NAB Estate and Tax Planning 3

Question 1

What does the 'step-up in basis' rule provide to an heir who inherits an appreciated asset?

Accepted Answer

The heir's basis is adjusted to the asset's fair market value at the date of death

Answer

IRC Section 1014 resets the heir's cost basis to the fair market value on the decedent's date of death, eliminating capital gains tax on pre-death appreciation.

Question 2

Which of the following assets typically passes directly to a named beneficiary outside of the probate process?

Accepted Answer

Life insurance policies with a named beneficiary

Answer

Life insurance proceeds with a named beneficiary pass by contract directly to that beneficiary, bypassing the decedent's probate estate.

Question 3

A decedent's gross estate is $15 million and the applicable exclusion amount is $13.61 million. What is the amount subject to federal estate tax?

Accepted Answer

$1,390,000

Answer

The taxable estate equals the gross estate minus the applicable exclusion: $15M − $13.61M = $1.39M.

Question 4

What is the primary purpose of a pour-over will used alongside a revocable living trust?

Accepted Answer

Transfer any probate assets into the living trust at death

Answer

A pour-over will acts as a safety net, directing any assets not already in the trust to flow into it upon the testator's death.

Question 5

Under IRC Section 2032A, which valuation method permits a family farm or closely held business to be valued at current use rather than highest and best use?

Accepted Answer

Special use valuation

Answer

Section 2032A special use valuation can reduce the estate value of qualifying real property used in farming or a trade or business.

(NAB) National Australia Bank Practice Test

(NAB) National Australia Bank Practice Test

NAB Estate and Tax Planning 3