Real Estate Planning - Chapter 10

1. An executor may elect the unlimited marital deduction for which of the following transfers?1) Decedent's will directs the creation of a CRAT and the decedent's nonresident alien spouse is the income beneficiary. The trustee of the CRAT is a citizen of the United Kingdom.2) Bequest to U.S. citizen spouse of the right to use property for the remainder of her life. Executor has elected QTIP on the property.3) A payment of $650,000 to fulfill a specific bequest to decedent's U.S. citizen spouse. Decedent's spouse became a U.S. citizen two months before the filing of the decedent's estate tax return.4) A payment of $250,000 to fulfill a specific bequest to a decedent's resident alien spouse.

2 only

2 and 3

3 and 4

1,2,and 3

The unlimited marital deduction allows for the transfer of assets to a spouse without incurring estate or gift taxes. In option 2, the executor has elected the Qualified Terminable Interest Property (QTIP) election, which means that the spouse has the right to use the property for the remainder of her life. This qualifies for the unlimited marital deduction. In option 3, the payment of $650,000 is fulfilling a specific bequest to the decedent's U.S. citizen spouse. Since the spouse became a U.S. citizen before the filing of the estate tax return, this also qualifies for the unlimited marital deduction. Therefore, the correct answer is 2 and 3.

Explanation

The unlimited marital deduction allows for the transfer of assets to a spouse without incurring estate or gift taxes. In option 2, the executor has elected the Qualified Terminable Interest Property (QTIP) election, which means that the spouse has the right to use the property for the remainder of her life. This qualifies for the unlimited marital deduction. In option 3, the payment of $650,000 is fulfilling a specific bequest to the decedent's U.S. citizen spouse. Since the spouse became a U.S. citizen before the filing of the estate tax return, this also qualifies for the unlimited marital deduction. Therefore, the correct answer is 2 and 3.

2. Which of the following statements is true?

A bypass trust aids in guaranteeing the full use of an individual's applicable estate tax credit.

A bypass trust is a type of trust that allows an individual to pass assets to their beneficiaries while minimizing estate taxes. By placing assets in a bypass trust, the individual can ensure that their applicable estate tax credit is fully utilized, thereby reducing the overall estate tax liability. This statement accurately describes the purpose and function of a bypass trust in relation to an individual's applicable estate tax credit.

Explanation

A bypass trust is a type of trust that allows an individual to pass assets to their beneficiaries while minimizing estate taxes. By placing assets in a bypass trust, the individual can ensure that their applicable estate tax credit is fully utilized, thereby reducing the overall estate tax liability. This statement accurately describes the purpose and function of a bypass trust in relation to an individual's applicable estate tax credit.

3. Which of the following property interests qualifies for the unlimited marital deductions?

The executor of John's estate made the QTIP election for the bequest of a life estate interest in his personal residence to Deborah, John's wife. This qualifies for the unlimited marital deduction because a QTIP (Qualified Terminable Interest Property) trust allows the surviving spouse to receive income from the trust property for their lifetime, while the principal is preserved for the ultimate beneficiaries (in this case, John's two children). The QTIP election ensures that the property will qualify for the marital deduction, meaning it will not be subject to estate tax upon John's death.

Explanation

The executor of John's estate made the QTIP election for the bequest of a life estate interest in his personal residence to Deborah, John's wife. This qualifies for the unlimited marital deduction because a QTIP (Qualified Terminable Interest Property) trust allows the surviving spouse to receive income from the trust property for their lifetime, while the principal is preserved for the ultimate beneficiaries (in this case, John's two children). The QTIP election ensures that the property will qualify for the marital deduction, meaning it will not be subject to estate tax upon John's death.

4. When a U.S. citizen dies and bequeaths property to his U.S. citizen spouse, the marital deductions is limited to the following amount:

$0

$1,360,800

$5,340,000

The marital deduction is unlimited.

When a U.S. citizen dies and leaves property to their U.S. citizen spouse, the marital deduction allows the spouse to inherit the property without having to pay any estate or gift taxes on it. This deduction is unlimited, meaning that there is no maximum limit to the amount of property that can be passed on to the spouse without incurring taxes.

