Tax Considerations in Estate Planning: Master the Legal Framework

Question 1

Which of the following is **not** an effective estate planning strategy to minimize estate taxes?

Accepted Answer

Convert traditional IRAs to Roth IRAs

Answer

Establish a revocable living trust

Answer

Make lifetime gifts

Answer

Purchase life insurance

Question 2

Under the Internal Revenue Code, which of the following is a taxable event for estate tax purposes?

Accepted Answer

Transfer of property at death

Answer

Transfer of property during life with retained life estate

Answer

Transfer of property more than 3 years before death

Answer

Transfer of property to a qualified charity

Question 3

Which of the following is NOT a deduction allowed for federal estate tax purposes?

Accepted Answer

Capital gains

Answer

Funeral expenses

Answer

Administration expenses

Answer

Debts of the decedent

Question 4

What is the federal generation-skipping transfer tax (GST) designed to prevent?

Accepted Answer

Transfer of assets to multiple generations to avoid estate tax

Answer

Transfer of assets to charitable organizations

Answer

Transfer of assets to foreign trusts

Answer

Transfer of assets to spouses

Question 5

Which of the following is NOT a type of estate planning document?

Accepted Answer

Tax return

Answer

Will

Answer

Trust

Answer

Power of attorney

Question 6

What is the difference between a revocable and an irrevocable trust?

Accepted Answer

A revocable trust can be changed or terminated by the grantor, while an irrevocable trust cannot

Answer

An irrevocable trust is more expensive to create than a revocable trust

Answer

A revocable trust is only available to married couples

Answer

There is no difference between a revocable and an irrevocable trust

Question 7

The federal estate tax is a:

Accepted Answer

Progressive tax

Answer

Flat tax

Answer

Proportional tax

Answer

Regressive tax

Question 8

The marital deduction allows a decedent to transfer an unlimited amount of property to a surviving spouse:

Accepted Answer

Free of federal estate tax

Answer

Free of federal gift tax

Answer

Free of state estate tax

Answer

Free of all taxes

Question 9

Which of the following federal taxes is imposed on the transfer of property at death?

Accepted Answer

Estate tax

Answer

Gift tax

Answer

Generation-skipping transfer tax

Answer

Income tax

Question 10

What is the primary purpose of a generation-skipping transfer tax?

Accepted Answer

To prevent tax avoidance by skipping generations in wealth transfers

Answer

To incentivize the transfer of wealth to younger generations

Answer

To protect the interests of surviving spouses

Answer

To fund social welfare programs

Question 11

Which of the following is NOT a strategy commonly used to minimize estate taxes?

Accepted Answer

Investing in speculative stocks

Answer

Creating a trust

Answer

Making charitable gifts

Answer

Purchasing life insurance

Question 12

Under the federal estate tax laws, which property transfer event is taxable?

Accepted Answer

Transfer of property at the time of the individual's passing

Answer

Transfer of property during the decedent's lifetime

Answer

Transfer of property to a spouse

Answer

Transfer of property to a charitable organization

Question 13

Which of the following is not considered a deductible expense against the federal estate tax?

Accepted Answer

Income earned by the decedent prior to death

Answer

Funeral expenses

Answer

Administration expenses

Answer

Charitable contributions

Question 14

What is the primary purpose of the generation-skipping transfer tax (GSTT)?

Accepted Answer

To prevent individuals from evading estate tax by transferring wealth across multiple generations

Answer

To incentivize the transfer of wealth to charitable organizations

Answer

To simplify the administration of estates

Answer

To generate additional revenue for the government

Question 15

Which type of trust can be used to potentially avoid the federal generation-skipping transfer tax?

Accepted Answer

Dynasty trust

Answer

Crummey trust

Answer

Bypass trust

Answer

QTIP trust

Question 16

What is the primary objective of a disclaimer in estate planning?

Accepted Answer

To renounce an inheritance

Answer

To create a new trust

Answer

To transfer property to a charity

Answer

To reduce the estate tax liability

Question 17

Which factor does not affect the valuation of an estate for federal estate tax purposes?

Accepted Answer

Age of the deceased

Answer

Appreciation of assets

Answer

Outstanding debts

Answer

Marital status of the deceased

Question 18

Which federal law primarily governs the administration of decedents' estates?

Accepted Answer

Internal Revenue Code

Answer

Uniform Prudent Investor Act

Answer

Uniform Probate Code

Answer

Estate Tax Reform Act

Question 19

Which of the following is NOT a federal tax imposed on the transfer of property at death?

