Karen, age 58, recently visited her attorney to discuss the appropriate estate planning documents
1. Which of the following types of Special Needs Trust in Ohio do not require a“payback” to the State of Ohio at the death of the Special Needs Trust Beneficiary?
a) Supplemental Services Trust.
b) Pooled Trust.
c) Discretionary Special Needs Trust.
d) Special Needs Trust known as a (d)(4)(a) Trust?
Use the following scenario to answer questions 2 through 5.Karen, age 58, recently visited her attorney to discuss the appropriate estate planning documents she needed to effectuate her estate planning goals. Given the followinggoals, which document is appropriate to effectuate the goal? Each document may beused more than once.a) Do Not Resuscitate order.b) Last Will and Testament.c) Living Will.d) Power of Appointment.e) Power of Attorney for Health Care.f) Power of Attorney.g) Side Instructional Letter.Answer Question Goal2. To clarify Karen’s burial wishes.3. To give Karen’s husband, Teddy, the ability to gift Karen’sassets to himself after her death.4. To deny being placed on an artificial breathing machine ifKaren is terminally ill.5. To direct and provide for the future care of her minor child,Josh, in the event of her death.6. Donald has created a trust for the benefit of his three nephews, Huey, Dewey, andLouie, who are all minors. Donald plans on making annual contributions to the trust. Donald would like at least some of his annual contributions to the trust to qualify forthe annual exclusion. What would be the best way to accomplish this goal?A. Donald should make sure that he does not contribute more than $14,000 foreach nephew, or $42,000 in total, each year.B. Donald should give his nephews an unlimited ability to remove funds from thetrust.C. Donald should give his nephews the right to remove some or all of the annualcontribution from the trust for a limited period of time.D. Donald’s annual contributions to the trust will not qualify for the annualexclusion under any circumstances.7. This year, Dottie donated $10,000 in cash to her church and she also donated medicalsupplies with a fair market value and adjusted basis of $20,000 to the Red Cross. Dottie’sAGI for this year is $50,000. What is Dottie’s charitable income tax contributiondeduction for the year?(a) $10,000.(b) $20,000.(c) $25,000.(d) $30,000.8. Each of the following is an allowable credit against the federal estate tax except:A. Unified credit.B. Marital deduction.C. Foreign death tax credit.D. Prior taxes paid credit.E. All are credits against the federal estate tax.9. Which of the following statements is correct regarding Federal bankruptcy andinherited IRA’s?A. Inherited IRA’s are not retirement accounts.B. Inherited IRA assets are excludible under ERISA from the bankruptcy estate.C. Inherited IRA assets up to $1Million (as indexed) are exempt in bankruptcy.D. Inherited IRA assets are exempt in bankruptcy if needed for support.10. Assume that Decedent’s mother predeceases her and in addition to the brokerageaccount valued at $200,000 owned as a tenancy-in-common with her daughter, and the $1million life insurance policy owned on her daughter which has a replacement value of $300,000, mother has a life estate in a piece of real estate which is valued at $700,000.What is the value of mother’s gross estate?A. $ 100,000B. $ 200,000C. $ 400,000D. $1,900,00011. Under the three (3) year date of death rule, which of the following transfers ofproperty made within three (3) years of the decedent’s death will be included in thedecedent’s gross estate.I. All gifts made within three (3) years of death.II. All annual exclusion gifts made within three (3) years of death.III. All sales of real estate made within three (3) years of death.A. I onlyB. I and IIC. I and IIID. I, II, and IIIE. None of the transfers are subject to inclusion.12. Which statement best describes what a gift for gift tax purposes?A. Any transfer of property made from a donor to a donee.B. Any sale of property for fair market value.C. A gratuitous transfer of property for less than full and adequate consideration.D. An alimony payment.Questions 13 – 1513. John dies with an estate valued at $3 million which is comprised of the followingassets: $1 million home; $1 million IRA; and $1 million of cash. John’s wife is theowner and the beneficiary of a $1 million insurance policy on John’s life. The ASPCA isthe beneficiary of John’s IRA. John’s will provides that upon his death, ½ of his assetswill pass to his wife, with the remaining assets passing to the ASPCA. John dies in 2006.What is the value of the marital deduction allowed to John’s estate?A. ZeroB. $1,000,000C. $1,500,000D. $2,000,00014. What is the value of John’s charitable deduction?A. ZeroB. $1,000,000C. $1,500,000D. $2,000,00015. What credits are available to reduce John’s estate tax liability?I. Marital deduction. II. Charitable deduction.III. Administration expenses. A. I and II B. III only C. I, II and III D. None of the above.16. With respect to the gift tax annual exclusion in 2016, which