SEE - Special Enrollment Exam Quiz: Estate Tax And Fiduciary Returns
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Estate Tax And Fiduciary ReturnsQuestion 1 of 14

Trust property worth $3,000,000 is held for Eileen, who died in December 2025. The trust was created by Eileen's father. Under the trust instrument, Eileen is entitled to all of the trust income for life, and the trustee is directed to pay her amounts of corpus that she requests, but only to the extent needed for her health, education, maintenance, and support. The power terminates at Eileen's death, and the corpus then passes to her children. The executor did not include the trust corpus in Eileen's gross estate.

Which of the following is correct regarding the executor's treatment of the trust corpus?

The executor's treatment is correct, because a power to consume corpus that is limited by an ascertainable standard relating to health, education, support, or maintenance is not a general power of appointment under IRC § 2041.
The executor's treatment is incorrect, because any power of a decedent to withdraw trust corpus for the decedent's own benefit causes the corpus to be included in the gross estate, whether or not the power was exercised.
The executor's treatment is incorrect, because Eileen retained the enjoyment of the trust income for life, so the corpus is included in her gross estate under the retained-interest rule of IRC § 2036.
The executor's treatment is correct, because a power of appointment that is not exercised before death does not cause the corpus to be included in the gross estate.
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SEE - Special Enrollment Exam Quiz

SEE - Special Enrollment Exam Quiz: Estate Tax And Fiduciary Returns

Practice Estate Tax And Fiduciary Returns in SEE - Special Enrollment Exam with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

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This quiz focuses on Estate Tax And Fiduciary Returns, giving you a quick way to practice the rules, question types, and explanations that matter most for SEE - Special Enrollment Exam.

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Question 1

Trust property worth $3,000,000 is held for Eileen, who died in December 2025. The trust was created by Eileen's father. Under the trust instrument, Eileen is entitled to all of the trust income for life, and the trustee is directed to pay her amounts of corpus that she requests, but only to the extent needed for her health, education, maintenance, and support. The power terminates at Eileen's death, and the corpus then passes to her children. The executor did not include the trust corpus in Eileen's gross estate.

Which of the following is correct regarding the executor's treatment of the trust corpus?

  1. The executor's treatment is correct, because a power to consume corpus that is limited by an ascertainable standard relating to health, education, support, or maintenance is not a general power of appointment under IRC § 2041. (correct answer)
  2. The executor's treatment is incorrect, because any power of a decedent to withdraw trust corpus for the decedent's own benefit causes the corpus to be included in the gross estate, whether or not the power was exercised.
  3. The executor's treatment is incorrect, because Eileen retained the enjoyment of the trust income for life, so the corpus is included in her gross estate under the retained-interest rule of IRC § 2036.
  4. The executor's treatment is correct, because a power of appointment that is not exercised before death does not cause the corpus to be included in the gross estate.
Explanation: IRC § 2041(a)(2) includes in the gross estate property over which the decedent possessed at death a general power of appointment created after October 21, 1942. IRC § 2041(b)(1)(A) provides that a power to consume, invade, or appropriate property for the decedent's own benefit that is limited by an ascertainable standard relating to health, education, support, or maintenance is not a general power. Because Eileen's power was limited to that standard, the corpus is not includible, and the executor's treatment is correct. Choice B ignores the ascertainable-standard exception and would make every invasion power a general power. Choice C misapplies IRC § 2036, which reaches property the decedent transferred while retaining a life estate; Eileen's father, not Eileen, transferred the property. Choice D reaches the right result but for the wrong reason: an unexercised post-1942 general power is nonetheless includible, so the result depends on the limited nature of the power.

Question 2

A cash-basis taxpayer died on November 15, 2025. Under his employer's bonus plan, his year-end bonus was not payable until January 2026, and the employer paid the $40,000 bonus to his estate in January 2026. The bonus was earned entirely in 2025.

Which of the following is correct regarding the $40,000 bonus?

