State Intestacy Case Study
1. Twenty-two yurs ago, James and Kevin began dating, and 19 years ago, they began living together. Last year, James i.o.herited over $9,000,000 from his grandfather. He wants to enSIlIe that if he dies first,
Kevin will be taken c:are offor the rest of his life. Despite your insistence, James does not have a will, and you have advised h1m previously that state intestacy la_ do not protect same-sex partners. Which of the following _et ownership options would fulfill James' goal of tl'ansferring assets to Kevin at his deathl a. Community property.
b. Tenancy in common with each other.
c. Joint tenancy with rights of survivorship.
d. Tenancy by the entirety.
The correct answer is c.
When one owner dies owning property held as …show more content…
a joint renancy with the right of survivorship, his interest is transferred to the other remaining property owners. In this case, ifJames and Kevin own property JTWROS.
Kevin will inherit James' interest in the property if James dies first. When property is owned JTWROS, the property does not pass through probate and the transfer is automatic at death. Kevin and James cannot own property via community property or tenancy by the entirety as they are not a married couple. Tenancy in com· mon does not have an automatic survivorship feature and would nor accomplish James' and Kevin's goals.
2. Jim has beeo married to Rebea:a for six yurs. They arc about to buy their first home and have come to you with some questions that they have reganling tiding of the home. In your explanation of the dilFerent property ownership arrangements, which of the following tiding structures can only b. entered into by spousesl
a. Tenancy by the entirety.
b. Tenancy in common.
e:. Joint tenancy with rights of survivorship.
d. Fee simple.
The correct answer is a.
Of the property ownerships listed, tenancy by the entirety is the only one limited ro married couples.
3. Which of the following statements regarding joint tenancy with rights ofsurvivorship is correc:t1
a. Each tenant may bequeath their interest in the property at their death.
b. Joint tenancy with rights of survivorship i. the same all community property.
c. Only spouses can establish joint tenancies.
d. Each tenant under Il joint tenancy with rights of survivorship hall an undivided interest in the property.
The COtrect answer is d.
Only answer d is a COrrect statement. Answer a is incorrect because a joint tenant in a JTWROS can transfer his interest during life, but at death the interest is automatically transferred to the surviving tenants. Answer b is incorrect because JTWROS is not the same as community property. Community property can only be entered into between married couples and does not provide an automatic right of survivorship, Answer c is
MULnPLE,CHOICE PROBLEMS
25
incorrect beca~ anyone can own property JTWROS. and at the death of one joint tenant. his interest will transfer automatiCally to the surviving joint tenants.
4. Which of the following statements regarding joint tenancy with righlll of survivorship iI not correct?
At the death of a joint tenant, his interest in the property will transfer to the beneficiary listed in his will.
b. Property owned ,JTWROS transfers by operation of law.
c. Each teWLt1t owns the same fractional share in the property.
I\.
d. During his life, each joint tenant has the right to ~ hil interest in the property without consent. The correct answer is a.
Answer a is the only incorrect statement because the properry will pass ro the surviving tenants by operation of law. without regard to any provisions contained in a will.
5. Which of the following statements regarding community property iI not correct?
I\.
If one spouse inherits property during the marriage, that property is generally not colISidered community property.
b. Assets llaiuired by either spouse before marriage generally become community property upon their marriage.
Co
Community property assets are included in probate.
d. If one spouse utili:res his paycheck from work performed during the marriage to purch..« property. the property is community property.
The correct answer is b.
Answer b is the only incorrect statement because assets acquired before marriage remain separate properry.
6. Of the following types of owner.hip, which is available for married couplest
1. Tenancy by the entirety.
2. Tenancy in common.
3. JTWROS.
4. Tenants by marriage.
I\.
1 only.
b. 1 and 3.
c:. 1.2, and 3.
d. 1, 2, 3, and 4.
The correct answer is c.
