Read the case carefully, then answer the questions:
1. Carrie would like to spend the few years she has left enjoying her life. She would like to use her life insurance policy to fund the remainder of her life. Which of the following statements is correct?
A) If Carrie surrenders her policy for accelerated death benefits and uses the proceeds to take her grandchildren on a cruise, she will be subject to income tax on the gain because she is not terminally ill.
B) Carrie could exchange the policy in a 1035 exchange for an annuity but she would be subject to income tax on the transfer.
C) If Carrie borrows from the policy, then the loan will be considered a taxable distribution.
D) If Kenny purchases the policy from Carrie at the fair market value, he will receive the insurance proceeds income tax free at Carrie's death.
2. Regarding gifts made by Kenny, what is the total annual exclusion available for the Generation Skipping Transfers made in the current year?
A) $36,000
B) $30,000
C) $20,000
D) $16,000
3. Kenny is thinking about transferring his Investment Portfolio and the Bungalow to a dynasty trust for the benefit of his natural heirs. Which of the following statements is correct?
A) Kenny cannot transfer the investment portfolio without Kati and Karli's consent.
B) Dynasty trusts allow assets to pass from generation to generation without the imposition of gift, estate or GST tax.
C) Kenny can name himself as the trustee and continue to make all of the business decisions for the Bungalow during his life while removing the assets from his gross estate.
D) Kati and Karli would be appropriate trust protectors.
3. Assume Kenny and Melissa had Kole today and Kenny wanted to create a trust for Kole's future benefit. Kenny would like to create a trust that allows him to make a contribution now, even if it is taxable and add to it using the annual exclusion. Ideally, Kenny would like the trust in place to help pay Koles expenses for future school expenses but he would not mind some assistance for daycare or other expenses in the event he died or became incapacitated. He wants the trust to accumulate income until Kole reaches age 21, at which point the entire trust will be distributed to Kole. Which of the following devices would be appropriate to accomplish Kenny's goals?
A) An UGMA device
B) An UTMA device
C) A section 2503(b) device
D) A section 2503(c) device
4. Of the following statements, which is false?
A) The availability of the unlimited marital deduction merely postpones the potential estate tax due.
B) Property that is not included in the decedent's gross estate can qualify for the unlimited marital deduction.
C) The death benefit of a life insurance policy included in a decedent's gross estate is eligible for the unlimited marital deduction, even if the surviving spouse is the listed beneficiary and receives the proceeds.
D) An individual can use the unlimited marital deduction during life to fund the surviving spouse's applicable estate tax credit. The best property to transfer in this method is the property that is expected to appreciate in value after the transfer to the surviving spouse.
5. Kenny is concerned about protecting his assets in the event he decides to marry Melissa. He has asked you for more information on QTIP trusts. Which of the following does not accurately describes a QTIP Trust?
A) A QTIP is sometimes called a "C" or "Q" Trust.
B) Trust income must be paid to the spouse annually.
C) The trust assets will be included in the gross estate of the surviving spouse.
D) The surviving spouse designates the remainder beneficiaries of the QTIP.
6. Kenny is considering changing his will today. He wants the new will to leave everything to Melissa. Which of the following statements is false?
A) Giving a bequest to Kati and Karli and adding a no-contest clause would discourage Kati and Karli from contesting the will.
B) A simultaneous death clause could be used to require Melissa to survive six months.
C) A guardianship clause can be used to identify Kenny's preferred legal guardian of Kole.
D) A disclaimer clause allowing Melissa to disclaim the property into a by-pass trust to ensure Kenny's entire lifetime exclusion is used.
7. Assuming Kenny died today, calculate his gross estate.
A) $5,520,000
B) $5,751,600
C) $2,160,000
D) $6,751,600
8. Assume Kenny had charitable inclinations and decided he wanted to bequeath something to charity. Which of the following assets would be the most advantageous to leave to the charity considering the tax effects on other non charitable beneficiaries?
I. $60,000 in cash.
II. $60,000 in qualified plan assets.
III. $60,000 in portfolio assets.
IV. $60,000 in an annuity.
If Kenny decided to sell the vacation property today for the Fair Market Value, what would his gain or loss be?
A) $60,000
B) $98,000
C) $102,000
D) $110,000
9. Assume Melissa and Kenny had their baby today and named him Kole. Which of the following individuals is a non-skip person in relation to Kenny?
1. Riley
2. Kole
3. Melissa
A) 2 only
B) 1 and 3
C) 2 and 3
D) 1, 2, and 3
10. Assume for this question only, that Kenny and Melissa were married today. They went straight to Kenny's lawyer's office to execute new wills and a QDOT trust document. On the way home from executing a valid will leaving all assets to Melissa, Kenny and Melissa were in a serious car accident. Kenny was comatose for several days before dying. His unpaid medical expenses were $150,000; Melissa had medical expenses for the accident of $10,000. The day after Kenny died, Melissa gave Kenny's three children and three grandchildren each $22,000 then left for France to stay with her mother. Prior to Kenny's death, Kenny and Melissa gave Kenny's mother $60,000. Kenny's estate may have some issues liquidating the portfolio to pay taxes; would his estate be eligible to use the installment payments under §6166?
A) Yes, this election would be available.
B) No, this election would not be available.
11. Kati has decided that any inheritance she receives from her father will be used to establish a charitable remainder trust. Kati expects this to be a onetime event and is anxious to preserve the right to change charities. Which of the following would you recommend for Kati?
A) CRAT
B) CLUT
C) Pooled income fund
D) CLAT
12. Which of the following is true with regard to Kenny's transfer to the trust benefiting the grandchildren?
A) When distributions are made to the grandchildren from the trust, the distributions will be taxable distributions.
B) The transfer is a direct skip.
C) When the trust expires and the assets are distributed to a charitable organization, then the distribution will be a taxable termination.
D) The trust is not subject to GSTT because of the charitable beneficiary.
13. Assume Carrie decided to transfer her life insurance policy to an Irrevocable Life Insurance Trust (ILIT) today for the benefit of Kati and Karli. She is concerned that the girls may not receive their fair share of Kenny's estate now that Kole and Melissa have come along; however, she is unsure about excluding Kole so she has preserved the right to add Kole as a beneficiary to her insurance. The ILIT contained a Crummey provision for the benefit of each child. At the time of the transfer, the whole life insurance policy was valued at $50,000, and since Carrie had not made any other taxable gifts during her lifetime, she did not owe any gift tax. If Carrie died 6 years later how much is included in her gross estate at her death?
A) $0
B) $50,000
C) $76,000
D) $100,000
Attachment:- Case.rar