American College Fundamentals of Estate Planning test Sample Questions:

1. Alan, a widower, is a retired executive with substantial assets. He wishes to provide for the financial security of his two grandchildren since their father, Alan's son, has always managed money poorly. This year Alan would like to provide each grandchild with a substantial gift. Which of the following statements concerning the impact of the generation-skipping transfer tax (GSTT) on these transfers is correct?

A) Alan could avoid all GSTT by holding all his property until death and providing direct bequests for the grandchildren in his will.
B) Federal estate or gift tax will also be imposed on the gifts that are subject to the GSTT.
C) A direct gift of $1.5 million to each grandchild made during Alan's lifetime is exempt from GSTT.
D) Any GSTT applicable to the gifts is imposed at a marginal rate based on Alan's wealth.

2. A widower dies leaving a net probate estate of $300,000. At the time of his death, his descendants are as follows:
*A son, Joe, who has no children;
*A deceased daughter, Mary, whose two children, Irene and Sally, survive; and
*A daughter, Anne, who has one child, Harry
Assuming that the widower's will provides for the distribution of his assets in equal shares to his children, per stirpes, which of the following correctly states the amounts each descendant will receive?

A) $60,000 to Joe, $60,000 to Irene, $60,000 to Sally, $60,000 to Anne, and $60,000 to Harry
B) $100,000 to Joe, $50,000 to Irene, $50,000 to Sally, and $100,000 to Anne
C) $75,000 to Joe, $75,000 to Irene, $75,000 to Sally, and $75,000 to Anne
D) $100,000 to Joe, $50,000 to Irene, $50,000 to Sally, $50,000 to Anne, and $50,000 to Harry

3. A father plans to create a trust for the benefit of his 22-year-old son and wishes to take advantage of the gift tax annual exclusion. He has named a bank as trustee. Which of the following trust provisions would cause the gifts to be ineligible to qualify for the gift tax annual exclusion?
1.The trust income is to be paid to the son or accumulated at the discretion of the trustee.
2.The income is to be accumulated until the son reaches age 32 when all accumulated income and principal are to be distributed to him.

A) Neither 1 nor 2
B) 1 only
C) 2 only
D) Both 1 and 2

4. All the following statements concerning an entity-purchase buy-sell agreement for a partnership are correct EXCEPT:

A) It is the surviving partners who purchase the decedent's business interest so that the partnership can afford to pay the decedent's estate.
B) Both the partners and the partnership are parties to the agreement that provides for business continuation.
C) The partnership, in effect, liquidates the interest held by the decedent-partner's estate.
D) The partnership makes payments to the decedent-partner's estate to liquidate the partnership interest held by the estate.

5. A married man is the sole owner of a small business with an estate tax value of $500,000. In addition, he and his wife own an office building as joint tenants with right of survivorship which they purchased five years ago. The building has an estate tax value of $1,500,000. They are considering dissolving the joint tenancy and retitling the building in the name of the husband as sole owner. All the following statements concerning this action are correct EXCEPT:

A) If the husband dies first, the probate costs of his estate could be increased.
B) At the husband's death, it would be easier to qualify his estate for an IRC Section 303 stock redemption of his business interest.
C) If the husband dies first and leaves the office building outright to his wife, there would be no federal estate tax attributed to its inclusion in his gross estate.
D) At the husband's death, his heirs would get a fully stepped-up tax basis for the property.

Solutions: