AEP Advanced Estate Planning Techniques 4

Question 1

Under the special use valuation election (IRC §2032A), farm or closely held business real property may be valued at its actual use value rather than fair market value, subject to a maximum reduction of approximately:

Accepted Answer

$1,390,000 (indexed for inflation)

Answer

IRC §2032A permits a reduction in the value of qualified real property up to the indexed limit (approximately $1.39 million in recent years), reducing the estate tax burden for qualifying farms and businesses.

Question 2

A self-canceling installment note (SCIN) differs from a standard installment sale because the note automatically cancels at the seller's death, which creates what income tax consequence for the buyer?

Accepted Answer

The buyer recognizes cancellation of debt income at the seller's death

Answer

When a SCIN is cancelled at the seller's death, the buyer generally recognizes ordinary income equal to the amount of debt forgiven, as it constitutes cancellation of indebtedness income.

Question 3

The 'estate equalization' strategy is most beneficial for married couples where one spouse has a significantly larger estate because it:

Accepted Answer

Ensures both estates fully utilize the applicable exclusion amount

Answer

Estate equalization transfers assets between spouses so that each estate is sized to fully utilize the applicable exclusion amount, avoiding the scenario where one spouse's estate far exceeds their exclusion while the other's is underutilized.

Question 4

Which of the following is a key advantage of using a 'super-charged CRAT' or 'accelerated charitable remainder trust' strategy?

Accepted Answer

Funding a CRAT with a deferred annuity to defer trust payouts and extend the charitable deduction period

Answer

A supercharged CRAT is funded with a deferred annuity that accumulates inside the trust on a tax-deferred basis, deferring distributions and potentially extending the charitable benefit period.

Question 5

For a Grantor Retained Annuity Trust (GRAT) to be successful as a wealth transfer tool, the assets transferred must grow at a rate exceeding:

Accepted Answer

The IRC Section 7520 rate (120% of the applicable federal midterm rate)

Answer

A GRAT transfers wealth to heirs only to the extent trust assets outperform the §7520 hurdle rate; if assets grow faster than that rate, the excess passes to heirs gift-tax free.

(AEP) Accredited Estate Planner Practice Test

(AEP) Accredited Estate Planner Practice Test

AEP Advanced Estate Planning Techniques 4