Estate, Trust, and Gift Taxation Practice Quiz

Estate, Trust, and Gift Taxation Practice Quiz

 

Which of the following is a key feature of the estate tax system in the United States?

A) It taxes only the wealth inherited by heirs.
B) It taxes the net value of an estate over a specific threshold.
C) It only applies to estates of corporations.
D) It is a tax on income earned by an estate.

Which of the following is subject to the gift tax?

A) A transfer of property to a charity.
B) The sale of property between family members.
C) A gift made to a friend exceeding the annual exclusion limit.
D) A transfer of property to a spouse under a will.

What is the purpose of the marital deduction in estate taxation?

A) To encourage heirs to donate to charity.
B) To reduce the taxable estate for a surviving spouse.
C) To impose a higher tax on estate transfers between spouses.
D) To eliminate the estate tax for the deceased spouse.

A trust created by a decedent’s will is known as a:

A) Testamentary trust.
B) Revocable living trust.
C) Irrevocable trust.
D) Charitable remainder trust.

What is the annual gift exclusion amount for 2025?

A) $10,000
B) $15,000
C) $17,000
D) $20,000

Which of the following is considered income in respect of a decedent (IRD)?

A) Social Security benefits
B) Accrued wages at the time of death
C) Life insurance proceeds
D) Property inherited under a will

Which of the following best describes the generation-skipping transfer tax (GSTT)?

A) It applies only to transfers of real property.
B) It is a tax on gifts made directly to grandchildren or great-grandchildren.
C) It is an income tax on estate earnings.
D) It applies only to tax-exempt entities.

What is the federal estate tax exemption amount in 2025?

A) $5 million
B) $10 million
C) $12 million
D) $15 million

If a decedent’s estate is valued at $11 million, which of the following is true regarding the estate tax?

A) The estate will be exempt from estate tax.
B) The estate will be taxed on the entire $11 million.
C) Only the amount exceeding the exemption threshold will be taxed.
D) The estate will incur a penalty for being over the exemption limit.

Which of the following items can reduce the gross estate for estate tax purposes?

A) Life insurance proceeds
B) Charitable deductions
C) Inherited property
D) Property passing through probate

A decedent’s estate passes property directly to a surviving spouse. Which of the following taxes is not applicable?

A) Estate tax
B) Gift tax
C) Generation-skipping transfer tax
D) No taxes apply due to the marital deduction

What does the “steps up in basis” rule refer to in estate taxation?

A) It refers to increasing the estate tax rate for inherited property.
B) It allows heirs to apply a higher tax rate on inherited assets.
C) It provides a higher basis for assets when inherited, reducing capital gains tax.
D) It reduces the value of the estate to avoid estate taxes.

Which type of trust is irrevocable and typically used for charitable purposes?

A) Charitable remainder trust.
B) Revocable living trust.
C) Qualified terminable interest property trust.
D) Spendthrift trust.

Which of the following best describes an irrevocable trust?

A) It can be changed or terminated at the discretion of the grantor.
B) It becomes effective only after the grantor’s death.
C) It cannot be altered or revoked by the grantor after its creation.
D) It is only used for income tax purposes.

The gift tax applies to:

A) All transfers of property during a person’s lifetime.
B) Only transfers above the annual exclusion amount.
C) Only property given to family members.
D) Property transferred to a nonprofit organization.

What is the key purpose of an estate plan?

A) To avoid paying estate taxes.
B) To ensure assets are transferred according to the decedent’s wishes.
C) To delay inheritance taxes.
D) To minimize income tax liability.

Which of the following is an example of an estate tax exclusion?

A) Qualified terminable interest property (QTIP).
B) The lifetime gift tax exemption.
C) Inheritance of a business interest.
D) Charitable donations made during life.

Which of the following gifts is most likely exempt from gift tax?

A) A gift of $10,000 to a child.
B) A gift of a $50,000 home to a grandchild.
C) A donation to a charity.
D) A gift of stock to a business partner.

The basic exclusion amount in estate taxation is:

A) $1 million.
B) $5 million.
C) $12 million.
D) $15 million.

Which of the following is subject to both the gift tax and the generation-skipping transfer tax?

A) Gifts made to a child.
B) Gifts made to a surviving spouse.
C) Gifts made to a grandchild.
D) Gifts made to a charitable organization.

How is the estate tax calculated?

A) Based on the value of assets transferred to heirs.
B) Based on the gross estate after deductions and exemptions.
C) Based on the decedent’s net income.
D) Based on how much an heir receives.

Which of the following would NOT be included in the gross estate for estate tax purposes?

A) Life insurance proceeds payable to the decedent’s spouse.
B) Property owned jointly with a surviving spouse.
C) Property inherited from a deceased parent.
D) Gifts made within three years of death.

In the case of a revocable living trust, which of the following is true?

A) The trust’s assets are excluded from the decedent’s estate.
B) The grantor can alter or revoke the trust at any time.
C) The trust cannot be used to avoid estate taxes.
D) The trust is automatically irrevocable upon the grantor’s death.

Which of the following is a characteristic of a dynasty trust?

A) It terminates after 21 years.
B) It is designed to benefit multiple generations.
C) It can only be established by a government entity.
D) It requires that assets be liquidated immediately.

If a donor makes a gift to a trust for the benefit of their children, which of the following tax implications would apply?

A) The gift would be subject to estate tax only.
B) The gift would be subject to gift tax and possibly GSTT.
C) The gift would be subject to both income and estate taxes.
D) The gift would not be taxed.

Which of the following best describes the concept of “portability” in estate taxation?

A) The ability to transfer estate tax exemptions between spouses.
B) The ability to apply tax deductions on transfers of business assets.
C) The ability to use an exemption for capital gains tax.
D) The ability to deduct life insurance premiums from the estate.

What is the tax rate on estates exceeding the federal estate tax exemption?

A) 10%
B) 25%
C) 40%
D) 50%

Which of the following is NOT considered a deductible expense for estate tax purposes?

A) Funeral expenses.
B) Administrative expenses.
C) Debts of the decedent.
D) Gifts made to the surviving spouse.

The term “step-down” basis refers to:

A) Decreasing the value of inherited assets for tax purposes.
B) A reduction in the basis of an asset to its fair market value at the time of death.
C) Increasing the value of assets inherited by a spouse.
D) A method of calculating the estate’s worth.

Which of the following statements about the tax treatment of life insurance proceeds is true?

A) Life insurance proceeds are always subject to estate tax.
B) Life insurance proceeds are excluded from the taxable estate if the decedent’s spouse is the beneficiary.
C) Life insurance proceeds are included in the taxable estate unless a third party is the beneficiary.
D) Life insurance proceeds are exempt from all taxes.

 

What is the primary purpose of an irrevocable life insurance trust (ILIT)?

A) To provide immediate income for the surviving spouse.
B) To exclude life insurance proceeds from the taxable estate.
C) To allow beneficiaries to use life insurance proceeds for estate planning.
D) To qualify for charitable deductions.

Which of the following statements about the federal gift tax is true?

A) All gifts are exempt from gift tax regardless of the amount.
B) Gift tax applies only to gifts made to individuals not related to the donor.
C) There is a lifetime exemption for gifts exceeding the annual exclusion amount.
D) Gift tax applies only to gifts made after the donor’s death.

Which of the following is considered a taxable event for gift tax purposes?

A) Giving a gift of $20,000 to a friend in one year.
B) Donating a vehicle to a charity.
C) Giving a gift within the annual exclusion limit to a spouse.
D) Passing on assets through a will after death.

Which of the following best describes the role of a trustee?

A) To distribute estate assets directly to heirs without tax consequences.
B) To manage and distribute the assets of a trust according to its terms.
C) To manage tax filings and ensure compliance with tax law.
D) To act as a personal representative for the decedent’s estate.

A gift made to a minor may be subject to:

A) Generation-skipping transfer tax.
B) Gift tax if the gift exceeds the annual exclusion.
C) Estate tax when the minor inherits assets.
D) A special trust known as a custodial trust.

What does the term “unified credit” in estate and gift taxation refer to?

A) A tax reduction available for gifts made during a person’s lifetime.
B) A tax credit that offsets both estate and gift taxes up to a specified amount.
C) A tax rate applied to gifts made to charitable organizations.
D) A credit for the value of life insurance proceeds included in the taxable estate.

Which of the following is true about charitable gifts for estate tax purposes?

A) Charitable gifts are included in the decedent’s taxable estate.
B) Charitable gifts are subject to both estate tax and gift tax.
C) Charitable donations are deductible from the taxable estate.
D) Charitable gifts only qualify for deductions if given to family members.

What is the result of gifting property with a “carryover basis”?

A) The recipient receives the property at its fair market value.
B) The donor’s original cost basis transfers to the recipient.
C) The property is excluded from the recipient’s taxable estate.
D) The recipient can choose their basis at the time of receiving the gift.

What is the “taxable estate”?

A) The value of assets transferred by a decedent through a trust.
B) The total assets of an estate before any deductions for debts or exemptions.
C) The gross value of the estate after deductions for administration expenses.
D) The net value of an estate after applying the applicable estate tax exemption.

Which of the following describes the concept of “estate freeze”?

A) A strategy used to lock in the value of an estate to avoid future estate taxes.
B) A trust that is set up to avoid all estate taxes.
C) A process in which the decedent’s assets are distributed immediately after death.
D) A method of valuing an estate based on its expected future growth.

What happens when an estate elects to pay taxes under the special use valuation?

A) The estate is exempt from all estate taxes.
B) The estate tax is reduced by revaluing the estate assets based on their use rather than market value.
C) The estate is automatically liable for generation-skipping transfer tax.
D) The estate is required to sell property to meet tax obligations.

Which of the following is the result of an estate being valued as of the date of death?

A) The estate’s value is calculated based on the decedent’s life expectancy.
B) The estate is subject to automatic valuation discounts.
C) The estate is valued using its fair market value at the time of death.
D) The value of the estate can be disputed by the decedent’s heirs.

What is a “crummey trust”?

A) A type of charitable remainder trust designed for income tax reduction.
B) A type of irrevocable trust that allows beneficiaries to withdraw funds annually, qualifying for the annual gift tax exclusion.
C) A trust created specifically for estate tax purposes, exempt from gift taxes.
D) A revocable trust designed to benefit the decedent’s children and heirs.

What is the “gross estate”?

A) The total of all assets passed to heirs after deductions for debt and expenses.
B) The value of the decedent’s estate before deductions for expenses and liabilities.
C) The taxable portion of an estate after the marital deduction.
D) The net worth of a decedent minus liabilities at the time of death.

How does the unified credit apply to estate and gift tax?

A) It applies separately to each gift made during the donor’s life.
B) It combines both gift and estate tax exclusions into one lifetime limit.
C) It eliminates any estate taxes for taxable estates under $5 million.
D) It provides a tax exemption for gifts made after the donor’s death.

What type of trust is often used to help a person qualify for Medicaid benefits while preserving assets?

A) Special needs trust.
B) Charitable remainder trust.
C) Revocable living trust.
D) Medicaid asset protection trust.

Which of the following best describes a “spendthrift trust”?

A) A trust that restricts the beneficiary’s ability to access the principal.
B) A trust established to give the grantor control over assets during their lifetime.
C) A trust created for individuals who have demonstrated financial mismanagement.
D) A type of irrevocable trust for charitable purposes.

What happens if a decedent dies without a valid will?

A) The decedent’s estate will automatically be distributed to the government.
B) The estate is distributed based on the decedent’s last living wishes.
C) State laws of intestacy govern how the estate is distributed.
D) The estate is exempt from estate tax.

Which of the following best describes the function of a generation-skipping trust?

A) It allows assets to pass directly to the grandchildren without incurring gift or estate taxes.
B) It allows the decedent to control the distribution of assets across generations.
C) It applies only to the distribution of real estate across generations.
D) It automatically distributes assets to charities.

What is the primary tax benefit of creating a charitable lead trust?

A) It helps reduce the estate tax liability of the grantor by transferring assets to charity.
B) It allows the grantor to retain full control over the trust assets.
C) It eliminates all taxes on income generated by the trust.
D) It ensures that all assets are distributed to heirs without estate tax implications.

In a taxable estate, how are debts and expenses treated for tax purposes?

A) Debts and expenses are subtracted from the taxable estate to reduce the estate tax.
B) Debts and expenses are included in the taxable estate value.
C) Debts and expenses are exempt from estate tax but must be reported on tax returns.
D) Debts and expenses must be paid before any estate taxes are calculated.

Which of the following is an example of a “qualified domestic trust” (QDOT)?

