Chapter 12: Special Elections &Post Mortem Planning

Addison’s husband died in October of 2022. Addison has a one-year-old dependent child and has not remarried. Which filing status will Addison use on her 2025 income tax return?

Head of household.

In July 2025, the year of Casper’s death, Casper has a taxable estate equal to $14,850,000. At the time of Casper’s death, his only asset is a closely-held business interest. Casper’s executor properly elects Sec. 6166 installment payments on a timely filed estate tax return. If the long-term annual AFR is 3%, how much is the first annual interest payment? (Assume no previous taxable gifts.)

$6,880

In which of the following cases will Preston, the executor of his father’s estate, not waive his executor’s fee?

Preston is one of three beneficiaries of his father’s estate. The beneficiaries will share the residual of the estate equally.

Which of the following statements regarding selling an estate’s assets to generate cash is not correct?

Any losses on the sale of the assets are deductible as losses on the estate tax return.

The executor of an estate liquidated assets to generate the cash necessary to pay the estate taxes. Of the following assets, which is the least likely to generate income tax consequences upon its sale?

Real estate sold within three months of the decedent’s date of death.

In 2023, Sloan created and funded an irrevocable life insurance trust (ILIT) naming her children as the beneficiaries. The trustee purchased a policy on Sloan’s life and Sloan contributed cash each year to the trust to pay the life insurance policy premiums. In 2025, Sloan died in a car accident, and the policy death benefit of $1,000,000 was paid to the ILIT. Which of the following statements regarding this ILIT and Sloan’s estate is false?

The ILIT will be included in Sloan’s gross estate because Sloan made a contribution to the trust within three years of her death

Mel died this year. His will specifically bequeaths $1,000,000 to his daughter, Vera, and bequeaths the residual of his estate to his wife, Alice. At the time Mel had written his will, his net worth was in excess of $4,000,000, but at his death his net worth had plummeted to $1,050,000. Because Vera’s mother would only receive $50,000 ($1,050,000-$1,000,000) of her father’s assets, Vera fully disclaimed her bequest in writing three months after her father’s death and prior to receiving any benefit from the bequest. How much will Vera have to report as a taxable gift because of this disclaimer?

$0.

Mary Jane’s husband died in October of 2025. Which filing status will Mary Jane likely use on her 2025 income tax return?

Married filing jointly

The Dalton Family Winery (an LLC) has operated a winery with estate grown grapes for generations. Mike owns 100% of the winery valued at $8.5 million, $6.5 million of which is the value of the real property. His estate is valued at $15 million. His son and daughter-in-law have long since toiled in the vineyards to pick the grapes. Mike plans to leave the entire operation to them. Which postmortem election(s) could Mike’s executor make use of presuming Mike is not married at the time of his death and that his adjusted gross estate is equal to his gross estate?

IRC Sections 2032A and 6166.

Which of the following statements concerning an illiquid estate is true?

If the executor of an illiquid estate takes a loan to pay estate taxes, and pledges the estate’s assets as security for the loan, the interest on the loan is deductible.

Which of the following estates will most likely have the greatest liquidity problem?

An estate comprised of a closely held business interest valued at $142,500,000, and cash of $100,000.

Which of the following is not a typical reason an estate will have liquidity needs?

To pay life insurance premiums on the decedent’s life.

Before his death in 2025, Melvin, age 66, incurred $65,000 in medical bills which were not reimbursed by insurance. Melvin’s taxable estate at his death was $675,000 and his adjusted gross income for 2025 was $100,000. How much of Melvin’s medical expenses will be deducted on his estate tax return?

$0.

Darnell was a majority owner in a closely-held corporation. He had an adjusted basis in his interest of $400,000, and at his death this year, the fair market value reported on his estate tax return was $6,000,000 (which is 45% of the value of his adjusted gross estate). Like most majority owners in closely-held businesses, Darnell did not have much liquidity in his estate and his executor was forced to redeem some of his interest in the business. If Darnell’s executor redeemed 30% of Darnell’s interest back to the corporation for $2,500,000 to pay the estate tax and administration fees, how much is subject to capital gains tax?

$700,000.

The executor of an estate makes many elections before filing an estate tax return and the estate's income tax return. Which of the following is not an available election for the executor?

Utilizing the annual exclusion against the testamentary transfers.

Which of the following is not a benefit of taking a loan to pay estate taxes and administration fees?

The principal of the loan is a debt on the estate tax return.

Which of the following is not a requirement of using the special use valuation of property?

The value of the real property used in a qualifying manner must equal or exceed 75% of the value of the decedent’s gross estate as adjusted.