ALU 202 PRACTICE EXAM QUESTIONS WITH
VERIFIED ANSWERS
All of the following are financial objectives of a well-planned estate EXCEPT:
1) maximized wealth
2) tax savings
3) income replacement
4) appropriate asset ownership - Answers - 3) income replacement
A legal agreement whereby property is held and managed for the welfare of the
beneficiary is:
1) estate
2) trust
3) situs
4) partnership - Answers - 2) trust
The basis from which to determine whether an individual is subject to the estate tax is:
1) taxable estate
2) fair market value of the personal property
3) total income
4) business assets only - Answers - 1) taxable estate
All of the following statements regarding special use valuation are correct EXCEPT:
1) Some property is taxed based upon potential uses
2) Property value is assessed according to its current use
3) The value of stocks/bonds are the price upon the date of death
4) Life insurance products set aside for the benefit of the decedent's estate are taxed as
part of the estate - Answers - 1) Some property is taxed based upon potential uses
Examples of income with respect to the decedent (IRD) include all of the following
EXCEPT:
1) uncollected lottery winnings
2) outstanding stock dividends
3) accounts receivables from a cash basis sole proprietor
4) gains received from the sale of the property - Answers - 4) gains received from the
sale of the property
All of the following are factors to consider in a charitable giving application for life
insurance EXCEPT:
,1) past history of charitable contributions
2) amount of annual contributions
3) the state in which the charitable trust was established
4) the annual premium as a percentage of client's annual income - Answers - 3) the
state in which the charitable trust was established
Foreign assets owned by former US citizens:
1) do not generate estate tax once US citizenship is renounced
2) generate a decreasing proportional estate tax for 10 yrs after US citizenship is
renounced
3) are completely exempt from estate taxes if all assets are located outside of the US
4) generate an increasing proportional estate tax for 10 yrs after renouncing US
citizenship - Answers - 2) generate a decreasing proportional estate tax for 10 yrs after
US citizenship is renounced
All of the following are characteristics of the Irrevocable Trust EXCEPT:
1) trust assets are not vulnerable to the grantor's creditors
2) assets removed from the estate and put into the trust reduce the size of the estate
and the estate tax
3) grantor retains incident of ownership of the trust
4) income generated by the trust assets is taxed to the trust, often at a lower rate than
received by the grantor - Answers - 3) grantor retains incident of ownership of the trust
All of the following statements regarding the rule against perpetuities are correct
EXCEPT:
1) Certain charitable trusts can exist for an unlimited period of time
2) Private trusts can exist for a period not to exceed 21 yrs after the creation of the trust
3) Public trusts cannot exist for more than 21 yrs after creation
4) Charitable trusts must not name a specific individual or individuals are beneficiary -
Answers - 3) Public trusts cannot exist for more than 21 yrs after creation
All of the following are valid reasons for purchasing life insurance on an elderly
individual EXCEPT:
1) estate transfer
2) long term care needs
3) estate creation
4) final expenses - Answers - 3) estate creation
All of the following statements regarding charitable trusts are correct EXCEPT:
1) It's a type of revocable trust
, 2) Assets placed in are managed on behalf of the charity
3) The life insurance policy on the grantor can be made an asset of the trust
4) It's not subject to the rule against perpetuities - Answers - 1) It's a type of revocable
trust
All of the following are allowable deductions when calculating the adjusted gross estate
EXCEPT:
1) funeral expenses
2) membership dues
3) medical expenses
4) mortgage debt - Answers - 2) membership dues
Which of the following statements regarding the purpose of life insurance in estate
planning is/are correct?
A) Life insurance can replace assets lost due to estate transfer costs
B) It can transfer assets such as the purchase of an illiquid asset from the estate with
the death proceeds
C) Life insurance can increase assets, as happens in private placement insurance -
Answers - All are correct
Which of the following is/are jurisdictional premises that can trigger the imposition of
estate tax?
A) citizenship
B) residency
C) type of asset owned - Answers - A) citizenship
B) residency
Which of the following statements regarding offshore trusts is/are correct?