A) A trust created to transfer wealth to a surviving spouse in a way that postpones estate tax.
B) A trust that allows for the deferral of capital gains tax on inherited property.
C) A charitable trust that is fully deductible from the taxable estate.
D) A trust created to manage estate taxes in high-income situations.

What is the effect of a step-up in basis for inherited property?

A) The property’s original purchase price is used to calculate capital gains.
B) The estate tax is reduced based on the original purchase price.
C) The fair market value of the property at the time of the decedent’s death is used as the basis for calculating capital gains.
D) The property becomes exempt from any form of taxation.

How does the estate tax treat the transfer of retirement accounts such as IRAs?

A) The retirement account is excluded from the taxable estate.
B) The account is taxed based on its current market value, subject to estate tax.
C) The transfer to beneficiaries is exempt from all tax.
D) The account balance is only subject to capital gains tax.

 

Which of the following is a common estate planning tool for ensuring that assets are distributed according to the decedent’s wishes?

A) Durable power of attorney
B) Living will
C) Last will and testament
D) Joint tenancy

What is the effect of a lifetime gift exceeding the annual gift tax exclusion?

A) The gift is exempt from any tax obligations.
B) The excess amount is subject to both estate and gift taxes.
C) The gift will automatically trigger a step-up in basis.
D) The gift will reduce the taxable estate amount.

Which of the following assets is generally not included in a decedent’s gross estate?

A) Real property owned solely by the decedent.
B) Property held in a revocable trust.
C) Life insurance proceeds payable to a named beneficiary.
D) A vehicle jointly owned with a surviving spouse.

The transfer of a life insurance policy to an irrevocable life insurance trust (ILIT) is designed to:

A) Avoid income tax on the insurance policy’s proceeds.
B) Exclude the life insurance policy’s proceeds from the taxable estate.
C) Increase the policy’s death benefit.
D) Convert the policy into an income-generating asset.

Which of the following is true regarding the taxation of life insurance proceeds?

A) Life insurance proceeds are taxable as income to the beneficiary.
B) Life insurance proceeds are not taxable if the beneficiary is the estate.
C) Life insurance proceeds are always taxable to the estate.
D) Life insurance proceeds are included in the decedent’s taxable estate but not subject to income tax.

What is the role of the personal representative (executor) of an estate?

A) To manage the estate’s assets and ensure all debts and taxes are paid.
B) To represent the estate in legal proceedings for inheritance disputes.
C) To distribute the assets equally among the beneficiaries without legal obligation.
D) To create and execute the decedent’s estate plan after death.

Which of the following assets is typically excluded from the decedent’s taxable estate?

A) Property held in a revocable trust.
B) Jointly held property with a spouse.
C) Property that the decedent gave away during life.
D) Property that the decedent specifically excluded in the will.

When a trust is used to reduce estate taxes, it is most likely:

A) Revocable and can be altered at any time.
B) Irrevocable, meaning it cannot be changed after creation.
C) Created for the sole purpose of increasing the estate’s value.
D) A tax-deferred trust designed to avoid paying taxes.

In which of the following situations would a “qualified terminable interest property” (QTIP) trust most likely be used?

A) When a decedent wants to leave assets to a surviving spouse while ensuring those assets go to children after the spouse’s death.
B) When a decedent wishes to transfer assets immediately to heirs.
C) When a decedent wants to minimize the gift tax burden on children.
D) When a decedent wants to exclude life insurance proceeds from the taxable estate.

Which of the following is a key characteristic of the “gift splitting” provision between spouses?

A) It allows both spouses to combine their annual exclusion amounts for a single gift.
B) It allows a spouse to gift all their assets to the other spouse without any tax consequences.
C) It allows for the deferral of estate tax until both spouses pass away.
D) It permits a gift tax exemption for gifts given to children.

What is a common method used to minimize the impact of estate taxes on small businesses?

A) Gifting the business interests during life using the annual exclusion.
B) Establishing a generation-skipping trust to transfer the business to grandchildren.
C) Valuing the business interests using the stepped-down basis rule.
D) Electing special valuation methods to reduce the value of business property for estate tax purposes.

What is the general effect of the marital deduction in estate tax?

A) It completely eliminates estate taxes on assets passed to a spouse.
B) It reduces the taxable estate by the value of property passed to a spouse.
C) It excludes a spouse’s inheritance from income tax liability.
D) It provides an automatic exemption for assets passed to a spouse.

Which of the following best describes the “five-and-five” power in trust taxation?

A) The power of a beneficiary to withdraw up to the greater of $5,000 or 5% of the trust’s value annually without incurring estate or gift taxes.
B) The power to transfer assets between generations without estate tax liability.
C) The right to withdraw a fixed amount annually, regardless of the trust’s value.
D) The ability to transfer up to $5,000 annually to a spouse without triggering gift taxes.

Which of the following is NOT a requirement for a trust to qualify for the marital deduction?

A) The trust must provide for income payments to the surviving spouse.
B) The surviving spouse must be the only beneficiary of the trust during their lifetime.
C) The property must be included in the decedent’s gross estate.
D) The trust must be irrevocable during the decedent’s lifetime.

When is the gift tax applicable?

A) Only when gifts are made to children or direct descendants.
B) Only for gifts that are larger than the value of the donor’s estate.
C) When a gift exceeds the annual exclusion or the lifetime exemption amount.
D) For gifts made to charitable organizations.

Which of the following best defines the “carryover basis” rule for gifts?

A) The recipient of a gift takes the property at the fair market value at the time of the gift.
B) The recipient of a gift takes the donor’s original cost basis, even if the fair market value is higher.
C) The property’s basis is adjusted to the fair market value at the time of the donor’s death.
D) The property is exempt from capital gains tax upon transfer.

Which of the following statements regarding a revocable trust is true?

A) The trust becomes irrevocable upon the grantor’s death.
B) The trust assets are not considered part of the grantor’s estate.
C) The grantor can alter, revoke, or change the trust at any time during their lifetime.
D) The trust is used to avoid all estate and income taxes.

How does a charitable remainder trust (CRT) benefit the donor?

A) It provides the donor with a charitable deduction and allows income from the trust for a designated period.
B) It removes assets from the donor’s estate without benefiting a charity.
C) It allows the donor to contribute to a charity without any income tax benefits.
D) It allows the donor to reduce income taxes while maintaining control over assets.

Which of the following is a significant tax advantage of a charitable lead trust (CLT)?

A) It allows the donor to avoid estate taxes on any assets transferred to the trust.
B) It provides immediate income tax deductions for the donor.
C) It eliminates the possibility of capital gains tax on the trust assets.
D) It provides a lifetime income stream to the donor while benefiting a charity.

What is the main purpose of the generation-skipping transfer tax (GSTT)?

A) To tax large estates and prevent wealth transfer within a single generation.
B) To prevent individuals from gifting assets to minors.
C) To limit the ability to transfer assets to future generations without paying estate taxes.
D) To tax gifts between generations that exceed the annual gift exclusion.

How does the IRS treat the transfer of a business interest in an estate plan?

A) The IRS imposes a higher estate tax rate on business interests.
B) Business interests are not subject to any estate taxes.
C) The IRS provides favorable treatment for qualifying business interests to reduce estate tax burdens.
D) Business interests are subject to the same tax rules as personal property.

Which of the following is an example of “qualified property” under the special use valuation rules for estates?

A) A family business or farm property.
B) Real estate used solely for rental income.
C) Cash assets and securities held by the decedent.
D) Shares of publicly traded stock.

What is the impact of the federal gift tax on gifts made to a spouse?

A) Gifts to a spouse are always subject to the federal gift tax, regardless of the amount.
B) Gifts to a spouse are generally excluded from gift tax under the unlimited marital deduction.
C) Gifts to a spouse trigger income taxes, but not gift taxes.
D) Gifts to a spouse only qualify for an exclusion if made under a will.

Which of the following is a consequence of failing to file an estate tax return when required?

A) The estate is automatically exempt from all taxes.
B) The estate may be subject to penalties and interest for noncompliance.
C) The estate will be transferred to the state without tax implications.
D) There is no consequence for failing to file as long as taxes are paid later.

 

What is the primary purpose of a “pour-over” will in estate planning?

A) To create a trust after death that directs assets to a living trust.
B) To transfer assets directly to a spouse without any estate tax implications.
C) To distribute assets among beneficiaries without the need for a trust.
D) To provide tax deductions for charitable gifts made at death.

Which of the following is true about the estate tax exemption for estates of decedents dying in 2025?

A) The estate tax exemption is fixed at $12 million.
B) The estate tax exemption is set to rise to $20 million.
C) The estate tax exemption is indexed for inflation and will increase slightly.
D) The estate tax exemption will be repealed entirely.

What is the effect of a “step-down” in basis for a gift made to a recipient?

A) The recipient receives the property at its fair market value at the time of the gift.
B) The recipient receives the property at a higher basis than the donor’s original basis.
C) The recipient receives the property at the donor’s original cost basis, even if the fair market value has decreased.
D) The recipient’s basis in the property is automatically zero.

Which of the following best defines a “dynasty trust”?

A) A trust that allows for the transfer of assets over multiple generations without incurring estate taxes.
B) A trust that provides for the decedent’s personal needs during their lifetime.
C) A trust that distributes income only to charitable organizations.
D) A trust that holds all assets in a single generation for the benefit of children only.

What is the purpose of the “portability” provision of the federal estate tax law?

A) It allows a surviving spouse to use the deceased spouse’s unused estate tax exemption amount.
B) It allows a surviving spouse to receive assets without any estate tax consequences.
C) It applies to gift tax and allows spouses to split gifts made during their lifetimes.
D) It allows the estate to be transferred to charity without incurring any taxes.

What is the “marital deduction” in estate taxation?

A) A deduction allowed for gifts to charities.
B) A deduction that excludes assets from estate tax when they are passed to a surviving spouse.
C) A tax-free transfer of assets between siblings.
D) A deduction for expenses incurred during the administration of an estate.

Which of the following is true regarding irrevocable trusts?

A) The grantor can modify or revoke the trust at any time.
B) The trust’s assets are excluded from the grantor’s taxable estate.
C) The beneficiaries can alter the terms of the trust during the grantor’s lifetime.
D) The trust must be filed with the IRS every year.

Which of the following is NOT a taxable event for estate tax purposes?

A) The transfer of assets by the decedent to heirs through a will.
B) The transfer of property from a revocable living trust.
C) The transfer of property between spouses under the marital deduction.
D) The transfer of property to a charity through a charitable remainder trust.

Which of the following is considered a non-taxable gift?

A) A gift to a charity.
B) A gift to a family member exceeding the annual gift exclusion.
C) A gift of property held in a revocable trust.
D) A gift made during the donor’s lifetime that is subject to capital gains tax.

Which of the following defines “step-up in basis” in estate tax law?

A) The basis of the property is adjusted to its fair market value on the date of death.
B) The basis of the property is increased based on the appreciation in value since the decedent’s death.
C) The basis of the property remains the same as it was at the time of acquisition.
D) The basis is reduced to zero to simplify tax filing.

What happens when a trust includes a “power of appointment” clause?

A) The trustee can make gifts on behalf of the grantor.
B) The beneficiaries can transfer trust assets to third parties.
C) The grantor can change the terms of the trust at any time.
D) A designated individual can distribute or alter the trust’s assets under specific conditions.

What is the main difference between a “simple” trust and a “complex” trust?

A) A simple trust distributes all its income to beneficiaries annually, while a complex trust can accumulate income.
B) A simple trust is only created for charitable purposes, while a complex trust is created for individuals.
C) A simple trust allows for the distribution of principal, while a complex trust does not.
D) A simple trust is subject to higher tax rates than a complex trust.

What is a key characteristic of a special needs trust?

A) It provides financial assistance to individuals with disabilities without affecting their eligibility for government benefits.
B) It allows the beneficiary to withdraw funds at their discretion.
C) It is designed to avoid both gift and estate taxes.
D) It must be created with the beneficiary’s consent.

Which of the following is true regarding the federal estate tax filing requirements?

A) All estates must file a federal estate tax return.
B) A federal estate tax return is required only for estates with a value above the exemption amount.
C) A federal estate tax return is only required for estates with taxable gifts.
D) The filing requirements are the same regardless of the estate’s value.

Which of the following can be used to reduce an estate’s taxable value?

A) Charitable donations made by the decedent during their lifetime.
B) Gifts made to a surviving spouse.
C) A homestead exemption on real property.
D) The deduction for funeral expenses paid after death.

When does a generation-skipping transfer (GST) tax apply?

