Estate Planning Final EXAM - GTG w/
Solutions with complete solutions
The Thompson Family Trust was established by the late Mrs. Thompson for her three adult
children and five grandchildren. The trust currently holds a diverse portfolio, including a
significant position in Quantum Dynamics, a technology company that has shown strong growth
over the past decade.
1. Maintaining the existing asset allocation, which includes Quantum Dynamics stock, other
equities, bonds, and real estate investments.
2. Shifting the entire portfolio into fixed-income investments, such as government bonds and
high-yield savings accounts, to ensure stable income for the adult children.
3. Purchasing stocks that do not pay dividends to maximize capital appreciation.
4. Increasing her trustee fee from 0.75% to 1.5% annually, citing the complex nature of the
trust's assets.
Which of the proposed actions is most likely to be considered a breach of fiduciary duty as
trustee? - correct answer ✔✔ C. Purchasing stocks that do not pay dividends to maximize
capital appreciation.
Purchasing stocks that do not pay dividends. The trustee has a fiduciary duty to manage the
trust in the best interests of all beneficiaries, both current and future. By purchasing stocks that
do not pay dividends, the trustee would be prioritizing capital appreciation over current income,
which could be seen as favoring the remainder beneficiaries (the grandchildren) over the
income beneficiaries (the adult children). This action could be considered a breach of duty to
balance the interests of all beneficiaries.
Choice A is incorrect. Maintaining the existing asset allocation, which includes Quantum
Dynamics stock (assuming it's not an overly concentrated position) along with other
,investments, is generally consistent with prudent trust management and balancing the interests
of all beneficiaries.
Choice B is incorrect. Shifting the entire portfolio into fixed-income investments would prioritize
current income for the adult children at the expense of long-term growth potential for the
grandchildren (remainder beneficiaries). However, this action alone does not constitute a
breach of fiduciary duty.
Choice D is incorrect. While increasing the trustee fee might be questionable, it's not necessarily
a breach of fiduciary duty if the new fee can be justified based on the complexity of the trust
and is in line with industry standards for similar trusts.
Beatrice and Renaldo Kreeb live in a common law state and their home is titled in Renaldo's
name. The land is worth $200,000. The basis in the property is $450,000. Renaldo is considering
placing the home in a QPRT and naming the couple's four children as the remainder
beneficiaries. The value of the home is $1,100,000 and Renaldo's retained interest is $448,000.
What would Renaldo's total taxable gift be for this transfer?
A.$448,000
B.$580,000
C.$652,000
D.$1,100,000 - correct answer ✔✔ C.$652,000
The present value of the expected future remainder interest is considered a gift of a future
interest subject to gift tax. Because this is a gift of a future interest, it does not qualify for the
annual exclusion. $1,100,000 - $448,000 = $652,000
Choice A is incorrect. The value of the retained interest is not the taxable gift.
Choice B is incorrect. The value of the home minus the retained interest and annual exclusion
for the four children is not the taxable gift.
Choice D is incorrect. The value of the home is not the taxable gift.
,Ethan and Elsie are a married couple who want to set up a testamentary trust to manage their
assets after their deaths. In life, neither gifted assets to each other, family members, friends, or
charity. They have two children, Liam and Olivia. The trust will be funded with assets worth
$2,300,000 and benefit only the children per capita. Recently, Ethan passed away unexpectedly.
As the surviving spouse, Elsie is now responsible for managing the entire investment portfolio.
Which of the following is true with regard to the proposed testamentary trust?
A. The assets will be excluded from Ethan's gross estate.
B. The income is allowed to accumulate for the benefit of the children.
C. The QTIP treatment will be automatic.
D. The assets in the trust, at Elsie's death, will be fully taxable to Elsie's estate. - correct answer
✔✔ D. The assets in the trust, at Elsie's death, will be fully taxable to Elsie's estate.
The assets in the trust, at Elsie's death, will be fully taxable to Elsie's estate.
Choice A. is incorrect. The assets would be included in Ethan's gross estate but fully offset by
the marital deduction.
Choice B. is incorrect. Income Must be paid to the surviving spouse in a QTIP trust, which is not
the case here.
Choice C. is incorrect. The executor Must make a QTIP election in order for the trust to qualify.
