Estate Planning Final Exam (Chapters
12 + 13) correctly answered
Why is it important for an estate to have cash? - correct answer ✔✔ An estate must cover the
taxes, administration expenses, last medical costs, and funeral costs. All of these expenses must
be paid for with cash, and if the estate does not have the cash necessary to make these
payments, assets will have to be liquidated and possibly sold at a price lower than the asset's
value to have the cash necessary.
How can an individual potentially reduce the medical expenses to be paid by his estate? -
correct answer ✔✔ If an individual keeps his medical insurance up to date until his death the
amount his estate will have to pay should be less than if he did not have health insurance.
How can an individual reduce the funeral expenses that his estate will have to pay? - correct
answer ✔✔ an individual pre-arranges and pre-funds his funeral before his death
List three common administration costs of an estate. - correct answer ✔✔ Executor's fees,
attorney's fees, fees for appraisals of assets.
Why should selling an estate's assets to generate the liquidity necessary for the estate taxes
generally be the last option? - correct answer ✔✔ The executor usually has to spend a
substantial amount of time selling the assets which may increase his executor's fees. Also the
estate must pay capital gains tax on the amount for the sales price above the adjusted basis at
the decedent's date of death.
List three methods that an executor can use to reduce the liquidity requirements of an estate. -
correct answer ✔✔ The executor can make in-kind distributions to beneficiaries. If planned
properly, the executor could sell assets to an ILIT. The executor could use the assets of a
qualified plan payable to the decedent's estate.
, How can an ILIT be used to generate liquidity for an estate without requiring the value of the
ILIT to be included in the decedent's gross estate? - correct answer ✔✔ The trust can allow the
executor to make a loan from the ILIT or the executor can sell the decedent's assets to the ILIT
at the fair market value.
Even if qualified plans are payable to the decedent's estate, why should the executor seek
alternative means of meeting the cash requirements of the estate before taking distributions
from the qualified plans? - correct answer ✔✔ If the estate takes the distribution from the
qualified plan to generate the cash necessary to meet the estate's
Explain the tax benefit allowed by a section 303 stock redemption - correct answer ✔✔ With a
stock redemption to a closely held corporation, the redemption is considered a dividend if it is
not for a complete redemption of the stock. Section 303 allows the estate to redeem enough
shares to pay its estate taxes and receive capital gain treatment on the sale, even if it is only a
partial redemption.
What requirements must an estate meet to benefit from section 303 stock redemption? -
correct answer ✔✔ More than 35 percent of the decedent's adjusted gross estate must consist
of the closely held business interest. In the event that the decedent owned interests in several
closely held businesses, all of the business interests can be aggregated to meet the 35 percent
test provided the decedent owned at least 20 percent of each company's outstanding stock.
List two reasons why borrowing cash is an attractive option for the executor of an illiquid estate.
- correct answer ✔✔ Borrowing may prevent the fire-sale of assets. The interest incurred on the
note is deductible.
In the year of a decedent's death, what are his surviving spouse's filing status options? - correct
answer ✔✔ The surviving spouse may file married filing jointly or married filing separately.
What requirements must be met for a surviving spouse to file as a qualifying widow/widower? -
correct answer ✔✔ Be a qualified widower for 2 years following the decedent's death if the
12 + 13) correctly answered
Why is it important for an estate to have cash? - correct answer ✔✔ An estate must cover the
taxes, administration expenses, last medical costs, and funeral costs. All of these expenses must
be paid for with cash, and if the estate does not have the cash necessary to make these
payments, assets will have to be liquidated and possibly sold at a price lower than the asset's
value to have the cash necessary.
How can an individual potentially reduce the medical expenses to be paid by his estate? -
correct answer ✔✔ If an individual keeps his medical insurance up to date until his death the
amount his estate will have to pay should be less than if he did not have health insurance.
How can an individual reduce the funeral expenses that his estate will have to pay? - correct
answer ✔✔ an individual pre-arranges and pre-funds his funeral before his death
List three common administration costs of an estate. - correct answer ✔✔ Executor's fees,
attorney's fees, fees for appraisals of assets.
Why should selling an estate's assets to generate the liquidity necessary for the estate taxes
generally be the last option? - correct answer ✔✔ The executor usually has to spend a
substantial amount of time selling the assets which may increase his executor's fees. Also the
estate must pay capital gains tax on the amount for the sales price above the adjusted basis at
the decedent's date of death.
List three methods that an executor can use to reduce the liquidity requirements of an estate. -
correct answer ✔✔ The executor can make in-kind distributions to beneficiaries. If planned
properly, the executor could sell assets to an ILIT. The executor could use the assets of a
qualified plan payable to the decedent's estate.
, How can an ILIT be used to generate liquidity for an estate without requiring the value of the
ILIT to be included in the decedent's gross estate? - correct answer ✔✔ The trust can allow the
executor to make a loan from the ILIT or the executor can sell the decedent's assets to the ILIT
at the fair market value.
Even if qualified plans are payable to the decedent's estate, why should the executor seek
alternative means of meeting the cash requirements of the estate before taking distributions
from the qualified plans? - correct answer ✔✔ If the estate takes the distribution from the
qualified plan to generate the cash necessary to meet the estate's
Explain the tax benefit allowed by a section 303 stock redemption - correct answer ✔✔ With a
stock redemption to a closely held corporation, the redemption is considered a dividend if it is
not for a complete redemption of the stock. Section 303 allows the estate to redeem enough
shares to pay its estate taxes and receive capital gain treatment on the sale, even if it is only a
partial redemption.
What requirements must an estate meet to benefit from section 303 stock redemption? -
correct answer ✔✔ More than 35 percent of the decedent's adjusted gross estate must consist
of the closely held business interest. In the event that the decedent owned interests in several
closely held businesses, all of the business interests can be aggregated to meet the 35 percent
test provided the decedent owned at least 20 percent of each company's outstanding stock.
List two reasons why borrowing cash is an attractive option for the executor of an illiquid estate.
- correct answer ✔✔ Borrowing may prevent the fire-sale of assets. The interest incurred on the
note is deductible.
In the year of a decedent's death, what are his surviving spouse's filing status options? - correct
answer ✔✔ The surviving spouse may file married filing jointly or married filing separately.
What requirements must be met for a surviving spouse to file as a qualifying widow/widower? -
correct answer ✔✔ Be a qualified widower for 2 years following the decedent's death if the