A) When assets are passed down to grandchildren or more remote descendants.
B) When assets are passed to the surviving spouse of the decedent.
C) When a charitable gift exceeds the donor’s exemption.
D) When the value of the gift exceeds the annual exclusion limit.

Which of the following best describes the difference between a living trust and a testamentary trust?

A) A living trust is created during the lifetime of the grantor, while a testamentary trust is created after the grantor’s death.
B) A living trust requires court approval, while a testamentary trust does not.
C) A living trust cannot be revoked, while a testamentary trust is revocable.
D) A living trust is subject to estate tax, while a testamentary trust is exempt.

Which of the following is an advantage of a revocable living trust?

A) It avoids probate and can provide privacy for the estate.
B) It permanently removes assets from the grantor’s estate for tax purposes.
C) It automatically qualifies for an income tax deduction.
D) It provides income tax exemptions for the beneficiaries.

Which of the following best defines the term “grantor retained annuity trust” (GRAT)?

A) A trust that provides the grantor with an annuity income for a specified number of years, with the remainder going to beneficiaries.
B) A trust that allows the grantor to retain control of the property throughout their lifetime.
C) A charitable trust that pays an annuity to a charity for a set number of years.
D) A trust that defers taxes on the grantor’s income indefinitely.

How does the IRS treat the transfer of assets through a revocable living trust?

A) The transfer is considered a completed gift for tax purposes.
B) The transfer is disregarded, and the assets remain part of the grantor’s estate for tax purposes.
C) The assets are exempt from any form of taxation.
D) The transfer is treated as a taxable event, subject to both gift and estate taxes.

What is a key benefit of creating a dynasty trust?

A) It allows the grantor to pass wealth to multiple generations without incurring estate taxes.
B) It allows for the immediate distribution of estate assets after death.
C) It ensures that only a surviving spouse will benefit from the estate.
D) It provides income tax exemptions for future generations.

What is the IRS “annual gift tax exclusion”?

A) It is the maximum amount of gifts that a person can give without incurring gift tax liability each year.
B) It is the amount of a gift that is excluded from the estate tax.
C) It is the value of any gifts made to charitable organizations.
D) It refers to the amount of income a beneficiary can earn from an estate without tax consequences.

 

What does the term “gross estate” refer to in estate taxation?

A) The total value of an estate after debts and liabilities have been paid.
B) The value of the estate including all assets, whether or not they are included for tax purposes.
C) The value of the estate minus exemptions and deductions.
D) The value of the estate after the deduction of funeral expenses.

Which of the following gifts is subject to gift tax?

A) A gift to a charity exceeding the annual exclusion amount.
B) A gift to a spouse within the unlimited marital deduction.
C) A gift of a life insurance policy to a beneficiary.
D) A gift to a child under the annual exclusion limit.

Which of the following is true about the use of the “unlimited marital deduction”?

A) It allows the transfer of unlimited assets to a spouse without incurring gift or estate taxes.
B) It applies only to gifts made during the decedent’s lifetime.
C) It is applicable to all types of assets, including income-generating property.
D) It is limited to the value of the estate and cannot exceed a certain threshold.

Which of the following types of property is eligible for a step-up in basis upon the decedent’s death?

A) Property that was gifted within 1 year of death.
B) Property held in an irrevocable trust.
C) Property owned by the decedent at the time of death.
D) Property transferred to a spouse under the marital deduction.

What is the primary purpose of an irrevocable life insurance trust (ILIT)?

A) To create income for the beneficiary during the grantor’s lifetime.
B) To ensure life insurance proceeds are excluded from the taxable estate of the grantor.
C) To allow the grantor to access the life insurance proceeds during their lifetime.
D) To minimize income tax on the life insurance policy’s dividends.

What is the “generation-skipping” transfer tax (GSTT)?

A) A tax on transfers of wealth to heirs in a generation younger than the donor’s children.
B) A tax on transfers of wealth from one generation to the next.
C) A tax on the transfer of assets to a non-resident alien.
D) A tax that applies to gifts that exceed the lifetime exemption amount.

What is the tax treatment of income generated by assets in a trust?

A) Trust income is always taxed to the grantor.
B) Trust income is always taxed to the beneficiaries.
C) Trust income is taxed based on the trust’s tax brackets, which are more stringent than individual rates.
D) Trust income is only taxed when it is distributed to beneficiaries.

What is the effect of a “qualified terminable interest property” (QTIP) trust?

A) It provides income for the surviving spouse and defers estate tax until the spouse’s death.
B) It provides immediate income to charity upon the decedent’s death.
C) It distributes all assets equally to children immediately.
D) It allows the decedent to reduce their taxable estate by transferring assets to a trust.

Which of the following best describes the role of a trustee in an irrevocable trust?

A) The trustee has no fiduciary duties and cannot be held responsible for trust administration.
B) The trustee is responsible for managing and distributing the trust’s assets according to the trust document.
C) The trustee can modify the terms of the trust at any time.
D) The trustee is solely responsible for paying any estate taxes related to the trust.

What is the effect of gifting property to a trust during the grantor’s lifetime?

A) The property will be included in the grantor’s gross estate for estate tax purposes.
B) The property is excluded from the grantor’s estate but subject to income tax.
C) The property will be treated as a completed gift and not included in the estate.
D) The property’s value will be discounted for estate tax purposes.

What is a charitable remainder trust (CRT)?

A) A trust that gives a percentage of the income generated from the trust to a charity and the remainder to family members or other beneficiaries.
B) A trust that is created solely for the benefit of the charity, with no remainder given to family members.
C) A trust that is irrevocable and designed to reduce income taxes for the beneficiaries.
D) A trust that is established to avoid estate taxes by gifting assets to charity upon death.

Which of the following is NOT considered when calculating the value of an estate for tax purposes?

A) Life insurance proceeds payable to the decedent’s beneficiaries.
B) Debts owed by the decedent at the time of death.
C) Real estate owned by the decedent at the time of death.
D) Funeral expenses paid before filing the estate tax return.

Which of the following describes the use of a “grantor retained annuity trust” (GRAT)?

A) A trust that allows the grantor to receive income for a set period, with the remainder going to beneficiaries.
B) A trust that permits the grantor to gift assets to a beneficiary while retaining the right to withdraw the income.
C) A trust that avoids estate taxes but does not distribute assets during the grantor’s lifetime.
D) A trust that allows the grantor to retain a portion of the principal and income while transferring the rest to heirs.

What is the primary benefit of an irrevocable trust for estate planning purposes?

A) It allows the grantor to maintain full control over the assets during their lifetime.
B) It ensures that the assets are removed from the grantor’s taxable estate and provides potential estate tax savings.
C) It allows the trust beneficiaries to modify the terms at any time.
D) It reduces income tax liabilities for the beneficiaries.

What does the “basis” of property refer to in estate taxation?

A) The market value of property on the date of transfer.
B) The amount of gain or loss recognized when property is sold.
C) The original cost of the property or its fair market value when inherited.
D) The value of property for determining eligibility for estate tax deductions.

What is the tax advantage of using a living trust in estate planning?

A) It allows the decedent’s estate to avoid both gift and estate taxes.
B) It enables the grantor to retain control over assets during their lifetime.
C) It reduces income tax on assets transferred to beneficiaries.
D) It allows assets to pass directly to beneficiaries without going through probate.

Which of the following is true about the treatment of life insurance in estate taxation?

A) Life insurance proceeds are excluded from the taxable estate if the policy was owned by the decedent’s spouse.
B) Life insurance proceeds are always included in the taxable estate, regardless of the beneficiary.
C) Life insurance proceeds are excluded from the taxable estate if the decedent owned the policy and transferred it to an irrevocable trust.
D) Life insurance proceeds are exempt from estate taxes if the beneficiary is a charity.

What is the purpose of an estate tax “marital deduction”?

A) To reduce the taxable estate of the surviving spouse after death.
B) To provide tax-free transfers between spouses during their lifetime.
C) To exempt all transfers of assets to a spouse from federal income taxes.
D) To allow assets to pass to the surviving spouse without triggering estate taxes at the time of death.

How does the “annual gift tax exclusion” function?

A) It allows gifts made within the same calendar year to be combined to qualify for tax exemption.
B) It allows an individual to give up to $15,000 per year to a recipient without incurring gift tax.
C) It excludes all gifts made to a surviving spouse from being taxed.
D) It excludes the first $15,000 of income earned by the recipient from taxes.

Which of the following best describes a “living will”?

A) A document that outlines the distribution of assets after death.
B) A document that directs healthcare providers in the event the person becomes incapacitated.
C) A legal agreement between spouses regarding estate distribution.
D) A tax-related document that defines the value of the estate’s assets.

 

What is the federal estate tax exemption amount for individuals in 2025?

A) $10 million
B) $12.92 million
C) $15 million
D) $5 million

What is a “revocable trust”?

A) A trust that can be modified or revoked by the grantor during their lifetime.
B) A trust that is irrevocable and cannot be altered after the grantor’s death.
C) A trust used exclusively for charitable purposes.
D) A trust that is used to transfer assets to heirs without estate tax.

What happens when a decedent’s estate is required to pay estate taxes?

A) The estate taxes are paid by the beneficiaries.
B) The estate taxes are deducted from the estate’s gross value.
C) The decedent’s creditors pay the taxes before the beneficiaries receive any assets.
D) The estate is exempt from paying taxes under most circumstances.

What is the primary difference between a “living trust” and a “testamentary trust”?

A) A living trust is effective during the grantor’s lifetime, while a testamentary trust is created after the grantor’s death.
B) A living trust requires probate, while a testamentary trust does not.
C) A living trust is irrevocable, while a testamentary trust is revocable.
D) A living trust distributes assets immediately, while a testamentary trust delays distribution.

How does a “grantor retained annuity trust” (GRAT) help with estate planning?

A) It allows the grantor to retain an annuity income for a set period while transferring the remainder to beneficiaries, often reducing estate tax liability.
B) It provides a tax-free income stream for the grantor for the rest of their life.
C) It removes income from the estate without distributing any to the beneficiaries.
D) It is used exclusively for charitable purposes, with the remainder benefiting heirs.

What is the “estate tax marital deduction”?

A) It allows a surviving spouse to deduct the value of the deceased spouse’s estate from their own estate.
B) It allows the transfer of an unlimited amount of property between spouses without estate tax consequences.
C) It applies to gifts made by the decedent during their lifetime.
D) It allows the surviving spouse to defer taxes on their estate until their own death.

What is the role of a “successor trustee” in a trust?

A) To take over the duties of the original trustee if they are unable to perform their responsibilities.
B) To pay the estate taxes on behalf of the beneficiaries.
C) To determine the beneficiaries of the estate.
D) To modify the terms of the trust to suit the beneficiaries’ needs.

When must the IRS Form 706 (Estate Tax Return) be filed?

A) Within six months of the decedent’s death.
B) By the end of the month following the decedent’s birthday.
C) Within nine months after the date of the decedent’s death, with a possible extension.
D) It must be filed annually by the surviving spouse.

What does the term “basis” refer to in estate tax planning?

A) The value of an asset as determined for tax purposes at the time of sale.
B) The total value of an estate for estate tax purposes.
C) The value of property as of the date of the decedent’s death or alternate valuation date for estate tax purposes.
D) The maximum value of an estate that is excluded from tax.

Which of the following is true regarding the “gift tax exclusion”?

A) Gifts to any individual are always taxable, no matter the amount.
B) Gifts exceeding the annual exclusion amount are subject to the gift tax.
C) The gift tax exclusion applies only to gifts made to charities.
D) The exclusion applies to any amount above $10,000 per gift recipient.

What happens if an estate is valued below the estate tax exemption amount?

A) The estate is automatically exempt from estate taxes without needing to file a return.
B) The estate must still file an estate tax return, but no taxes will be owed.
C) The estate is required to pay the full amount of estate taxes, regardless of the exemption.
D) The estate must distribute a portion of its assets to the IRS as tax payment.

What is the “step-down” basis?

A) It applies to property that increases in value over time and is treated as capital gains upon sale.
B) It applies when an asset is transferred at death but is worth less than the decedent’s original purchase price.
C) It refers to the tax-free transfer of an asset to a spouse.
D) It applies to gifts made during the lifetime of the donor, increasing the basis.

What is the “generation-skipping transfer tax” (GSTT)?

A) A tax on transfers of wealth to grandchildren or more remote descendants, designed to prevent avoidance of estate taxes through multiple generations.
B) A tax on wealth passed from one generation to another, imposed on the estate of the decedent.
C) A tax that applies to all wealth transfers between siblings.
D) A tax only on transfers made to charities.

What is the primary advantage of a “charitable lead trust”?