statement is true?A. A donee may receive a total of $14,000 on an annual basis from all donors.B. Use of the annual exclusion within 3 years of the donor’s death will cause the gift tobe included in the donor’s gross estate.C. The annual exclusion is not in addition to the lifetime gift tax unifed creditapplicable exclusion amount.D. Allows a person to transfer this amount gift tax free to any number of beneficiarieson an annual basis.17. Which of the following statements is true concerning “split gifts”?A. Allows the utilization of twice the annual exclusion only by spouses if an election ismade.B. Allows the utilization of twice the annual exclusion by spouses requiring noelection.C. Allows the utilization of twice the annual exclusion by unrelated parties if anelection is made.D. Allows the utilization of twice the annual exclusion by related parties as long as anelection is made.18. Which of the following is true with respect to the valuation of a gift?I. No valuation discounts are allowed.II. An alternate valuation date may be used.III. The value is based is the FMV of the asset on the date the donor decides tomake the gift. A. I and III B. II and III C. III only D. All of the above. E. None of the above.19. Testator has had a change of heart and would like to change his will so that all of hisassets will pass to his wife. What is the best method by which the Testator can changehis will?A. Tell his wife.B. Cross out the section he wants changed within the will and insert the correction.C. Codicil to the will.D. Move to another state.20. Which of the following are characteristics of a qualified disclaimer?1)It may not direct the bequest to another person selected by the disclaimant. It must bereceived by the executor of the estate within 9 months of the death of the decedent.2)It must be written and irrevocable.3)The disclaimant may disclaim a part of an asset. (a) 1 and 2.(b) 1, 2 and 3.(c) 1, 3 and 4.(d) 1, 2, 3 and 4.21. Which of the following statements concerning the ownership of real property asjoint tenants with right of survivorship is (are) correct?I. If the joint tenants are mother and son and the son contributed all thefunds to purchase the property, one-half of the property’s value will beexcluded from the mother’s estate if she dies first.II. If the joint tenants are married to each other and the wife contributed allthe funds to purchase the property, the entire value of the property willbe in the wife’s estate if she dies first.(A) I only(B) II only(C) Both I and II(D) Neither I nor II22. Kevin transferred $4,000,000 to a GRAT naming his four children as theremainder beneficiaries. Kevin retained an annuity from the GRAT valued at $1,500,000.If this is his only transfer during the year, what is Kevin’s total taxable gifts for the year?(a)$1,456,000.(b)$1,500,000.(c)$2,456,000.(d)$2,500,000.23. Which of the following transfers at death will be administered through probatecourt?(A) life insurance proceeds(B) transfers of property from a living trust(C) property owned “fee simple” by the decedent(D) property owned joint tenancy with right of survivorship24. Client creates an inter vivos revocable trust of which the client is the Grantor,Trustee and the lifetime beneficiary. Which of the following estate planning objectivesof the client can be satisfied?I. Avoid probate.II. Remove assets from the estate.III. Provide a unified method of managing and distributing assets duringlifetime and after death.IV. Protect assets from the Grantor’s creditors.A. I and IVB. II and IVC. II and IIID. I and IIIE. None of the above.25. Kent, age 38, recently came to you for estate planning advice. He has never executedany estate planning documents. During the client interview, you learned that Kent hasnever been married and has a six-year-old daughter, Kerstin, with his previous girlfriend,Karen. Karen is Kerstin’s custodial parent and Kent sees Kerstin every other weekend.While Kent and Karen are cordial, the relationship was recently strained when Karenbegan dating Kent’s business partner, Bobby. Kent is in good health and participatesregularly in automobile racing competitions. While Kent often wins in competitions, hehas wrecked his car several times and has been seriously injured. Because Kent has hadso many wrecks, he invested a majority of his $500,000 net worth in a closely heldcompany to develop a revolutionary steel product that will not bend, crumble or catchfire. Kent and his business partner, Bobby, are sure that all race car companies will buythe steel product because their initial tests established that nine out of ten times a carmade with the product that was in a wreck did not even get a dent. Although they plan totake their product to market in a few months, Kent and his partner have had severaldisagreements. Which of the following statements is true?(a) If Kent died today, there would not be any liquidity issues because Kent’sshare of the closely held company could easily be sold for fair market value.(b)Since the value of Kent’s net worth is below $5,000,000, there is no need forestate planning.