Ownership and Estate Planning

A is correct. JTWROS (Joint Tenants with Right of Survivorship) provides automatic transfer to the surviving owner(s) upon death. This is the defining feature of JTWROS ownership. The transfer happens by operation of law and avoids probate entirely.

B (Passes through probate) is incorrect because JTWROS specifically avoids probate by transferring directly to survivors. C (Distributed by will) is incorrect because JTWROS ownership overrides will provisions. The survivorship feature takes precedence over any instructions in a will. D (Divided among heirs) is incorrect because only the surviving joint tenant(s) receive the assets, not other heirs.

A is correct. The primary structural difference is ownership flexibility. Tenants in Common allows owners to hold unequal percentages (for example, 60/40 or 70/30 splits), while JTWROS requires all owners to have equal shares. This makes TIC more flexible for business partners or unrelated parties with different investment amounts.

B (TIC only for married couples) is incorrect because TIC is available to any parties, married or not. In fact, JTWROS is more commonly used by married couples, though it's also available to others. C (Better creditor protection) is incorrect because neither TIC nor JTWROS provides special creditor protection. Only Tenants by the Entirety (TBE) offers strong creditor protection. D (TIC requires probate) is actually true, but it's not the key distinguishing feature. The question asks about the key difference, which is the ownership percentage flexibility.

B is correct. Tenants in Common ownership has NO survivorship rights. When a TIC owner dies, their share passes to their estate and is distributed according to their will (or state intestacy laws if there's no will). The share goes through probate like any other estate asset.

A (Business partner automatically) is incorrect because this describes JTWROS, not TIC. There is no automatic transfer to the other owner(s) in a TIC arrangement. C (Spouse regardless of will) is incorrect because TIC follows normal estate distribution rules. The deceased's will controls who inherits, and it could go to anyone (children, friends, charities), not necessarily a spouse. D (Remains indefinitely) is incorrect because the ownership interest must transfer. Property cannot remain in legal limbo without an owner.

B is correct. The main advantage of a revocable living trust is that it avoids probate (the court-supervised distribution process) while allowing the grantor to maintain complete control over the assets during their lifetime. The grantor can change or revoke the trust at any time, unlike a will which only takes effect at death.

A (Reduces estate taxes) is incorrect because revocable trusts provide no estate tax benefits. Assets in a revocable trust are still included in the taxable estate. C (Removes assets from estate) is incorrect for the same reason. Because the trust is revocable, the IRS treats the assets as belonging to the grantor for estate tax purposes. D (Creditor protection) is incorrect because revocable trusts offer no creditor protection. Since the grantor can revoke the trust and take the assets back, creditors can reach them too.

B is correct. The primary benefit of an irrevocable trust is that assets transferred into it are removed from the grantor's taxable estate, potentially reducing estate taxes. By giving up control permanently, the grantor achieves estate tax savings. This is the key tradeoff: less control in exchange for tax benefits.

A (Easily modify terms) is incorrect because irrevocable means the grantor cannot easily change the trust. That's precisely what makes it effective for estate tax purposes. The grantor has given up control permanently. C (Complete investment control) is incorrect because the grantor generally cannot maintain complete control over an irrevocable trust. If they did, the IRS would still include it in the taxable estate. D (Avoids probate while preserving access) is incorrect because this describes a revocable trust. Irrevocable trusts do avoid probate, but the grantor loses direct access to the assets.

C is correct. The annual gift tax exclusion for 2025 is $19,000 per donee. This means an individual can give up to $19,000 to any number of recipients in a single year without owing gift tax or filing a gift tax return. A married couple can elect to split gifts, effectively doubling this to $38,000 per recipient.

A ($13,000) is incorrect because this was the annual exclusion amount many years ago. The limit has increased with inflation adjustments. B ($17,000) is incorrect because this was the 2023 limit. The exclusion increased to $18,000 in 2024 and $19,000 in 2025. D ($36,000) is incorrect because while married couples can give twice as much through gift splitting, the question asks about the individual annual exclusion. Also, $36,000 would be double the old $18,000 limit, not the current $19,000 limit.

C is correct. Inherited assets receive a step-up in basis to the fair market value on the date of death. This eliminates all the unrealized capital gains that occurred during the deceased's lifetime. The daughter's basis is $100,000, meaning if she sells immediately, she owes no capital gains tax on the $80,000 appreciation that occurred before her father's death.

A (Carryover basis) is incorrect because it describes gifted property, not inherited property. When someone gives you property while alive, you take their basis (carryover). When you inherit property at death, you get a step-up. B (Average) is incorrect because there's no averaging calculation. The basis is simply the FMV at date of death. D (No basis) is incorrect because inherited property does have a basis, it's just reset to the date-of-death value.

C is correct. The federal estate tax exemption for 2025 is approximately $13.99 million per individual. This means estates valued below this amount owe no federal estate tax. Married couples can combine their exemptions for a total of approximately $27.98 million through portability provisions.

A ($5.49 million) is incorrect because this was the exemption amount before the Tax Cuts and Jobs Act of 2017 temporarily doubled the exemption. B ($11.70 million) is incorrect because while this was close to the exemption in earlier years after the 2017 tax law, the amount has increased with inflation adjustments. D ($27.98 million) is incorrect because this is approximately the combined exemption for a married couple, not an individual. The question asks about the individual exemption.

A is correct. Transfer on Death (TOD) and Payable on Death (POD) designations allow account assets to transfer directly to named beneficiaries upon the account owner's death, bypassing probate entirely. These beneficiary designations override will provisions and provide a simple, efficient transfer mechanism.

B (Margin privileges) is incorrect because margin account features relate to borrowing against securities for trading purposes. They have nothing to do with estate transfer or beneficiary designations. C (Limited power of attorney) is incorrect because a power of attorney terminates at death. It cannot control asset transfer after the principal dies. D (Discretionary authority) is incorrect because this gives a broker permission to make trades without prior approval. It also terminates at death and does not affect beneficiary designation.

B is correct. Community property has a unique advantage: when one spouse dies, both halves of the community property receive a full step-up in basis to the fair market value at the date of death. This eliminates all the built-in capital gains on the entire property, not just the deceased spouse's half. This is a significant tax benefit of community property ownership.

A (Only half gets step-up) is incorrect because it describes how step-up works for jointly held property in non-community property states. Community property is treated more favorably. Both halves get a fresh basis. C (No step-up until both die) is incorrect because the step-up occurs at the first spouse's death for community property. D (Must pay capital gains) is incorrect because the step-up eliminates the unrealized gains. If the surviving spouse sells immediately after the first spouse's death, there would be minimal or no capital gains tax.