A) It provides income to a charity for a set period, with the remainder going to non-charitable beneficiaries.
B) It allows the grantor to keep full control of the trust assets.
C) It enables assets to be transferred to heirs free of gift or estate taxes.
D) It creates an income stream for the grantor during their lifetime, with assets eventually passing to charity.

What is a “QTIP” (Qualified Terminable Interest Property) trust primarily used for?

A) To provide for a surviving spouse, allowing them to receive income from the trust during their lifetime, with the remainder going to other beneficiaries.
B) To make charitable donations after the death of the grantor.
C) To manage assets on behalf of minor children until they reach adulthood.
D) To provide tax exemptions for property held in the trust.

What is the difference between a “testamentary trust” and a “living trust”?

A) A testamentary trust takes effect after the death of the grantor, while a living trust takes effect during the grantor’s lifetime.
B) A living trust is revocable, while a testamentary trust is irrevocable.
C) A testamentary trust is created during the grantor’s lifetime, while a living trust is created upon death.
D) A living trust provides income only to charitable organizations, while a testamentary trust benefits family members.

Which of the following is an example of a taxable gift?

A) A gift to a spouse that exceeds the annual exclusion limit.
B) A gift to a charity during the donor’s lifetime.
C) A gift of property transferred to a revocable trust.
D) A gift to a child under the annual exclusion limit.

What is the “annual gift tax exclusion”?

A) The maximum value of all gifts made during a calendar year that are exempt from gift tax.
B) The amount a taxpayer can exclude from their estate tax liability every year.
C) The amount that can be transferred tax-free to any recipient during a person’s lifetime.
D) The annual exclusion amount that applies to charitable gifts made by the decedent.

What is the significance of a “taxable estate”?

A) It represents the estate value after subtracting debts and exemptions.
B) It is the estate’s value before any deductions or exemptions.
C) It includes only income-producing property.
D) It excludes the value of real estate owned by the decedent.

Which of the following can qualify for the estate tax marital deduction?

A) Only cash or publicly traded stock transferred to a surviving spouse.
B) All property transferred to the surviving spouse, as long as the surviving spouse is a U.S. citizen.
C) Only property that is jointly owned by both spouses.
D) Only property that has been subject to income taxes.

 

Which of the following types of property is NOT included in the gross estate for tax purposes?

A) Property transferred to an irrevocable trust.
B) Property jointly owned with right of survivorship.
C) Life insurance proceeds payable to a beneficiary.
D) Property held in a revocable trust.

What is the result of transferring an asset to a trust during the grantor’s lifetime?

A) The grantor retains full control over the asset for tax purposes.
B) The asset is removed from the grantor’s taxable estate for estate tax purposes.
C) The grantor is required to pay income tax on any capital gains from the asset.
D) The transfer is subject to capital gains tax, but no estate tax is incurred.

What is the “unified credit” in estate and gift taxation?

A) A credit that allows an individual to avoid paying gift tax on annual gifts up to the exclusion limit.
B) A credit that applies to both estate and gift taxes, reducing the taxable amount over a lifetime.
C) A credit applied only to estate taxes for the surviving spouse.
D) A credit that reduces the tax liability on assets transferred to charitable organizations.

What does the “date of death value” refer to in the context of estate taxation?

A) The value of the decedent’s estate based on the date of the estate tax return filing.
B) The value of the decedent’s assets at the time of their death, used to calculate estate taxes.
C) The value of the estate at the time the will is executed.
D) The value of the estate immediately after the distribution of all debts and expenses.

Which of the following best describes the concept of “probate”?

A) The process through which an estate is administered and distributed under the terms of the will.
B) The process of transferring assets to a trust after the grantor’s death.
C) The process through which the IRS determines the value of an estate for tax purposes.
D) The process of reducing estate taxes by transferring assets to a spouse.

In the context of estate taxation, what is the “alternate valuation date”?

A) The date when the decedent’s estate is filed with the IRS.
B) A date six months after the decedent’s death, used to determine the value of the estate for tax purposes.
C) The date when the decedent’s debts are paid off.
D) The date when estate taxes are due.

What is the effect of transferring an asset to a charitable organization?

A) The value of the asset is included in the decedent’s estate for tax purposes.
B) The asset is excluded from the estate tax, and the estate may receive a charitable deduction.
C) The transfer is subject to a capital gains tax if the asset has appreciated.
D) The transfer is taxable, but the decedent’s heirs receive a tax credit.

Which of the following best describes a “disclaimer” in estate planning?

A) A document that allows beneficiaries to refuse an inheritance, directing it to another beneficiary.
B) A form used to reduce the estate tax liability on property transfers.
C) A legal action that allows a trustee to avoid paying income taxes on the trust.
D) A document that prevents creditors from claiming assets in the decedent’s estate.

What is the “gift-splitting” option for married couples?

A) A strategy that allows a couple to treat a gift as if it were made by both spouses, effectively doubling the gift tax exclusion.
B) A strategy that allows a couple to gift an entire estate to one child, splitting the estate among them.
C) A strategy that reduces the gift tax liability by dividing the assets among several beneficiaries.
D) A strategy that allows the couple to divide their estate and donate the proceeds to charity.

How are capital gains treated for property transferred in an estate?

A) Capital gains are not taxed if the property is inherited.
B) Capital gains are taxed based on the value of the property at the time of the decedent’s death.
C) Capital gains are treated as ordinary income for the beneficiaries.
D) Capital gains are taxed at the decedent’s original purchase price.

What is the primary advantage of a “qualified personal residence trust” (QPRT)?

A) It allows the grantor to live in the property for a set period, reducing the taxable value of the property for estate tax purposes.
B) It removes the property from the estate, passing it to beneficiaries with no estate tax liability.
C) It allows a beneficiary to avoid income tax on the sale of the home.
D) It increases the income the grantor receives from the trust property.

What happens to a decedent’s IRAs and retirement plans for estate tax purposes?

A) They are included in the decedent’s taxable estate, and the beneficiaries may owe estate taxes on the value.
B) They are excluded from the estate and passed on to the beneficiaries tax-free.
C) They are subject to an estate tax only if they exceed the exemption limit.
D) They are taxed as ordinary income, and the estate does not owe estate tax on them.

What is the role of the executor in the probate process?

A) To ensure that debts and taxes are paid from the estate and that assets are distributed according to the will.
B) To distribute the estate’s assets directly to the beneficiaries, regardless of the will’s instructions.
C) To create a new will after the decedent’s death.
D) To dissolve the estate and liquidate all property before distribution.

What is a “grantor trust”?

A) A trust where the grantor maintains control over the assets and is responsible for the income tax on the trust’s earnings.
B) A trust that is used to make charitable donations and reduce the estate tax.
C) A trust that holds property exclusively for minor children.
D) A trust established after the grantor’s death to manage assets.

How does the “unlimited marital deduction” benefit married couples?

A) It allows for unlimited gifts between spouses without incurring gift tax, but the estate tax is deferred until the death of the second spouse.
B) It allows each spouse to transfer assets to the other up to $15,000 per year without incurring any taxes.
C) It exempts the surviving spouse from paying estate taxes on their inherited property.
D) It permits the transfer of property between spouses free of capital gains taxes.

What is the “life estate” in estate planning?

A) A form of trust where the grantor retains the right to live in a property for their lifetime, with the remainder passing to beneficiaries.
B) A trust that is established for a beneficiary who is elderly or incapacitated.
C) A form of property ownership that prevents heirs from transferring ownership of the estate.
D) A strategy that allows the decedent to reduce their estate tax by transferring assets to heirs.

How does a “special needs trust” help with estate planning?

A) It ensures that the beneficiary can receive government benefits while still benefiting from trust assets.
B) It provides tax-free transfers to a beneficiary with a disability.
C) It allows the beneficiary to qualify for tax exemptions based on their medical condition.
D) It automatically distributes assets to children with disabilities upon the decedent’s death.

What does the “estate tax exemption” allow?

A) It allows individuals to transfer a certain amount of their estate to heirs without incurring estate taxes.
B) It allows a decedent’s estate to be completely exempt from tax obligations.
C) It permits the surviving spouse to inherit assets without being taxed.
D) It exempts charitable gifts from tax only if the amount exceeds the estate exemption.

Which of the following is a feature of “income in respect of a decedent” (IRD)?

A) It refers to the income the decedent was entitled to receive, which is subject to tax when received by the beneficiary.
B) It refers to all income received by the decedent during their lifetime, which is excluded from estate tax.
C) It is a type of trust income that is exempt from income tax for beneficiaries.
D) It is income earned from gifts made during the decedent’s lifetime.

How does the “estate tax portability” benefit married couples?

A) It allows the surviving spouse to use the unused estate tax exemption of the deceased spouse, increasing their own exemption.
B) It eliminates the need for an estate tax return if the estate falls below the exemption threshold.
C) It allows for the transfer of assets between spouses without incurring gift taxes.
D) It provides a special exemption for estates held by both spouses.

 

What is the “residuary estate”?

A) The portion of the estate that remains after all debts, expenses, and specific bequests have been paid or distributed.
B) The portion of the estate that is designated for charitable donations.
C) The portion of the estate given to the decedent’s spouse.
D) The portion of the estate held in trust for minor children.

How is the “estate tax unified credit” applied?

A) It reduces the estate tax liability by applying an exemption amount to the value of the decedent’s estate and lifetime gifts.
B) It allows for an unlimited deduction of the estate value, removing it from tax liability.
C) It exempts certain assets from estate tax if they are transferred to the surviving spouse.
D) It applies only to gifts made to charitable organizations.

What is the “annual exclusion” for gifts in 2025?

A) $15,000 per recipient per year.
B) $10,000 per recipient per year.
C) $25,000 per recipient per year.
D) $12,000 per recipient per year.

What is the key feature of a “dynasty trust”?

A) It is a trust designed to pass wealth across multiple generations while minimizing estate and generation-skipping transfer taxes.
B) It is a trust that is set up for a single beneficiary.
C) It allows a single generation to manage the estate without tax consequences.
D) It is used exclusively for charitable purposes and provides tax-exempt status.

What is the role of an “executor” in the probate process?

A) To carry out the terms of the will and ensure that debts and taxes are paid before distributing assets to beneficiaries.
B) To distribute the estate’s assets without considering the will’s provisions.
C) To manage the estate’s investments and income.
D) To make changes to the will if necessary.

How is a “testamentary trust” different from a “living trust”?

A) A testamentary trust is created by a will and takes effect after the testator’s death, while a living trust is created during the testator’s lifetime.
B) A testamentary trust is revocable, while a living trust is irrevocable.
C) A testamentary trust is used only for charitable donations.
D) A testamentary trust can only hold real estate, while a living trust can hold any asset.

What is the “step-up in basis”?

A) A rule that allows beneficiaries to adjust the value of inherited assets to their fair market value at the time of the decedent’s death, reducing potential capital gains tax liability.
B) A rule that adjusts the basis of assets based on the decedent’s original purchase price.
C) A method of transferring assets to a spouse without tax consequences.
D) A rule that increases the value of the estate for tax purposes.

What is the purpose of the “generation-skipping trust”?

A) To provide for grandchildren or more remote descendants while avoiding estate taxes across multiple generations.
B) To create a financial structure for immediate family members only.
C) To allow for the elimination of income taxes on the estate.
D) To manage family property and avoid capital gains taxes.

What is the “gift tax annual exclusion”?

A) It allows a person to give a certain amount of money or property to a beneficiary each year without incurring gift tax.
B) It is a one-time exemption for all gifts made during the donor’s lifetime.
C) It applies to gifts made after the donor’s death and reduces the estate tax.
D) It applies to gifts to charity only, exempting them from tax.

Which of the following is true about “irrevocable trusts”?

A) Once created, an irrevocable trust cannot be modified or revoked by the grantor.
B) Irrevocable trusts are primarily used for charitable purposes only.
C) The grantor retains full control over the assets within an irrevocable trust.
D) Irrevocable trusts automatically reduce the estate tax liability without additional action.

How are “life insurance proceeds” treated in estate taxation?

A) Life insurance proceeds are generally included in the decedent’s estate for estate tax purposes, unless the beneficiary is the surviving spouse.
B) Life insurance proceeds are not included in the estate if the policy is transferred to a trust.
C) Life insurance proceeds are not taxable to the estate under any circumstances.
D) Life insurance proceeds are excluded from estate tax if the beneficiary is a charity.

What is a “charitable remainder trust”?