Of the properry types listed, tenancy by the entirery is an ownetship form exclusive to married couples. Ten ants in common and JTWROS are available to anyone. including married couples. Tenants by marriage is not a form of property ownership.
26
CHAI'TER 3: 1'fPES OF PROPERTY INTERESTS
7. At the death of either partner, a same-sex couple would like to ensure that all property, iruurance policies, and retirement plans transfer to the surviving partner. Which of the following will NOT accomplish the couple's goal!
a. Each partner is listed as the beneficiary of the other partner's life insurance policy.
b.
Each partner is listed as the beneficiary of the other partner's qualified pension plan.
c. Each partner i. a joint tenant in all of the couple's property owned joint tenancy with rights of survi""rshlp.
d. State intestacy laws.
The correct answer is d.
State intestacy laws usually do not provide for asset transfers ro non-relared parries, including rhe surviving partner in a same-sex couple. The designated beneficiary of a lite insurance policy will receive the proceeds of the life insurance policy by state contract law. The designated beneficiary of a qualified pension plan will also receive the assets by state contract law. A joint tenant of properry hdd ]TWROS will also receive the decedent joint tenant's interest per the srate contract law,
8, Kim and Tommy ha"" lived In Atirona since their marriage. Kim recei""d an inheritance from her father during their marriage. Kim and Tommy are moving to Massachusetts for a new job and have some questions regarding their mo"" tn a common law (separate property) state from a community property state. Which of the following statements is correct?
a. When a couple moves from a community-property state to a common law …show more content…
(separate property) state, separate property will generally remain separate property.
b. When a couple moves from a common law (separate property) state to a community property state, separate property will generally become community property.
c.
Community property a""ids probate at the death of the first spowe and automatically passes to the surviving spowe by operation of law.
d. To get the step-to fair market value in basis at the death of the first spowe, a couple who lives in a common law (separate property) state can elect to treat their separate property as community property.
The correct answer is a.
Answer a is the only Correct statement, When a couple moves from a community property srare to a common law (separare properry) stare. separate property will generally remain separate property. Answer b is incorrect because separate properry does nor generally become communiry properry when a married couple moves from a common law srare ro a community property State. Answer c is incorrecr because community properry may be disposed of by will and does not auromatically pass to the surviving spouse by operarion of law. Finally. answer dis incorrecr because couples living in common law states cannot elect community property treatment at the dearh of the first spouse in order to get a srep-up in basis,
MULTIPLE-C~OICE PROBLEMS
27
9. Dan hu owned 100% of the stock of Dam'1 Baked Goods, a corporation, for 22 Y""fS. In the
current year, she gifted 50% of the bWlinas to her daughter, Sheila, who lives in California. Sheila does not work at the business and reinvests any income back in the company. With respect to the transfer of the bWliness interest, which of the followin, statemeJlts is correc:t?
a. Shella". 50% interest in Data'. Baked Goods is community property, owned equally by Sheila and her husband.
b. If Sheila's hwband dies tomorrow, both hi. share of Dara's Baked Goods and Sheila's share of
Dam's Baked Goods would receive a step-to fair market value in basi •.
e. Sheila owns 50% of Data's Baked Good. outright, and the interest will not be considered community property.
d. If Sheila dies tomorrow, the executor of her estate would include 25% of the value of Data's
Baked Goods in her ;ross estate.
The correct answer is c.
Answer c is correct because gifted property is generally considered separate property. Answer a is incorrect because gifted property is generally considered separate property unless Sheil. elected to treat the property as community property, or commingled the assets. In this case, Sheil. do.. not commingle the assets and the problem does not mention that she elected community property status over the assets. Answer b is incorrect because Sheila's interest in Oars's Baked Goods will not be included in her husband's gross estate. Separate property is only included in the gross estate of the sepatate property owner. Because the interest is not in her husband's gross estate, it does not receive a step-tO fair market value. Answer d is incorrect because if Sheila dies tomorrow she must include 100% ofthe value of all ofherassers owned as separate property (thus 50% of
Oars's Baked Goods).
