L S 3323 Study Guide - Final Guide: Life Insurance, Implied Warranty, Novation

1. All the following statements concerning the use of an insured corporate cross-purchase buy-sell agreement are correct EXCEPT:

A. The value of any life insurance policies the deceased owned on the lives of the other stockholders will be included in his or her gross estate.

B. The buy-out will not involve dividend distributions to the deceased’s estate or his or her family.

C. It is preferred over the redemption-type agreement when the stockholders are all in a higher tax bracket than the corporation.

D. The surviving stockholders get an increase in their basis for income tax purposes.

E. It produces greater equity of results than a redemption-type agreement when there is a significant difference in the ages of the stockholders and in their percentages of stock ownership.

2. All the following provisions are usually included in an insured stock cross-purchase buy-sell agreement EXCEPT:

A. A provision giving each surviving stockholder an option to buy a proportionate part of a deceased’s stock.

B. A provision establishing the purchase price to be paid for the stock of a deceased stockholder.

C. A provision committing each stockholder to buy and maintain life insurance on the other stockholders.

D. A provision permitting each surviving stockholder to buy from the estate of a deceased stockholder the life insurance the deceased’s estate owns on the life of each surviving stockholder.

3. All the following statements concerning the tax implications of a gift made to a person who dies within one year of receipt of the gift are correct EXCEPT:

A. If the property is willed back to the original donor, such property is denied the usual stepped-up basis for valuing property transferred to a designated heir.

B. The beneficiary of the deceased’s will can be in receipt of capital gains, even if he or she sells the property on the date of the testator’s death.

C. If the decedent wills the property to someone other than the original owner or his or her spouse, the transferee can have the benefit of the stepped-up basis.

D. If the original donor is the spouse of the decedent-donee, a testamentary disposition to the decedent’s children will prevent realization of the benefits of the stepped-up basis.

4. D and E, a married couple, make a gift of their vacation home to their children but reserve the right to use the property during their lifetimes. Under these circumstances, which of the following statements are correct?

I. The property will be included in the donor’s gross estate at their deaths.

II. The gift tax annual exclusion is not available to D and E.

III. The unified tax credit is available to D and E.

A. I and II only

B. I and III only

C. II and III only

D. I, II and III

5. Which of the following statements most accurately describes the rights conveyed to a minor under the terms of a trust that give the minor a so-called “Crummy” power?

A. The right to withdraw the corpus at any time during minority.

B. The right to accumulate trust income to age 21 and the right to receive these funds as a distribution of corpus.

C. The right to withdraw limited amounts of the trust corpus for a limited time after a contribution is made to the trust.

D. The right to withdraw the trust’s income for the calendar year without a guardian’s approval.