QUESTION: 21

A father plans to create a trust for the benefit of his 22-year-old son and wishes to take advantage of the gift tax annual exclusion. He has named a bank as trustee. Which of the following trust provisions would cause the gifts to be ineligible to qualify for the gift tax annual exclusion?

1. The trust income is to be paid to the son or accumulated at the discretion of the trustee.
2. The income is to be accumulated until the son reaches age 32 when all accumulated income and principal are to be distributed to him.

1 only
Neither 1 nor 2
Both 1 and 2
2 only

Answer(s): C

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QUESTION: 22

Which of the following statements concerning the inclusion and valuation of all or part of a commercial annuity in the estate of an annuitant is (are) correct?

1. A life annuity with a period certain is includible to the extent of the present value of any
remaining guaranteed payments.
2. If the executor elects the alternate valuation date, an annuity is includible at its replacement cost 6 months after death.

Neither 1 nor 2
Both 1 and 2
2 only
1 only

Answer(s): D

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QUESTION: 23

Generally all the following statements concerning life insurance arrangements for partnership buy sell agreements are correct EXCEPT:

With an entity-purchase agreement the formula used for determining the number of life insurance policies needed is N (number of partners) + 1.
With an entity-purchase agreement the partnership strives to maintain face amounts of coverage equal to its obligations under the agreement.
With a cross-purchase agreement each partner purchases life insurance on the life of each of the other partners.
With a cross-purchase agreement the individual partners are the applicants, owners, beneficiaries and premium-payers of the policies.

Answer(s): A

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QUESTION: 24

Which of the following statements concerning a testamentary trust is correct?

It becomes effective only at the death of the grantor.
It saves federal and state death taxes at the death of the grantor.
The trust terms must be included in the will.
The assets in the trust are free of probate costs.

Answer(s): A

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QUESTION: 24