning the categorization of property are correct EXCEPT

A. All property is either real or personal property.
B. A deed to land is real property.
C. A mobile home permanently attached to the land is real property.
D. All intangible property is personal property.

73. All the following statements concerning adequate and full consideration in money or money’s worth are correct EXCEPT

A. The relinquishment of marital rights may constitute consideration in money or money’s worth.
B. Transfers pursuant to compromises of bona fide legal disputes may constitute adequate and full consideration.
C. Transfers made pursuant to moral obligations usually constitute consideration in money or money’s worth.
D. Transfers in satisfaction of the right to support the transferor’s minor children may constitute consideration in money or money’s worth.

74. All the following statements concerning charitable trusts are correct EXCEPT
A. A charitable trust may be created for an unlimited duration.
B. The basic objective of a charitable trust is to benefit society in some manner.
C. Under current law the doctrine of cy pres is applied to all charitable trusts.
D. The attorney general of a state is empowered to enforce charitable trusts.

75. Transfers at death by operation of law include all the following EXCEPT

A. life insurance proceeds
B. intestacy
C. family allowance
D. joint tenancy with right of survivorship

76. A person dying without a will loses all the following rights EXCEPT the right to

A. make testamentary charitable contributions
B. choose the person(s) to administer the estate
C. specify a marital deduction formula
D. pass property to close family members

77. Believing that his death was imminent, a widower gave his son some land 2 years ago and filed a timely gift tax return. The-widower died on January 1 of this year. The additional facts are

Widower’s basis in the real estate $ 500,000
Value of the land when gifted $ 1,250,000
Value of the land on date of death $ 2,100,000
Amount of gift tax paid by widower $ 448,300

Assuming the widower made no additional gifts to his son, all the following statements concerning this situation are correct EXCEPT

A. The gift of the land is included in the calculation of the widower’s federal estate tax as an adjusted taxable gift.
B. The gift tax paid is brought back into the widower’s gross estate at $448,300.
C. The widower recognized no gain for income tax purposes at the time the gift
was made.
D. The son’s income tax basis in the real estate is $2,100,000.

78. Jack died last month. All the following gratuitous property transfers made by Jack will be included in Jack’s gross estate for federal estate tax purposes EXCEPT

A. the value of stock Jack gifted to his daughter 2 years before his death
B. the value of an apartment building subject to a general power of appointment that Jack possessed at death
C. the value of a gratuitous lifetime transfer of property in which Jack retained the right to receive income from the property for his life
D. the value of property Jack transferred to an irrevocable trust 6 years ago and in which Jack retained the power to vary the donee’s shares of property
79. All the following powers held by a grantor of an irrevocable trust will cause the trust assets to

79. All the following powers held by a grantor of an irrevocable trust will cause the trust assets to be brought back into the grantor’s estate for federal estate tax purposes EXCEPT
A. the power to add to the principal of the trust
A.
B. the power to change the beneficiaries’ amounts of trust income
C. the power to terminate the trust
D. the power to change the trust remainderpersons
80. Estate tax considerations concerning spousal joint tenancies with right of survivorship

80. Estate tax considerations concerning spousal joint tenancies with right of survivorship generally include all the following factors EXCEPT the

A. age difference of spouses
B. health of each spouse
C. amount of each spouse’s contribution
D. size of each spouse’s separate estate

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