Explanation

When a U.S. citizen dies and leaves property to their U.S. citizen spouse, the marital deduction allows the spouse to inherit the property without having to pay any estate or gift taxes on it. This deduction is unlimited, meaning that there is no maximum limit to the amount of property that can be passed on to the spouse without incurring taxes.

5. Which of the following allows an individual to refuse property from the estate of a decedent?

Bypass trust

Exclusionary clause

Disclaimer

Rejection

A disclaimer allows an individual to refuse property from the estate of a decedent. By disclaiming the property, the individual is essentially rejecting their right to inherit it. This can be done for various reasons, such as to avoid taxes or to pass the property on to someone else. The individual must make the disclaimer within a certain timeframe and follow specific legal requirements.

Explanation

A disclaimer allows an individual to refuse property from the estate of a decedent. By disclaiming the property, the individual is essentially rejecting their right to inherit it. This can be done for various reasons, such as to avoid taxes or to pass the property on to someone else. The individual must make the disclaimer within a certain timeframe and follow specific legal requirements.

6. Within how many months must an heir file a qualified disclaimer for it to be valid?

6 months

9 months

12 months

15 months

An heir must file a qualified disclaimer within 9 months for it to be considered valid. This means that if an heir wishes to renounce their right to inherit an asset or property, they must do so within this time frame. Failing to file the disclaimer within the specified period may result in the heir being unable to legally disclaim their inheritance.

Explanation

An heir must file a qualified disclaimer within 9 months for it to be considered valid. This means that if an heir wishes to renounce their right to inherit an asset or property, they must do so within this time frame. Failing to file the disclaimer within the specified period may result in the heir being unable to legally disclaim their inheritance.

7. Juan's will creates a General Power of Appointment Trust (GPOA Trust) that distributes income to his wife annually for life and gives his wife a general power of appointment over the assets in the trust. Which of the following statements concerning a GPOA Trust is correct?

A GPOA Trust automatically qualifies for the unlimited marital deduction because Juan's wife has a general power of appointment over the trust's assets. This means that she has the ability to appoint the assets to herself, her creditors, or anyone on her behalf. Since the unlimited marital deduction allows for the transfer of assets to a spouse without incurring gift or estate taxes, the GPOA Trust meets the requirements for this deduction.

Explanation

A GPOA Trust automatically qualifies for the unlimited marital deduction because Juan's wife has a general power of appointment over the trust's assets. This means that she has the ability to appoint the assets to herself, her creditors, or anyone on her behalf. Since the unlimited marital deduction allows for the transfer of assets to a spouse without incurring gift or estate taxes, the GPOA Trust meets the requirements for this deduction.

8. Jeremy and Rosa were married forty years ago after meeting on the beaches of Cozumel. Rosa moved to the U.S. with Jeremy, but she never applied for U.S. citizenship. If Jeremy is concerned about using the marital deduction for the fair market value of the property he bequeaths to Rosa, which of the following techniques could he use?

Qualified Terminable Interest Trust (QTIP)

Section 2503(b) Trust

Section 2503(c) Trust

Qualified Domestic Trust (QDOT)

Jeremy and Rosa were married but Rosa never applied for U.S. citizenship. If Jeremy wants to use the marital deduction for the fair market value of the property he leaves to Rosa, he can use a Qualified Domestic Trust (QDOT). A QDOT is a type of trust that allows non-citizen spouses to receive assets from their deceased spouse's estate without incurring immediate estate taxes. This would be the appropriate technique for Jeremy to use in order to ensure that Rosa receives the property without any tax consequences.

Explanation

Jeremy and Rosa were married but Rosa never applied for U.S. citizenship. If Jeremy wants to use the marital deduction for the fair market value of the property he leaves to Rosa, he can use a Qualified Domestic Trust (QDOT). A QDOT is a type of trust that allows non-citizen spouses to receive assets from their deceased spouse's estate without incurring immediate estate taxes. This would be the appropriate technique for Jeremy to use in order to ensure that Rosa receives the property without any tax consequences.

