1 of 45
Term Definition
Peter Piper established a None
revocable living trust which
provides for income to be paid Generally, for a taxpayer who
annually to his wife Pat for life, files a joint return and whose
and at her death, the corpus will "combined income" (AGI +
be paid to their three children foreign income + tax exempt
per stirpes. Peter's will was income + ½ of Social Security
written before the trust was benefits) is above $32,000, up to
created and provided for a 50% of Social Security benefits
credit bypass trust with the are included in income. If a MFJ
residue going into a marital taxpayer's combined income
trust. Peter transferred to the exceeds $44,000, up to 85% of
revocable trust the title to three Social Security benefits may be
investment properties valued at subject to taxation. In this case,
$250,000 each and his $400,000 Steven Myers will have to report
stock brokerage account. In one-half of the $45,000 he will
addition, four years before he receive as disability income
died, Peter transferred a insurance benefits because his
,$500,000 life insurance policy employer paid one-half of the
to the revocable trust and kept premiums. Since his combined
his wife as the designated income will be only $22,500 +
beneficiary. Peter's home with $6,000 (which is ½ of his Social
his wife, valued at $300,000, Security benefit), for a total
was titled in tenancy by the combined income of $28,500,
entireties. Peter's account he will be below the $32,000
balance in a defined- minimum and none of the Social
contribution retirement plan Security benefits will be
through his employer was included in his gross income.
$400,000. Peter's wife is named Topic 53; Domains 3 and 6
as the beneficiary. Peter also
had bank CDs with a combined
value of $50,000, and he had a
joint checking account worth
$10,000 with his wife. Which of
the following statements is
correct if Peter dies today and
his wife dies 10 months later?
A. All assets passing under
Peter's will go to the credit
bypass trust.
B. Peter's use of the revocable
trust will help reduce his estate
taxes.
C. Peter's estate will avoid
probate due to the revocable
trust.
D. Peter's life insurance policy
will not be included in his gross
,estate since he transferred it
four years before his death.
Give this one a try later!
True False
Correct definition
A
The only assets passing under the will are the CDs. Since
they are less than the unified credit equivalent, Peter's entire
estate passing under the will goes to the credit bypass trust.
These CDs will require the probate process, so Peter's
estate will not be able to avoid probate entirely. The
$50,000 from the CDs will be the only assets to fund the
credit shelter trust. These assets are passing to the children,
subject only to a life estate in Peter's wife, so these assets
do not qualify for the marital deduction. The revocable trust
is, in effect, a bypass trust. The revocable trust does not
reduce Peter's estate taxes because the assets are
includible in Peter's gross estate. Revocable trusts are not
used to reduce estate taxes, but to avoid probate. The life
insurance policy will be included in Peter's gross estate
because he transferred the policy to a revocable trust,
rather than to an irrevocable trust. Topics 66 and 68; Domain
3
2 of 45
Definition Term
, C When Terry and Sandy Metier
arrived for the annual review of
According to tax Regulations, their financial plan, they told
no income on the rental of a their planner that Terry had lost
vacation home for less than 15 his job and was doing consulting
days is included in gross work now to earn some money
income. However, when the but was making less than one
home is rented out for 15 or third of his previous income.
