HS330 Online Practice Questions and Answers

A father is considering giving his daughter a gift. For tax planning purposes, the father should give his daughter which of the following?

A. Raw land that cost him $10,000, its present fair market value, but which has a substantial potential for appreciation

B. Real estate that cost him $40,000 and is now worth $120,000, subject to a $110,000 mortgage

C. Stock that cost him $10,000 and which now has a fair market value of $20,000

D. A bond that cost him $15,000 and is now worth $10,000

A father and son have been farming land owned by the father for the past 12 years. Just prior to his death, the father was offered $1,200,000 for his farm because of its possible use as a shopping center. The son would like to continue to farm

the land if it can be included in his father's estate at its current use value. Additional facts are:

1.Average annual gross rentals from nearby farms of similar acreage are $56,000.

2.Average annual state and local real estate taxes on the farm are $8,000.

3.The interest rate for loans from the Federal Land Bank is 8 percent.

For federal estate tax purposes, the farm method valuation formula would result in a current use value for the farm of

A. $700,000

B. $820,000

C. $600,000

D. $500,000

All the following statements concerning real property ownership by married couples as joint tenants with right of survivorship are correct EXCEPT:

A. In common-law states the total value of the property receives a stepped-up tax basis in the estate of the first spouse to die.

B. The deceased spouse's interest in the property qualifies for the marital deduction since it passes outright to the surviving spouse.

C. Jointly held property between spouses does not pass through the probate estate of the first spouse to die.

D. All benefits of ownership remain available to the surviving spouse without interruption during the administration of the deceased spouse's estate.

When the owner of a closely held business dies, the payment of a portion of the federal estate tax may be deferred for a period of several years if the estate otherwise qualifies under the provisions of IRC Section 6166. Which of the following statements concerning this deferral of federal estate tax is correct?

A. To qualify for the tax deferral, the closely held business must represent more than 50 percent of the value of the decedent's adjusted gross estate.

B. Under certain circumstances, the estate will forfeit its right to tax deferral, and all the remaining unpaid estate tax will become due and payable immediately.

C. The interest on the unpaid estate tax is payable over the first 10 years, after which the tax plus interest on the balance is payable in equal installments for the last 5 years.

D. The interest rate on the deferred tax is determined by the prime rate in effect on the date of death.

All the following statements concerning the ownership of real property as joint tenants with right of survivorship are correct EXCEPT:

A. If the joint tenants are two brothers and each contributed one half the property's purchase price, only one half the property's value will be in the estate of the first brother to die if his executor proves that the other brother contributed half of the purchase price.

B. If the joint tenants are husband and wife, because this is a qualified joint interest, one half the value of the property will be in the estate of the first spouse to die regardless of which spouse contributed to the purchase price.

C. If the joint tenants are brother and sister, no portion of the value of the property will be in the sister's estate if she dies first provided her executor proves that the brother contributed all the funds.

D. If three sisters inherited property as joint tenants with right of survivorship, the entire value of the property will be in the estate of the first sister to die.

A single man with substantial assets and income is supporting his 80-year-old partially senile mother with monthly cash gifts. He is trying to find a practical way to support his mother while at the same time saving federal gift and income taxes without giving up ultimate control of any assets. Which of the following courses of action will best accomplish these objectives?

A. Purchase corporate bonds that pay interest in an amount sufficient for her to support herself and assign the interest payments to her

B. Make her a gift of enough corporate bonds from his portfolio so that she will be able to support herself from the interest payments

C. Make her annual gifts of enough interest income from the tax free municipal bonds in his portfolio so that she will be able to support herself

D. Make her an interest free loan with a principal amount large enough to produce sufficient income for her support when invested in corporate bonds

All the following are proper actions on the part of a trustee EXCEPT

A. purchasing assets for personal use from the trust at their fair market value with the approval of all beneficiaries

B. investing trust assets in speculative securities in accordance with the provisions of the trust instrument

C. placing cash from the sale of securities in a non-interest bearing checking account for an extended period of time

D. purchasing securities in good faith from a third party just prior to a sharp decrease in their value

All the following are grounds for contesting a will EXCEPT:

A. The widow was bequeathed less than her intestate share.

B. The instrument is a forgery.

C. The testator did not have testamentary capacity.

D. The testator executed a later valid will.