Accepted Answer

Income tax

Answer

Gift tax

Answer

Estate tax

Answer

Generation-skipping transfer tax

Question 20

What is the amount used to calculate the taxable estate?

Accepted Answer

Gross estate minus allowable deductions

Answer

Net estate plus allowable deductions

Answer

Net estate minus allowable deductions

Answer

Gross estate plus allowable deductions

Question 21

Which of the following is a unified credit that reduces the amount of estate tax owed?

Accepted Answer

Basic exclusion amount

Answer

Marital deduction

Answer

Charitable deduction

Answer

Gift tax exclusion

Question 22

What is the purpose of a generation-skipping transfer tax?

Accepted Answer

To prevent avoidance of estate tax by transferring assets to younger generations

Answer

To encourage charitable giving

Answer

To reduce the tax burden on small estates

Question 23

Which of the following is a planning technique used to reduce gift tax liability?

Accepted Answer

Annual exclusion

Answer

Marital deduction

Answer

Estate tax credit

Answer

Generation-skipping transfer tax

Question 24

What is the maximum amount that can be given as a gift without triggering the gift tax?

Accepted Answer

The annual exclusion amount

Answer

The lifetime exemption amount

Answer

The marital deduction amount

Answer

The generation-skipping transfer tax exemption amount

Question 25

What is the primary purpose of a will?

Accepted Answer

To distribute property after death

Answer

To appoint a guardian for minor children

Answer

To avoid probate

Answer

To reduce estate taxes

Question 26

Who is legally responsible for filing the estate tax return?

Accepted Answer

Executor

Answer

Heir

Answer

Beneficiary

Answer

Accountant

Question 27

What is the primary objective of the federal gift tax?

Accepted Answer

To prevent the avoidance of estate taxes by transferring assets during life

Answer

To generate additional revenue for the government

Answer

To discourage charitable giving

Question 28

Which of the following is a defining characteristic of a generation-skipping transfer?

Accepted Answer

A transfer to an individual who is at least two generations younger than the transferor

Answer

A transfer that is made in trust

Answer

A transfer that is made for educational purposes

Question 29

What is the purpose of the unified credit in estate taxation?

Accepted Answer

To reduce the taxable estate by a specific amount, thus potentially eliminating or reducing estate tax liability

Answer

To provide a tax credit only to low-income taxpayers

Answer

To provide a tax credit to all taxpayers, regardless of income

Question 30

Which document is NOT commonly used in estate planning?

Accepted Answer

Last Will and Affidavit

Answer

Last Will and Testament

Answer

Durable Power of Attorney for Health Care

Answer

Revocable Living Trust

Question 31

What is the primary function of a durable power of attorney for financial matters?

Accepted Answer

To appoint an agent to manage the principal's financial affairs in the event of incapacity

Answer

To appoint an agent to make medical decisions in the event of incapacity

Answer

To transfer assets to a trust

Question 32

What is the primary responsibility of an executor in estate administration?

Accepted Answer

To manage estate assets, settle debts, and distribute property according to the terms of the will or applicable law

Answer

To create an estate plan for the deceased individual

Answer

To contest the validity of the will

Question 33

Which of the following is a federal transfer tax?

Accepted Answer

Estate tax

Answer

Property tax

Answer

Income tax

Answer

Sales tax

Question 34

What is the purpose of the unified credit?

Accepted Answer

To reduce the amount of taxable estate

Answer

To defer the estate tax

Answer

To eliminate the estate tax

Answer

To increase the amount of taxable estate

Question 35

What is the generation-skipping transfer tax (GST) designed to prevent?

Accepted Answer

Individuals from avoiding estate tax by transferring wealth to grandchildren

Answer

Individuals from avoiding gift tax by transferring wealth to children

Answer

Individuals from avoiding income tax by transferring wealth to trusts

Question 36

What is the primary difference between an estate and a trust?

Accepted Answer

An estate is created by operation of law, while a trust is created by an individual

Answer

An estate is revocable, while a trust is irrevocable

Answer

An estate is distributed immediately, while a trust may continue for a specified period

Question 37

Which of the following is a potential advantage of using a will in estate planning?

Accepted Answer

Flexibility

Answer

Tax savings

Answer

Confidentiality

Answer

Avoidance of probate

Question 38

What is the purpose of a gift tax return?

Accepted Answer

To report lifetime transfers of property

Answer

To determine eligibility for the generation-skipping transfer tax

Answer

To claim estate tax deductions

Answer

To calculate estate taxes

Question 39

What is the primary role of a personal representative in estate administration?