10. IfPauta died with the folJowing property interests, which would not be included in her probate estate?
a. Community property.
b. Property held tenants in common.
c. Property held as tenant by the entirety.
d. Property owned fee simple.
The correct answer is c.
All except option c ate included in a decedent's probate estate. Property held as tenants by the entirety is not included in the decedent's probate ..tare as it transfers by law, rather than by wilL
11. Which of the following statements reprding joint tenancy is correct?
a. Joint tenancies may only be established between spouses.
b. Tenancy by the entirety Is a special form of joint tenancy only available to residents of
Louisiana.
e. Joint tenancies can only be severed with the permission of a court.
d. Each joint tenant in a joint tenancy has an undivided. equal interest in the property.
The correct answer is d.
Each joint tenant in a joint tenancy owns an equal, undivided imereS! in the property. Answer a is false because joint tenancies can be established by any persons, related or unrelated. Answer b is false because ten ancy by the emity is available in other states. Answer c is fulse because joim tenancies can be partitioned at request of one joint tenant. Court approval is not required to sever a joint tenancy.
me
28 CHAPTER 3: 'iVPES OF PRoPERTY INTERESTS
12. Which of the following is/are considen:d real propertyf
1.
2.
3.
4.
Stocks.
Automobile.
House.
Land held for iovestment.
a. 3 only.
b. IlIlld 2.
c. 3 IIlld 4.
d. 1,2 IIlld 3.
The correct answer is c.
Real property is land and buildings. The nature of the property in the hands of the owner (investment. per sonal, inventory) does not affeCt the rype of property. Stocks are intangible and automobiles are tangible.
13. Which of the following islare considered tangible propertyf
1. Stocks.
2. Automobile.
3. Rental hoWle.
4. Land.
a. 2 only.
b. 1 IIlld 2.
c. 3 IIlld 4.
d. 1,2. 3. and 4.
The correct answer is a.
Tangible property is property that may be touched and is not realty. An automobile is tangible property. Stocks are intangible property. A rental house and land are realty.
14. Which of the following islare considered iotangible propertyf
1. Stocks.
2. Patents.
3. Bonds.
4. Land held for iovestmllDt.
4 only.
b. 1 and 2.
Co
2 and 4.
d. I, 2, and 3.
The correct answer is d.
Realty is not intangible property. Stocks, bonds, patents, and copyrights ate common examples of intangible property. Land held ror investment is real property.
.
a.
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29
15. Which of the following statements regarding fee simple ownership is not true!
a.
Fee simple ownership is the complete individual ownership of property with all rights associated with outright ownership.
b. Property owned as fee simple passes through probate at the death of the owner.
c. Property owned as fee simple is excluded from the federal gross estate of the owner.
d. Fee simple ownership allows the owner to use, sell, gift, alienate, convey or bequeath the property without others' approval.
The corrcer answer is c.
The question asked what is NOT true regarding property owned as fee simple. Property owned as fee simple is
included in the gross esrate of the decedem. AU of the other statement, regarding propefry owned fee Sllllple
are true.
16. Erica has come to you for estate planning advice. She has been in a long-term relationship with Judy.
Because Erica's family is not aware of the relationship between Judy and Erica, Erica is concerned that at her death, Jndy will be overlooked by Edca's family. Of the following recommendations, which would you least likely recommend to fulfill Edca'. goal of transferring ..sets to Judy at Erica', death!
a.
Transfer the ownership of Erica's real estate investments into Tenancy by the Entirety.
b. Name Judy as the beneficiary of Erica', retirement plan.
c. Advise Erica against creating a will, specifically bequeathing her property to Judy.
d. Name Judy .. the beneficiary of Erica's life insurance policy.
The correct answer is a.