A) A trust that pays income to the grantor or other beneficiaries for a period of time, with the remainder going to a charity.
B) A trust that gives all assets to charity immediately after the grantor’s death.
C) A trust that provides income to a beneficiary for their lifetime, with the remainder going to the grantor’s heirs.
D) A trust that allows the grantor to retain control of the property while providing a tax deduction.

What is the “estate tax portability” feature for married couples?

A) It allows the surviving spouse to claim the unused portion of the deceased spouse’s estate tax exemption, increasing their own exemption amount.
B) It allows the surviving spouse to inherit assets tax-free without paying estate taxes.
C) It allows the surviving spouse to transfer property to heirs without paying estate taxes.
D) It allows married couples to reduce income taxes on jointly owned assets.

How is the value of an estate determined for tax purposes?

A) By assessing the fair market value of the decedent’s assets at the date of death or an alternate valuation date.
B) By calculating the decedent’s total income for the last year of life.
C) By using the original purchase price of all estate assets.
D) By estimating the value of assets based on the decedent’s personal statements.

What is the “estate tax exemption”?

A) The amount of an estate that is exempt from estate taxes, with the balance being subject to taxation.
B) The amount that a person can gift annually without incurring a gift tax.
C) The amount of the estate that is exempt from income tax.
D) The tax rate applied to estates exceeding a specified value.

What is a “qualified domestic trust” (QDOT)?

A) A trust used to allow a non-U.S. citizen spouse to receive estate tax benefits.
B) A trust that qualifies for a charitable deduction in the estate tax return.
C) A trust designed to hold domestic property for heirs who are minors.
D) A trust that qualifies as a tax-deferred retirement account for estate tax purposes.

What is the “gift tax”?

A) A tax on transfers of wealth made during a person’s lifetime to others, exceeding the annual exclusion amount.
B) A tax on the total value of an estate after the decedent’s death.
C) A tax on assets transferred from one spouse to another during their lifetime.
D) A tax on income earned by a trust during its existence.

Which of the following assets are NOT included in a decedent’s gross estate?

A) Life insurance policies on the decedent’s life payable to the estate.
B) Property held in an irrevocable trust created by the decedent.
C) Property jointly owned with a right of survivorship, where the decedent is the surviving owner.
D) Assets owned by the decedent that pass to heirs by will.

What is a “gift splitting” strategy for married couples?

A) A method to double the annual gift exclusion by having both spouses gift an amount to a single recipient, treated as though each spouse made half of the gift.
B) A strategy to divide an estate between children and charity in a tax-efficient manner.
C) A strategy to reduce capital gains tax by transferring assets to spouses.
D) A strategy to avoid estate taxes by splitting the estate among multiple beneficiaries.

What is the “estate tax credit” in relation to federal estate tax?

A) A credit that reduces the taxable value of an estate by a specified amount, preventing estate taxes on estates under a certain value.
B) A credit that applies to the value of estate assets owned by the surviving spouse.
C) A credit that applies only to charitable donations made by the decedent’s estate.
D) A credit that applies to the income taxes of a decedent’s beneficiaries.

 

What is the “death tax” commonly referring to?

A) Estate tax.
B) Gift tax.
C) Income tax.
D) Sales tax.

Which of the following is NOT an estate planning tool for minimizing estate taxes?

A) Revocable living trust.
B) Charitable remainder trust.
C) Irrevocable life insurance trust (ILIT).
D) Individual retirement accounts (IRAs).

What is the purpose of the “generation-skipping transfer tax” (GSTT)?

A) To tax transfers made to beneficiaries two or more generations younger than the donor.
B) To tax estate transfers between married couples.
C) To tax transfers made to charitable organizations.
D) To tax assets transferred to a living trust.

Which of the following best describes “community property” for estate tax purposes?

A) Property that is owned equally by both spouses and is subject to special estate tax treatment.
B) Property that is inherited and automatically subject to estate taxes.
C) Property owned by one spouse before marriage, which is exempt from estate tax.
D) Property that a decedent gifts during their lifetime, which does not impact the estate tax.

Which type of trust is designed to reduce estate taxes by removing assets from the taxable estate while providing income to the grantor?

A) Charitable remainder trust.
B) Irrevocable life insurance trust (ILIT).
C) Grantor retained annuity trust (GRAT).
D) Qualified personal residence trust (QPRT).

What does the “marital deduction” allow?

A) It allows unlimited transfers of property between spouses without incurring estate or gift taxes.
B) It provides a tax deduction for gifts made to a spouse during the donor’s lifetime.
C) It reduces the taxable estate of a decedent by excluding gifts to children.
D) It applies only to property inherited by the surviving spouse.

What is “gift tax”?

A) A tax on the transfer of property from one individual to another during their lifetime, exceeding the annual exclusion limit.
B) A tax on the inheritance of property after someone’s death.
C) A tax on the transfer of property between a trust and its beneficiaries.
D) A tax on the income of gifts received by individuals.

Which of the following statements about “revocable living trusts” is correct?

A) A revocable living trust helps avoid probate but does not reduce estate taxes.
B) A revocable living trust is automatically irrevocable once created.
C) A revocable living trust requires the grantor’s estate to go through probate.
D) A revocable living trust reduces income tax on the assets it holds.

What is “basis” in the context of estate planning?

A) The value of an asset at the time of the decedent’s death or when a transfer occurs.
B) The initial cost of acquiring an asset, used to calculate capital gains tax.
C) The total amount of debt associated with an asset.
D) The legal title to property after the decedent’s death.

Which of the following is a key benefit of creating a “family limited partnership” (FLP)?

A) It allows for the transfer of ownership interests to heirs at discounted values for estate tax purposes.
B) It prevents any changes to ownership during the grantor’s lifetime.
C) It eliminates the need for probate entirely.
D) It guarantees that assets will be distributed according to the decedent’s wishes.

Which of the following is TRUE regarding the “gift tax exclusion”?

A) A person can gift up to $15,000 to each recipient each year without incurring any gift tax liability.
B) The exclusion amount is the same regardless of the recipient’s relationship to the donor.
C) The exclusion applies only to gifts made to family members.
D) Gifts made under the exclusion amount are automatically exempt from estate tax.

Which of the following best describes “estate tax valuation”?

A) It determines the value of the decedent’s assets at the date of death or an alternate valuation date for tax purposes.
B) It is based on the income generated by the decedent’s assets.
C) It applies only to real estate owned by the decedent.
D) It is used to reduce the estate’s income tax obligations.

What is the effect of “transferring property to a trust” on estate taxes?

A) Property transferred to an irrevocable trust is generally excluded from the grantor’s estate for estate tax purposes.
B) Property transferred to a revocable trust is excluded from the grantor’s estate for estate tax purposes.
C) Transferring property to a trust always results in a higher estate tax liability.
D) Transferring property to any trust automatically qualifies the estate for an exemption from estate tax.

What is the “alternate valuation date” in estate taxation?

A) It is a date six months after the decedent’s death, allowing the estate to value assets based on their market value at that time.
B) It is a date selected by the decedent’s heirs to determine estate tax liability.
C) It is the date on which the decedent’s debts are calculated for estate purposes.
D) It is the date when all assets of the estate are distributed to beneficiaries.

What does a “qualified terminable interest property” (QTIP) trust allow?

A) It allows the surviving spouse to receive income from the trust during their lifetime, with the remainder passing to other beneficiaries after their death.
B) It allows assets to be immediately transferred to the beneficiaries of the trust.
C) It ensures that no estate tax is owed upon the decedent’s death.
D) It removes property from the taxable estate of the decedent’s spouse.

What is the “step-down” approach in estate planning?

A) A method for valuing assets in the estate that allows for an alternate valuation to reduce estate tax liability.
B) A technique used to reduce capital gains tax on inherited property.
C) A method for distributing assets from a revocable living trust.
D) A strategy used to transfer assets between generations without paying gift tax.

What is the “spousal rollover” for retirement accounts?

A) It allows a surviving spouse to roll over the decedent’s retirement account into their own IRA without tax consequences.
B) It allows the surviving spouse to withdraw funds from the decedent’s account tax-free.
C) It provides an automatic tax exemption on inherited retirement accounts.
D) It requires the surviving spouse to pay estate tax on the retirement account.

What is the “estate tax rate” for estates exceeding the exemption limit?

A) It ranges from 18% to 40%, depending on the value of the estate.
B) It is a flat 25% rate on all estates.
C) It is a variable rate based on the decedent’s age.
D) It is only applied to estates valued over $5 million.

Which of the following assets is generally excluded from estate tax calculations?

A) Property held in a revocable living trust.
B) Property transferred to a qualified charitable organization.
C) Life insurance proceeds paid to the estate.
D) Property jointly owned with right of survivorship.

What is the main advantage of using an “irrevocable life insurance trust” (ILIT)?

A) It removes life insurance proceeds from the decedent’s estate for estate tax purposes.
B) It allows the grantor to retain full control of the life insurance policy.
C) It enables the grantor to make unlimited gifts to heirs without paying gift tax.
D) It defers income tax on life insurance proceeds until distribution.

 

Which of the following is NOT considered a “taxable gift”?

A) A gift made to a spouse.
B) A gift to a political organization.
C) A gift of property exceeding the annual exclusion amount.
D) A gift to a charity.

What is the key characteristic of a “Grantor Retained Annuity Trust” (GRAT)?

A) It allows the grantor to retain a fixed annuity payment for a set period of time while transferring the remainder to beneficiaries, minimizing estate tax.
B) It allows the grantor to keep the assets in the trust for the remainder of their life.
C) It eliminates all estate taxes by transferring assets to beneficiaries upon the grantor’s death.
D) It allows for immediate tax-free transfers to beneficiaries.

What is the “unified credit” in estate and gift tax law?

A) A credit that allows an individual to make a lifetime gift and leave an estate up to a certain value without incurring estate or gift tax.
B) A credit that applies only to transfers of real property.
C) A credit given to all taxpayers who inherit property.
D) A credit that applies only to charitable gifts.

How is the value of an estate determined for tax purposes?

A) By assessing the fair market value of the decedent’s assets at the date of death.
B) By using the decedent’s original purchase price for the assets.
C) By estimating the future income generated by the decedent’s assets.
D) By calculating the total value of all income the decedent earned during their lifetime.

Which of the following is true about the “generation-skipping transfer” (GST) tax?

A) The GST tax applies to transfers made to beneficiaries who are two or more generations younger than the donor.
B) The GST tax is a deduction on the estate’s tax return.
C) The GST tax is calculated based on the value of the decedent’s assets.
D) The GST tax only applies to assets transferred to charitable organizations.

Which of the following is NOT a method to reduce the value of an estate for estate tax purposes?

A) Making lifetime gifts to heirs.
B) Using a qualified personal residence trust (QPRT).
C) Creating a generation-skipping trust.
D) Transferring assets to an irrevocable living trust.

What is the purpose of a “charitable lead trust” (CLT)?

A) To provide income to a charity for a specified period, with the remainder passing to non-charitable beneficiaries.
B) To provide income to non-charitable beneficiaries for a specified period, with the remainder going to a charity.
C) To reduce estate tax by donating assets immediately to charity.
D) To hold family assets in trust while allowing the decedent’s heirs to manage them.

How is the “estate tax” calculated?

A) The tax is calculated based on the net value of the estate after deductions, applying progressive tax rates.
B) The tax is calculated based on the total value of the estate before any deductions.
C) The estate tax is calculated using a flat rate of 35% for all estates.
D) The estate tax is only calculated on assets exceeding $5 million in value.

Which of the following is TRUE regarding “trust income” for tax purposes?

A) Income generated by the trust is typically taxed to the beneficiaries, not the trust itself.
B) Trust income is always taxed at the highest income tax rate, regardless of distribution.
C) Trust income is not taxable to the beneficiaries until they take possession of the income.
D) The grantor of the trust is always responsible for paying income tax on trust income, regardless of the trust structure.

Which of the following best describes a “living trust”?

A) A trust created during the grantor’s lifetime to manage assets and avoid probate after death.
B) A trust created after the grantor’s death to manage the estate.
C) A trust that provides immediate tax deductions for the grantor.
D) A trust used exclusively for charitable purposes.

What is the “gift-splitting” rule for married couples?

A) It allows both spouses to combine their annual gift exclusions, effectively doubling the amount they can gift to a recipient without incurring gift tax.
B) It allows one spouse to transfer assets to the other spouse without triggering gift tax.
C) It allows for splitting gifts made to charitable organizations between spouses for tax deduction purposes.
D) It allows spouses to gift assets to minor children without incurring gift tax.

What is the “marital deduction” for estate tax purposes?