(c)Amounts given to Karen for Kerstin’s support are deductible on Kent’s incomeor gift tax return.(d)If Kent were to die today, his assets would transfer via state intestacy laws withKerstin being the most likely heir.26. A client dies with a will instructing that all assets pass to the surviving spouse.Which of the following assets will pass to the surviving spouse under the provisions ofthe will?A. Decedent’s $500,000 IRA with the wife named as the beneficiary.B. Decedent’s $1 million life insurance policy with the decedent’s “Estate”named as the beneficiary.C. The $750,000 home decedent owned as a tenancy-by-the-entirety with hiswife.D. None of these assets will pass under the provisions of the will.E. All of these assets will pass under the provisions of the will.27. Nate owns the following property:• A personal residence titled fee simple valued at $500,000.• A $500,000 life insurance policy on his own life. The only named beneficiary isNate’s brother Jaime, who died 6 months ago leaving two children, Michael andKristi.• A car valued at $15,000 titled JTRWROS with Nate’s mother.• An IRA valued at $400,000 with Nate’s mother as the named beneficiary.What is the value of Nate’s probate estate?A. $500,000.B. $1,000,000.C. $1,400,000.D. $1,415,000.28. Which of the following is/are always true about wills?I. A will transfers all of the decedent’s assets.II. A will only takes effect when the decedent dies.III. A will names an Administrator for the estate.A. I and II onlyB. II and III onlyC. II onlyD. I, II and III29. David and Rebecca have been talking about getting married. In June 2014, Davidpops the question and gives Rebecca a $30,000 engagement ring. They marry in Octoberof 2015 at which time David transfers $100,000 into Rebecca’s checking account. Whatis the value of David’s marital deduction for gift tax purposes in year 2015? A. $ 14,000 B. $ 86,000C. $ 100,000D. $ 116,00030. Bill and Joanne Ames have a child, John, who has Autism. John has never workedand his parents have asked your assistance in applying for social security benefits nowthat John has turned 18 years old. For income purposes you tell them to apply for whichof the following programs?A. MedicaidB. MedicareC. Supplemental Security Income (SSI)- Title XVID. Social Security Retirement Benefits (SSA)- Title II, 42 U.S.C. Sec 402 to 43131. Joe and Sally King, have an Adjusted Gross Estate of $10,000,000. They have adisabled child, Susan, and two other children, Amy and Fred, who have no SpecialNeeds. Susan is currently receiving Medicaid benefits. They are creating an IrrevocableLife Insurance Trust for the benefit of their children. Their Financial Planner told themthat if they owned life insurance in their own names, the face value would be subject toFederal Estate Tax at their deaths. Their ILIT trustee will purchase a “Survivor Life”policy that will be payable to a Special Needs Trust for Susan at their deaths, and also togeneral needs trusts for their two other children. Which of the following statementsconcerning this strategy is correct?A. If Susan’s share of the life insurance proceeds are payable to a special needstrust for her benefit, she will still qualify for Medicaid because the specialneeds trust is not a countable resource.B. If Susan’s share of the life insurance proceeds are payable to a special needstrust for her benefit, she will not qualify for Medicaid because the specialneeds trust is a countable resource.C. If Fred and Amy are the only beneficiaries, Susan will still be disqualifiedfrom Medicaid because the government will know that the Kings are trying to“get around” the system.D. None of the above statements are correct.32. Ken and Jennifer Mac have donated appreciated real estate valued at $1,000,000to a charitable remainder trust. Which of the following tax benefits are available tothem as a result of their gift?A. Ken and Jennifer receive an income tax deduction against current incomeequal to the value of the gift minus the present value of their income interest.B. Ken and Jennifer pay no capital gains tax when the real estate is sold by thetrustee of the charitable remainder trust.C. Ken and Jennifer pay no estate tax on the remainder interest which passesto charity at their deaths.D. All of the above are tax benefits available.33. Which of the following is not a valid business purpose to support the formation of aFamily Limited partnership?A. To protect assets from creditors.B. To manage family wealth and share family assets with family membersC. To organize the family’s main hobby so all members can participate fairlyD. To implement estate planning goals and objectives.34. Bob and Sally Jones form a Family Limited Partnership and transfer their farm to thepartnership in exchange for a 1 percent general partner interest and 99 percent limitedpartner interests. Bob and Sally retain the one percent general partner interest and gift thelimited partner interests to their three children. Which of the following is a true statementabout the Family Limited