Estate Planning Test #6 questions with
complete solutions
From an estate planning perspective, the benefits of a family limited partnership include:
Reducing the value of the estate for estate tax purposes.
Leveraging the value of lifetime gifts.
Maintaining control over gifted assets during lifetime. - correct answer ✔✔ . I, II and III
Which of the following is not a benefit associated with a family limited partnership? - correct
answer ✔✔ C. Greater IRS scrutiny.
All of the following are tax ramifications associated with the creation of a family limited
partnership except: - correct answer ✔✔ Gain or loss must be recognized when property is
transferred into the partnership.
A limited liability company, by its nature, is best suited for what types of ventures? - correct
answer ✔✔ D. All of the above because of the risk factors associated with each.
Which of the following is not a discount reducing the value of an interest in a family limited
partnership? - correct answer ✔✔ A. Majority interest discount.
Question 6: Tom and Lisa have amassed great wealth and they wish to shift some of that wealth
to their children. Their children, however, have not shown the greatest responsibility in
managing financial assets in the past. Tom and Lisa decide to create a family limited partnership.
6: Which of the following assets should they not transfer into the FLP? - correct answer ✔✔ B.
Tom's prized possession - his motor boat. He will not allow anyone else to use it.
, When comparing features of a FLP to an irrevocable trust, which statement is not correct? -
correct answer ✔✔ C. FLPs provide a degree of asset protection to limited partners because
partnership assets cannot be attached to satisfy their personal debts whereas assets in an
irrevocable trust are within the reach of a beneficiary's creditors.
Mackenzie, Holly and Brooke are friends who own a successful costume jewelry store in a resort
area. Each friend owns 100 shares of stock in this closely held corporation. Two years ago they
entered into a cross-purchase agreement and purchased life insurance policies on each other's
lives. Mackenzie died this year in a car accident. Which statement does not correctly describe
the consequences at her death? - correct answer ✔✔ . The purchase of stock by the remaining
shareholders is treated as dividends in Mackenzie's estate.
How can split-dollar life insurance provide an incentive to reward key employees? - correct
answer ✔✔ An employer can reward key individuals on a selective basis with substantial
insurance coverage.
Which statement regarding a business continuation agreement is not correct? - correct answer
✔✔ A business continuation agreement applies only to an incorporated business, not to a
partnership.
Marvin and Lydia divorced two years ago, and the couple's two teenage children live with Lydia.
Lydia remarried last month and intends to write a new will. What issues should Lydia address in
her will? - correct answer ✔✔ A. She should coordinate the choice of personal and financial
guardians for the children with Marvin.
Winston and Rocco are in a committed relationship but their state of residence does not legally
recognize their relationship. Winston has an estate worth $5 million and he wants to transfer a
portion of his wealth to Rocco. Which estate planning strategy is not available to Winston to
achieve this objective? - correct answer ✔✔ C. Winston can establish a trust that gives Rocco
the income for life and his niece the corpus at Rocco's death, and make a QTIP election on his
gift tax return to reduce the taxable amount of the gift.
complete solutions
From an estate planning perspective, the benefits of a family limited partnership include:
Reducing the value of the estate for estate tax purposes.
Leveraging the value of lifetime gifts.
Maintaining control over gifted assets during lifetime. - correct answer ✔✔ . I, II and III
Which of the following is not a benefit associated with a family limited partnership? - correct
answer ✔✔ C. Greater IRS scrutiny.
All of the following are tax ramifications associated with the creation of a family limited
partnership except: - correct answer ✔✔ Gain or loss must be recognized when property is
transferred into the partnership.
A limited liability company, by its nature, is best suited for what types of ventures? - correct
answer ✔✔ D. All of the above because of the risk factors associated with each.
Which of the following is not a discount reducing the value of an interest in a family limited
partnership? - correct answer ✔✔ A. Majority interest discount.
Question 6: Tom and Lisa have amassed great wealth and they wish to shift some of that wealth
to their children. Their children, however, have not shown the greatest responsibility in
managing financial assets in the past. Tom and Lisa decide to create a family limited partnership.
6: Which of the following assets should they not transfer into the FLP? - correct answer ✔✔ B.
Tom's prized possession - his motor boat. He will not allow anyone else to use it.
, When comparing features of a FLP to an irrevocable trust, which statement is not correct? -
correct answer ✔✔ C. FLPs provide a degree of asset protection to limited partners because
partnership assets cannot be attached to satisfy their personal debts whereas assets in an
irrevocable trust are within the reach of a beneficiary's creditors.
Mackenzie, Holly and Brooke are friends who own a successful costume jewelry store in a resort
area. Each friend owns 100 shares of stock in this closely held corporation. Two years ago they
entered into a cross-purchase agreement and purchased life insurance policies on each other's
lives. Mackenzie died this year in a car accident. Which statement does not correctly describe
the consequences at her death? - correct answer ✔✔ . The purchase of stock by the remaining
shareholders is treated as dividends in Mackenzie's estate.
How can split-dollar life insurance provide an incentive to reward key employees? - correct
answer ✔✔ An employer can reward key individuals on a selective basis with substantial
insurance coverage.
Which statement regarding a business continuation agreement is not correct? - correct answer
✔✔ A business continuation agreement applies only to an incorporated business, not to a
partnership.
Marvin and Lydia divorced two years ago, and the couple's two teenage children live with Lydia.
Lydia remarried last month and intends to write a new will. What issues should Lydia address in
her will? - correct answer ✔✔ A. She should coordinate the choice of personal and financial
guardians for the children with Marvin.
Winston and Rocco are in a committed relationship but their state of residence does not legally
recognize their relationship. Winston has an estate worth $5 million and he wants to transfer a
portion of his wealth to Rocco. Which estate planning strategy is not available to Winston to
achieve this objective? - correct answer ✔✔ C. Winston can establish a trust that gives Rocco
the income for life and his niece the corpus at Rocco's death, and make a QTIP election on his
gift tax return to reduce the taxable amount of the gift.