A) A deduction that allows an individual to transfer unlimited assets to a surviving spouse without incurring estate tax.
B) A deduction that applies to transfers of real property between spouses.
C) A deduction that reduces the taxable estate of the decedent by the value of any charitable donations made in the will.
D) A deduction that allows for the transfer of estate assets to children without incurring estate tax.

Which of the following is true regarding “life insurance” in estate planning?

A) Life insurance proceeds are generally included in the estate of the decedent if they are payable to the estate.
B) Life insurance proceeds are always excluded from the estate for estate tax purposes.
C) Life insurance proceeds are exempt from both income and estate taxes.
D) Life insurance proceeds are only taxable if the policy was purchased within five years of the decedent’s death.

What is the “basic exclusion amount” for estate and gift taxes?

A) The amount of an individual’s estate that can pass tax-free to heirs, adjusted annually for inflation.
B) The amount of income that is tax-free in an estate tax return.
C) The total amount of all lifetime gifts that are excluded from gift taxes.
D) The exemption allowed for property transfers between married couples.

What is a “trustee” responsible for?

A) Managing the trust’s assets and distributing them according to the trust’s terms.
B) Drafting the terms of the trust.
C) Paying estate taxes on behalf of the beneficiaries.
D) Determining the value of the decedent’s estate.

How does the “step-up in basis” apply to inherited assets?

A) It adjusts the cost basis of inherited assets to their fair market value at the date of the decedent’s death, reducing capital gains tax liability for the heirs.
B) It eliminates capital gains taxes on all inherited assets.
C) It allows heirs to use the original cost basis of the asset to avoid paying estate taxes.
D) It applies only to assets that were gifted by the decedent before their death.

What is a “testamentary trust”?

A) A trust created through a will that only takes effect upon the death of the grantor.
B) A trust created during the lifetime of the grantor to hold assets for beneficiaries.
C) A trust that automatically transfers assets to charity after the grantor’s death.
D) A trust that can be used to transfer assets to a spouse without estate tax consequences.

How is the value of a “family limited partnership” (FLP) determined for estate tax purposes?

A) The value of the partnership is typically discounted for estate tax purposes based on factors like lack of marketability and control.
B) The value of the partnership is calculated at face value, without any discounts.
C) The partnership’s value is determined solely by the value of the real estate held within it.
D) The FLP is exempt from estate taxes entirely if it is held by family members.

What does the “unified estate and gift tax exemption” allow?

A) It allows an individual to use the same exemption amount for both lifetime gifts and transfers made at death.
B) It allows a person to make an unlimited amount of tax-free gifts during their lifetime.
C) It allows for a reduction in estate taxes for charitable gifts made by the decedent.
D) It allows for a higher exemption on the value of real estate in the estate.

Which of the following is a benefit of using a “Charitable Lead Trust” (CLT)?

A) It allows the grantor to donate to charity while retaining some income for themselves or their beneficiaries.
B) It allows the grantor to avoid paying estate taxes on assets transferred to the trust.
C) It provides a full income tax deduction for charitable donations.
D) It ensures that the grantor’s estate will pass entirely to their heirs without tax consequences.

 

Which of the following is NOT a benefit of using a “Qualified Personal Residence Trust” (QPRT)?

A) The ability to transfer a personal residence to beneficiaries at a reduced gift tax cost.
B) The ability to remove the value of the residence from the grantor’s taxable estate.
C) The ability to continue living in the residence after it is transferred to the trust.
D) The ability to avoid paying capital gains tax on the property when sold.

What is the “gift tax annual exclusion”?

A) The amount that a donor can give to an individual each year without incurring gift tax.
B) The amount a person can gift to a charitable organization without paying taxes.
C) The amount that can be deducted from a taxable estate for gifts made during the donor’s lifetime.
D) The amount the IRS allows for deductions on estate returns.

What is the “kiddie tax”?

A) A tax on the unearned income of children under the age of 18, taxed at the parents’ tax rate.
B) A tax on the inheritance a child receives from a deceased parent.
C) A tax on income earned by children from working, taxed at the child’s rate.
D) A tax on gifts made to minors by their parents.

Which of the following is the primary purpose of a “living will”?

A) To specify the medical treatments the individual desires in the event of a terminal illness.
B) To transfer assets to beneficiaries upon the individual’s death.
C) To outline the terms of the decedent’s estate distribution.
D) To avoid paying estate taxes on assets after death.

Which of the following is true about “trustee powers”?

A) A trustee has the power to manage trust assets, make distributions to beneficiaries, and ensure the terms of the trust are followed.
B) A trustee can modify the terms of the trust without the grantor’s permission.
C) A trustee can transfer assets to their own name for personal use.
D) A trustee must distribute all assets to beneficiaries within one year of the grantor’s death.

What is a “spousal property agreement”?

A) An agreement between spouses regarding the distribution of property after one spouse’s death.
B) A legal document allowing spouses to divide property during a divorce.
C) A trust created to hold property for the surviving spouse.
D) An agreement allowing spouses to avoid estate taxes by splitting their estate.

What is the purpose of an “irrevocable trust”?

A) It removes assets from the grantor’s estate, thus reducing estate taxes.
B) It allows the grantor to retain full control over the assets.
C) It guarantees that assets will remain within the family for a set period.
D) It prevents the distribution of assets to beneficiaries.

Which of the following is NOT an estate tax deduction?

A) Charitable contributions made from the estate.
B) Funeral expenses.
C) Debts owed by the decedent at the time of death.
D) Gifts made to children during the decedent’s lifetime.

What is a “revocable living trust”?

A) A trust that allows the grantor to retain control over the assets and can be altered or revoked during the grantor’s lifetime.
B) A trust that allows the grantor to transfer assets to beneficiaries tax-free.
C) A trust that automatically transfers assets to the surviving spouse.
D) A trust that irrevocably transfers all of the grantor’s assets to beneficiaries upon death.

What is the “marital deduction” in estate tax law?

A) A provision that allows for the unlimited transfer of property between spouses without incurring estate or gift taxes.
B) A deduction applied to property transferred to children after the spouse’s death.
C) A deduction for estate taxes paid on property inherited by a spouse.
D) A tax benefit applied to the decedent’s retirement accounts.

What is a “power of attorney” in the context of estate planning?

A) A legal document that allows someone to make financial or healthcare decisions on behalf of another person.
B) A document that outlines how assets should be distributed after death.
C) A document that allows a person to modify a will at any time.
D) A document that exempts certain assets from estate taxes.

What is the “step-down” basis?

A) The rule that allows a decrease in the value of property for tax purposes if it is sold during a specified period after the decedent’s death.
B) The method used to value assets for estate tax purposes by adjusting the value to their market price at the decedent’s death.
C) A tax strategy used to increase the tax basis of an inherited asset.
D) The rule that applies to assets held in a family limited partnership for estate tax purposes.

What is the primary benefit of a “Charitable Remainder Trust” (CRT)?

A) It allows for a tax deduction at the time the trust is established and provides income to the donor or beneficiaries for a set period before the remainder goes to charity.
B) It enables donors to receive a full tax deduction for assets given to charity.
C) It removes assets from the donor’s taxable estate but allows the donor to retain full control over the assets.
D) It avoids all estate taxes on the value of the assets transferred to the trust.

What is the effect of “gift splitting” between spouses for gift tax purposes?

A) It allows each spouse to contribute to the gift tax exclusion limit, effectively doubling the amount they can give to a recipient without gift tax.
B) It allows a spouse to exclude gifts made to children from the gift tax calculation.
C) It allows gifts made to a charity to be split for tax deduction purposes.
D) It reduces the taxable estate of the donor spouse by splitting the gifts.

Which of the following is NOT an example of an estate tax exemption?

A) The unlimited marital deduction.
B) The gift tax annual exclusion.
C) The charitable deduction.
D) The lifetime estate and gift tax exemption.

Which of the following is TRUE about “generation-skipping transfer” (GST) tax?

A) The GST tax applies to transfers to beneficiaries who are two or more generations younger than the donor.
B) The GST tax only applies to transfers to individuals over 65 years of age.
C) The GST tax is applied to gifts made by the donor during their lifetime, but not to those made at death.
D) The GST tax is always paid by the beneficiaries.

What is a “trust corpus”?

A) The total value of assets held in a trust.
B) The portion of the trust designated for charity.
C) The income generated by the trust’s assets.
D) The legal document creating the trust.

What is the “gift tax” annual exclusion for 2025?

A) $16,000 per recipient.
B) $15,000 per recipient.
C) $17,000 per recipient.
D) $20,000 per recipient.

Which of the following statements about “estate tax portability” is correct?

A) It allows a surviving spouse to use any unused estate tax exemption from the deceased spouse.
B) It allows the surviving spouse to avoid paying estate taxes on inherited assets.
C) It allows spouses to transfer assets to each other tax-free after death.
D) It allows the surviving spouse to defer estate taxes until the second spouse’s death.

How does a “qualified terminable interest property” (QTIP) trust work for estate tax purposes?

A) It allows a spouse to receive income from the trust during their lifetime, with the remainder passing to other beneficiaries after their death.
B) It allows the surviving spouse to immediately transfer assets to their children without estate taxes.
C) It allows the decedent’s estate to avoid income tax on the property transferred to the spouse.
D) It provides a tax deduction for the value of the property transferred to the trust.

 

What is a “transfer in contemplation of death”?

A) A transfer of property made with the intent to avoid estate tax by gifting it away.
B) A transfer made within three years of death that may be included in the decedent’s estate for tax purposes.
C) A transfer made during the decedent’s life that is excluded from gift tax.
D) A transfer of assets to a surviving spouse after the decedent’s death.

Which of the following is true about “estate tax liability”?

A) It is assessed on the net value of the estate after deductions, exemptions, and credits.
B) It is based on the gross value of the estate before deductions.
C) It applies only to estates worth over $1 million.
D) It only applies to estates with real property in multiple states.

Which of the following best describes the “step-down” basis rule?

A) It allows heirs to reduce the value of inherited property to its fair market value at the time of death for estate tax purposes.
B) It allows heirs to use the original cost basis of the property to avoid paying capital gains tax when the property is sold.
C) It adjusts the basis of inherited property downward when the property declines in value.
D) It applies to charitable donations made by the decedent to reduce estate taxes.

What is a “credit shelter trust”?

A) A trust that allows the decedent’s estate to avoid estate taxes by making use of both the individual exemption of the decedent and the surviving spouse.
B) A trust that ensures assets are sheltered from estate taxes only if the beneficiary is a surviving spouse.
C) A trust that eliminates gift taxes on transfers made to children.
D) A trust designed to pass property to charity, which is exempt from both estate and income taxes.

What does the “estate tax return” (Form 706) report?

A) The gross value of the decedent’s estate, any deductions, credits, and the estate tax due.
B) The income earned by the decedent’s estate during the year following death.
C) The total value of lifetime gifts made by the decedent.
D) The total amount of debt owed by the decedent’s estate.

How can a “family limited partnership” (FLP) benefit estate planning?

A) It allows the family to retain control of the assets while using discounts to reduce the value for estate tax purposes.
B) It automatically excludes assets from the estate tax without any filing requirements.
C) It allows for the immediate transfer of assets to children tax-free.
D) It guarantees that all property within the partnership will be excluded from the estate of the grantor.

Which of the following is a benefit of using a “Dynasty Trust”?

A) It allows for multi-generational wealth transfer without triggering estate tax for each generation.
B) It limits the ability of beneficiaries to access funds from the trust.
C) It provides immediate tax deductions for large charitable donations.
D) It eliminates income taxes on any trust earnings.

What is the main advantage of “gift splitting” for married couples?

A) It allows both spouses to apply their annual exclusion to gifts made to the same recipient, effectively doubling the amount that can be given.
B) It allows for tax-free transfers to children and grandchildren.
C) It provides an income tax deduction for charitable donations made during life.
D) It reduces the overall gift tax rate for both spouses.

What is the “annual exclusion” for gifts in 2025?

A) $15,000 per recipient.
B) $16,000 per recipient.
C) $17,000 per recipient.
D) $18,000 per recipient.

Which of the following is NOT included in the decedent’s gross estate?

A) Property held jointly with a spouse that passes to the surviving spouse.
B) The value of life insurance policies payable to the estate.
C) Property held in a revocable trust.
D) Property gifted to a charity within five years of death.

What is the purpose of a “charitable gift annuity”?

A) To provide a fixed income to the donor for life while benefiting a charity at the donor’s death.
B) To reduce estate taxes by gifting appreciated property to charity.
C) To allow the donor to retain ownership of the property while providing a tax deduction.
D) To provide immediate income to beneficiaries with no tax consequences.

Which of the following is NOT a type of “trust”?

