Sample Questions and Answers
What is the “estate tax exemption” for individuals in 2025?
A) $5 million.
B) $12.92 million.
C) $10 million.
D) $15 million.
Answer: B
What is the purpose of the “gift tax”?
A) To tax transfers of property made during life, to prevent estate tax avoidance.
B) To prevent individuals from transferring assets to charity without paying taxes.
C) To apply only to transfers of property after death.
D) To tax all inherited property, regardless of the decedent’s relationship with the beneficiary.
Answer: A
Which of the following can be deducted from the gross estate for estate tax purposes?
A) Funeral expenses and debts owed by the decedent.
B) The value of property held in a revocable trust.
C) The value of life insurance proceeds paid to beneficiaries.
D) The value of gifts made by the decedent during their lifetime.
Answer: A
What is the “step-down” in basis rule?
A) It adjusts the basis of property downward when the value of the property at the time of death is less than its original cost.
B) It allows a stepped-up basis when property is inherited from a decedent.
C) It reduces the capital gains tax on inherited property.
D) It eliminates any capital gains taxes on inherited property.
Answer: A
What is the main feature of a “charitable remainder trust” (CRT)?
A) It provides income to the donor or other beneficiaries during their lifetime, with the remainder going to charity.
B) It provides income to charity for a set period, with the remainder going to the donor’s heirs.
C) It allows the donor to donate the property while still retaining complete control.
D) It avoids both estate and income taxes for the donor.
Answer: A
Which of the following statements about “gift splitting” is true?
A) Gift splitting allows a married couple to combine their annual gift exclusions to give a larger gift to a single recipient.
B) Gift splitting applies only to gifts made to children under the age of 18.
C) Gift splitting can only occur if the couple files jointly for income tax purposes.
D) Gift splitting can be used to avoid paying estate taxes entirely.
Answer: A
What is the “annual exclusion” for gifts made to individuals in 2025?
A) $15,000.
B) $16,000.
C) $17,000.
D) $18,000.
Answer: C
Which of the following can “estate tax portability” benefit?
A) A surviving spouse by allowing them to use the unused portion of the deceased spouse’s estate tax exemption.
B) Charitable organizations that receive bequests.
C) Children who inherit a portion of the estate.
D) Creditors of the decedent’s estate.
Answer: A
What is the main advantage of a “spendthrift trust”?
A) It provides a way to protect assets from creditors and ensures the assets are used for the benefit of the beneficiary according to the trust’s terms.
B) It ensures that the beneficiary will have immediate access to the assets.
C) It avoids all taxes on the income generated by the trust assets.
D) It allows the trust grantor to retain control over the assets during their lifetime.
Answer: A
What is a “generation-skipping trust” (GST)?
A) A trust designed to allow assets to pass to grandchildren or later generations without incurring generation-skipping transfer taxes.
B) A trust that skips the probate process entirely.
C) A trust that avoids paying any estate or gift taxes.
D) A trust used only for charitable donations.
Answer: A
What is the “federal estate tax filing threshold”?
A) $10 million.
B) $5 million.
C) $12.92 million.
D) $20 million.
Answer: C
What is the “gift tax lifetime exemption”?
A) The total amount that an individual can transfer during their lifetime or at death without incurring gift tax.
B) The amount that an individual can gift to a charitable organization during their lifetime without incurring tax.
C) The amount of the estate tax exemption for decedents.
D) The tax imposed on gifts made to non-family members.
Answer: A
What is the primary purpose of an “irrevocable trust”?
A) To remove assets from the grantor’s taxable estate and protect them from creditors.
B) To give the grantor full control over the assets during their lifetime.
C) To reduce income taxes on assets held in the trust.
D) To ensure that all assets remain in the grantor’s estate for tax purposes.
Answer: A
Which of the following statements is TRUE regarding “testamentary trusts”?
A) Testamentary trusts are created in a will and become effective only after the decedent’s death.
B) Testamentary trusts are created during the lifetime of the decedent and can be altered by the decedent at any time.
C) Testamentary trusts are revocable during the decedent’s lifetime.
D) Testamentary trusts are primarily used to distribute assets to charity.
Answer: A
What is a “qualified personal residence trust” (QPRT)?
A) A trust that allows a person to transfer ownership of a primary residence or vacation home while retaining the right to live in the home for a specified period.
B) A trust that protects the assets of a personal residence from estate taxes.
C) A trust that provides a tax-free transfer of a home to a surviving spouse.
D) A trust that allows for tax-free rental income from a residence to be used by family members.
Answer: A
What is the primary benefit of a “living will”?
A) It specifies the medical treatments a person wants or does not want if they become incapacitated.
B) It allows a person to designate the beneficiaries of their estate after death.
C) It specifies how debts and taxes are to be paid after death.
D) It provides instructions for how assets are to be distributed during the grantor’s lifetime.
Answer: A
What is a “grantor retained annuity trust” (GRAT)?
A) A trust that allows the grantor to receive an annuity for a specified period, with the remainder passing to beneficiaries, potentially minimizing estate taxes.
B) A trust that gives the grantor control over the trust assets during their lifetime.
C) A trust that pays out its income to charity for a set number of years.
D) A trust that eliminates capital gains tax on appreciated property.
Answer: A
What does the “unified gift and estate tax system” mean?
A) The same exemption amount applies to both gifts made during life and property passed at death.
B) It allows for the elimination of both gift and estate taxes for transfers to family members.
C) It allows individuals to reduce estate taxes by transferring assets to charity.
D) It applies only to estates worth over $10 million.
Answer: A
What is the “inclusion ratio” used in relation to a “charitable remainder trust”?
A) It is used to determine the portion of the trust that qualifies for the charitable deduction.
B) It determines the portion of the trust that is taxable to the grantor.
C) It calculates the total amount that can be donated to charity.
D) It measures the trust’s performance relative to other investments.
Answer: A
Which of the following is a key feature of “estate tax deferral”?
A) The ability to postpone the payment of estate taxes until the assets are sold or distributed.
B) The ability to avoid paying estate taxes by transferring all assets to charity.
C) The ability to transfer assets tax-free to a spouse.
D) The ability to avoid paying gift tax on lifetime transfers.
Answer: A
What is the “death tax” in estate planning?
A) The combined tax on both estates and gifts, including estate tax and gift tax.
B) A tax imposed on life insurance proceeds paid to beneficiaries.
C) A tax on capital gains realized upon the sale of inherited assets.
D) A tax on income earned by the decedent’s estate after death.
Answer: A
What is the “estate tax due date”?
A) The estate tax return is due within nine months after the date of the decedent’s death, unless an extension is granted.
B) The estate tax return is due on the decedent’s birthday in the year of their death.
C) The estate tax return is due six months after the estate is transferred to beneficiaries.
D) The estate tax return is due one year after the decedent’s death.
Answer: A
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