As Erica's financial planner. you would not advise her to transfer the ownership of her property ro a tenancy by
the entirety .. it is an ownership option only available to married individuals.You would advise Erica ro name
Judy as the beneficiary of her retirement plans and life insurance policies as the beneficiary designation would ensure payment of the proceeds to Judy without the delay ofprobate and challenges to the will. Advising Erica ro create a will and specifically bequeath assets to Judy would fulfill Erica's goal of transferring her assets ro
Judy. but it also allows for Erica's fumily to challenge the will. A challenge ro the will may create delays, increase the costs of estate administration. and potentially could cause the aSsets to be distributed to someone other than Judy.
17. Three years ago, brothers Darren and Andy, purchased real property and tided it as joint tenancy with right of survivorship. At the time of the purchase, Darren did not have any cash, so Andy paid the
$50,000 purcbase price himself. Over the next five years, Darren and Andy allocated the income and expenses of the property equally, and luckily for them the value of the property increased to $350,000.
If Andy dies this year. how mucb will his executor include in his federal gross estate as the value of this real propertyt
a.
b.
(:.
$50,000.
$175,000.
$300,000.
d. $350,000.
30 CHAPTER 3: TYPES OF PROPERTY INTERESTS
The correct answer is d.
The contribution rule applies to property owned as a joint tenancy with right ofsurvivorship. Because Darren
did not contribute any amount towards the original purchase price of the property, Andy's executor must
include the lUll wr market value of the property in Andy's groS$ estate for federal estate tax purpO$CS.
18. Three y.:an ago, Jack and Mary, having been married for 3 Y"IltS, agreed to purchase some real property and tided it as Joint tenants with right of survivorship. At the time of the purchase, Mary did not have any cash, .so Jack paid the $50,000 purchase price himself. Over the next five years, Jack and Mary allocated the income and apenses of the property equally, and luckily for them the value of the property inaused to $350.000. IfJack dies this Y"U, how much will his executor include in his federal gross estate as the value of this real property?
a. $50.000.
b. $175.000.
c. $300.000.
d. $350.000.
The correct answer is b.
When a married couple owns property joint tenancy with right of survivorship. there is an automatic assump· tion that each spouse contributed 50% to the original putchase price. In this case, the contribution rule will deem that each would .indude 50% of the value of the property in the decedent's federal gross estate. At Jack's death. his executor will indude 50% of the value of the property or $175.000 (50% x $350,000) in Jack's fed eral gross estate.
19. Mike travels quite often and wants hi. daughter to have access to his checking account while he i. our of town. For this reason, on October 3. 2008. Mike deposited $100,000 in a checlcing account, Several
y.:an passed and Mike wed the funds for nonnalliving expenses. but his daughter never accessed any of the funds. On May 2,2013, Mike'. daughter needed an extra $35,000 to purchase the car of her dream,
80 she made a withdrawal from the account with full intentions of reimbursing the account. At what date has Mike made a gift to his daughter?
a- October 3, 2008.
b. December 31. 2008.
c. May 2, 2013.
d. May 31. 2013.
The correct answer is c.
In the situacion of a joint interest in a bank account. the contributing joint account owner is nOI deemed to have made a gift until the non-contributing joint account owner makes a withdrawal for his own benefit. In
[his case. Mike's daughter did not make a withdrawal until May 2.2013.
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31
20. Timmy and Bryan agree to purchase a condo at the beach for $200,000 as tenants in common. Bryan will contribute $150,000 of the price, and Tunmy will contribute the remaining $50,000. They have agreed to split all income and expenses at 75%/25%, the same as their ownership percentages. What is the gift from Bryan to Timmy for the yeac relating to this property!
a. $0.
b. $50,000.
$150,000.
d. $200,000.
The correct answer is ..
c.
Bryan is nat deemed to have made a gilt to Timmy relating to this property because they have contributed amounts equ.al to their ownership percentages. When the property is owned tenancy in common, a gilt occurs if one tenant in common owns a greater proportional share than his pro rata contribution. In this case. Timmy and Bryan contribUled amounts equal to their proportional share.
