Taxation & Legal Considerations Flashcards
7 cards from real CEA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Taxation & Legal Considerations flashcards as text
A decedent dies with a gross estate of $15 million. After allowable deductions the taxable estate is $12.4 million. Using the 2024 federal exemption of $13.61 million, what is the federal estate tax owed?
Answer: $0, because the taxable estate is below the exemption
Because the taxable estate of $12.4 million is below the 2024 unified exemption of $13.61 million, no federal estate tax is owed.
Which legal document gives a designated person authority to make financial decisions on behalf of a living individual who has become incapacitated?
Answer: Durable power of attorney
A durable power of attorney remains effective upon incapacity and grants the agent authority over financial matters.
Under the step-up in basis rule, an heir who inherits stock originally purchased for $10,000 but worth $90,000 at the decedent's death will have a cost basis of:
Answer: $90,000 (fair market value at death)
IRC § 1014 steps up the heir's basis to the asset's fair market value on the date of death, eliminating any built-in gain.
A married couple wants to maximize estate tax savings using portability. What must the surviving spouse do to use the deceased spouse's unused exemption (DSUE)?
Answer: File a timely federal estate tax return (Form 706) for the deceased spouse's estate
Portability is only available if the executor of the first spouse's estate files a Form 706 electing to transfer the DSUE, even if no estate tax is owed.
Which type of trust is designed specifically to hold life insurance proceeds outside of the insured's taxable estate?
Answer: Irrevocable life insurance trust (ILIT)
An ILIT owns the life insurance policy so that proceeds are not included in the insured's gross estate upon death.
The annual federal gift tax exclusion allows an individual to give up to a certain amount per recipient per year without gift tax consequences. What is the 2024 annual exclusion amount?
Answer: $18,000
The IRS adjusted the annual gift tax exclusion to $18,000 per recipient for 2024, up from $17,000 in 2023.
Under the kiddie tax rules, unearned income of a dependent child above the threshold is taxed at:
Answer: The parents' marginal tax rate
The kiddie tax taxes a child's unearned income above the threshold at the parent's marginal rate to prevent income-shifting strategies.