  1. The bonus must be reported on the decedent's final 2025 Form 1040, because it was earned entirely before death and income earned before death is included on the final return of a cash-basis taxpayer.
  2. The bonus is income in respect of a decedent: the estate reports it as income when received in 2026, and the estate may claim a deduction for the estate tax attributable to it. (correct answer)
  3. The bonus is received by the estate with a step-up in basis equal to its date-of-death value, so the estate reports no income in 2026 when it collects the payment, and the decedent's final return is not affected.
  4. The bonus is income in respect of a decedent, and the estate may exclude it from gross income to the extent estate tax was attributable to the item, with the remainder taxed as income when received in 2026.
Explanation: IRC § 691(a) treats amounts earned by a cash-basis decedent but not received before death as income in respect of a decedent (IRD). The bonus was neither received nor constructively received before death, so it is not reported on the decedent's final Form 1040; the right to the bonus is an asset of the estate and is included in the gross estate under IRC § 2033. When the estate receives the $40,000 in 2026, it is gross income to the estate. IRC § 1014(c) denies IRD items a step-up in basis, so the estate cannot offset the income with a stepped-up basis. IRC § 691(c) gives the recipient a deduction for the estate tax attributable to the IRD. Choice A incorrectly places the uncollected item on the cash-basis decedent's final return. Choice C asserts the step-up that IRC § 1014(c) denies for IRD. Choice D mischaracterizes the § 691(c) deduction as an exclusion from gross income.

Question 3

An estate's first taxable year ended on December 31, 2025. During the year, the estate received $60,000 of taxable interest and $18,000 of tax-exempt interest, and it realized a $25,000 long-term capital gain that the will directs be added to corpus and retained. The estate's distributable net income (DNI) for 2025 was $78,000, which included the $18,000 of tax-exempt interest, computed after allocable expenses. The executor distributed $80,000 to the sole beneficiary during 2025.

What amount of the distribution is includible in the beneficiary's gross income for 2025?

  1. $80,000, because the beneficiary is taxed on the full cash distribution that was received from the estate during 2025.
  2. $60,000, because the beneficiary is treated as receiving the taxable portion of the estate's DNI, and the tax-exempt interest retains its character. (correct answer)
  3. $78,000, because the beneficiary's distribution is taxable to the extent of the estate's DNI, including the tax-exempt interest.
  4. $85,000, because the beneficiary is treated as receiving the taxable DNI plus the capital gain allocated to corpus.
Explanation: IRC §§ 661 and 662 provide that a beneficiary includes in gross income the estate's distributable net income to the extent of the amount distributed, and Treasury Regulation § 1.662(b)-1 preserves the character of the items received. Because the $80,000 distribution exceeds the estate's $78,000 DNI, the entire DNI is deemed distributed; the $18,000 of tax-exempt interest is excluded from gross income, leaving $60,000 taxable, and the $2,000 excess distribution is a tax-free distribution of corpus. The $25,000 long-term capital gain was allocated to corpus and retained, so under IRC § 643(a)(3) it is not included in DNI and is not deemed distributed. Choice A ignores the DNI limitation and taxes the corpus portion of the distribution. Choice C taxes the tax-exempt interest, which retains its tax-exempt character. Choice D incorrectly treats the retained corpus gain as part of the beneficiary's taxable distribution.

Question 4

Lena died on June 1, 2025. Before her death, Lena was the grantor and sole beneficiary of a revocable living trust. After Lena's death, the trust received $45,000 of taxable interest and $15,000 of rental income, and the estate received $10,000 of taxable interest. The executor and trustee make a timely election under IRC § 645.

Which of the following is correct regarding the income tax treatment of the trust for 2025?

  1. The trust is treated as part of the estate, so its post-death income is reported on the estate's Form 1041, and the combined entity is exempt from estimated tax penalties for the estate's first two taxable years. (correct answer)
  2. The trust must file its own Form 1041 as a trust on a calendar-year basis, reporting only the income it received after Lena's death, because the election applies only to the estate's final year.
  3. The trust is treated as a grantor trust, so its post-death income is reported on Lena's final Form 1040, and the estate reports only its own income on its separate Form 1041.
  4. The election is made on the estate tax return and applies for estate tax purposes, so the trust's income is reported on the estate's return only in the estate's final year.
Explanation: Under IRC § 645 and Treas. Reg. § 1.645-1, when the executor and trustee elect, a qualified revocable trust is treated and taxed as part of the related estate for income tax purposes during the election period. Because the § 645 election is timely made here, the trust's post-death income is combined with the estate's income on the estate's Form 1041; no separate trust return is filed. The election period begins on the date of death and ends on the earlier of the completion of administration and the applicable date under § 645(b)(2) (two years after death if no estate tax return is required, or six months after final determination of the estate tax liability if one is required). In addition, under IRC § 6654(l), no estimated-tax penalty applies to an estate or trust for a taxable year ending before the date two years after the decedent's death. Choice B is wrong: an electing trust does not file its own return, and the election is not limited to the estate's final year. Choice C is wrong: a grantor trust loses its grantor status when the grantor dies, and post-death income is not reported on the decedent's final Form 1040. Choice D is wrong: the § 645 election is an income tax election made on Form 8855; it does not change the estate tax treatment of the trust assets, and the trust's income is reported on the estate's return for the election period, not only in the estate's final year.

