Estate Planning practice questions

Answer: A) Makes an irrevocable gift to a trust from which the other spouse may receive distributions

With a SLAT, one spouse makes an irrevocable gift to a trust for the other spouse, which removes the assets from the grantor's estate while keeping indirect access. The trust is usually a grantor trust for income tax purposes under IRC 677(a).

• ACorrect. The grantor uses gift tax exemption to move assets into an irrevocable trust for the beneficiary spouse. The assets leave the grantor's estate, but the household can still benefit indirectly through distributions to the beneficiary spouse.
• BIncorrect. Assets in a revocable trust remain in the grantor's gross estate. A SLAT is irrevocable.
• CIncorrect. That describes an outright gift to a spouse, not a SLAT. A SLAT holds assets in trust and is usually designed to use the grantor's exemption instead of the marital deduction, so the assets stay out of both spouses' estates.
• DIncorrect. Because trust income may be distributed to the grantor's spouse, IRC 677(a) generally makes a SLAT a grantor trust, so the grantor pays income tax on trust income.

Answer: C) A step-up on both halves

• AIncorrect. That's for joint property in common-law states.
• BIncorrect. Both halves are adjusted.
• CCorrect. A full basis adjustment.
• DIncorrect. Both halves are adjusted.

Answer: B) She reports a $1,000,000 taxable gift on Form 709 and owes no gift tax now, but the gift uses part of her exclusion and leaves less to shelter her estate.

Gifts over the annual exclusion are taxable gifts reported on Form 709. The unified credit absorbs the gift tax until it is used up, and the gifts are added back at death, which reduces the exclusion left for the estate.

• AIncorrect. The applicable (unified) credit applies against gift tax during life. Gift tax is owed only after the credit has been used up, so no tax is due on this gift.
• BCorrect. The amount over the $19,000 annual exclusion is a taxable gift that must be reported on Form 709. The unified credit covers the tax, and the gift is added back as an adjusted taxable gift when her estate tax is computed, so less exclusion is left at death.
• CIncorrect. A gift to one donee that exceeds the annual exclusion must be reported on Form 709 even when the credit means no tax is due. It also uses up part of her lifetime exclusion.
• DIncorrect. Lifetime taxable gifts made after 1976 are added to the taxable estate when the estate tax is figured, and the tax is then reduced by the unified credit. The gift therefore uses up exclusion that would otherwise shelter the estate.

Answer: B) That child's descendants

• AIncorrect. That's per capita among survivors.
• BCorrect. By branch of the family.
• CIncorrect. It passes down the branch.
• DIncorrect. It passes down the branch.

Answer: A) The trustee of her previously established revocable living trust

A pour-over will catches assets left outside a living trust and moves them, through probate, into the decedent's existing trust, usually a revocable living trust. The trust's terms then control the final distribution.

• ACorrect. A pour-over will is a backup that sends probate assets, meaning those not retitled to the trust during life, to the existing trust so they are distributed under its terms. Those assets still go through probate first.
• BIncorrect. Payable-on-death designations are nonprobate transfers that pass outside the will. A pour-over will governs probate assets, and those go to the trust.
• CIncorrect. A pour-over will does not automatically leave assets to a spouse outright. It sends them to the trust, and the trust terms decide who benefits.
• DIncorrect. Intestacy rules apply when there is no valid will. A valid pour-over will directs probate assets to the named trust.

Answer: C) Named people to receive the person's medical information

• AIncorrect. That's a will.
• BIncorrect. That's a power of attorney.
• CCorrect. It helps agents make informed decisions.
• DIncorrect. That isn't its purpose.

Answer: B) Passes the account to the named beneficiary outside probate

• AIncorrect. Ownership passes at death.
• BCorrect. The owner keeps control during life.
• CIncorrect. It avoids probate.
• DIncorrect. The beneficiary isn't an owner.

Answer: C) A brokerage account in the decedent's sole name

• AIncorrect. That passes by law.
• BIncorrect. That passes by contract.
• CCorrect. With no beneficiary or TOD designation.
• DIncorrect. Those avoid probate.

Answer: D) Charity first, then the heirs

• AIncorrect. Charity is paid first.
• BIncorrect. That's a charitable remainder trust.
• CIncorrect. Charity is paid first.
• DCorrect. The reverse of a charitable remainder trust.

Answer: A) The transfers qualify for an unlimited marital deduction for both gift tax and estate tax purposes

Transfers to a U.S. citizen spouse qualify for an unlimited marital deduction under IRC §2523 (gifts) and §2056 (estates). The increased annual exclusion and QDOT rules apply only when the spouse is not a U.S. citizen.

• ACorrect. IRC §2523(a) allows a gift tax deduction equal to the full value of property given to a spouse. IRC §2056(a) allows an estate tax deduction for property passing to a surviving spouse. For a U.S. citizen spouse, neither deduction has a dollar cap.
• BIncorrect. That is how gifts to most non-spouse donees work. Transfers to a U.S. citizen spouse are deductible in full, so they do not use the lifetime exemption.
• CIncorrect. Under IRC §2523(i), the increased annual exclusion replaces the marital deduction only for gifts to a spouse who is not a U.S. citizen.
• DIncorrect. Under IRC §2056(d), the qualified domestic trust (QDOT) requirement applies when the surviving spouse is not a U.S. citizen. A citizen spouse can receive property outright and still qualify.