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Test Your Knowledge

(All persons are domiciled in Arizona)

1. Mr. Fogarty was married in 1958 to Gloria, and they had one son, Able. They later adopted another son, Cain. They divorced in 1969. In 1990, Fogarty married again, to Desdemona. They had one daughter, Lolita. They had a prenuptial agreement that all of Fogarty’s property would remain his separate property. He died without a will. He was survived by his current and former wives, Cain and Able, Lolita, and his mother, Helen. Under Arizona law, his estate will pass to:

• One-half to Desdemona and one-half split between Cain and Able.

• Equally split between Desdemona, Gloria, Lolita, Cain and Able.

• All to Desdemona.

• Equally split between Desdemona, Lolita, Helen, and Able.

2. When a U.S. citizen dies, the U.S. estate tax is imposed on:

• Tangible personal property wherever located and real property in the US.

• All intangible property, and tangible property located in the US.

• All tangible and intangible property in the US.

• All tangible and intangible property wherever located.

3. True or false: Arizona imposes a state death tax.

4. True or false: A living trust is the primary tool used by planners to save on estate taxes.

5. True or false: An irrevocable trust must survive the person who establishes it.

6. True or false: John Fawltey establishes a trust, using his separate property, with income payable to his wife for life, remainder to him if he survives her, otherwise remainder equally to their children. If John dies before his wife, the trust will be included in his taxable estate.

7. Daddy Warbucks dies leaving a revocable trust holding $ 6 million, and a personal residence worth $ 1 million with no mortgage. In addition, he owns a $ 2 million life insurance policy with his business partner named as beneficiary. The revocable trust will pay the income to his wife and children equally and upon the wife’s death be distributed to the children. His will leaves the residence to his wife. None of the property is community property. His taxable estate will be:

• Zero

• $ 7 million

• $ 8 million

• $ 9 million

8. True or false: A gift made in contemplation of death and within three years of death is taxable in the estate.

9. John is sole owner of an S corporation. John dies unmarried when his tax basis in the corporation is $ 50,000 and it is worth $ 750,000. He leaves the business to his son Paul. The business earns $ 20,000 in profit from the time of John’s death until his estate is settled. Paul sells the business as soon as the estate is settled for $750,000. Which of the following is true?

• The business is not taxable in John’s estate because it is a closely held business worth less than $ 1.3 million.

• Paul must pay income tax on a gain of $ 700,000 when he sells the business.

• Paul is not taxable on the $ 20,000 of business profit.

• John’s estate must file both an income tax return and an estate tax return.

10. John and Patty get married very young and without assets. John gets a good job while Patty stays home to raise their children. John’s earnings rise over the years and he buys a house, using money accumulated from his earnings. Fearing a lawsuit, he has the house put in Patty’s name only. If John and Patty die in a common catastrophe, the house:

• Will be taxable only in John’s estate.

• Will be taxable only in Patty’s estate.

• Will be taxable one-half in each estate.

• Is not taxable if left to qualified heirs.

11. True or false: Jayne is a wealthy widow who lives with her daughter Jill. To reduce her taxable estate, Jayne transfers the residence to Jill as a gift but continues to live there with Jill. The house will be taxable in Jayne’s estate.

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