A) Revocable living trust.
B) Charitable remainder trust.
C) Qualified domestic trust.
D) Family-owned business trust.

How are “qualified retirement accounts” treated for estate tax purposes?

A) They are included in the decedent’s estate, and the value is taxed at the estate’s tax rate.
B) They are exempt from estate taxes if passed to a surviving spouse.
C) They are not subject to estate taxes if the beneficiary is a charity.
D) They are subject to income tax but not estate tax.

What is a “generation-skipping trust”?

A) A trust that allows wealth to pass to grandchildren or later generations without triggering generation-skipping transfer taxes.
B) A trust that skips generations to avoid estate taxes.
C) A trust that makes a generation transfer of assets to charitable organizations.
D) A trust that automatically skips beneficiaries who are not yet born.

Which of the following is a disadvantage of creating an “irrevocable trust”?

A) The grantor cannot alter or revoke the trust once it is created.
B) The trust is subject to the highest possible income tax rate.
C) The grantor loses the ability to manage the assets in the trust.
D) The trust assets are not protected from creditors.

Which of the following types of property can be included in an estate for estate tax purposes?

A) The decedent’s interest in jointly owned property.
B) Property held in a revocable living trust.
C) Life insurance proceeds payable to the estate.
D) All of the above.

What does the “gift tax” apply to?

A) All transfers of property during life, including gifts made to family members, friends, and charitable organizations.
B) Only gifts made to individuals over the age of 18.
C) Only gifts that exceed the annual exclusion amount.
D) Only gifts made to non-family members.

Which of the following is true regarding “testamentary trusts”?

A) Testamentary trusts are created in the decedent’s will and do not take effect until after death.
B) Testamentary trusts are revocable and can be changed during the grantor’s lifetime.
C) Testamentary trusts do not require any reporting for tax purposes.
D) Testamentary trusts are primarily used to hold assets for charitable purposes.

How is the “gross estate” defined?

A) The total value of all property owned by the decedent at the time of death, including any gifts made within the past 3 years.
B) The value of all assets transferred to a living trust.
C) The total value of all life insurance policies payable to beneficiaries.
D) The sum of all liabilities owed by the decedent at the time of death.

Which of the following is NOT considered a “taxable gift”?

A) A gift to a charity.
B) A gift to a spouse.
C) A gift to a child that exceeds the annual exclusion.
D) A gift to an individual that reduces the donor’s taxable estate.

What is the “annual exclusion” amount for gifts to non-citizen spouses in 2025?

A) $150,000.
B) $160,000.
C) $165,000.
D) $170,000.

Which of the following is true about a “living trust”?

A) It allows the grantor to manage and control the trust assets during their lifetime and pass the assets to beneficiaries without probate.
B) It is irrevocable once created and cannot be altered.
C) It reduces estate taxes by excluding all assets from the taxable estate.
D) It allows the grantor to avoid paying income taxes on trust earnings.

What is the “unified estate and gift tax exemption”?

A) The amount that can be transferred either during life or at death without incurring estate or gift tax.
B) The total amount a decedent can leave to their children tax-free.
C) The amount of charitable deductions allowed in an estate.
D) The amount an individual can transfer to a spouse without gift tax.

What is the purpose of the “marital deduction”?

A) It allows the surviving spouse to inherit unlimited amounts of property from the decedent without incurring estate tax.
B) It reduces the estate tax liability for transfers between spouses.
C) It allows for the transfer of property to charitable organizations.
D) It reduces gift tax liability for property transferred to a spouse.

 

What is the purpose of a “Durable Power of Attorney” in estate planning?

A) To allow a trusted person to manage the financial and legal affairs of the principal in the event they become incapacitated.
B) To transfer property to beneficiaries after death without the need for probate.
C) To designate a guardian for minor children in case of the parent’s death.
D) To provide instructions on how assets should be distributed after death.

What does the “step-up” in basis mean for inherited property?

A) The basis of inherited property is increased to the fair market value at the time of the decedent’s death, which can reduce capital gains tax upon sale.
B) The basis of inherited property is decreased to avoid capital gains tax.
C) The basis remains the same as it was when the decedent initially purchased the property.
D) The basis of the property is eliminated for tax purposes.

Which of the following best describes the “exemption amount” for estate taxes?

A) The amount of property that can be transferred during the decedent’s lifetime or at death without incurring estate tax.
B) The amount of debt a decedent has that is deductible from the gross estate.
C) The value of the estate after funeral and administrative expenses are deducted.
D) The value of the charitable contributions made by the decedent during their lifetime.

What is the primary purpose of a “qualified domestic trust” (QDOT)?

A) To allow a surviving spouse who is not a U.S. citizen to qualify for the marital deduction for estate tax purposes.
B) To provide for a tax-free transfer of assets to a surviving spouse.
C) To ensure that assets are protected from creditors after the death of the decedent.
D) To facilitate the transfer of assets to a charitable organization after the decedent’s death.

Which of the following is TRUE about “estate tax audits”?

A) Estate tax audits are typically triggered if the IRS believes the estate has undervalued assets or made improper deductions.
B) Estate tax audits are rare and usually conducted only if the estate value is below the exemption threshold.
C) Estate tax audits can only be initiated by the decedent’s surviving spouse.
D) Estate tax audits are not allowed for estates of less than $10 million in value.

What is the “GST exemption” in estate planning?

A) The exemption that allows transfers to grandchildren and other generation-skipping beneficiaries to be exempt from the generation-skipping transfer tax.
B) The exemption that allows for tax-free transfers between spouses.
C) The exemption for gifts made to charity during the decedent’s lifetime.
D) The exemption for gifts made by non-resident aliens to their family members.

Which of the following is true about “estate tax portability” for married couples?

A) Portability allows the surviving spouse to use the unused portion of the deceased spouse’s estate tax exemption.
B) Portability only applies to estates exceeding $10 million.
C) Portability allows the surviving spouse to receive the entire estate tax exemption amount, regardless of the deceased spouse’s exemption usage.
D) Portability requires both spouses to elect it in their estate planning documents.

How does a “qualified retirement plan” (e.g., 401(k)) affect estate taxes?

A) It is included in the decedent’s gross estate, and its value is subject to estate tax.
B) It is not included in the estate and is exempt from estate tax.
C) It is excluded from the estate tax but subject to income tax when distributed.
D) It reduces the estate tax liability when transferred to a spouse.

What is the “basis” of property received from a decedent?

A) The fair market value of the property on the date of the decedent’s death.
B) The original purchase price of the property.
C) The value of the property as determined by a court.
D) The decedent’s adjusted basis at the time of transfer to the heir.

Which of the following is NOT a reason to establish a “living trust”?

A) To avoid probate and ensure that assets are transferred privately to beneficiaries.
B) To reduce estate taxes by transferring assets out of the estate.
C) To retain full control over assets during the grantor’s lifetime.
D) To make assets inaccessible to creditors.

Which of the following is true about “estate tax deductions”?

A) Estate tax deductions include debts owed by the decedent, funeral expenses, and property passed to charity.
B) Estate tax deductions only apply to gifts made to children.
C) Estate tax deductions are not available for life insurance proceeds.
D) Estate tax deductions are only applicable to estates exceeding $5 million in value.

What is the primary advantage of a “Charitable Lead Trust” (CLT)?

A) It allows the donor to receive an income tax deduction for the value of charitable distributions during the trust’s term.
B) It allows the donor to avoid all estate taxes.
C) It provides immediate wealth transfer benefits to the donor’s family while benefiting charity.
D) It enables the donor to retain control of the assets during their lifetime.

Which of the following best describes “income in respect of a decedent” (IRD)?

A) Income that the decedent had a right to receive but did not receive before death, and is taxable to the recipient.
B) Income received from assets in a revocable trust.
C) Income from insurance proceeds payable to the decedent’s beneficiaries.
D) Income earned by a decedent’s estate after death that is not subject to estate tax.

How are “life insurance proceeds” handled for estate tax purposes?

A) Life insurance proceeds are generally included in the decedent’s estate if the decedent possessed any incidents of ownership at the time of death.
B) Life insurance proceeds are always excluded from the decedent’s estate.
C) Life insurance proceeds are excluded from the estate if the beneficiaries are the decedent’s spouse.
D) Life insurance proceeds are subject to income tax but not estate tax.

Which of the following types of trusts is specifically designed to provide for minor children or other beneficiaries who are not capable of managing property?

A) A “testamentary trust.”
B) A “spendthrift trust.”
C) A “charitable remainder trust.”
D) A “life insurance trust.”

What is a “bequest”?

A) A gift of personal property left in a will.
B) A gift of real estate transferred through a trust.
C) A form of charitable donation given by the decedent.
D) A legally binding document specifying funeral arrangements.

Which of the following is NOT a characteristic of a “qualified terminable interest property” (QTIP) trust?

A) It allows the surviving spouse to receive income from the trust for their lifetime, with the remainder going to other beneficiaries after their death.
B) It provides an estate tax deduction for the decedent’s estate.
C) It requires the trust property to pass to a charitable organization after the spouse’s death.
D) It ensures the surviving spouse receives income from the trust but cannot alter the distribution terms.

What is the “gift tax annual exclusion” for 2025?

A) $16,000 per recipient.
B) $17,000 per recipient.
C) $18,000 per recipient.
D) $19,000 per recipient.

What is the “generation-skipping transfer tax” (GSTT)?

A) A tax on transfers to beneficiaries who are more than one generation removed from the donor, such as grandchildren.
B) A tax on gifts that bypass estate tax by being transferred to a spouse.
C) A tax on gifts made during the decedent’s lifetime that are not included in the estate.
D) A tax on property inherited by a surviving spouse from a deceased spouse.

What is the “estate tax unified credit”?

A) A credit that allows individuals to transfer a certain amount of their estate tax-free, covering both gifts made during their lifetime and property passed at death.
B) A credit that reduces the income tax liability of an estate.
C) A credit that allows the decedent’s estate to offset estate taxes paid to foreign governments.
D) A credit that eliminates estate taxes for non-citizen spouses.

Which of the following is true about “estate planning”?

A) Estate planning involves organizing an individual’s assets and preparing legal documents to ensure those assets are distributed according to their wishes after death.
B) Estate planning is only necessary for individuals with very large estates.
C) Estate planning is focused primarily on reducing income taxes.
D) Estate planning only involves drafting a will.

 

What is the primary function of a “revocable living trust”?

A) To allow the grantor to manage and control their assets during their lifetime and pass them to beneficiaries without probate.
B) To provide a tax-free transfer of assets to heirs.
C) To transfer assets to a surviving spouse without incurring estate taxes.
D) To eliminate all debts owed by the decedent before distributing the estate.

What does the “marital deduction” allow for estate tax purposes?

A) It allows unlimited transfers of property to a surviving spouse without incurring estate tax.
B) It allows deductions for charitable contributions made by the decedent.
C) It allows a deduction for funeral expenses paid by the estate.
D) It allows a reduction in the estate tax for property passed to children.

What is the “estate tax exemption” for individuals in 2025?

A) $5 million.
B) $12.92 million.
C) $10 million.
D) $15 million.

What is the purpose of the “gift tax”?

A) To tax transfers of property made during life, to prevent estate tax avoidance.
B) To prevent individuals from transferring assets to charity without paying taxes.
C) To apply only to transfers of property after death.
D) To tax all inherited property, regardless of the decedent’s relationship with the beneficiary.

Which of the following can be deducted from the gross estate for estate tax purposes?

A) Funeral expenses and debts owed by the decedent.
B) The value of property held in a revocable trust.
C) The value of life insurance proceeds paid to beneficiaries.
D) The value of gifts made by the decedent during their lifetime.

What is the “step-down” in basis rule?

A) It adjusts the basis of property downward when the value of the property at the time of death is less than its original cost.
B) It allows a stepped-up basis when property is inherited from a decedent.
C) It reduces the capital gains tax on inherited property.
D) It eliminates any capital gains taxes on inherited property.

What is the main feature of a “charitable remainder trust” (CRT)?

A) It provides income to the donor or other beneficiaries during their lifetime, with the remainder going to charity.
B) It provides income to charity for a set period, with the remainder going to the donor’s heirs.
C) It allows the donor to donate the property while still retaining complete control.
D) It avoids both estate and income taxes for the donor.

Which of the following statements about “gift splitting” is true?

A) Gift splitting allows a married couple to combine their annual gift exclusions to give a larger gift to a single recipient.
B) Gift splitting applies only to gifts made to children under the age of 18.
C) Gift splitting can only occur if the couple files jointly for income tax purposes.
D) Gift splitting can be used to avoid paying estate taxes entirely.

