AEP Taxation in Estate Planning 3

Question 1

Which of the following best describes the concept of 'portability' under federal estate tax law?

Accepted Answer

Allowing a surviving spouse to use the deceased spouse's unused estate tax exemption

Answer

Portability allows a surviving spouse to elect to use any unused federal estate tax exemption of the first deceased spouse by filing a timely estate tax return.

Question 2

Under the special use valuation rules of IRC §2032A, qualifying real property used in a farm or closely held business can be reduced in value by a maximum of:

Accepted Answer

$1,390,000 (2024 indexed amount)

Answer

IRC §2032A permits qualifying real property to be valued at its actual use rather than highest-and-best use, with the reduction capped at an annually indexed amount (approximately $1,390,000 in 2024).

Question 3

A Qualified Personal Residence Trust (QPRT) removes the value of a home from a grantor's taxable estate by:

Accepted Answer

Transferring the remainder interest to heirs at a discounted gift tax value

Answer

A QPRT transfers a discounted remainder interest to heirs gift-tax-efficiently because the present value of the future remainder is less than the current fair market value of the home.

Question 4

For gift tax purposes, which of the following transfers qualifies for the annual exclusion under IRC §2503(b)?

Accepted Answer

A gift of a present interest in property

Answer

The annual gift tax exclusion applies only to gifts of present interests—those where the donee has an immediate right to use, possess, or enjoy the property.

Question 5

An irrevocable life insurance trust (ILIT) keeps life insurance proceeds out of the insured's gross estate primarily because:

Accepted Answer

The insured holds no incidents of ownership in the policy

Answer

Under IRC §2042, life insurance is included in the gross estate if the decedent held any incident of ownership; an ILIT ensures the trust, not the insured, owns the policy.

(AEP) Accredited Estate Planner Practice Test

(AEP) Accredited Estate Planner Practice Test

AEP Taxation in Estate Planning 3