9. When a U.S. citizen married to a resident alien dies, what is the maximum value of a specific, outright bequest of property that can qualify for the unlimited marital deduction?

$0

$1,360,800

$5,340,000

The marital deduction is unlimited.

The maximum value of a specific, outright bequest of property that can qualify for the unlimited marital deduction when a U.S. citizen married to a resident alien dies is $0.

Explanation

The maximum value of a specific, outright bequest of property that can qualify for the unlimited marital deduction when a U.S. citizen married to a resident alien dies is $0.

10. Janice died in 2014. She had been married to Thomas for 17 years, and the two had amassed a community property estate of $18MM. Janice's will directs three specific bequests to her mother, brother, and father of $700,000, $450,000, and $200,000, respectively and creates a bypass trust to receive property equal to any remaining applicable estate tax credit available after her specific bequests. The bypass trust gives Thomas the right to income for his life and the remainder of the trust to her two sons and leaves the residual of the estate to Thomas. Janice's will directs the residual to be used to pay the estate taxes. What is the marital deduction on Janice's federal estate tax return.

$7,650,000

$3,660,000

$3,750,000

$5,340,000

Incorrect. The correct answer is B. Since Janice and Thomas own the property as community property, each is deemed to own 1/2 of the property. In this case, Janice would include $9,000,000 in her federal gross estate. The three specific bequests totaling $1,350,000 are directed to non-spouse beneficiaries and are taxable transfers which, including the bypass trust, will utilize the applicable estate tax credit. The bypass trust will receive $3,990,000 ($5,340,000 - $1,350,000), an amount necessary to utilize any remaining available applicable estate tax credit, and will not qualify for the marital deduction. Thomas will receive the remainder of $3,660,000, which will be eligible for the marital deduction. No estate tax will be due because only an amount equal to the applicable estate tax credit equivalency transfers outside of the marital deduction. The marital deduction on Janice’s estate tax return is $3,660,000 - the gross estate of $9,000,000 reduced by the specific bequests of $1,350,000 and the additional amount transferred to the bypass trust ($3,990,000).

Explanation

Incorrect. The correct answer is B. Since Janice and Thomas own the property as community property, each is deemed to own 1/2 of the property. In this case, Janice would include $9,000,000 in her federal gross estate. The three specific bequests totaling $1,350,000 are directed to non-spouse beneficiaries and are taxable transfers which, including the bypass trust, will utilize the applicable estate tax credit. The bypass trust will receive $3,990,000 ($5,340,000 - $1,350,000), an amount necessary to utilize any remaining available applicable estate tax credit, and will not qualify for the marital deduction. Thomas will receive the remainder of $3,660,000, which will be eligible for the marital deduction. No estate tax will be due because only an amount equal to the applicable estate tax credit equivalency transfers outside of the marital deduction. The marital deduction on Janice’s estate tax return is $3,660,000 - the gross estate of $9,000,000 reduced by the specific bequests of $1,350,000 and the additional amount transferred to the bypass trust ($3,990,000).

11. Of Pablo's $10,000,000 federal gross estate, his will includes one specific bequest of $7,500,000 to his wife, Ariana, and directs the debts and other expenses of $1,000,000 to be payable from the residuary of the estate. The residuary heirs are Pablo's children. What is the amount of the marital deduction included on Pablo's federal estate tax return?

$0

$6,500,000

$8,500,000

$7,500,000

Pablo's federal gross estate is $10,000,000. However, the will includes a specific bequest of $7,500,000 to his wife, Ariana. The marital deduction allows for the transfer of assets to a spouse without incurring any estate tax. Therefore, the amount of the marital deduction included on Pablo's federal estate tax return is equal to the specific bequest to his wife, which is $7,500,000.

Explanation

Pablo's federal gross estate is $10,000,000. However, the will includes a specific bequest of $7,500,000 to his wife, Ariana. The marital deduction allows for the transfer of assets to a spouse without incurring any estate tax. Therefore, the amount of the marital deduction included on Pablo's federal estate tax return is equal to the specific bequest to his wife, which is $7,500,000.

