CFP Estate Planning Practice Test

The correct answer highlights that gifts made within three years of the donor's death, for which gift tax has been paid, are included in the gross estate. This inclusion is due to the nature of estate and gift tax laws in the United States.

When a person makes a gift during their lifetime, it may generally fall under the annual exclusion amount, meaning it may not be subject to gift tax. However, if the donor passes away within three years of making these gifts and the gifts were subject to gift tax because they exceeded the exclusion amount, they are included in the gross estate to ensure that the estate tax is fairly calculated. This provision is in place to prevent individuals from avoiding estate taxes by making significant gifts just before death.

In contrast, life insurance policies are generally included in the gross estate if the insured is the owner at the time of death, regardless of when the policy was taken out. So while all life insurance policies are part of the gross estate at death, the specific scenario mentioned in the correct answer pertains to gifts made and the timeframe relative to the donor's death and any tax implications.

Gifts made more than three years before death, even if no gift tax was paid, do not typically affect the gross estate, as they fall