more days and the taxpayer Sandy was working part time to
uses it less than 15 days or 10% help out, but their income was
of the rental (whichever is now substantially less than at
more), then the home is not their last review. They informed
considered a residence. In the planner that they have not
addition, if an intention to been able to save or make
produce income is shown, the retirement contributions for over
taxpayer can treat the home as 6 months. The Metiers' plan
a rental property and deduct all required them to make
costs associated with the contributions to their IRAs and
property, even to the extent of Roth IRAs for another 9 years
creating a loss. In this case, the when they would retire at age
expenses, including 65. The loss of Terry's job means
depreciation (27.5 years), would that they are paying for health
be $14,482 and would create a insurance under COBRA and
loss of $4,482, which would have lost some life insurance
offset other income because and disability coverage
the Martins' AGI is not high previously provided by Terry's
enough to trigger limitations on employer. Their youngest child
rental losses and because they has two more years of college,
qualify for active participation, and they have depleted their
with regard to the beach house. 529 plan. They have put their
When personal use exceeds 14 house up for sale to reduce
days, expenses are allocated expenses. How should the
Term Definition
Peter Piper established a None
revocable living trust which
provides for income to be paid Generally, for a taxpayer who
annually to his wife Pat for life, files a joint return and whose
and at her death, the corpus will "combined income" (AGI +
be paid to their three children foreign income + tax exempt
per stirpes. Peter's will was income + ½ of Social Security
written before the trust was benefits) is above $32,000, up to
created and provided for a 50% of Social Security benefits
credit bypass trust with the are included in income. If a MFJ
residue going into a marital taxpayer's combined income
trust. Peter transferred to the exceeds $44,000, up to 85% of
revocable trust the title to three Social Security benefits may be
investment properties valued at subject to taxation. In this case,
$250,000 each and his $400,000 Steven Myers will have to report
stock brokerage account. In one-half of the $45,000 he will
addition, four years before he receive as disability income
died, Peter transferred a insurance benefits because his
,$500,000 life insurance policy employer paid one-half of the
to the revocable trust and kept premiums. Since his combined
his wife as the designated income will be only $22,500 +
beneficiary. Peter's home with $6,000 (which is ½ of his Social
his wife, valued at $300,000, Security benefit), for a total
was titled in tenancy by the combined income of $28,500,
entireties. Peter's account he will be below the $32,000
balance in a defined- minimum and none of the Social
contribution retirement plan Security benefits will be
through his employer was included in his gross income.
$400,000. Peter's wife is named Topic 53; Domains 3 and 6
as the beneficiary. Peter also
had bank CDs with a combined
value of $50,000, and he had a
joint checking account worth
$10,000 with his wife. Which of
the following statements is
correct if Peter dies today and
his wife dies 10 months later?
A. All assets passing under
Peter's will go to the credit
bypass trust.
B. Peter's use of the revocable
trust will help reduce his estate
taxes.
C. Peter's estate will avoid
probate due to the revocable
trust.
D. Peter's life insurance policy
will not be included in his gross
,estate since he transferred it
four years before his death.
Give this one a try later!
True False
Correct definition
A
The only assets passing under the will are the CDs. Since
they are less than the unified credit equivalent, Peter's entire
estate passing under the will goes to the credit bypass trust.
These CDs will require the probate process, so Peter's
estate will not be able to avoid probate entirely. The
$50,000 from the CDs will be the only assets to fund the
credit shelter trust. These assets are passing to the children,
subject only to a life estate in Peter's wife, so these assets
do not qualify for the marital deduction. The revocable trust
is, in effect, a bypass trust. The revocable trust does not
reduce Peter's estate taxes because the assets are
includible in Peter's gross estate. Revocable trusts are not
used to reduce estate taxes, but to avoid probate. The life
insurance policy will be included in Peter's gross estate
because he transferred the policy to a revocable trust,
rather than to an irrevocable trust. Topics 66 and 68; Domain
3
2 of 45
Definition Term
, C When Terry and Sandy Metier
arrived for the annual review of
According to tax Regulations, their financial plan, they told
no income on the rental of a their planner that Terry had lost
vacation home for less than 15 his job and was doing consulting
days is included in gross work now to earn some money
income. However, when the but was making less than one
home is rented out for 15 or third of his previous income.
more days and the taxpayer Sandy was working part time to
uses it less than 15 days or 10% help out, but their income was
of the rental (whichever is now substantially less than at
more), then the home is not their last review. They informed
considered a residence. In the planner that they have not
addition, if an intention to been able to save or make
produce income is shown, the retirement contributions for over
taxpayer can treat the home as 6 months. The Metiers' plan
a rental property and deduct all required them to make
costs associated with the contributions to their IRAs and
property, even to the extent of Roth IRAs for another 9 years
creating a loss. In this case, the when they would retire at age
expenses, including 65. The loss of Terry's job means
depreciation (27.5 years), would that they are paying for health
be $14,482 and would create a insurance under COBRA and
loss of $4,482, which would have lost some life insurance
offset other income because and disability coverage
the Martins' AGI is not high previously provided by Terry's
enough to trigger limitations on employer. Their youngest child
rental losses and because they has two more years of college,
qualify for active participation, and they have depleted their
with regard to the beach house. 529 plan. They have put their
When personal use exceeds 14 house up for sale to reduce
days, expenses are allocated expenses. How should the
