Estate Planning Case Questions Part 2 2.1. Mary is considering a gift to the art institute and has tentatively selected the value fund. If the entire fund is donated, what is the amount of the income tax deduction in the current year? A $41,500 B. $50,000 C. $62,700 D. $83,000 2.2. If Fred and Mary decide to leave the value fund to the art institute at Mary's death under her will, which of the following is the amount of the charitable income tax deduction at that time? A. $0 B. $41,500 C. $50,000 D. $83,000 2.3. If Fred contributes the projected value of the growth fund at his retirement to a single-life CRAT, which of the following is correct? A. The charitable income tax deduction will be approximately $323,000 that year. B. The charitable gift tax deduction at that time will be $110,000. C. A subsequent sale of the fund by the CRA T will eliminate capital gains taxes in future years for Fred. D. The entire amount is removed from his taxable estate at his death. 2.4. Which of the following is correct regarding the whole Life policy at Mary's death? A. The death benefit is payable and is income-tax-free. B. Any excess premiums paid over the cash value are deductible on Mary's final income tax return. C. The cash value is included in Mary's gross estate. D. The excess of the death benefit over the aggregate cost basis is a transfer for value. 2.5. Which of the following is correct regarding Fred's group life policy? A. Fred can avoid imputed income by allocating the cost of his individual term policy as an offset. B. lf Mary predeceases Fred, the benefit is payable to Ted. C. The death benefit is not only income-tax-free, but is also excluded from Fred's gross estate. D. he employer cannot deduct the premium for coverage in excess of$50,000. 2.6. Which of the following is most likely the best strategy for Fred's individual term policy? A. Elect a life-income option with 10-year certain for Mary, to preserve the marital deduction. B. Transfer the policy to the irrevocable trust to remove the proceeds from Fred's estate and to allow for annual exclusion gifts. C. Change the beneficiary to a newly created revocable living trust with reduce-to-zero provisions. D. Gift the policy to Fred's business to effectuate the funding for a cross-purchase buy-sell agreement. 2.7. If Fred's death is prior to Mary's, which of the following asset transfers is a potential terminable interest? A. The group term insurance B. The value fund C. The 401(k) plan balance D. The business 2.8. If Fred dies today, what is the amount of the marital deduction related to the personal residence? A. $0 B. $111,000 C. $222,000 D. $450,000 2.9. In the current situation, if Fred dies today and Mary dies four years later, which of the following represents the amount of the prior transfer credit Mary's estate may take? A. 0% B. 20% C. 40% D. 60% 2.10. In order to achieve Fred's objectives regarding his business inte ...

1. Estate Planning Case Questions Part 2
2.1. Mary is considering a gift to the art institute and has
tentatively selected the value fund. If the entire fund is donated,
what is the amount of the income tax deduction in the current
year?
A $41,500
B. $50,000
C. $62,700
D. $83,000
2.2. If Fred and Mary decide to leave the value fund to the art
institute at Mary's death under her will, which of the following
is the amount of the charitable income tax deduction at that
time?
A. $0
B. $41,500
C. $50,000
D. $83,000
2.3. If Fred contributes the projected value of the growth fund
at his retirement to a single-life CRAT, which of the following
is correct?
A. The charitable income tax deduction will be approximately
$323,000 that year.
B. The charitable gift tax deduction at that time will be
$110,000.
C. A subsequent sale of the fund by the CRA T will eliminate
capital gains taxes in future years for Fred.
D. The entire amount is removed from his taxable estate at his
death.
2.4. Which of the following is correct regarding the whole Life
policy at Mary's death?
A. The death benefit is payable and is income-tax-free.
B. Any excess premiums paid over the cash value are deductible

2. on Mary's final income tax return.
C. The cash value is included in Mary's gross estate.
D. The excess of the death benefit over the aggregate cost basis
is a transfer for value.
2.5. Which of the following is correct regarding Fred's group
life policy?
A. Fred can avoid imputed income by allocating the cost of his
individual term policy as an offset.
B. lf Mary predeceases Fred, the benefit is payable to Ted.
C. The death benefit is not only income-tax-free, but is also
excluded from Fred's gross estate.
D. he employer cannot deduct the premium for coverage in
excess of$50,000.
2.6. Which of the following is most likely the best strategy for
Fred's individual term policy?
A. Elect a life-income option with 10-year certain for Mary, to
preserve the marital deduction.
B. Transfer the policy to the irrevocable trust to remove the
proceeds from Fred's estate and to allow for annual exclusion
gifts.
C. Change the beneficiary to a newly created revocable living
trust with reduce-to-zero provisions.
D. Gift the policy to Fred's business to effectuate the funding
for a cross-purchase buy-sell agreement.
2.7. If Fred's death is prior to Mary's, which of the following
asset transfers is a potential terminable interest?
A. The group term insurance
B. The value fund
C. The 401(k) plan balance
D. The business
2.8. If Fred dies today, what is the amount of the marital
deduction related to the personal residence?

