CES Taxation of Estates & Trusts 4

Question 1

What is a Qualified Terminable Interest Property (QTIP) trust's primary tax advantage?

Accepted Answer

It qualifies for the marital deduction while allowing the first spouse to control ultimate distribution

Answer

A QTIP trust qualifies for the unlimited marital deduction and defers estate tax, while the first spouse controls who receives assets at the surviving spouse's death.

Question 2

A decedent owned stock with a basis of $10,000 and FMV of $200,000 at death. What is the beneficiary's basis?

Accepted Answer

$200,000 (stepped-up basis)

Answer

Under IRC §1014, the beneficiary receives a stepped-up basis equal to the FMV at the decedent's date of death, eliminating the built-in gain.

Question 3

When does a step-DOWN in basis occur for inherited property?

Accepted Answer

When the asset has declined in value below the decedent's original cost basis

Answer

If the FMV of inherited property at death is lower than the decedent's basis, the beneficiary receives a stepped-down basis equal to the lower FMV.

Question 4

Which type of trust is NOT subject to the compressed trust income tax brackets because income is taxed directly to the grantor?

Accepted Answer

Grantor trust

Answer

A grantor trust's income is taxed directly to the grantor on their personal return, bypassing the compressed trust tax brackets entirely.

Question 5

A trust that is required to distribute all of its income currently and makes no corpus distributions is classified as:

Accepted Answer

A simple trust

Answer

A simple trust must distribute all current income, makes no principal distributions, and cannot make charitable contributions in the tax year.

(CES) Certified Estate and Trust Specialist Practice Test

(CES) Certified Estate and Trust Specialist Practice Test

CES Taxation of Estates & Trusts 4