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CHAPTER 3: "!'tPES OF PROPERTY INTERESTS
Kevin will be taken c:are offor the rest of his life. Despite your insistence, James does not have a will, and you have advised h1m previously that state intestacy la_ do not protect same-sex partners. Which of the following _et ownership options would fulfill James' goal of tl'ansferring assets to Kevin at his deathl a. Community property.
b. Tenancy in common with each other.
c. Joint tenancy with rights of survivorship.
d. Tenancy by the entirety.
The correct answer is c.
When one owner dies owning property held as …show more content…
a joint renancy with the right of survivorship, his interest is transferred to the other remaining property owners. In this case, ifJames and Kevin own property JTWROS.
Kevin will inherit James' interest in the property if James dies first. When property is owned JTWROS, the property does not pass through probate and the transfer is automatic at death. Kevin and James cannot own property via community property or tenancy by the entirety as they are not a married couple. Tenancy in com· mon does not have an automatic survivorship feature and would nor accomplish James' and Kevin's goals.
2. Jim has beeo married to Rebea:a for six yurs. They arc about to buy their first home and have come to you with some questions that they have reganling tiding of the home. In your explanation of the dilFerent property ownership arrangements, which of the following tiding structures can only b. entered into by spousesl
a. Tenancy by the entirety.
b. Tenancy in common.
e:. Joint tenancy with rights of survivorship.
d. Fee simple.
The correct answer is a.
Of the property ownerships listed, tenancy by the entirety is the only one limited ro married couples.
3. Which of the following statements regarding joint tenancy with rights ofsurvivorship is correc:t1
a. Each tenant may bequeath their interest in the property at their death.
b. Joint tenancy with rights of survivorship i. the same all community property.
c. Only spouses can establish joint tenancies.
d. Each tenant under Il joint tenancy with rights of survivorship hall an undivided interest in the property.
The COtrect answer is d.
Only answer d is a COrrect statement. Answer a is incorrect because a joint tenant in a JTWROS can transfer his interest during life, but at death the interest is automatically transferred to the surviving tenants. Answer b is incorrect because JTWROS is not the same as community property. Community property can only be entered into between married couples and does not provide an automatic right of survivorship, Answer c is
MULnPLE,CHOICE PROBLEMS
25
incorrect beca~ anyone can own property JTWROS. and at the death of one joint tenant. his interest will transfer automatiCally to the surviving joint tenants.
4. Which of the following statements regarding joint tenancy with righlll of survivorship iI not correct?
At the death of a joint tenant, his interest in the property will transfer to the beneficiary listed in his will.
b. Property owned ,JTWROS transfers by operation of law.
c. Each teWLt1t owns the same fractional share in the property.
I\.
d. During his life, each joint tenant has the right to ~ hil interest in the property without consent. The correct answer is a.
Answer a is the only incorrect statement because the properry will pass ro the surviving tenants by operation of law. without regard to any provisions contained in a will.
5. Which of the following statements regarding community property iI not correct?
I\.
If one spouse inherits property during the marriage, that property is generally not colISidered community property.
b. Assets llaiuired by either spouse before marriage generally become community property upon their marriage.
Co
Community property assets are included in probate.
d. If one spouse utili:res his paycheck from work performed during the marriage to purch..« property. the property is community property.
The correct answer is b.
Answer b is the only incorrect statement because assets acquired before marriage remain separate properry.
6. Of the following types of owner.hip, which is available for married couplest
1. Tenancy by the entirety.
2. Tenancy in common.
3. JTWROS.
4. Tenants by marriage.
I\.
1 only.
b. 1 and 3.
c:. 1.2, and 3.
d. 1, 2, 3, and 4.
The correct answer is c.
Of the properry types listed, tenancy by the entirery is an ownetship form exclusive to married couples. Ten ants in common and JTWROS are available to anyone. including married couples. Tenants by marriage is not a form of property ownership.