Partnership?A. Bob and Sally cannot decide to sell the farm without the consent of at least amajority of the limited partners.B. If the farm business distributes $100,000 to the partners proportionately, Boband Sally will only receive $1,000 and their children will receive $99,000.C. If the farm had a fair market value of $1,000,000 at the time Bob and Sallymade their gifts to their children a judgment creditor could probably seize thefarm before the gifts are madeD. Bob and Sally cannot gift their general partner interest to their children.35. A life insurance trust is often named the beneficiary of a life insurance policy itholds for which of the following reasons?a. It can provide greater flexibility than is available under insurancesettlement optionsb. It can eliminate a second estate tax upon the death of the beneficiaries.c. It can incorporate special limitations and restrictions on the funds designedto be paid to specific beneficiaries.d. All of the above36. Which of the following is not a characteristic of a Special Needs Trust?A. The trust is still a “countable resource” for Medicaid eligibility.B. The trust is not a “countable resource” for Medicaid eligibility.C. At the death of the special needs beneficiary, the State is entitled toreimbursement, dollar-for-dollar of any Medicaid benefits paid on behalf of thetrust beneficiary during his or her life.D. If the trust is an Ohio Supplemental Needs Trust, at the death of thespecial needs beneficiary, the State is entitled to reimbursement of 50% of theremainder of the trust assets. 37. Which of the following statements is false regarding a bargain sale?A. The difference between the fair market value of the asset and the considerationreceived in exchangefor the asset is considered a gift.B. The gift portion of a bargain sale will qualify for the annual exclusion.C. A bargain sale is generally inappropriate if the buyer of the property is a familymember.D. If the property is sold for more than the seller’s basis in the property, a taxablegain will result.38. Ben is interested in using a Qualified Personal Residence Trust (QPRT) as part of hisestate plan. Which of the following are false regarding QPRTs?A. At the end of the trust term, the house will revert back to the grantor.B. With a QPRT, the grantor must survive the trust term to realize any estate taxsavings.C. A QPRT can be used with either primary residences or vacation homes.D. The grantor will have a taxable gift upon the creation of the QPRT.39. Which of the following statements is true?(a) Angela transferred her home to a QPRT in 2008. She retained the right to live in thehome for 13 years, and at the end of the term, the home transfers to Angela’s threechildren. Angela dies in 2011, when the home has a fair market value of $250,000. Thevalue of the home is excluded from Angela’s gross estate because the children are theremainder beneficiaries of the QPRT.(b) Missy transfers rental property to a Family Limited Partnership (FLP) in return for a99% limited partnership interest and a 1% general partnership interest. Missyimmediately begins a gifting program by gifting a portion of the limited partnershipinterests to her children and grandchildren. Six years after the initial formation of theFLP, Missy continues to own the 1% general partnership interest and 45% of thelimited partnership interests in the FLP. Because Missy does not own a majority(greater than 50%) of the interest in the FLP, Missy cannot control the operations ofthe FLP.(c) Rose has been diagnosed with an illness that is expected to substantially reduce herlife expectancy. Before she dies, Rose would like to transfer her extremely valuableart collection to her wealthy daughter. The art collection does not generate anyincome, as it is just displayed in Rose’s home, but Rose really needs money for herliving expenses for the remainder of her life. A GRAT would be the most appropriatetransfer device to fulfill Rose’s desires.(d) Earl has four children – Kenny, Tim, Aaron, and Cathy. Earl’s will directs all of hisproperty to be divided equally among his four children, and if any child predeceasesEarl, that child’s heirs will inherit Earl’s property per capita. Earl has an estate worthapproximately $10 million and is 79 years old. A private annuity strategy may be agood option for him to consider to reduce his exposure to Federal Estate Tax.40. During the year, Edward created a trust for the benefit of his five children. The termsof the trust declare that his children can only access the trust’s assets after the trust hasbeen in existence for 20 years and the trust does not include a Crummey provision. IfEdward transfers $100,000 to the trust during the year, what is his total taxable gifts forthe year? ( Assume an annual exclusion of $13,000)A. $0.B. $35,000.C. $60,000.41. Which of the following qualifies for the unlimited marital deduction?A. Outright bequest to resident noncitizen spouse.B. Property passing to noncitizen spouse in QTIP.C. Outright bequest to resident spouse.D. Income beneficiary of a CRUT who is a nonresident alien spouse.42. Which of the following statements concerning joint tenancy with right ofsurvivorship is correct?