Question 5

Marcus, a U.S. citizen, died in July 2025. The executor determined that Marcus's gross estate was $12,600,000; estate debts and administration expenses were $1,400,000; and his will left $500,000 to charity. In 2018, Marcus made taxable gifts of $2,500,000, which are adjusted taxable gifts for estate tax purposes. The balance of Marcus's estate passes to his two children. No estate tax marital deduction is available.

Which of the following is correct regarding whether the executor must file Form 706 for Marcus's estate?

  1. No Form 706 is required, because the taxable estate, after debts, expenses, and the charitable bequest, is $10,700,000, which is below the $13,990,000 filing threshold.
  2. No Form 706 is required, because the 2018 gifts are not includible in the gross estate, and the gross estate of $12,600,000 is below the $13,990,000 filing threshold.
  3. A Form 706 is required, because the gross estate plus adjusted taxable gifts is $15,100,000, which exceeds the $13,990,000 filing threshold, even though no estate tax may be due. (correct answer)
  4. A Form 706 is required, because the 2018 gifts are includible in the gross estate under the three-year rule of IRC § 2035, making the gross estate $15,100,000.
Explanation: IRC § 6018(a) and the Instructions for Form 706. An executor must file Form 706 when the gross estate plus adjusted taxable gifts exceeds the basic exclusion amount under IRC § 2010(c)(3), which is $13,990,000 for a decedent dying in 2025. Marcus's gross estate plus adjusted taxable gifts is $12,600,000 + $2,500,000 = $15,100,000, so a return must be filed. Debts, administration expenses and the charitable bequest reduce the taxable estate but are not subtracted in applying the filing test. The taxable estate is $12,600,000 − $1,400,000 − $500,000 = $10,700,000, and $10,700,000 + $2,500,000 = $13,200,000, so no estate tax is due, but the return is still required. Choice C is correct. Choice A is wrong because it applies the filing threshold to the taxable estate rather than to the gross estate plus adjusted taxable gifts. Choice B is wrong because it ignores the adjusted taxable gifts, which count in the filing test even though the gifts are not part of the gross estate. Choice D misstates IRC § 2035: section 2035(a) brings back only certain transfers of retained interests and life insurance made within three years of death, and these 2018 cash gifts are outside that rule. They count only as adjusted taxable gifts.

Question 6

A decedent died on March 10, 2025. Her gross estate was $12,000,000, all of which passes to her surviving spouse through a trust that qualifies for the estate tax marital deduction. The executor is filing Form 706 only to elect portability of the deceased spousal unused exclusion. By September 10, 2025, the value of the estate's commercial building, its largest asset, had declined by $900,000, and no estate asset had increased in value. The executor wants to elect the alternate valuation date.

Which of the following is correct regarding the alternate valuation date election?

  1. The executor may make the election because it must be made on a timely filed estate tax return, and the executor is filing a timely Form 706 solely for the portability election.
  2. The executor may make the election because the gross estate declined in value within six months after death and no estate asset increased in value, satisfying the requirements for the alternate valuation date.
  3. The executor may make the election only if it is made within six months after the date of death, and the six-month period has not yet expired.
  4. The executor may not make the election because alternate valuation must decrease both the gross estate and the estate tax liability, and the estate tax is zero under either valuation. (correct answer)
Explanation: IRC § 2032(a) and (c) allow the executor to elect alternate valuation only if the election decreases both the value of the gross estate and the amount of the estate tax imposed. The building's decline reduces the gross estate from $12,000,000 to $11,100,000, but the estate owes no tax under either valuation because the entire estate qualifies for the marital deduction under IRC § 2056; the taxable estate is zero either way. The election therefore is unavailable. Choice A states the timing and manner of the election correctly but ignores the statutory requirement that the election decrease the estate tax liability. Choice B relies on only the gross-estate prong of the test. Choice C confuses the alternate valuation date with the deadline for making the election; the valuation date is six months after death, but the election is made on the estate tax return.

