Deck 15: Preserving Your Estate

Question 1

Since 2011, a surviving spouse cannot use the unused unified transfer tax (UTT) credit of the deceased spouse.

Answer 1

False

Question 2

Your gross estate includes all property you own that might be subject to federal estate taxes at your death.

Answer 2

True

Question 3

The majority of Americans do not have valid wills.

Answer 3

True

Question 4

A living will may be viewed as a type of advance medical directive.

Question 5

A trustee is the person who writes a will.

Question 6

All states require one witness to the testator's signing of the will.

Question 7

Charitable contributions given during one's lifetime provide an income tax deduction and remove property from the estate.

Question 8

To minimize the transfer tax at death, individuals must transfer it to their siblings.

Question 9

Medical bills for a final illness is an example of a second-level death-related cost.

Question 10

A husband and wife may give a gift of $30,000 to a single donee and incur no tax.

Question 11

Insufficient capital can cause problems in estate planning.

Question 12

Estate planning requires the knowledge of wills, trusts, and taxes.

Question 13

When the first spouse dies, then any unused applicable exclusion amount (AEA) is lost and cannot be used.

Question 14

A will can be revoked by the testator only.

Question 15

People planning means anticipating the needs of loved ones and providing enough financial resources to ensure a continuation of their way of life.

Question 16

The primary purpose of life insurance is to replace lost income upon the death of the insured or to provide cash to pay a transfer tax at death and other end of life expenses.

Question 17

Which of the following would be a first-level death-related cost?

A) Funeral expenses
B) Federal estate taxes
C) Probate expenses
D) Inheritance taxes
E) Administrative costs

Question 18

The primary taxes to consider in estate planning are the income tax, the gift tax, and the estate tax.

Question 19

The first step of the estate planning process is to list all assets and determine the ownership and value of your estate.

Question 20

The taxable estate is less than the adjusted gross estate.

Question 21

A document that precisely states the treatments a person wants if he or she becomes terminally ill is called a(n):

A) living will.
B) ethical will.
C) memorandum.
D) letter of instructions.
E) codicil.

Question 22

A grantor is also called the:

A) heir.
B) beneficiary.
C) joint owner.
D) settlor.
E) attorney.

Question 23

_____ is a special form of marital property co-ownership that is found only in common-law states.

A) Tenancy by the entirety
B) Grantor property
C) Tenancy in common
D) Tenancy by the beneficiary
E) Community property

Question 24

A trust designed to help couples gain full use out of each spouse's applicable exclusion amount (AEA) is the _____ trust.

A) Crummey
B) credit shelter
C) charitable lead
D) special needs
E) charitable remainder

Question 25

The objective of estate planning is to:

A) avoid the disposition of assets to the possible beneficiaries.
B) maximize the taxes involved in the transfer of assets.
C) create a situation of intestacy.
D) determine how to invest the estate's assets after your death.
E) maximize the usefulness of people's assets during their lives.

Question 26

A _____ has no right of survivorship.

A) co-owner tenancy
B) joint tenancy
C) tenancy in common
D) settlor tenancy
E) tenancy by the entirety

Question 27

A written and legally enforceable document expressing how a person's property should be distributed on his or her death is known as a(n):

A) will.
B) ethical paper.
C) memorandum.
D) letter of last instructions.
E) power of attorney.

Question 28

The disposition of property involves:

A) distributing residual assets after specific gifts have been made.
B) allocating the burden of taxes to the beneficiaries.
C) signing the will to prevent fraud.
D) creating a situation of intestacy.
E) appointing the executors.

Question 29

An advantage of a(n) _____ trust is that it provides for management continuity and income flow even after the grantor's death and allows assets to bypass probate.

A) revocable living
B) ethical living
C) testamentary
D) charitable lead
E) credit shelter

Question 30

A letter of last instructions is a(n):

A) legal document that authorizes another person to take over someone's financial affairs and act on his or her behalf.
B) document that precisely states the treatments a person wants if he or she becomes terminally ill.
C) written power of attorney authorizing an individual to make health care decisions on behalf of the principal when the principal is unable to make such decisions.
D) informal memorandum that is separate from a will and contains suggestions or recommendations for carrying out a decedent's wishes.
E) personal statement left for family, friends, and community that shares your values, blessings, life's lessons, and hopes and dreams for the future.

Question 31

A trust that comes into existence only after the will is probated is known as a(n) _____ trust.

A) testamentary
B) living
C) irrevocable living
D) irrevocable life insurance
E) revocable  living

Question 32

The person setting up a trust is called the:

A) grantor.
B) trustee.
C) attorney.
D) executor .
E) administrator .

Question 33

The unified rate schedule applies to federal _____ taxes.

A) sales and gift
B) gift and service
C) gift and estate
D) infrastructure and estate
E) estate and professional

Question 34

A form of joint ownership that may exist only between husband and wife is:

A) joint tenancy.
B) joint tenancy with the right of survivorship.
C) joint tenancy without the right of survivorship.
D) tenancy in common.
E) tenancy by the entirety.

Question 35

The applicable exclusion amount (AEA) from estate tax for 2018 was:

A) $2,410,000.
B) $3,780,000.
C) $5,430,000.
D) $7,820,000.
E) $11,180,000.

Question 36

Which of the following leads to the breakup of an estate?