Choice D. is correct because the assets in the trust, at Elsie's death, will be fully taxable to Elsie's
estate
Yuna and Lee, a married couple in their 60s, have a life insurance policy on Lee's life. The policy
has a $1 million death benefit and a current cash surrender value of $250,000. The policy was
purchased 20 years ago to provide financial protection for their family. Yuna and Lee have three
adult children - Ling, Jae, and Toshi - and several grandchildren.
Recently, Yuna and Lee have been considering their options for the life insurance policy as part
of their estate planning. Lee recently received a terminal diagnosis, but they plan on seeking the
most advanced medical treatments possible that may extend his life by 5 years. They are no
, longer concerned about the need for the death benefit and are curious if they should just
access the policy's value.
What would be the best estate planning strategy to recommend for the life insurance policy? -
correct answer ✔✔ B. Continue to pay the premiums and keep the policy.
Continue to pay the premiums and keep the policy. The best choice as an estate planning
strategy is to continue paying the premiums and keep the policy in force. This preserves the
potential $1 million death benefit for Yuna and Lee's family. The cost of keeping the policy in
place is likely minimal and will secure the $1,000,000 proceeds for the estate and heirs,
especially given Lee's recent diagnosis.
Choice A is incorrect. Gifting the policy to an ILIT would not be the best choice, as it could create
additional complexity and potential gift tax consequences if Lee passes away within 3 years.
Choice C is incorrect. Withdrawing the cash value and allowing the policy to lapse would not be
the best choice, as it would forgo the potential future death benefit. The withdrawal may also
trigger an income tax consequence.
Choice D is incorrect. Selling the policy to a viatical settlement company at a discounted price
would not be the best choice, as it would result in a lower overall value compared to keeping
the policy in force. This strategy would only be recommended if the family needed the money
immediately.
Identify which of the following is a principal reason to consider establishing a revocable living
trust?
A.Reducing the grantor's gross estate.
B.Temporal Discounts.
C.Avoidance of the Rule Against Perpetuities.
D.Probate Avoidance. - correct answer ✔✔ D.Probate Avoidance.
A revocable living trust is primarily established so that the trust assets avoid the probate
process. The trust assets will transfer per the trust document and will not need to pass through
probate.
Solutions with complete solutions
The Thompson Family Trust was established by the late Mrs. Thompson for her three adult
children and five grandchildren. The trust currently holds a diverse portfolio, including a
significant position in Quantum Dynamics, a technology company that has shown strong growth
over the past decade.
1. Maintaining the existing asset allocation, which includes Quantum Dynamics stock, other
equities, bonds, and real estate investments.
2. Shifting the entire portfolio into fixed-income investments, such as government bonds and
high-yield savings accounts, to ensure stable income for the adult children.
3. Purchasing stocks that do not pay dividends to maximize capital appreciation.
4. Increasing her trustee fee from 0.75% to 1.5% annually, citing the complex nature of the
trust's assets.
Which of the proposed actions is most likely to be considered a breach of fiduciary duty as
trustee? - correct answer ✔✔ C. Purchasing stocks that do not pay dividends to maximize
capital appreciation.
Purchasing stocks that do not pay dividends. The trustee has a fiduciary duty to manage the
trust in the best interests of all beneficiaries, both current and future. By purchasing stocks that
do not pay dividends, the trustee would be prioritizing capital appreciation over current income,
which could be seen as favoring the remainder beneficiaries (the grandchildren) over the
income beneficiaries (the adult children). This action could be considered a breach of duty to
balance the interests of all beneficiaries.
Choice A is incorrect. Maintaining the existing asset allocation, which includes Quantum
Dynamics stock (assuming it's not an overly concentrated position) along with other
,investments, is generally consistent with prudent trust management and balancing the interests
of all beneficiaries.
Choice B is incorrect. Shifting the entire portfolio into fixed-income investments would prioritize
current income for the adult children at the expense of long-term growth potential for the
grandchildren (remainder beneficiaries). However, this action alone does not constitute a
breach of fiduciary duty.
Choice D is incorrect. While increasing the trustee fee might be questionable, it's not necessarily
a breach of fiduciary duty if the new fee can be justified based on the complexity of the trust
and is in line with industry standards for similar trusts.
