Estate Planning Exam 5 questions
with verified answers
Henry is a single businessman with inadequate liquidity to cover estate administrative expenses,
debts and taxes at his death. He plans to purchase a life insurance policy which provides a tax-
free investment and an immediate cash value. Which type of policy should Henry purchase? -
correct answer ✔✔ Single premium whole life
Which type of life insurance policy permits the contract owner to choose the level of premium,
the death benefit amount and the duration of the premium-paying period? - correct answer
✔✔ Universal Life
Graham was the owner and the insured of a $3 million life insurance policy and his wife Karen
was the beneficiary. At Graham's death, Karen disclaimed all of the proceeds that subsequently
passed from his estate to a testamentary bypass trust. Which of the following statements is
correct? - correct answer ✔✔ The $3 million death benefit is included in Graham's estate and
the proceeds do not qualify for a marital deduction.
Which statement describes the policy valuation for a gift or a bequest of a single-premium
policy? - correct answer ✔✔ The value is the new issuance charge for a comparable contract of
equal face value.
Edie died last month owning a whole life insurance policy on her husband Rob's life. The death
benefit amount was $500,000 and the insurance company valued the policy at $80,000. Edie
was the beneficiary of the policy and her son Manny was the contingent owner. Which of the
following statements is correct? - correct answer ✔✔ The amount included in Edie's gross
estate and probate estate is $80,000.
Connor had been the owner and beneficiary of a $1 million whole-life insurance policy on his
sister's life. Connor gifted the policy away four years ago to his nephew but kept the right to
, borrow its cash value. If the policy was valued at $200,000 when Connor died, what amount
attributed to the policy was included in his gross estate? - correct answer ✔✔ The $1 million
death benefit was included in Connor's estate because he retained an incident of ownership in
the policy at his death.
All of the statements regarding the taxation of insurance policies are correct, except: - correct
answer ✔✔ When a single policy is gifted jointly to two children, the transfer qualifies for two
annual exclusions.
All of the following statements regarding liquidity planning for estates are correct, except: -
correct answer ✔✔ Insurance proceeds in an ILIT are included in the insured's probate estate if
they are used to pay postmortem expenses.
Which statement regarding an ILIT is incorrect? - correct answer ✔✔ The trust cannot hold a
survivorship policy when a husband and wife are co-insureds.
Hugh created an irrevocable trust five years ago and transferred a $4 million whole-life policy to
the trust. His wife, Meryl, will receive the income for life, with the remainder payable to her
estate. What is the consequence of this transfer? - correct answer ✔✔ When Hugh transferred
the policy to the trust, he could not offset the gift tax with a marital deduction.
Ginger created an ILIT and transferred her life insurance policy and rental property to the trust.
She named her husband Alfred and her children the beneficiaries of the trust. The income from
the property is sufficient to pay policy premiums every year. How is the trust income taxed? -
correct answer ✔✔ Trust income is taxed to Ginger because grantor trust rules apply.
Which characteristic of a dynasty trust is incorrect? - correct answer ✔✔ Dynasty trusts are
created only in states that have rules against perpetuities.
B.J. owns a single-premium life insurance policy on his wife Cora's life. His will provides that all
of his estate will pass to Cora or, if she predeceases him, to their son, Hoss. Assume that B.J.
with verified answers
Henry is a single businessman with inadequate liquidity to cover estate administrative expenses,
debts and taxes at his death. He plans to purchase a life insurance policy which provides a tax-
free investment and an immediate cash value. Which type of policy should Henry purchase? -
correct answer ✔✔ Single premium whole life
Which type of life insurance policy permits the contract owner to choose the level of premium,
the death benefit amount and the duration of the premium-paying period? - correct answer
✔✔ Universal Life
Graham was the owner and the insured of a $3 million life insurance policy and his wife Karen
was the beneficiary. At Graham's death, Karen disclaimed all of the proceeds that subsequently
passed from his estate to a testamentary bypass trust. Which of the following statements is
correct? - correct answer ✔✔ The $3 million death benefit is included in Graham's estate and
the proceeds do not qualify for a marital deduction.
Which statement describes the policy valuation for a gift or a bequest of a single-premium
policy? - correct answer ✔✔ The value is the new issuance charge for a comparable contract of
equal face value.
Edie died last month owning a whole life insurance policy on her husband Rob's life. The death
benefit amount was $500,000 and the insurance company valued the policy at $80,000. Edie
was the beneficiary of the policy and her son Manny was the contingent owner. Which of the
following statements is correct? - correct answer ✔✔ The amount included in Edie's gross
estate and probate estate is $80,000.
Connor had been the owner and beneficiary of a $1 million whole-life insurance policy on his
sister's life. Connor gifted the policy away four years ago to his nephew but kept the right to
, borrow its cash value. If the policy was valued at $200,000 when Connor died, what amount
attributed to the policy was included in his gross estate? - correct answer ✔✔ The $1 million
death benefit was included in Connor's estate because he retained an incident of ownership in
the policy at his death.
All of the statements regarding the taxation of insurance policies are correct, except: - correct
answer ✔✔ When a single policy is gifted jointly to two children, the transfer qualifies for two
annual exclusions.
All of the following statements regarding liquidity planning for estates are correct, except: -
correct answer ✔✔ Insurance proceeds in an ILIT are included in the insured's probate estate if
they are used to pay postmortem expenses.
Which statement regarding an ILIT is incorrect? - correct answer ✔✔ The trust cannot hold a
survivorship policy when a husband and wife are co-insureds.
Hugh created an irrevocable trust five years ago and transferred a $4 million whole-life policy to
the trust. His wife, Meryl, will receive the income for life, with the remainder payable to her
estate. What is the consequence of this transfer? - correct answer ✔✔ When Hugh transferred
the policy to the trust, he could not offset the gift tax with a marital deduction.
Ginger created an ILIT and transferred her life insurance policy and rental property to the trust.
She named her husband Alfred and her children the beneficiaries of the trust. The income from
the property is sufficient to pay policy premiums every year. How is the trust income taxed? -
correct answer ✔✔ Trust income is taxed to Ginger because grantor trust rules apply.
Which characteristic of a dynasty trust is incorrect? - correct answer ✔✔ Dynasty trusts are
created only in states that have rules against perpetuities.
B.J. owns a single-premium life insurance policy on his wife Cora's life. His will provides that all
of his estate will pass to Cora or, if she predeceases him, to their son, Hoss. Assume that B.J.