3. A. $0
B. $111,000
C. $222,000
D. $450,000
2.9. In the current situation, if Fred dies today and Mary dies
four years later, which of the following represents the amount
of the prior transfer credit Mary's estate may take?
A. 0%
B. 20%
C. 40%
D. 60%
2.10. In order to achieve Fred's objectives regarding his
business interest, which of the following techniques is most
appropriate?
A. Private annuity for Fred's life, exchanging the business to
Ted
B. Self-canceling installment note, with Ted as purchaser
C. One-way buy-sell agreement, with Ted as purchaser
D. Placement of the business in the irrevocable trust
2.11. Assuming that Fred and his co-shareholders adopt a stock-
redemption agreement, which of the following is correct?
A. The value of Fred's interest will be pegged for estate tax
purposes but may be more than $10 million.
B. $10 million will be the amount included in Fred's estate for
the value of his business interest.
C. Up to $30 million in business value could be included in
Fred's estate due to the attribution rules.
D. The amount included in Fred's estate will be $10 million plus
the requisite life insurance funding.
2.12. Which of the following is correct regarding debts and
expenses paid at Fred's death?
A. The mortgage is deductible in full from the gross estate.
B The car loan is 50% deductible from the gross estate.

4. C. The mortgage is 50% deductible from the gross estate.
D. The car loan is not deductible from the gross estate.
2.13. In an effort to reduce the ultimate amount included in
Fred's gross estate, which of the following would most likely be
an effective technique?
A. Corporate recapitalization, using new preferred and common
stocks and gifts of stock .
B. Transfer of Fred' s business interest to a newly created
revocable living trust with reduce-to zero provisions.
C. Use of a lack-of-marketability discount to reduce the price in
a new corporate stock redemption agreement.
D. Employment of a minority discount in a new cross-purchase
agreement.
14. If Fred funds his irrevocable trust today with a transfer of
the growth fund, which of the following is correct regarding the
generation-skipping transfer tax (GSTT)?
A. Fred should file a Form 709 to claim the GSTT exemption.
B. The transfer will be excluded from gift and GST tax under
the annual exclusions.
C. The gift to the trust is considered a taxable distribution for
GSTT purposes.
D. The gift to the trust will be deemed a taxable termination, as
Fred's ownership rights are terminated.
2.15. If Fred makes an absolute assignment of his individual
term policy to Ted for Ned's special needs,
which of the following is correct?
A. The transfer qualifies for the GST tax annual exclusion.
B. Fred would use up some of his GST tax exemption to
eliminate the GST tax.
C. The action is deemed to be a taxable distribution under the
GSTT rules.
D. The transfer is not subject to the GST tax.
2.16. If Fred and Mary transfer the value fund to the private

5. special education school for Ned's benefit, which of the
following is correct?
A. The transfer will be fully excluded from the GST tax.
B. Under the GSTT gift-splitting rules, only $55,000 is subject
to GSTT.
C. The transaction will constitute a taxable, indirect generation
skip.
D. $83,000 is the measurement of the taxable termination of
Fred and Mary's ownership rights.
2.17. At Mary's death, the personal representative
(executor) of the will must perform which of the following
duties?
A. Pay off the car loan.
B. Arrange for the transfer of the whole life policy.
C. Pour over assets at the conclusion of probate to the
irrevocable trust.
D. Include the value fund in the probate estate.
2.18. Based on Fred and Mary's objectives, which of the
following is the best selection in terms of a post-death fiduciary
for Fred's estate?
A. Ted, due to his status as the only adult child
B. Mary, as the surviving spouse
C. Ted and Mary, as co-fiduciaries
D. A bank trust department
2.19. At Ted's death, which of the following best represents the
duty of the successor-trustee?
A. Arrange to collect the life insurance proceeds.
B. Merge the trust with Maria's trust for ongoing management.
C. Open the probate estate to close off creditors after the
statutory period.
D. Admit Fred's letter to Ted in the probate process.