Beatrice and Renaldo Kreeb live in a common law state and their home is titled in Renaldo's
name. The land is worth $200,000. The basis in the property is $450,000. Renaldo is considering
placing the home in a QPRT and naming the couple's four children as the remainder
beneficiaries. The value of the home is $1,100,000 and Renaldo's retained interest is $448,000.
What would Renaldo's total taxable gift be for this transfer?
A.$448,000
B.$580,000
C.$652,000
D.$1,100,000 - correct answer ✔✔ C.$652,000
The present value of the expected future remainder interest is considered a gift of a future
interest subject to gift tax. Because this is a gift of a future interest, it does not qualify for the
annual exclusion. $1,100,000 - $448,000 = $652,000
Choice A is incorrect. The value of the retained interest is not the taxable gift.
Choice B is incorrect. The value of the home minus the retained interest and annual exclusion
for the four children is not the taxable gift.
Choice D is incorrect. The value of the home is not the taxable gift.
,Ethan and Elsie are a married couple who want to set up a testamentary trust to manage their
assets after their deaths. In life, neither gifted assets to each other, family members, friends, or
charity. They have two children, Liam and Olivia. The trust will be funded with assets worth
$2,300,000 and benefit only the children per capita. Recently, Ethan passed away unexpectedly.
As the surviving spouse, Elsie is now responsible for managing the entire investment portfolio.
Which of the following is true with regard to the proposed testamentary trust?
A. The assets will be excluded from Ethan's gross estate.
B. The income is allowed to accumulate for the benefit of the children.
C. The QTIP treatment will be automatic.
D. The assets in the trust, at Elsie's death, will be fully taxable to Elsie's estate. - correct answer
✔✔ D. The assets in the trust, at Elsie's death, will be fully taxable to Elsie's estate.
The assets in the trust, at Elsie's death, will be fully taxable to Elsie's estate.
Choice A. is incorrect. The assets would be included in Ethan's gross estate but fully offset by
the marital deduction.
Choice B. is incorrect. Income Must be paid to the surviving spouse in a QTIP trust, which is not
the case here.
Choice C. is incorrect. The executor Must make a QTIP election in order for the trust to qualify.
Choice D. is correct because the assets in the trust, at Elsie's death, will be fully taxable to Elsie's
estate
Yuna and Lee, a married couple in their 60s, have a life insurance policy on Lee's life. The policy
has a $1 million death benefit and a current cash surrender value of $250,000. The policy was
purchased 20 years ago to provide financial protection for their family. Yuna and Lee have three
adult children - Ling, Jae, and Toshi - and several grandchildren.
Recently, Yuna and Lee have been considering their options for the life insurance policy as part
of their estate planning. Lee recently received a terminal diagnosis, but they plan on seeking the
most advanced medical treatments possible that may extend his life by 5 years. They are no
, longer concerned about the need for the death benefit and are curious if they should just
access the policy's value.
What would be the best estate planning strategy to recommend for the life insurance policy? -
correct answer ✔✔ B. Continue to pay the premiums and keep the policy.
Continue to pay the premiums and keep the policy. The best choice as an estate planning
strategy is to continue paying the premiums and keep the policy in force. This preserves the
potential $1 million death benefit for Yuna and Lee's family. The cost of keeping the policy in
place is likely minimal and will secure the $1,000,000 proceeds for the estate and heirs,
especially given Lee's recent diagnosis.
Choice A is incorrect. Gifting the policy to an ILIT would not be the best choice, as it could create
additional complexity and potential gift tax consequences if Lee passes away within 3 years.
Choice C is incorrect. Withdrawing the cash value and allowing the policy to lapse would not be
the best choice, as it would forgo the potential future death benefit. The withdrawal may also
trigger an income tax consequence.
Choice D is incorrect. Selling the policy to a viatical settlement company at a discounted price
would not be the best choice, as it would result in a lower overall value compared to keeping
the policy in force. This strategy would only be recommended if the family needed the money
immediately.
Identify which of the following is a principal reason to consider establishing a revocable living
trust?
A.Reducing the grantor's gross estate.
B.Temporal Discounts.
C.Avoidance of the Rule Against Perpetuities.
D.Probate Avoidance. - correct answer ✔✔ D.Probate Avoidance.
A revocable living trust is primarily established so that the trust assets avoid the probate
process. The trust assets will transfer per the trust document and will not need to pass through
probate.