Question 7

A U.S. citizen died in 2025. At death, the decedent's gross estate was $13,000,000. During life, the decedent had made adjusted taxable gifts totaling $1,200,000. The decedent made no taxable gifts in 2025 and had no deceased spousal unused exclusion amount.

Which statement is correct regarding whether the estate must file Form 706?

  1. No Form 706 is required because the $13,000,000 gross estate is below the $13,990,000 basic exclusion amount for decedents dying in 2025.
  2. Form 706 is required because the gross estate plus adjusted taxable gifts is $14,200,000, which exceeds the $13,990,000 basic exclusion amount. (correct answer)
  3. No Form 706 is required because adjusted taxable gifts are not part of the gross estate and are not counted in applying the Form 706 filing threshold.
  4. Form 706 is required only if the estate tax computed on the gross estate exceeds the available unified credit; because the gross estate is below the exclusion amount, no return is required.
Explanation: IRC § 6018 and the 2025 Form 706 instructions. For a 2025 decedent, Form 706 generally must be filed when gross estate plus adjusted taxable gifts (and any applicable specific exemption) exceeds the $13,990,000 basic exclusion amount. Here, $13,000,000 + $1,200,000 = $14,200,000, so the return is required. Choice B is correct. Choice A compares only the gross estate to the exclusion and ignores adjusted taxable gifts. Choice C incorrectly treats adjusted taxable gifts as irrelevant to the filing threshold; they are not in the gross estate, but they count for filing purposes. Choice D imposes a tax-due test; the filing requirement is based on the statutory threshold, not on whether tax is actually payable after credits.

Question 8

An unmarried, cash-basis decedent died in 2025. At the date of death, the decedent owned a traditional IRA with no after-tax basis and was owed earned but unpaid wages from an employer. The decedent's gross estate exceeded the $13,990,000 basic exclusion amount, and the estate paid federal estate tax. The decedent's estate was the beneficiary of the IRA, and the wages were paid to the estate after death.

Which of the following correctly describes the treatment of these amounts?

  1. Both amounts are income in respect of a decedent. They receive a basis equal to fair market value at the date of death, so the estate reports no income when it collects them.
  2. The IRA is income in respect of a decedent, but the unpaid wages are not, because the wages were earned before death and are reported on the decedent's final Form 1040.
  3. Because the amounts are payable to the estate, neither is income in respect of a decedent; the estate includes them in gross income but they are not included in the decedent's gross estate.
  4. Both amounts are income in respect of a decedent. They are included in the decedent's gross estate and in the estate's gross income when received, with a §691(c) deduction for the estate tax attributable to them. (correct answer)
Explanation: IRC §§ 691(a) and (c); IRC § 1014(c). A cash-basis decedent's earned but unpaid wages and a traditional IRA with no after-tax basis are income in respect of a decedent. They are included in the decedent's gross estate, but they do not receive a step-up in basis; the estate must include them in gross income when received, and §691(c) allows a deduction for the estate tax attributable to the IRD. Choice D is correct. Choice A states the wrong basis rule: IRD is excluded from the §1014 step-up. Choice B misclassifies unpaid wages as final-return income; because they were not received or constructively received before death, they are IRD, not income on the final Form 1040. Choice C is wrong because the amounts are IRD even when payable to the estate and must be included in the decedent's gross estate.

Question 9

An estate's distributable net income (DNI) for 2025 is $50,000. That amount includes $5,000 of tax-exempt interest. The executor makes a discretionary cash distribution of $70,000 to the estate's sole beneficiary during 2025.

How much of the distribution is includible in the beneficiary's gross income for 2025?

