Question

21.       Graham was the owner and the insured of a $3 million life insurance policy and his wife Karen was the beneficiary. At Graham’s death, Karen disclaimed all of the proceeds that subsequently passed from his estate to a bypass trust. Which of the following statements is correct?

1. The $3 million death benefit is included in Graham’s estate and the proceeds qualify for a marital deduction.
2. The $3 million death benefit is not included in Graham’s estate because the proceeds passed to a bypass trust.
3. The $3 million death benefit is included in Graham’s estate and the proceeds do not qualify for a marital deduction.
4. The $3 million death benefit is not included in Graham’s gross estate because Karen has forfeited all rights to the proceeds.

22.       Which of the following is not a benefit associated with a Family Limited Partnership?

1. Retention of assets within the family unit through rights of first refusal.
2. Ability to shift income to a lower income tax bracket family member.
3. Ability to transfer LP interests to family members to take advantage of discounts to reduce the potential gift tax liability.
4. The General Partner assumes no personal liability for debts and other liabilities of the FLP that are not satisfied by FLP assets.

23.       Which of the following are a discount reducing the value of an interest in a family limited partnership?

1. Minority Discount
2. Majority Discount
3. Marketability Discount
4. Management Discount

1. 1 and 2
2. 1 and 3
3. 1, 2 and 3
4. 2, 3, and 4

Answer 1

21. The answer is (B) The $3 million death benefit is not included in Graham’s estate because the proceeds passed to a bypass trust.

Bypass trust is an irreveocable trust, upon death of settlor, the assets transferred to bypass trust are not included in the Gross estate which effectively reduces the potential income and taxes over such amount.

22. The answer is (C) Ability to transfer LP interests to family members to take advantage of discounts to reduce the potential gift tax liability.

Under no circumstances, income can be shifted so as to pay tax under lower tax bracket under a family partnership, howerver, interest in LP could be transferred to other family members so as to take advantage of reducing potential gift tax liability.

23. The answer is (B) 1 and 3

Minority and Market discounts are two discounts which reduces the value of an interest in a family limited partnership in most of the scenarios taking place.