(A) This form of ownership is available only to two related parties.(B) Ownership interests must be equal.(C) During his or her lifetime, each joint tenant may sell his or her interest only toanother joint tenant.(D) A joint tenant may leave his or her interest by will to someone other thananother joint tenant.43. In which of the following situations has a transfer been completed for gift taxpurposes?(A) Bill mails his nephew a check for $100 as a birthday gift.(B) Jane’s grandmother, dying of cancer, gives Jane a valuable family heirloomand indicates that she wants Jane to have it when she dies from the illness.(C) Sally calls her stockbroker and tells the broker to purchase 100 shares ofEnron and title them jointly to her and her husband with rights ofsurvivorship. (D) John and his son establish a joint bank account and John deposits funds intothe account.44. Fred, the founder and CEO of WonderCo, recently passed away. At his death, Fredowned 80% of the stock of WonderCo; and the WonderCo stock was his only asset.WonderCo is a publicly traded company. Which of the following discounts would beapplicable to Fred’s WonderCo stock?A. Key Person Discount.B. Minority Discount.C. Both a and b.D. Neither a nor b.45.Which of the following types of property is subject to probate?(A) death benefits from a retirement plan passing to a named beneficiary(B) testamentary trust property(C) life insurance proceeds paid to a named beneficiary(D) property held jointly with right of survivorship passing to the surviving jointtenant46.Which of the following statements concerning the use of Crummey powers withan irrevocable life insurance trust is correct?(A) Crummey powers are used to make an irrevocable life insurance trust a futureinterestgift.(B) The right to exercise the Crummey powers must exist for a reasonable periodof time each year.(C) If there are several beneficiaries, Crummey powers should be given to onlyone beneficiary.(D) A danger is that the beneficiary can request an amount greater than thegrantor’s annual addition to the corpus and thus the insurance policy can bestripped by the beneficiary.47.Which of the following statements concerning the federal estate tax is correct?(A) Property included in the gross estate for federal estate tax purposes must bevalued at its fair market value on the date of death.(B) Beneficiaries of an estate cannot be charged with estate tax liability.(C) The estate subject to tax includes not only property actually owned by theestate owner at the time of death but also property deemed to have been ownedat the date of death.(D) U.S. citizens are subject to federal estate tax only on property they own at thetime of death that is located in the U.S.48. James and Donna Smith own an insurance brokerage business that theyincorporated fifteen years ago with an initial investment of $500.00. Their commonstock is now worth $1,000,000, and they are considering selling the business. Jamesand Donna have contacted you to discuss their options. They would like to sell thebusiness and diversify their investment into various stocks, bonds and mutual funds.However, they are nervous about the large capital gains tax they would have to pay.In order to avoid paying capital gains tax on the sale of their stock, which of thefollowing transactions would you recommend?A. Gift the stock to a Special Needs Trust and receive income for life.B. Gift the stock to a Charitable Lead Trust and reserve a life payout forthemselves.C. Gift the stock to a Charitable Remainder Trust and reserve a life payoutfor themselves.D. Gift the stock to an Irrevocable Life Insurance Trust and use the proceedsfrom sake to purchase life insurance on their lives.49. Which of the following statements concerning the alternate valuation dateallowed for federal estate tax purposes is correct?(A) The alternate valuation date is 12 months after the decedent’s death.(B) The alternate valuation date can be used even if property is distributed or soldbefore the alternate valuation date.(C) The alternate valuation date can be used in valuing an interest, such as anannuity, whose value is affected by the mere passage of time.(D) If the alternate valuation date is selected, that date applies to all assets in theestate, subject to a few exceptions.50. In which of the following situations would the entire property transferred atdeath receive a fully stepped-up basis?(A) income that is included in the decedent’s gross estate as income in respect of adecedent(B) appreciated property acquired by the decedent by gift within one year beforedeath if, upon death, the property passes directly or indirectly back to theoriginal donor or the original donor’s spouse(C) property held in joint tenancies between spouses that is received by thesurviving spouse upon the death of the first spouse(D) property that passes to another because the decedent owned a fee simpleinterest in the property.