  1. $45,000 (correct answer)
  2. $50,000
  3. $65,000
  4. $70,000
Explanation: IRC §§ 661(a), 662(a)(2) and (b); IRC § 643(a)(5). Because the $70,000 discretionary cash distribution exceeds DNI, the beneficiary's inclusion is limited to DNI, not the full distribution. The $5,000 tax-exempt interest is a component of DNI and retains its tax-exempt character under §662(b). Therefore the beneficiary's gross income is $50,000 - $5,000 = 45,000.ChoiceAiscorrect.ChoiceB(45,000. Choice A is correct. Choice B (50,000) correctly applies the DNI limit but treats the tax-exempt interest as taxable. Choice C (65,000)subtractsthetax−exemptinterestfromthefulldistributionbutfailstoapplytheDNIlimit.ChoiceD(65,000) subtracts the tax-exempt interest from the full distribution but fails to apply the DNI limit. Choice D (70,000) ignores both the DNI limit and the tax-exempt character of the interest.

Question 10

Which of the following is correct regarding income in respect of a decedent (IRD) for federal tax purposes?

  1. IRD items are excluded from the decedent's gross estate because the decedent had not yet received them at death, but the estate or beneficiary must include the amounts in income when received.
  2. IRD items are included in the decedent's gross estate and receive a stepped-up basis equal to their fair market value at death, so the estate or beneficiary recognizes no income when the amounts are received.
  3. IRD items are included in the decedent's gross estate, are taxable to the estate or beneficiary when received, do not receive a stepped-up basis, and entitle the recipient to a deduction for the estate tax attributable to the IRD. (correct answer)
  4. IRD items are included in the decedent's gross estate and are taxable to the recipient when received, and the recipient may claim a refundable credit for the estate tax attributable to the IRD instead of a deduction.
Explanation: IRC § 691(a); IRC § 691(c); IRC § 1014(c). Items of IRD, such as unpaid wages or distributions from a decedent's traditional IRA, are included in the gross estate, are includible in the gross income of the estate or beneficiary that receives them, and do not receive a stepped-up basis under section 1014; the recipient takes the decedent's basis. The recipient is allowed a section 691(c) itemized deduction for the estate tax attributable to the IRD. Choice C is correct. Choice A misstates the estate tax treatment: IRD is included in the gross estate even though it was not received before death. Choice B misstates the basis rule: IRD is the exception to the general stepped-up basis rule. Choice D misstates the relief as a credit; section 691(c) allows a deduction, not a refundable credit.

Question 11

Which of the following is correct regarding the federal income taxation of estates and trusts for the 2025 tax year?

  1. An estate may elect a fiscal year for its income tax return, a trust generally must use the calendar year, and an estate is not required to make estimated tax payments for its first two taxable years. (correct answer)
  2. A trust, but not an estate, may elect to treat distributions made within 65 days after the close of the taxable year as made on the last day of that taxable year.
  3. A trust generally must make estimated tax payments from its first taxable year, an estate is generally exempt from estimated tax for its first two taxable years, and both may adopt a fiscal year.
  4. An estate that elects a fiscal year must make estimated tax payments beginning in its first taxable year, because the two-year exemption from estimated tax applies only to estates that report on a calendar-year basis.
Explanation: IRC § 644; IRC § 6654(l); IRC § 663(b). IRC §644 generally requires a trust to use the calendar year; estates are not subject to that restriction and may adopt a fiscal year. Under IRC §6654(l), an estate is not required to make estimated tax payments for any taxable year ending within the two-year period after the decedent's death, while a trust generally is subject to estimated tax from its first taxable year. Choice B misstates the 65-day rule: IRC §663(b) permits the fiduciary of an estate or a trust to elect to treat distributions within the first 65 days of the next taxable year as made on the last day of the preceding taxable year, so the election is not limited to trusts. Choice C correctly states the estimated-tax rules but errs in saying both estates and trusts may adopt a fiscal year; trusts generally must use the calendar year. Choice D misstates the estate estimated-tax exemption: it applies whether the estate reports on a calendar-year or fiscal-year basis.

Question 12

A decedent who was a United States citizen died in 2025 and left his entire estate to his surviving spouse, who is not a United States citizen. Which of the following is correct regarding the estate tax marital deduction?