26
CHAI'TER 3: 1'fPES OF PROPERTY INTERESTS
7. At the death of either partner, a same-sex couple would like to ensure that all property, iruurance policies, and retirement plans transfer to the surviving partner. Which of the following will NOT accomplish the couple's goal!
a. Each partner is listed as the beneficiary of the other partner's life insurance policy.
b.
Each partner is listed as the beneficiary of the other partner's qualified pension plan.
c. Each partner i. a joint tenant in all of the couple's property owned joint tenancy with rights of survi""rshlp.
d. State intestacy laws.
The correct answer is d.
State intestacy laws usually do not provide for asset transfers ro non-relared parries, including rhe surviving partner in a same-sex couple. The designated beneficiary of a lite insurance policy will receive the proceeds of the life insurance policy by state contract law. The designated beneficiary of a qualified pension plan will also receive the assets by state contract law. A joint tenant of properry hdd ]TWROS will also receive the decedent joint tenant's interest per the srate contract law,
8, Kim and Tommy ha"" lived In Atirona since their marriage. Kim recei""d an inheritance from her father during their marriage. Kim and Tommy are moving to Massachusetts for a new job and have some questions regarding their mo"" tn a common law (separate property) state from a community property state. Which of the following statements is correct?
a. When a couple moves from a community-property state to a common law …show more content…
(separate property) state, separate property will generally remain separate property.
b. When a couple moves from a common law (separate property) state to a community property state, separate property will generally become community property.
c.
Community property a""ids probate at the death of the first spowe and automatically passes to the surviving spowe by operation of law.
d. To get the step-to fair market value in basis at the death of the first spowe, a couple who lives in a common law (separate property) state can elect to treat their separate property as community property.
The correct answer is a.
Answer a is the only Correct statement, When a couple moves from a community property srare to a common law (separare properry) stare. separate property will generally remain separate property. Answer b is incorrect because separate properry does nor generally become communiry properry when a married couple moves from a common law srare ro a community property State. Answer c is incorrecr because community properry may be disposed of by will and does not auromatically pass to the surviving spouse by operarion of law. Finally. answer dis incorrecr because couples living in common law states cannot elect community property treatment at the dearh of the first spouse in order to get a srep-up in basis,
MULTIPLE-C~OICE PROBLEMS
27
9. Dan hu owned 100% of the stock of Dam'1 Baked Goods, a corporation, for 22 Y""fS. In the
current year, she gifted 50% of the bWlinas to her daughter, Sheila, who lives in California. Sheila does not work at the business and reinvests any income back in the company. With respect to the transfer of the bWliness interest, which of the followin, statemeJlts is correc:t?
a. Shella". 50% interest in Data'. Baked Goods is community property, owned equally by Sheila and her husband.
b. If Sheila's hwband dies tomorrow, both hi. share of Dara's Baked Goods and Sheila's share of
Dam's Baked Goods would receive a step-to fair market value in basi •.
e. Sheila owns 50% of Data's Baked Good. outright, and the interest will not be considered community property.
d. If Sheila dies tomorrow, the executor of her estate would include 25% of the value of Data's
Baked Goods in her ;ross estate.
The correct answer is c.
Answer c is correct because gifted property is generally considered separate property. Answer a is incorrect because gifted property is generally considered separate property unless Sheil. elected to treat the property as community property, or commingled the assets. In this case, Sheil. do.. not commingle the assets and the problem does not mention that she elected community property status over the assets. Answer b is incorrect because Sheila's interest in Oars's Baked Goods will not be included in her husband's gross estate. Separate property is only included in the gross estate of the sepatate property owner. Because the interest is not in her husband's gross estate, it does not receive a step-tO fair market value. Answer d is incorrect because if Sheila dies tomorrow she must include 100% ofthe value of all ofherassers owned as separate property (thus 50% of
Oars's Baked Goods).
10. IfPauta died with the folJowing property interests, which would not be included in her probate estate?
a. Community property.
b. Property held tenants in common.
c. Property held as tenant by the entirety.
d. Property owned fee simple.