12. Given only the following information, which would qualify for the estate tax unlimited marital deduction?

The bequest of 2,000 shares of Holiday Incorporated stock to a surviving spouse qualifies for the estate tax unlimited marital deduction because the surviving spouse is a U.S. citizen. The unlimited marital deduction allows for the transfer of assets to a surviving spouse without incurring estate tax. Since the surviving spouse is a U.S. citizen, the bequest of the stock qualifies for this deduction.

Explanation

The bequest of 2,000 shares of Holiday Incorporated stock to a surviving spouse qualifies for the estate tax unlimited marital deduction because the surviving spouse is a U.S. citizen. The unlimited marital deduction allows for the transfer of assets to a surviving spouse without incurring estate tax. Since the surviving spouse is a U.S. citizen, the bequest of the stock qualifies for this deduction.

13. Jeff died in the current year. He had inherited the following property from his wife in 1999:

Asset	FMV @ Wife's Death	FMV @ Jeff's Death
Life estate in home	$ 240,000	$600,000
Cash	$ 450,000	$250,000
1991 Chevrolet	$14,000	Sold in 2000
IRA	$380,000	$500,000

Considering only the property listed above, what is the value of the property included in Jeff's gross estate?

$250,000

$704,000

$750,000

$1,350,000

Incorrect. The correct answer is C. Property inherited by a surviving spouse is only included in his gross estate to the extent the asset has not been consumed. It is included at the fair market value at his date of death. If a surviving spouse inherits terminable interest property and the QTIP election was made on the property, the surviving spouse must also include the fair market value of the QTIP property. Accordingly, Jeff's gross estate will include the value of the cash at his date of death and the value of the IRA at his date of death. $250,000 + $500,000 = $750,000. The life estate in the home is a terminable interest, and the QTIP election was not made so the value of the property is not included in Jeff's gross estate, and Jeff did not own the Chevrolet at his date of death.

Explanation

Incorrect. The correct answer is C. Property inherited by a surviving spouse is only included in his gross estate to the extent the asset has not been consumed. It is included at the fair market value at his date of death. If a surviving spouse inherits terminable interest property and the QTIP election was made on the property, the surviving spouse must also include the fair market value of the QTIP property. Accordingly, Jeff's gross estate will include the value of the cash at his date of death and the value of the IRA at his date of death. $250,000 + $500,000 = $750,000. The life estate in the home is a terminable interest, and the QTIP election was not made so the value of the property is not included in Jeff's gross estate, and Jeff did not own the Chevrolet at his date of death.

14. If a decedent bequeaths the outright ownership of his house to his children subject to his wife's right to live in that house for the remainder of her life, which of the following statements is correct?

If the wife disclaims her interest in the house, the house is not included in the decedent's taxable estate.

If the executor makes a QTIP election on the house the house is not included in the decedent's taxable estate.

Incorrect. The correct answer is D. This option is a false statement. A QTIP election will not qualify a bequest to a non-U.S. citizen spouse for the unlimited marital deduction. Only a transfer to a qualifying QDOT will qualify a bequest to a non-U.S. citizen spouse for the unlimited marital deduction.

Explanation

Incorrect. The correct answer is D. This option is a false statement. A QTIP election will not qualify a bequest to a non-U.S. citizen spouse for the unlimited marital deduction. Only a transfer to a qualifying QDOT will qualify a bequest to a non-U.S. citizen spouse for the unlimited marital deduction.

15. Jimmy and Rebecca have been married for 35 years. Jimmy had a net worth of $8MM when he died in 2014. Which of the following scenarios would incur the lowest overall (at Jimmy's death and Rebecca's death) estate taxes assuming the property transfers at equal value at the death of both individuals and utilizing 2014 estate tax rates? Assume that portability is not elected.

Jimmy's will directs that all of his property is transferred to Rebecca.

The scenario where Jimmy funds a trust with $5,340,000 for the benefit of his two children and all other assets transfer to Rebecca would incur the lowest overall estate taxes. This is because the trust assets are not included in Jimmy's estate for tax purposes, reducing the overall taxable estate. Additionally, Rebecca only receives an annual income distribution from the trust, which is not subject to estate taxes. This allows for the maximum amount of assets to pass to Rebecca without incurring estate taxes.