Accepted Answer

To manage and distribute the deceased individual's assets

Answer

To determine the validity of the will

Answer

To represent the interests of the beneficiaries

Question 40

What is the primary purpose of a generation-skipping transfer tax (GSTT)?

Accepted Answer

To prevent avoidance of estate tax by transferring wealth directly to grandchildren or great-grandchildren

Answer

To fund government programs

Answer

To encourage charitable giving

Question 41

What is the federal basic exclusion amount (BEA) for estate and generation-skipping transfer tax purposes for the year 2023?

Accepted Answer

$12.92 million

Answer

$10 million

Answer

$15 million

Question 42

Which of the following is a consequence of failing to timely file an estate tax return?

Accepted Answer

Penalties and interest on the unpaid tax

Answer

Criminal prosecution

Answer

Escheat of the estate to the state

Answer

Loss of the right to claim deductions

Question 43

What is the primary purpose of a will?

Accepted Answer

To distribute the testator's property according to their wishes after death

Answer

To reduce estate taxes

Answer

To avoid probate

Question 44

What is the difference between a probate estate and a non-probate estate?

Accepted Answer

Probate assets are subject to the court's administration, while non-probate assets pass outside of probate

Answer

Probate assets are taxed differently than non-probate assets

Answer

Non-probate assets are always more valuable than probate assets

Question 45

Which of the following can be used to calculate the fair market value of an estate for tax purposes?

Accepted Answer

Appraisal

Answer

Tax return

Answer

Bank statement

Answer

Credit report

Question 46

What is the purpose of a death tax affidavit?

Accepted Answer

To provide the relevant taxing authority an estimate of the value of the decedent's assets and any deductions claimed

Answer

To avoid probate

Answer

To claim deductions for funeral expenses

Question 47

To minimize gift tax liability while transferring a significant portion of their estate to their children, a wealthy individual would most likely use which estate planning tool?

Accepted Answer

Annual Gift Tax Exclusion

Answer

Charitable Remainder Trust

Answer

Marital Deduction

Answer

Generation-Skipping Transfer Tax Exemption

Question 48

A trust is established by a grandparent to distribute assets to their grandchildren upon the grandparent's death. Which tax is most likely to apply to this transfer?

Accepted Answer

Generation-Skipping Transfer Tax

Answer

Income Tax

Answer

Capital Gains Tax

Answer

Gift Tax

Question 49

To reduce potential capital gains tax upon death for a client with a large portfolio of publicly traded stocks, which estate planning strategy would be most effective?

Accepted Answer

Utilize the Basis Step-Up at Death

Answer

Gifting the stocks to a Qualified Personal Residence Trust (QPRT)

Answer

Establishing a Grantor Retained Annuity Trust (GRAT)

Answer

Transferring the stocks to a Charitable Lead Trust

Question 50

What is a potential benefit of transferring a homeowner's residence into a trust?

Accepted Answer

Protection of the home from creditors

Answer

Elimination of capital gains tax on the sale of the home

Answer

Immediate reduction in estate tax liability

Answer

Increased flexibility for the homeowner to modify the trust

Question 51

What is the primary purpose of the federal estate tax?

Accepted Answer

To prevent excessive concentrations of wealth and ensure a fair distribution of wealth.

Answer

To generate revenue for infrastructure projects.

Answer

To fund social security benefits.

Answer

To encourage charitable giving.

Question 52

Which statement accurately describes a Charitable Remainder Trust?

Accepted Answer

The grantor receives income during their lifetime, with the remaining assets passing to charity upon their death.

Answer

The grantor receives a full tax deduction for the asset value placed in the trust.

Answer

The charity receives immediate income from the trust assets.

Answer

The trust is irrevocable and cannot be modified.

Question 53

Which factor is NOT considered when determining the amount of federal estate tax due?

Accepted Answer

The recipient's financial status

Answer

The gross value of the estate

Answer

The applicable estate tax exclusion amount

Answer

The available marital deduction

Question 54

A client wants to minimize estate tax liability while keeping a family business within the family.  Which strategy would be most effective?

Accepted Answer

Utilize a Family Limited Partnership (FLP)

Answer

Donate the business to a charitable organization.

Answer

Establish a Charitable Lead Trust with the business as the asset.

Answer

Gift the business to a Qualified Personal Residence Trust (QPRT)

Question 55

Which statement regarding the federal estate tax exemption is accurate?

Accepted Answer

The estate tax exemption is subject to change by legislation.

Answer

The estate tax exemption is only available to individuals, not trusts.

Answer

The estate tax exemption is a flat amount that is never adjusted.

Answer

The estate tax exemption eliminates all estate taxes for every estate.