Real Estate Planning - Chapter 11

35 Questions | Total Attempts: 100

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Real Estate Quizzes & Trivia

Questions and Answers
  • 1. 
    Jack purchased a life insurance policy on his own life and never designated a beneficiary.  In this case, the life insurance policy death benefit is:
    • A. 

      Included in Jack's federal gross estate if Jack dies within three years of the initial premium payment.

    • B. 

      Included in Jack's federal gross estate if Jack paid the premiums until his death.

    • C. 

      Never included in Jack's federal gross estate.

    • D. 

      Always included in Jack's federal gross estate.

  • 2. 
    Colleen transferred ownership of a whole life insurance policy on her life to an Irrevocable Life Insurance Trust (ILIT) six years ago and retained the right to borrow against the policy.  When Colleen dies, the proceeds of the life insurance policy are:
    • A. 

      Included in Colleen's federal gross estate if she has any outstanding loans against the life insurance policy.

    • B. 

      Included in Colleen's federal gross estate if Colleen continued paying the policy premiums after the life insurance policy was transferred to the ILIT.

    • C. 

      Never included in Coleen's federal gross estate.

    • D. 

      Always included in Colleen's federal gross estate.

  • 3. 
    Carol and Joe, unrelated business partners, began operating a drug store in southern Florida.  They funded a buy/sell agreement with a cross-purchase life insurance arrangement.  Carol purchased a life insurance policy with Joe as the insured, and Joe purchased a life insurance policy with Carol as the insured.  If Carol dies, which of the following is/are true?1) The death benefit of the life insurance policy on Carol's life, owned by Joe, is excluded from Carol's federal gross estate.2) The death benefit of the life insurance policy on Carol's life, owned by Joe, is included in Carol's federal gross estate if Carol own's 50% or more of the stock of the drug store.3) The value of the life insurance policy on Joe's life, owned by Carol, is included in Carol's federal gross estate.4) The death benefit of the life insurance policy on Carol's life, owned by Joe, is included in Carol's federal gross estate.
    • A. 

      1 only

    • B. 

      1 and 3

    • C. 

      1, 2, and 3

    • D. 

      1, 2, 3, and 4

  • 4. 
    Many individuals who have been diagnosed with terminal illnesses sell their life insurance policies to viatical settlement providers.  Which of the following statements is true regarding the transfer of a policy from an individual with a terminal illness to a viatical settlement provider?
    • A. 

      If the individual dies within three years of the transfer , the full proceeds of the insurance policy are included in his federal gross estate.

    • B. 

      The individual is subject to capital gain taxes on the difference between his adjusted basis in the life insurance policy and the amount paid to him by the viatical settlement provider.

    • C. 

      Regardless of when the individual dies, the payment from the viatical settlement company is excluded from income tax.

    • D. 

      If the individual lives for more than one year after the transfer, the individual will be subject to income tax on the payment from the viatical provider.

  • 5. 
    Last year, Jerry gave a life insurance policy with a $400,000 death benefit to his son, Brad.  At the time of the gift, the value of the life insurance policy was $50,000 and Jerry had to pay $5,000 in federal gift tax.  Jerry unexpectedly died this year.  What amount will be included in Jerry's federal gross estate related to this life insurance policy?
    • A. 

      $5,000

    • B. 

      $400,000

    • C. 

      $405,000

    • D. 

      $455,000

  • 6. 
    Four years ago, Marvin gave a life insurance policy with a  $750,000 death benefit to his daughter, Marsha.  At the time of the gift, the value of the life insurance policy was $65,000, and Marvin paid $10,000 in federal gift tax.  Marvin unexpectedly died this year.  What amount will be included in Marvin's federal gross estate related to this life insurance policy?
    • A. 

      $0

    • B. 

      $10,000

    • C. 

      $65,000

    • D. 