The correct answer is c.
All except option c ate included in a decedent's probate estate. Property held as tenants by the entirety is not included in the decedent's probate ..tare as it transfers by law, rather than by wilL
11. Which of the following statements reprding joint tenancy is correct?
a. Joint tenancies may only be established between spouses.
b. Tenancy by the entirety Is a special form of joint tenancy only available to residents of
Louisiana.
e. Joint tenancies can only be severed with the permission of a court.
d. Each joint tenant in a joint tenancy has an undivided. equal interest in the property.
The correct answer is d.
Each joint tenant in a joint tenancy owns an equal, undivided imereS! in the property. Answer a is false because joint tenancies can be established by any persons, related or unrelated. Answer b is false because ten ancy by the emity is available in other states. Answer c is fulse because joim tenancies can be partitioned at request of one joint tenant. Court approval is not required to sever a joint tenancy.
me
28 CHAPTER 3: 'iVPES OF PRoPERTY INTERESTS
12. Which of the following is/are considen:d real propertyf
1.
2.
3.
4.
Stocks.
Automobile.
House.
Land held for iovestment.
a. 3 only.
b. IlIlld 2.
c. 3 IIlld 4.
d. 1,2 IIlld 3.
The correct answer is c.
Real property is land and buildings. The nature of the property in the hands of the owner (investment. per sonal, inventory) does not affeCt the rype of property. Stocks are intangible and automobiles are tangible.
13. Which of the following islare considered tangible propertyf
1. Stocks.
2. Automobile.
3. Rental hoWle.
4. Land.
a. 2 only.
b. 1 IIlld 2.
c. 3 IIlld 4.
d. 1,2. 3. and 4.
The correct answer is a.
Tangible property is property that may be touched and is not realty. An automobile is tangible property. Stocks are intangible property. A rental house and land are realty.
14. Which of the following islare considered iotangible propertyf
1. Stocks.
2. Patents.
3. Bonds.
4. Land held for iovestmllDt.
4 only.
b. 1 and 2.
Co
2 and 4.
d. I, 2, and 3.
The correct answer is d.
Realty is not intangible property. Stocks, bonds, patents, and copyrights ate common examples of intangible property. Land held ror investment is real property.
.
a.
MULnPLE-CHO'CE PROBLEMS
29
15. Which of the following statements regarding fee simple ownership is not true!
a.
Fee simple ownership is the complete individual ownership of property with all rights associated with outright ownership.
b. Property owned as fee simple passes through probate at the death of the owner.
c. Property owned as fee simple is excluded from the federal gross estate of the owner.
d. Fee simple ownership allows the owner to use, sell, gift, alienate, convey or bequeath the property without others' approval.
The corrcer answer is c.
The question asked what is NOT true regarding property owned as fee simple. Property owned as fee simple is
included in the gross esrate of the decedem. AU of the other statement, regarding propefry owned fee Sllllple
are true.
16. Erica has come to you for estate planning advice. She has been in a long-term relationship with Judy.
Because Erica's family is not aware of the relationship between Judy and Erica, Erica is concerned that at her death, Jndy will be overlooked by Edca's family. Of the following recommendations, which would you least likely recommend to fulfill Edca'. goal of transferring ..sets to Judy at Erica', death!
a.
Transfer the ownership of Erica's real estate investments into Tenancy by the Entirety.
b. Name Judy as the beneficiary of Erica', retirement plan.
c. Advise Erica against creating a will, specifically bequeathing her property to Judy.
d. Name Judy .. the beneficiary of Erica's life insurance policy.
The correct answer is a.
