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By Investopedia AAA

Deferral And Minimization Of Estate Taxes - Sample Questions 1 - 5

1.Scott has a paid up life insurance policy that pays $1 million to his daughter Fifi at his death. In 2011, Scott transferred the ownership of the policy to Fifi to remove the asset from his gross estate. In 2013, Scott had a heart attack and died. Which of the following are TRUE statements?

(1) Fifi will not owe federal income tax on the life insurance proceeds.
(2) The $1 million will be subject to the generation-skipping transfer tax.
(3) Fifi will have to pay gift tax on the $1 million.
(4) The executor will have to include the $1 million in the gross estate of Scott.
(5) The executor will have to pay gift tax on the $1 million from the estate.

A) 1 and 4 only
B)
2 and 5 only
C)
3 only
D)
2 and 4 only
E) 1 and 5 only


2. Shane gives $75,000 worth of stocks to his wife Angela in 2013. He paid $60,000 for the stocks. All of the following statements are incorrect EXCEPT?

A) Angela will owe gift tax.
B)
Angela will owe immediate income tax.
C)
Shane passed the gift under the unlimited marital transfer.
D) Shane will owe capital gains tax on $15,000.


3. Roger is single and trying to find tax-free ways of removing assets from his estate. All of the following techniques will effectively remove assets from Roger's estate without any gift or estate tax liability EXCEPT:

A) Payment of $25,000 for a stranger's medical expenses directly to the hospital.
B)
Gifting $10,000 to a granddaughter.
C)
Direct payment to the University of Florida for his son's tuition.
D) Gift of $50,000 to his daughter for the down payment on her first home.


4. Greg and Debby have a large family and they would like to do substantial gifting in 2013. They have four children and six grandkids. All of the following are correct EXCEPT:

A) Debby can gift $20,000 to their church and take a charitable deduction.
B)
Greg and Debby can gift $20,000 to each grandkid with no estate tax liability.
C)
Greg can gift $12,000 of stocks to his eldest child with no capital gain.
D)
Debby can gift $30,000 to their grandson for college expenses with no gift tax liability.

5. All of the following are true statements about the Bypass Trust EXCEPT:

A) Also known as the credit shelter trust.
B)
Assets will qualify for the marital deduction.
C)
This trust is typically funded up to the unified credit amount.
D) Assets are included in the estate of the first to die.

Answer Key

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