6. 2.20. If Fred dies today, what total amount is considered IRD?
A. $0
B. $160,000
C. $345,000
D. $385,000
2.21. If Fred dies today, which of the following is the amount of
the income tax deduction the beneficiary of the IRD assets can
deduct?
A. $0
B. $17,000
C. $228,000
D. $245,000
2.22. If Fred dies today, which of the following statements
concerning the use of a Section 303 redemption by Fred's
executor is correct?
A. Fred's estate will not qualify unless Ted operates the
business after Fred's death.
B. The estate can benefit from use of the Section 303
redemption, whether Mary disclaims assets or not.
C. Fred's estate cannot receive any benefit from a Section 303
redemption because the business will receive a step-up in basis
at Fred's death.
D. Fred's estate can benefit from the Section 303 redemption
only if Fred completes a buy-sell agreement for the business
interest.
2.23. If Fred wishes to add a provision to his will to create
flexibility to reduce overall estate costs and taxes for the
family, which of the following is most appropriate?
A. Qualified disclaimer trust
B. Section 2032A special use valuation
C. QTIP trust
D. Alternate valuation date provision

7. 2.24. Which of the following techniques should be used to
provide for a child of a previous marriage and still provide for
Mary?
A. Change Fred's will to leave the business interest in a QTIP
trust giving Mary income for life
and the remainder to Ted.
B. Change Fred's will to leave the house and business interest to
his irrevocable trust.
C. Set up a revocable trust for Felicity, Harmony, and Ned and
transfer the business interest to
the trust.
D. Sell the business interest now to Ted in an installment sale.
2.25. If F red wants to use the business interest for an
inheritance for a child of a previous marriage, which of the
following statements concerning a buy-sell agreement is
correct?
A. The buy-sell agreement should provide for a trust for Ted
and Ned to buy the stock.
B. The buy-sell agreement should provide for Ted, Felicity, and
Harmony to buy the stock.
C. The buy-sell agreement should provide for Harold and Gerald
to buy Fred’s stock.
C. The buy-sell agreement should not be arranged.
4
ESTATE PLANNING
Topics 53-73
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8. FRED AND MARY FERRIS
PERSONAL IN FORMA TION
Fred and Mary Ferris have engaged your services for the
development of a comprehensive financial plan.
Their primary concerns, however, revolve around estate
planning objectives.
Fred, age 52, is a one-third owner of an automobile parts
supplier in Michigan. The business has survived the
cyclical nature of the auto industry through a combination of
high-quality parts, just-in-time delivery, and
superior cost containment.
Mary, also 52, works part-time at the art institute, mostly to
satisfy her aesthetic senses. She expects to
continue working until age 60.
This is a second marriage for Fred, whose first wife died at age
32 in a car accident. Fred has one son from
that marriage, Ted, age 28, who is happily married but has
fmancial difficulties due to his one child, Ned, age
3, who has special needs.
Together, Fred and Mary have two daughters, both in private
high school. Felicity is an honors student in her
junior year, and Harmony is a sophomore and has musical
talent.
Name Relationship Occupation Notes
Fred Husband Business Ovner Successful
Mary Wife Docent at art institute Charitably inclined

9. Ted Son Retail sales Married; special-needs child
Felicity Daughter HSjunior Scientifically gifted
Harmony Daughter HS sophomore Musically gifted
Mary has been generous with her time in helping Ted with his
special-needs son Ned. Her assistance has
solidified her excellent relationship with Ted and his wife
Maria, a Canadian citizen. In addition, Mary is quite
interested in leaving substantial amounts to the art institute at
her death.
Fred's business operates as a C corporation; Fred is an equal
one-third owner with Harold Dietz and Gerald
Keats. They are seriously contemplating a number of business
agreements, including a buy-sell agreement, a
non-qualified deferred-compensation plan, and a stock option
plan of some kind. All three seek your advice in
these matters.
A recent business valuation produced a fair market value of $30
million for the business, with an expectation
of 8% annual growth in the next 15 years. As all three owners
are in their 50s and want to retire at age 66, they
are concerned with successor management.
Fred recently sent a registered letter to Harold and Gerald,
indicating his intent that his son Ted should receive
his share ofthe business at Fred's death. At this point, Ted is
becoming increasingly interested in his father's
business as a career.
The owners each draw an annual salary of $150,000 and take
equal bonuses, depending on profitability.
Bonuses have averaged $50,000 each in the last five years.
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10. Estate Planning (Topics 53·73)
The business has impLemented a 401 (k) plan with a matching
contribution of$.50 per dollar on the first 6% of
employee contributions. A dozen well-paid factory workers all
participate.
© 2014 Keir Educational Resources 155 800-795-5347
Estate Planning ITopics 53-73)
The employees and their families are all covered by an excellent
group health insurance plan, as well as group
term life insurance equal to their base salary. A separate
employer-paid group long-term disability plan also
covers all employees for 60% of base pay, with a 90-day
elimination period. The group LTD plan is integrated
with Social Security and workers' compensation.
ESTATE PLANNING DOCUMENTS
Fred and Mary Ferris each have wills, leaving everything to the
survivor. Each will contains a 120-day
survivorship clause. In a simultaneous death, the will and state
law presume that the wife survives. Ifthere is
no surviving spouse, the children ofthe testator share equally.
They each named their surviving spouse as the
executor.
Fred executed an unfunded irrevocable trust four years ago for
the benefit of his children and grandchildren