      $750,000

  • 7. 
    Louie gave a $1,000,000 life insurance policy on his own life to his brother.  At the date of the gift, the life insurance policy was valued at $200,000.  Which of the following statements regarding the gift of this life insurance policy is correct?
    • A. 

      If Louie dies two years after this gift, his federal gross estate will include $200,000.

    • B. 

      If Louie dies four years after this gift, his federal gross estate will include $200,000.

    • C. 

      If Louie dies two years after this gift, his federal gross estate will include $1,000,000.

    • D. 

      If Louie dies four years after this gift, his federal gross estate will include $1,000,000.

  • 8. 
    As part of his employee benefits package, Larry's employer provided him with a $50,000 term life insurance policy.  Larry named his wife, Cynthia, as the sole beneficiary of the life insurance policy.  Which of the following statements is true with regard to this life insurance policy?
    • A. 

      Because the term insurance policy is part of a group term life insurance policy, the death benefit payable to Cynthia is considered taxable income.

    • B. 

      At Larry's death, the death benefit payable to Cynthia will be included in Larry's federal gross estate.

    • C. 

      Larry cannot change the beneficiary of the life insurance policy without Cynthia's prior written approval.

    • D. 

      If Cynthia dies before Larry, her federal gross estate will include the life insurance policy death benefit.

  • 9. 
    James owned a life insurance policy with his brother Fred, as the insured.  When James died, his will specifically bequeathed the policy to his sister, Lolita.  Which of the following statements regarding the value of the life insurance policy to include in James' federal gross estate is not true?
    • A. 

      If the life insurance policy is a term life insurance policy, the value is the unused premium.

    • B. 

      Because Fred is still alive, the value of the policy included in the gross estate is zero.

    • C. 

      If the life insurance policy is a whole life policy in pay status, the value is equal to the unearned premium plus the interpolated terminal reserve.

    • D. 

      If the life insurance policy is a paid-up or single premium life insurance policy, its value is its replacement cost.

  • 10. 
    Which of the following is not a reason for using life insurance in an estate plan?
    • A. 

      The proceeds of the life insurance policy can be used to create liquidity for the decedent's estate.

    • B. 

      The proceeds of the life insurance policy can be used to eliminate any debt for the decedent's surviving spouse.

    • C. 

      The insured can borrow the death benefit from the life insurance policy to fund his retirement.

    • D. 

      Expected future education expenses can be funded with the death benefit of the life insurance policy.

  • 11. 
    Which of the following statements regarding term life insurance is correct?
    • A. 

      The premium on a term life insurance policy reflects the actuarial risk that the insured will die during the term of the contract.

    • B. 

      The cash accumulation account of a term life insurance policy is invested in the bond portfolios of the insurer.

    • C. 

      The cash accumulation account of a term life insurance policy is invested in individual stocks selected by the insured.

    • D. 

      The premium of a term life insurance policy will decrease as the pure cost of life insurance increases.

  • 12. 
    Travis, 28, and his wife, 26, have recently moved into a new home.  They financed $350k of the $500k purchase price and utilized all of their savings to pay the down payment of $150k.  Travis's wife stays at home with their 3-year old son, Alex, and is expecting a baby in two months.  Which of the following statements s not correct?
    • A. 

      Travis should consider a 30 year term life insurance policy on his life which could fund his children's educational needs if he should die during the term.

    • B. 

      A universal life insurance policy would provide Travis with the insurance protection of a term life insurance policy and would also provide him with a tax-deferred savings mechanism.

    • C. 

      A whole life insurance policy would provide Travis with the least expensive temporary life insurance needed to eliminate the mortgage at his death.

    • D. 

      Travis should consider a whole life insurance policy on his life which could fund his children's educational needs or pay off the mortgage if he dies while those needs exist, and which could also provide Travis with a source of funds if he lives through his retirement.

  • 13. 
    Mary selected her son as the beneficiary of a whole life insurance policy on her life.  Which of the following statements concerning this beneficiary designation is incorrect?
    • A. 