As Erica's financial planner. you would not advise her to transfer the ownership of her property ro a tenancy by
the entirety .. it is an ownership option only available to married individuals.You would advise Erica ro name
Judy as the beneficiary of her retirement plans and life insurance policies as the beneficiary designation would ensure payment of the proceeds to Judy without the delay ofprobate and challenges to the will. Advising Erica ro create a will and specifically bequeath assets to Judy would fulfill Erica's goal of transferring her assets ro
Judy. but it also allows for Erica's fumily to challenge the will. A challenge ro the will may create delays, increase the costs of estate administration. and potentially could cause the aSsets to be distributed to someone other than Judy.
17. Three years ago, brothers Darren and Andy, purchased real property and tided it as joint tenancy with right of survivorship. At the time of the purchase, Darren did not have any cash, so Andy paid the
$50,000 purcbase price himself. Over the next five years, Darren and Andy allocated the income and expenses of the property equally, and luckily for them the value of the property increased to $350,000.
If Andy dies this year. how mucb will his executor include in his federal gross estate as the value of this real propertyt
a.
b.
(:.
$50,000.
$175,000.
$300,000.
d. $350,000.
30 CHAPTER 3: TYPES OF PROPERTY INTERESTS
The correct answer is d.
The contribution rule applies to property owned as a joint tenancy with right ofsurvivorship. Because Darren
did not contribute any amount towards the original purchase price of the property, Andy's executor must
include the lUll wr market value of the property in Andy's groS$ estate for federal estate tax purpO$CS.
18. Three y.:an ago, Jack and Mary, having been married for 3 Y"IltS, agreed to purchase some real property and tided it as Joint tenants with right of survivorship. At the time of the purchase, Mary did not have any cash, .so Jack paid the $50,000 purchase price himself. Over the next five years, Jack and Mary allocated the income and apenses of the property equally, and luckily for them the value of the property inaused to $350.000. IfJack dies this Y"U, how much will his executor include in his federal gross estate as the value of this real property?
a. $50.000.
b. $175.000.
c. $300.000.
d. $350.000.
The correct answer is b.
When a married couple owns property joint tenancy with right of survivorship. there is an automatic assump· tion that each spouse contributed 50% to the original putchase price. In this case, the contribution rule will deem that each would .indude 50% of the value of the property in the decedent's federal gross estate. At Jack's death. his executor will indude 50% of the value of the property or $175.000 (50% x $350,000) in Jack's fed eral gross estate.
19. Mike travels quite often and wants hi. daughter to have access to his checking account while he i. our of town. For this reason, on October 3. 2008. Mike deposited $100,000 in a checlcing account, Several
y.:an passed and Mike wed the funds for nonnalliving expenses. but his daughter never accessed any of the funds. On May 2,2013, Mike'. daughter needed an extra $35,000 to purchase the car of her dream,
80 she made a withdrawal from the account with full intentions of reimbursing the account. At what date has Mike made a gift to his daughter?
a- October 3, 2008.
b. December 31. 2008.
c. May 2, 2013.
d. May 31. 2013.
The correct answer is c.
In the situacion of a joint interest in a bank account. the contributing joint account owner is nOI deemed to have made a gift until the non-contributing joint account owner makes a withdrawal for his own benefit. In
[his case. Mike's daughter did not make a withdrawal until May 2.2013.
MULTIPLE.OCHOICE. PR06LE.MS
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20. Timmy and Bryan agree to purchase a condo at the beach for $200,000 as tenants in common. Bryan will contribute $150,000 of the price, and Tunmy will contribute the remaining $50,000. They have agreed to split all income and expenses at 75%/25%, the same as their ownership percentages. What is the gift from Bryan to Timmy for the yeac relating to this property!
a. $0.
b. $50,000.
$150,000.
d. $200,000.
The correct answer is ..
c.
Bryan is nat deemed to have made a gilt to Timmy relating to this property because they have contributed amounts equ.al to their ownership percentages. When the property is owned tenancy in common, a gilt occurs if one tenant in common owns a greater proportional share than his pro rata contribution. In this case. Timmy and Bryan contribUled amounts equal to their proportional share.
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CHAPTER 3: "!'tPES OF PROPERTY INTERESTS