QUESTION: 125

A father wants to accumulate funds for his 12-year-old son's college education. On the advice of his attorney, the father establishes an IRC Section 2503(c) trust and funds it with annual gifts. All the following statements concerning this arrangement are correct EXCEPT:

In the event of the son's death prior to age 21, trust assets must either be payable to the son's estate or be subject to a general power of appointment held by the son.
The trust must be irrevocable.
Any accumulated income and all trust principal must be available for distribution to the son when he attains age 21.
The father's annual gift tax exclusion must be reduced by any amount used to pay college tuition costs.

Answer(s): D

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QUESTION: 126

Which of the following acts by a person other than a lawyer is clearly an unauthorized practice of law?

A sister drafts a will for her brother using printed forms.
A CLU explains to a client how a life insurance policy may solve estate liquidity needs.
A CPA designs an estate plan for presentation to a client.
A trust officer gives a client advice about the taxation of a trust.

Answer(s): A

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QUESTION: 127

A father and son have been farming land owned by the father for the past 12 years. Just prior to his death, the father was offered $900,000 for his farm because of its possible use as a shopping center. The son would like to continue to farm the land if it can be included in his father's estate at its current use value. Additional facts are:
1. Average annual gross rentals from nearby farms of similar acreage are $36,000.
2. Average annual state and local real estate taxes on the farm are $4,000.
3. The interest rate for loans from the Federal Land Bank is 8 percent.

For federal estate tax purposes, the farm method valuation formula would result in a current use value for the farm of

$600,000
$300,000
$500,000
$400,000

Answer(s): D

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QUESTION: 128

All the following statements concerning lifetime gifts are correct EXCEPT:

A substantial amount of property may be given away over a period of time without the imposition of the federal gift tax because of the annual exclusion.
The amount of gift tax paid within 3 years of death is included in the gross estate.
If a wealthy widower lives more than 3 years after making a taxable gift to his sister, the value of the gift has no effect on his federal estate tax liability.
Gifts of life insurance within 3 years of death are included in the donor-insured's gross estate.

Answer(s): C

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QUESTION: 125

QUESTION: 126

QUESTION: 127

QUESTION: 128

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