      Mary could have chosen her son and her daughter as co-beneficiaries.

    • B. 

      If Mary lists her nephew as the contingent beneficiary of the whole life insurance policy, her nephew will collect the death benefit if her son dies before Mary.

    • C. 

      If Mary entered an irrevocable beneficiary designation, she is the complete owner of the life insurance policy and can amend the irrevocable beneficiary designation at anytime.

    • D. 

      At Mary's death, her son will receive the death benefit of the life insurance policy.

  • 14. 
    Which of the following statements regarding universal life insurance policies is true?
    • A. 

      As long as the premium of a universal life insurance policy is pad the insurer guarantees that the life insurance policy will remain in force.

    • B. 

      A universal life insurance policy will be cancelled if the pure cost of insurance protection increases and the cash accumulation account does not have the funds to pay the additional cost.

    • C. 

      Funds within the cash accumulation account of a universal life insurance policy cannot be used to pay the policy premium.

    • D. 

      A universal life insurance policy allows the insured to select the csh accumulation account investments.

  • 15. 
    Raphael is the owner of a variable life insurance policy on his life.  His wife, Isabel is the designated beneficiary.  Which of the following statements is correct?
    • A. 

      If Isabel dies before Raphael, Isabel must include the value of the life insurance policy in her federal gross estate.

    • B. 

      At Raphael's death, the variable life insurance policy death benefit will be paid to Isabel.

    • C. 

      When the beneficiary of a life insurance policy is the wife of the insured/owner, the death benefit payable to the wife is included in the insured's probate estate.

    • D. 

      As beneficiary, Isabel can borrow against the death benefit during Raphael's life.

  • 16. 
    Jason is the owner of a paid-up whole life insurance policy on his own life.  All of the following statements are correct except:
    • A. 

      Jason has title to the whole life insurance contract.

    • B. 

      Jason can borrow against the cash value of the whole life insurance policy.

    • C. 

      The death benefit of the whole life insurance policy will be included in Jason's federal gross estate.

    • D. 

      If Jason gifts the whole life insurance policy to his son, the value for gift tax purposes is the sum of the policy's interpolated terminal reserve plus any unearned premium.

  • 17. 
    Jim purchased a yacht from Ronald for $200k seven years ago.  The terms of the sale included a note of $50k and cash for the remaining amount.  Ronald had a zero basis in the yacht.  Immediately after purchasing the yacht, Jim's business began to fail and Jim could no longer make the payments.  In exchange for the note, Jim gave Ronald a life insurance policy on his life with a face value of $50k.  This year, Jim died and Ronald received the death benefit as the designated beneficiary of the policy.  How much of this death benefit is taxable to Ronald?
    • A. 

      $0

    • B. 

      $50,000

    • C. 

      $150,000

    • D. 

      $200,000

  • 18. 
    In which of the following situations would the death benefit of a life insurance policy be taxable, partially or wholly?
    • A. 

      Deborah, as designated beneficiary, received the $80k death benefit of Larry's life insurance policy. Larry had purchased the policy for $35k from his employer when he retired in 1997.

    • B. 

      Clean-it, LLAC, received the $100k death benefit of David's life insurance policy. In 1990, David, the owner of 50% of the stock of Clean-it, LLC sold the policy to Clean-it for $12,000 as part of an entity-type buy-sell agreement.

    • C. 

      Weakam, Ullo, and Evans, LLP, received the $1MM death benefit of a life insurance policy on Randy Evans, one of the managing partners. Randy had sold the policy to Weakam, Ullo, and Evans, LLP in 1945 when the business was just starting out as part of an entity-type buy-sell agreement.

    • D. 

      Adam sold a $100k death benefit life insurance policy to Dawson for $35k as part of cross-purchase buy-sell agreement. Dawson and Adam were the only two shareholders of Cupper Corporation and each owned a policy on the other.