Explanation

The scenario where Jimmy funds a trust with $5,340,000 for the benefit of his two children and all other assets transfer to Rebecca would incur the lowest overall estate taxes. This is because the trust assets are not included in Jimmy's estate for tax purposes, reducing the overall taxable estate. Additionally, Rebecca only receives an annual income distribution from the trust, which is not subject to estate taxes. This allows for the maximum amount of assets to pass to Rebecca without incurring estate taxes.

16. Which of the following is not a benefit of the unlimited marital deduction?

The estate tax on property can be deferred until the death of the second to die spouse.

The unlimited marital deduction can fund the applicable estate tax credit of the surviving spouse.

The unlimited marital deduction can ensure the surviving spouse has sufficient assets to support her lifestyle.

The unlimited marital deduction allows for the transfer of assets between spouses without incurring any estate or gift taxes. This means that the estate tax on property can be deferred until the death of the second to die spouse, as mentioned in one of the options. The unlimited marital deduction can also fund the applicable estate tax credit of the surviving spouse, ensuring that they receive the full benefit of the deduction. Additionally, it can ensure that the surviving spouse has sufficient assets to support their lifestyle. However, the option stating that the unlimited marital deduction can shelter the future appreciation of an asset from estate taxes at the death of the second to die spouse is incorrect. The unlimited marital deduction does not provide any protection against estate taxes on future appreciation of assets.

Explanation

The unlimited marital deduction allows for the transfer of assets between spouses without incurring any estate or gift taxes. This means that the estate tax on property can be deferred until the death of the second to die spouse, as mentioned in one of the options. The unlimited marital deduction can also fund the applicable estate tax credit of the surviving spouse, ensuring that they receive the full benefit of the deduction. Additionally, it can ensure that the surviving spouse has sufficient assets to support their lifestyle. However, the option stating that the unlimited marital deduction can shelter the future appreciation of an asset from estate taxes at the death of the second to die spouse is incorrect. The unlimited marital deduction does not provide any protection against estate taxes on future appreciation of assets.

17. Which one do you like?

Option 1

Option 2

Option 3

Option 4

The given question asks for the preference of the person. The answer states that the person likes "Option 1" without any further explanation or context.

Explanation

The given question asks for the preference of the person. The answer states that the person likes "Option 1" without any further explanation or context.

18. Which of the following is not a requirement for a GPOA Trust to be eligible for the unlimited marital deduction?

The general power of appointment granted to the surviving spouse must be exercisable by the surviving spouse alone.

The surviving spouse must be entitled to receive all of the income from the trust, at least annually.

The requirement for a GPOA Trust to be eligible for the unlimited marital deduction is that the surviving spouse's right to the trust property must not be limited to an ascertainable standard, such as health, education, maintenance, and support. In other words, the surviving spouse should have unrestricted access and control over the trust property, without any limitations or conditions on its use.

Explanation

The requirement for a GPOA Trust to be eligible for the unlimited marital deduction is that the surviving spouse's right to the trust property must not be limited to an ascertainable standard, such as health, education, maintenance, and support. In other words, the surviving spouse should have unrestricted access and control over the trust property, without any limitations or conditions on its use.

19. Which of the following statements regarding bypass trusts is false?

Distributions of trust income to the surviving spouse will not create an ownership interest in the trust's assets.

The false statement is that the right to appoint the assets of the trust to herself, her creditors, or anyone she desires will not create an interest which will cause inclusion of the trust's assets in the surviving spouse's gross estate. In reality, the right to appoint the trust's assets to herself or her creditors will create an interest that will cause inclusion of the trust's assets in the surviving spouse's gross estate.

Explanation

The false statement is that the right to appoint the assets of the trust to herself, her creditors, or anyone she desires will not create an interest which will cause inclusion of the trust's assets in the surviving spouse's gross estate. In reality, the right to appoint the trust's assets to herself or her creditors will create an interest that will cause inclusion of the trust's assets in the surviving spouse's gross estate.