11. that he hopes to use in the future. There is no withdrawal right
in the trust.
Fred and Mary have made no prior taxable gifts.
At Fred's suggestion, Ted and Maria have created standard
revocable living trusts with marital and residuary
trusts. Large life insurance policies were also purchased on Ted
and Maria ($500,000 each), payable to their
respective trusts.
LIFE INSURANCE SUMMARY
Insured Owner TYP"e Face Amount Premium Beneficiary
Fred Fred Group term $150,000 Employer- Primary: Mary
paid Secondary: Ted
Fred Mary Whole life $250,000 $4,200/year Primary: Mary
Secondary: None
Fred Fred IS-year terrn $1,000,000 $1,800/year Primary: Mary
Secondary: None
e 2014 [email protected]' Educational Resources 156
www.keirsueeess.com
Cash and cash equivalents: J
Cash value of life ins.: W
Short-tenn fixed-inc. fund: J
Value fund: J
Growth fund: HI
Global fund: H
SPDA: H2

12. 401 (k) plan: H3
529 plans: H4
Business: H
Residence: J
Personal property: J
Car:H
$ 31,000
36,000
40,000
83,000
110,000
31,000
160,000
225,000
110,000
10,000,000
450,000
75,000
25,000
Total Assets $11,376,000
H=Husband
W=Wife
Balance Sheet
Fred and Mary Ferris
December 31, Last Year
Liabilities

13. Car loan: H
Mortgage: J
Total Liabilities
Net Worth
Total Liabilities and
$ 17,000
228,000
$ 245,000
$11,131,000
NetWOlth $11,376,000
J = Joint tenancy with right of survivorship
IPayable on death: Mary
2Single-premium deferred annuity, issued 7/1/80; the initial
premium was $40,000, and the estate is beneficiary.
3Beneficiary: Mary
4Mary is the successor-owner at Fred's death; the average
annual return has been 0%.
INVESTMENT DETAIL
Asset Fair Market Basis Projected Purchased
Value Growth Rate
Short-tenn fixed-
income fund $40,000 $41,000 1% 3 years ago
Value fund $83,000 $50,000 7% 2 years ago
Growth fund $110,000 $50,000 8% 8 years ago

14. Global fund $31,000 $22,000 6% 4 years ago
© 2014 Keir Educational Resources 157 800-795-5347
Estate Planning (Topics 53-73)
Inflows
Salary: Fred
Bonus: Fred
Salary: Mary
Interest/Dividends
Total Inflows
Outflows
Mortgage: principal and interest
Real estate tax
Homeowners insurance (HO-3)
Maintenance/Repairs
Food
Clothing
Utilities
Car loan
TraveWacationiEntertainment
Life insurance
Fred and Mary Ferris
Cash Flow Projection
Current Year
$150,000
50,000

15. 25,000
Reinvested
$225,000
$ 31,200
6,200
820
8,300
7,800
4,000
5,600
7,200
16,000
Educational funding (daughters' 529 plans)
401(k) plan contribution: Fred
6,000
56,000
16,000
10,000
30,000
Charitable contributions
Federal income tax
State income tax
Federal and state payroll taxes
Total Outflows
Surplus
Goals and Objectives (in order of priority)

16. 8,000
10,674
$223,794
$1,206
1. Provide $120,000 of annual after-tax cash flow to the
surviving family members at the death of either
spouse.
2. Pay the remaining mortgage balance at the death of either
spouse.
3. Provide adequate college funding for their daughters.
4. Provide assistance to Ted for Ned's care.
5. Eliminate the federal estate tax at the first death.
6. Reduce or eliminate the federal estate tax at the second death.
7. A void probate at death or incapacity.
8. Secure professional financial assistance for the survivors
after either spouse's death.
9. Ensure adequate retirement income from all sources,
including the sale of the business interest.
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