A) Some foreign jurisdictions are "tax havens"
B) Offshore trusts are still subject to rule against perpetuities
C) Life insurance is an ideal vehicle to use in conjunction with an offshore trust -
Answers - A) Some foreign jurisdictions are "tax havens"
C) Life insurance is an ideal vehicle to use in conjunction with an offshore trust
All of the following statements regarding family limited partnerships (FLP) are correct
EXCEPT:
1) There are two classes of partners
2) Limited partners are typically children or younger family members
3) The major advantage is the liability protection against creditors
4) General partners are not usually involved in the day-to-day management - Answers -
4) General partners are not usually involved in the day-to-day management
VERIFIED ANSWERS
All of the following are financial objectives of a well-planned estate EXCEPT:
1) maximized wealth
2) tax savings
3) income replacement
4) appropriate asset ownership - Answers - 3) income replacement
A legal agreement whereby property is held and managed for the welfare of the
beneficiary is:
1) estate
2) trust
3) situs
4) partnership - Answers - 2) trust
The basis from which to determine whether an individual is subject to the estate tax is:
1) taxable estate
2) fair market value of the personal property
3) total income
4) business assets only - Answers - 1) taxable estate
All of the following statements regarding special use valuation are correct EXCEPT:
1) Some property is taxed based upon potential uses
2) Property value is assessed according to its current use
3) The value of stocks/bonds are the price upon the date of death
4) Life insurance products set aside for the benefit of the decedent's estate are taxed as
part of the estate - Answers - 1) Some property is taxed based upon potential uses
Examples of income with respect to the decedent (IRD) include all of the following
EXCEPT:
1) uncollected lottery winnings
2) outstanding stock dividends
3) accounts receivables from a cash basis sole proprietor
4) gains received from the sale of the property - Answers - 4) gains received from the
sale of the property
All of the following are factors to consider in a charitable giving application for life
insurance EXCEPT:
,1) past history of charitable contributions
2) amount of annual contributions
3) the state in which the charitable trust was established
4) the annual premium as a percentage of client's annual income - Answers - 3) the
state in which the charitable trust was established
Foreign assets owned by former US citizens:
1) do not generate estate tax once US citizenship is renounced
2) generate a decreasing proportional estate tax for 10 yrs after US citizenship is
renounced
3) are completely exempt from estate taxes if all assets are located outside of the US
4) generate an increasing proportional estate tax for 10 yrs after renouncing US
citizenship - Answers - 2) generate a decreasing proportional estate tax for 10 yrs after
US citizenship is renounced
All of the following are characteristics of the Irrevocable Trust EXCEPT:
1) trust assets are not vulnerable to the grantor's creditors
2) assets removed from the estate and put into the trust reduce the size of the estate
and the estate tax
3) grantor retains incident of ownership of the trust
4) income generated by the trust assets is taxed to the trust, often at a lower rate than
received by the grantor - Answers - 3) grantor retains incident of ownership of the trust
All of the following statements regarding the rule against perpetuities are correct
EXCEPT:
1) Certain charitable trusts can exist for an unlimited period of time
2) Private trusts can exist for a period not to exceed 21 yrs after the creation of the trust
3) Public trusts cannot exist for more than 21 yrs after creation
4) Charitable trusts must not name a specific individual or individuals are beneficiary -
Answers - 3) Public trusts cannot exist for more than 21 yrs after creation
All of the following are valid reasons for purchasing life insurance on an elderly
individual EXCEPT:
1) estate transfer
2) long term care needs
3) estate creation
4) final expenses - Answers - 3) estate creation
All of the following statements regarding charitable trusts are correct EXCEPT:
1) It's a type of revocable trust
, 2) Assets placed in are managed on behalf of the charity
3) The life insurance policy on the grantor can be made an asset of the trust
4) It's not subject to the rule against perpetuities - Answers - 1) It's a type of revocable
trust
All of the following are allowable deductions when calculating the adjusted gross estate
EXCEPT:
1) funeral expenses
2) membership dues
3) medical expenses
4) mortgage debt - Answers - 2) membership dues
Which of the following statements regarding the purpose of life insurance in estate
planning is/are correct?
A) Life insurance can replace assets lost due to estate transfer costs
B) It can transfer assets such as the purchase of an illiquid asset from the estate with
the death proceeds
C) Life insurance can increase assets, as happens in private placement insurance -
Answers - All are correct
Which of the following is/are jurisdictional premises that can trigger the imposition of
estate tax?
A) citizenship
B) residency
C) type of asset owned - Answers - A) citizenship
B) residency
Which of the following statements regarding offshore trusts is/are correct?
A) Some foreign jurisdictions are "tax havens"
B) Offshore trusts are still subject to rule against perpetuities
C) Life insurance is an ideal vehicle to use in conjunction with an offshore trust -
Answers - A) Some foreign jurisdictions are "tax havens"
C) Life insurance is an ideal vehicle to use in conjunction with an offshore trust
All of the following statements regarding family limited partnerships (FLP) are correct
EXCEPT:
1) There are two classes of partners
2) Limited partners are typically children or younger family members
3) The major advantage is the liability protection against creditors
4) General partners are not usually involved in the day-to-day management - Answers -
4) General partners are not usually involved in the day-to-day management