  • 19. 
    Pamela's dad, Tim, died on August 10 of this year.  Six years ago, Tim had gifted ownership of a paid-up $1MM whole life insurance policy on his life with a replacement value of $150k and an adjusted basis of $100k to Pamela.  If Pamela, as designated beneficiary, receives the death benefit of the life insurance policy this year, how much will be taxable to her?
    • A. 

      $0

    • B. 

      $50,000

    • C. 

      $100,000

    • D. 

      $1,000,000

  • 20. 
    Jerry is the owner, the insured, and the beneficiary of a whole life insurance policy.  Which of the following situations regarding this scenario is incorrect?
    • A. 

      When Jerry dies, his federal gross estate will include the death benefit of the life insurance policy.

    • B. 

      When Jerry dies, his probate estate will include the death benefit of the life insurance policy.

    • C. 

      Jerry's estate will include the death benefit in its taxable income.

    • D. 

      If Jerry designates a new beneficiary before he dies, and the beneficiary is alive at the tie of Jerry's death, the death benefit will be excluded from his probate estate.

  • 21. 
    Which of the following is not a valid settlement option for the designated beneficiary of a life insurance policy?
    • A. 

      A lump-sum payment of the death benefit.

    • B. 

      Individual Retirement Account Rollover.

    • C. 

      Life Annuity

    • D. 

      Term Annuity.

  • 22. 
    Jackie's father died last month and she is the listed beneficiary on his insurance.  Jackie has contacted the insurer and has requested a lump-sum payment of the death benefit of the life insurance policy.  Which of the following statements regarding this lump-sum payment is true?
    • A. 

      When Jackie receives the lump-sum payment of the death benefit from the insurer, part of the payment will be taxable.

    • B. 

      Because Jackie has elected a lump-sum payment of the death benefit, she will actually receive a payment less than the face value of the policy.

    • C. 

      Had Jackie elected the life annuity, each payment would have been excluded from her gross income.

    • D. 

      Jackie could have elected to leave the death benefit on deposit with the insurer and continue the tax-deferred growth of the policy.

  • 23. 
    Who has the right to surrender a life insurance policy for its cash surrender value?
    • A. 

      The insured of the life insurance policy.

    • B. 

      The owner of the life insurance policy.

    • C. 

      The beneficiary of the life insurance policy.

    • D. 

      The insurer of the life insurance policy.

  • 24. 
    At age 69, John, a widower, needs more than his pension and Social Security income to pay his living and medical expenses.  His children do not have the resources to help him and he has already liquidated his individual retirement accounts.  Which of the following is true if John decides to surrender his whole life insurance policy to the insurer?
    • A. 

      John would receive the present value (using the actuarial factors according to John's life expectancy) of the life insurance policy death benefit.

    • B. 

      Any amount of surrender value paid to John would reduce the death benefit payable to the listed beneficiary of the policy dollar-for-dollar.

    • C. 

      To surrender the life insurance policy, John must receive the approval of the listed beneficiary of the life insurance policy.

    • D. 

      The surrender value of the policy would be paid to John and the life insurance contract would be cancelled.

  • 25. 
    Gayle is the owner and insured on a $1MM face value life insurance policy in pay status.  Gayle's adjusted basis in the life insurance contract is $250k.  If Gayle gifts this life insurance policy to her daughter and listed beneficiary, Celeste, which of the following statements is correct?
    • A. 

      After the date of the gift, any dividends paid on the life insurance policy will be taxable to Gayle.

    • B. 

      Celeste can amend the beneficiary designation of the life insurance policy to include her son, Matt, as a co-beneficiary.

    • C. 

      If Celeste dies before Gayle, Celeste's probate estate will include the replacement value of the life insurance policy.

    • D. 

      If Gayle dies within 3 years of the gift of the life insurance policy to Celeste, the death benefit will be included in Gayle's probate estate.

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