  1. The estate may claim the unlimited marital deduction for the entire estate because the marital deduction is available for all property passing to a surviving spouse regardless of the spouse's citizenship, and no special election is required.
  2. The estate may claim a marital deduction limited to the $13,990,000 basic exclusion amount, because property passing to a non-citizen spouse qualifies for the marital deduction only up to that exclusion amount for 2025.
  3. The estate generally may claim a marital deduction limited to $190,000, the annual exclusion allowed for gifts to a non-citizen spouse, and the portion of the estate above that amount is then subject to estate tax at the decedent's death.
  4. An estate generally may claim the marital deduction for a non-citizen surviving spouse only if the property passes to a qualified domestic trust (QDOT); the QDOT election defers the estate tax until the spouse receives principal distributions or dies. (correct answer)
Explanation: IRC § 2056(d)(1); IRC § 2056A. The marital deduction is unavailable for property passing to a surviving spouse who is not a United States citizen unless the property passes to a qualified domestic trust (QDOT) and the executor makes the QDOT election (or the spouse becomes a citizen before the return is filed and meets the residency requirement). With a QDOT, estate tax on the trust property is generally deferred until the spouse receives principal distributions or dies. Choice D correctly states this general rule. Choice A ignores the citizenship requirement of section 2056(d). Choice C confuses the estate tax with the gift tax annual exclusion for a non-citizen spouse, which is $190,000 for 2025. Choice B invents a dollar cap: a QDOT allows the full, unlimited marital deduction, not a deduction limited to the basic exclusion amount.

Question 13

Which of the following is correct regarding the requirement to file Form 706 for the estate of a U.S. citizen or resident decedent who died in 2025 and was survived by a spouse?

  1. The executor must file Form 706 only when the decedent's gross estate exceeds the $13,990,000 basic exclusion amount and, after subtracting the marital and charitable deductions, a taxable estate remains on which estate tax is actually imposed.
  2. The executor must file Form 706 if the decedent's gross estate exceeds the $13,990,000 basic exclusion amount for 2025, and may elect portability of the deceased spousal unused exclusion amount on that return even if no estate tax is due. (correct answer)
  3. The executor must file Form 706 if the decedent's gross estate exceeds $15,000,000, because the basic exclusion amount for decedents dying in 2025 was increased to that figure and estates below that amount are not required to file.
  4. The executor must file Form 706 within nine months of the decedent's death, and although a six-month extension of time to file is available, the portability election must be made on the return as filed by the original due date.
Explanation: IRC § 6018(a)(1); IRC § 2010(c)(5); Instructions for Form 706. For a U.S. citizen or resident decedent who died in 2025 and was survived by a spouse, Form 706 must be filed when the gross estate exceeds the $13,990,000 basic exclusion amount, and the portability election may be made on a timely filed return even if no estate tax is due. Choice B is correct. Choice A misstates the filing test: the requirement is based on the gross estate exceeding the exclusion amount, not on whether a taxable estate remains after the marital and charitable deductions. Choice C misstates the threshold: $15,000,000 is the basic exclusion amount for 2026, not for decedents dying in 2025. Choice D misstates the portability deadline: the election may be made on a return filed by the extended due date within a properly granted six-month extension, not only by the original due date.

Question 14

Which of the following is correct regarding transfers made within three years of a decedent's death for federal estate tax purposes?

  1. The gross estate includes the value of any gift made within the three-year period, regardless of the amount or the donee, because all transfers in that period are treated as testamentary transfers.
  2. The gross estate generally includes both the value of gifts made within the three-year period and the gift tax paid on them when the gifts were made in contemplation of death.
  3. The gross estate generally excludes the value of an outright gift made within the three-year period, but includes gift tax paid by the decedent or the decedent's estate on gifts made during that period. (correct answer)
  4. The gross estate includes the value of gifts made within the three-year period only to the extent they exceed the $19,000 annual exclusion, along with the gift tax paid on that excess.
Explanation: IRC § 2035(a) and (b). The three-year rule includes in the gross estate gift tax paid by the decedent or the decedent's estate on gifts made by the decedent or the decedent's spouse within three years of death; the value of outright gifts made within that period is generally excluded, subject to the pull-back rules of sections 2036 through 2038 and section 2042. Choice C is correct. Choice A overstates the scope of the rule: an outright gift is not included merely because it was made within three years of death. Choice B misstates current law: the contemplation-of-death test was repealed, and the value of the gift itself is not included in addition to the gift tax. Choice D imports the gift tax annual exclusion into the estate tax: the value of an outright gift is not included in the gross estate regardless of whether it exceeded $19,000.