What is the “annual exclusion” for gifts made to individuals in 2025?

A) $15,000.
B) $16,000.
C) $17,000.
D) $18,000.

Which of the following can “estate tax portability” benefit?

A) A surviving spouse by allowing them to use the unused portion of the deceased spouse’s estate tax exemption.
B) Charitable organizations that receive bequests.
C) Children who inherit a portion of the estate.
D) Creditors of the decedent’s estate.

What is the main advantage of a “spendthrift trust”?

A) It provides a way to protect assets from creditors and ensures the assets are used for the benefit of the beneficiary according to the trust’s terms.
B) It ensures that the beneficiary will have immediate access to the assets.
C) It avoids all taxes on the income generated by the trust assets.
D) It allows the trust grantor to retain control over the assets during their lifetime.

What is a “generation-skipping trust” (GST)?

A) A trust designed to allow assets to pass to grandchildren or later generations without incurring generation-skipping transfer taxes.
B) A trust that skips the probate process entirely.
C) A trust that avoids paying any estate or gift taxes.
D) A trust used only for charitable donations.

What is the “federal estate tax filing threshold”?

A) $10 million.
B) $5 million.
C) $12.92 million.
D) $20 million.

What is the “gift tax lifetime exemption”?

A) The total amount that an individual can transfer during their lifetime or at death without incurring gift tax.
B) The amount that an individual can gift to a charitable organization during their lifetime without incurring tax.
C) The amount of the estate tax exemption for decedents.
D) The tax imposed on gifts made to non-family members.

What is the primary purpose of an “irrevocable trust”?

A) To remove assets from the grantor’s taxable estate and protect them from creditors.
B) To give the grantor full control over the assets during their lifetime.
C) To reduce income taxes on assets held in the trust.
D) To ensure that all assets remain in the grantor’s estate for tax purposes.

Which of the following statements is TRUE regarding “testamentary trusts”?

A) Testamentary trusts are created in a will and become effective only after the decedent’s death.
B) Testamentary trusts are created during the lifetime of the decedent and can be altered by the decedent at any time.
C) Testamentary trusts are revocable during the decedent’s lifetime.
D) Testamentary trusts are primarily used to distribute assets to charity.

What is a “qualified personal residence trust” (QPRT)?

A) A trust that allows a person to transfer ownership of a primary residence or vacation home while retaining the right to live in the home for a specified period.
B) A trust that protects the assets of a personal residence from estate taxes.
C) A trust that provides a tax-free transfer of a home to a surviving spouse.
D) A trust that allows for tax-free rental income from a residence to be used by family members.

What is the primary benefit of a “living will”?

A) It specifies the medical treatments a person wants or does not want if they become incapacitated.
B) It allows a person to designate the beneficiaries of their estate after death.
C) It specifies how debts and taxes are to be paid after death.
D) It provides instructions for how assets are to be distributed during the grantor’s lifetime.

What is a “grantor retained annuity trust” (GRAT)?

A) A trust that allows the grantor to receive an annuity for a specified period, with the remainder passing to beneficiaries, potentially minimizing estate taxes.
B) A trust that gives the grantor control over the trust assets during their lifetime.
C) A trust that pays out its income to charity for a set number of years.
D) A trust that eliminates capital gains tax on appreciated property.

What does the “unified gift and estate tax system” mean?

A) The same exemption amount applies to both gifts made during life and property passed at death.
B) It allows for the elimination of both gift and estate taxes for transfers to family members.
C) It allows individuals to reduce estate taxes by transferring assets to charity.
D) It applies only to estates worth over $10 million.

What is the “inclusion ratio” used in relation to a “charitable remainder trust”?

A) It is used to determine the portion of the trust that qualifies for the charitable deduction.
B) It determines the portion of the trust that is taxable to the grantor.
C) It calculates the total amount that can be donated to charity.
D) It measures the trust’s performance relative to other investments.

Which of the following is a key feature of “estate tax deferral”?

A) The ability to postpone the payment of estate taxes until the assets are sold or distributed.
B) The ability to avoid paying estate taxes by transferring all assets to charity.
C) The ability to transfer assets tax-free to a spouse.
D) The ability to avoid paying gift tax on lifetime transfers.

What is the “death tax” in estate planning?

A) The combined tax on both estates and gifts, including estate tax and gift tax.
B) A tax imposed on life insurance proceeds paid to beneficiaries.
C) A tax on capital gains realized upon the sale of inherited assets.
D) A tax on income earned by the decedent’s estate after death.

What is the “estate tax due date”?

A) The estate tax return is due within nine months after the date of the decedent’s death, unless an extension is granted.
B) The estate tax return is due on the decedent’s birthday in the year of their death.
C) The estate tax return is due six months after the estate is transferred to beneficiaries.
D) The estate tax return is due one year after the decedent’s death.

 

True and False questions and answers

 

The estate tax exemption amount for individuals in 2025 is $12.92 million.

Answer: True

Life insurance proceeds paid to beneficiaries are always exempt from estate tax.

Answer: False (Life insurance proceeds are included in the decedent’s gross estate if the decedent possessed any incidents of ownership.)

A testamentary trust is a trust that is created during the decedent’s lifetime and becomes effective upon their death.

Answer: True

The gift tax applies only to gifts made to children under the age of 18.

Answer: False (Gift tax applies to gifts of any value, regardless of the recipient’s age.)

A revocable living trust allows the grantor to retain full control over the assets during their lifetime.

Answer: True

The gift tax annual exclusion amount for 2025 is $17,000 per recipient.

Answer: False (The gift tax annual exclusion amount for 2025 is $17,000 per recipient.)

Estate tax portability allows a surviving spouse to use the unused portion of the deceased spouse’s estate tax exemption.

Answer: True

The GST tax applies only to transfers made to children.

Answer: False (The Generation-Skipping Transfer tax applies to transfers made to beneficiaries who are more than one generation removed, such as grandchildren.)

An irrevocable trust can be altered by the grantor during their lifetime.

Answer: False (An irrevocable trust cannot be altered by the grantor once established.)

The primary purpose of an irrevocable life insurance trust (ILIT) is to remove life insurance proceeds from the decedent’s taxable estate.

Answer: True

Estate taxes are generally assessed on the value of the decedent’s estate after deducting debts, expenses, and exemptions.

Answer: True

A QTIP trust requires the income to be distributed to the surviving spouse, but the principal can go to other beneficiaries after their death.

Answer: True

The estate tax applies only to estates worth over $10 million.

Answer: False (The estate tax applies to estates worth over the exemption threshold, which is $12.92 million for 2025.)

A spendthrift trust protects a beneficiary’s inheritance from creditors.

Answer: True

All gifts made to charity are subject to the gift tax.

Answer: False (Gifts made to charity are generally exempt from the gift tax.)

A charitable remainder trust allows the donor to receive income from the trust during their lifetime, with the remainder going to charity.

Answer: True

The “step-up” in basis applies to property sold by the decedent’s estate, not to property inherited by beneficiaries.

Answer: False (The “step-up” in basis applies to inherited property, not property sold by the decedent’s estate.)

The estate tax return (Form 706) must be filed within nine months after the date of the decedent’s death.

Answer: True

A living will provides instructions on how assets should be distributed after death.

Answer: False (A living will provides instructions on medical treatment in the event of incapacitation, not asset distribution.)

A living trust avoids probate, but the assets held in the trust may still be subject to estate taxes.

Answer: True

Property inherited through a will is always subject to estate tax.

Answer: False (The value of property inherited through a will may be subject to estate tax, but it depends on the estate’s value and the applicable exemptions.)

Gifts to spouses are always exempt from gift tax.

Answer: True

An estate planning attorney can help reduce estate taxes by drafting a will that includes charitable bequests.

Answer: True

A Generation-Skipping Trust allows property to be transferred to grandchildren without incurring estate or gift taxes.

Answer: True

An irrevocable trust allows the grantor to maintain control over the assets placed in the trust.

Answer: False (An irrevocable trust removes control of the assets from the grantor.)

A QDOT (Qualified Domestic Trust) allows a non-U.S. citizen spouse to receive estate tax benefits normally reserved for U.S. citizens.

Answer: True

A revocable living trust becomes irrevocable upon the death of the grantor.

Answer: True

Estate tax portability applies only to estates that exceed the estate tax exemption amount.

Answer: False (Estate tax portability applies regardless of whether the estate exceeds the exemption amount.)

Property received as a gift is always subject to estate tax.

Answer: False (Gifts are generally subject to gift tax, not estate tax, unless they are transferred at death.)

The estate tax is calculated based on the value of the estate at the time of the decedent’s death, minus any deductions and exemptions.

Answer: True

 

The federal estate tax applies to estates of all sizes.

Answer: False (The federal estate tax only applies to estates exceeding the exemption threshold, which for 2025 is $12.92 million.)

The annual gift tax exclusion allows an individual to give up to $15,000 per recipient per year without triggering gift tax.

Answer: False (The gift tax exclusion amount for 2025 is $17,000 per recipient.)

If the decedent’s estate is worth less than the estate tax exemption amount, no estate tax return is required.

Answer: False (Even if the estate is below the exemption threshold, an estate tax return may still be required if certain conditions are met, such as the inclusion of certain types of property.)

A charitable gift made during life is eligible for a charitable deduction for income tax purposes.

Answer: True

A “qualified domestic trust” (QDOT) is used to ensure that estate tax is not owed on property transferred to a non-citizen spouse.

Answer: True

A “gift in trust” allows a donor to retain full control over the property while avoiding gift tax.

Answer: False (Gifts in trust may avoid probate but are still subject to gift tax depending on the nature of the gift and trust.)

Estate tax liability can be deferred for up to 10 years under certain circumstances.

Answer: False (Estate tax deferral options typically apply to closely held businesses, but not in all cases, and the duration of deferral depends on specific conditions.)

An irrevocable life insurance trust (ILIT) can remove life insurance proceeds from a decedent’s taxable estate.

Answer: True

The federal estate tax rate can range from 18% to 40%.

Answer: True

A “dynasty trust” allows wealth to be passed down through multiple generations without incurring estate taxes.

Answer: True

Gifts to political organizations or candidates are subject to gift tax.

Answer: False (Gifts to political organizations or candidates are not subject to gift tax.)

A revocable trust becomes irrevocable upon the death of the trust’s creator.

Answer: True

The estate tax applies to the entire value of the decedent’s estate, without any deductions.

Answer: False (The estate tax applies to the estate’s value after deductions, such as debts, expenses, and exemptions.)

The “step-up” in basis means that the beneficiary of an inherited asset inherits it at its original cost basis.

Answer: False (The “step-up” in basis means the beneficiary inherits the asset at its fair market value at the date of death.)

An estate tax return is required when the decedent’s estate exceeds the exemption threshold, but only if the estate includes certain types of assets.

Answer: True

A “qualified terminable interest property” (QTIP) trust can be used to transfer property to a surviving spouse without paying estate taxes.

Answer: True

A “power of appointment” allows a beneficiary to direct the disposition of certain assets in an estate or trust.

Answer: True

A trust that is established during a person’s lifetime can be revoked at any time, unless it is an irrevocable trust.

Answer: True

The estate tax exemption is only applicable to gifts made during a person’s lifetime.

Answer: False (The estate tax exemption applies to both lifetime gifts and transfers made at death.)

A gift given to a spouse is exempt from gift tax, regardless of the amount.

Answer: True

A gift given to a charity is subject to both gift and estate tax.

Answer: False (Gifts to charity are generally exempt from both gift and estate tax.)

The gift tax exclusion amount can be combined between spouses for a single recipient.

Answer: True

The estate tax rate for estates over $12.92 million is a flat 35%.

Answer: False (The estate tax rate ranges from 18% to 40% depending on the value of the estate.)

The “death benefit” of a life insurance policy is typically subject to both income and estate taxes.

Answer: False (Life insurance death benefits are usually not subject to income tax, but they may be subject to estate tax depending on the policy’s ownership and the decedent’s estate.)

An estate tax return must be filed by the executor of an estate if the estate is required to pay estate taxes.

Answer: True

The marital deduction allows a decedent to transfer an unlimited amount of assets to a surviving spouse without incurring estate tax.

Answer: True

A “special needs trust” is designed to help individuals with disabilities without affecting their eligibility for government benefits.

Answer: True

The “gross estate” includes all assets owned by the decedent, regardless of whether they pass under a will.

Answer: True

A “grantor retained annuity trust” (GRAT) is designed to minimize estate taxes by transferring wealth to beneficiaries with little or no gift tax liability.

Answer: True

The estate tax exemption is adjusted for inflation each year.

Answer: True

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