A) Death-related costs
B) The presence of probate estates
C) The proper use of vehicles of transfer
D) Highly liquid assets
E) The availability of a will

Question 37

Which of the following best describes a situation of intestacy?

A) George has insufficient medical insurance to cover the cost of medical treatment he needs.
B) Jill died without heirs.
C) Eduardo became physically challenged after he was injured in a car accident.
D) Lily died without a valid will.
E) Mason died without any probate property.

Question 38

Which of the following statements about the review of estate plans is true?

A) Estate planning and review is a very simple process that doesn't require professional assistance.
B) Periodic reviews and revisions are required to update the plan.
C) Life events like disability and job change do not influence the review of estate plans.
D) Estates are exempted from taxes when there is an intestacy, which makes a review process redundant.
E) Transfer costs are not applicable to the transfer of estates and, therefore, will not affect the review plan.

Question 39

A document that legally modifies a will without revoking it is called a(n):

A) codicil.
B) letter of last instructions.
C) living will.
D) ethical will.
E) memorandum.

Question 40

You have a spouse, two children, three brothers, one grandchild, and a living father. If you died without a valid will, the person(s) most likely to receive the proceeds of your estate would be your:

A) grandchild.
B) spouse.
C) father.
D) brothers.
E) children.

Question 41

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement.
A beneficiary of a will [ should |  should not ] serve as a witness to the will.

Question 42

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement.
The estate planning process consists of [ five | seven ] important steps.

Question 43

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement.
If you die with no valid will in existence, and your property goes to the states, the property is said to be [ intestate | escheat ] to the state.

Question 44

A decedent's unused unified transfer tax (UTT) credit can be used by his or her:

A) spouse.
B) siblings.
C) children.
D) parents.
E) grantor.

Question 45

Your gross estate is reduced by _____ to determine the adjusted gross estate.

A) the state death tax credit
B) the orphan's deduction
C) the marital deduction
D) funeral and administrative expenses
E) the previous year's income tax

Question 46

Which of the following statements about the portability of the Unified Transfer Tax Credit (UTTC) is true?

A) When the first spouse dies, then any unused applicable exclusion amount (AEA)  will carry over to the other spouse.
B) When the first spouse dies, then any unused applicable exclusion amount (AEA)  will carry over to the government.
C) When the first spouse dies and is left with an excess amount after using the applicable exclusion, then the excess amount will carry over to a trust.
D) It is a method of reducing gift taxes with the consent of the other spouse in which the gift can be treated as if each had been given one-half of it.
E) It is a method of transferring assets between spouses, either by gift or through estate.

Question 47

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement.
[ Married | Unmarried ] couples have the greater need for estate planning.

Question 48

The tax base for the transfer tax is:

A) fair market value.
B) book value.
C) tax credit value.
D) net realized value.
E) gross gift value.

Question 49

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement.
A major objective of estate planning is to [ minimize tax exposure | enhance current income ].

Question 50

Jane and Arthur Patrikson are happy that their daughter is graduating from high school. They gift their daughter $25,000, with $12,500 being paid out of Mr. Patrikson's account and the remaining from Mrs. Patrikson's account. What will be the gift tax payable by the Patriksons on account of the above transaction?

A) $2,800
B) $1,800
C) $1,000
D) $400
E) $0

Question 51

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement.
[ People  | Asset ] planning involves deciding who will receive each item of property included in your estate.

Question 52

You could gift any number of people _____  per year without having to pay any gift taxes.

A) $36,000
B) $12,000
C) $25,000
D) $5,000
E) $15,000

Question 53

Which of the following is an advantage of giving gifts?

A) Gifts avoid depreciation in value.
B) Gift tax exclusion attracts more estate tax.
C) Marital deduction allows gifts to be tax free.
D) The annual inclusion amount increases with gifts.
E) There is no tax exemption for charitable contributions.

Question 54

The unified tax credit can be applied against the:

A) total income of the beneficiary of a will.
B) tentative tax on the estate tax base.
C) adjusted gross estate.
D) total estate taxes.
E) gross estate.

Question 55

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement.
In most states, generally any person of sound mind and age [ 18 | 21 ] may make out a will.

Question 56

If the amount of stock in the gross estate represents a substantial holding in a company, then the value subject to the tax will be reduced by the:

A) marketability discount.
B) minority discount.
C) blockage discount.
D) property discount.
E) stock discount.

Question 57

You could give an unlimited amount of property to your _____ without incurring any gift taxes.

A) children
B) spouse
C) friends
D) charity trust
E) relatives

Question 58

If the ownership of a closely held company is less than 50% of the outstanding stock, then the ownership is termed a:

A) minority interest.
B) majority interest.
C) marketable asset.
D) block asset.
E) blockage discount.

Question 59

A _____ is applied to reduce estate tax when a large amount of real estate is for sale in one area.

A) marketability discount
B) minority discount
C) blockage discount
D) property discount
E) land discount

Question 60

In 2018, James gave his son John a $5,000,000 term life insurance policy taken on James' life. At the time of the gift, James was in good health, and the value of the term insurance policy for gift tax purposes was less than the $15,000 annual exclusion amount. However, James died in 2019. Which of the following statements is true?

A) In 2019, the $5,000,000 gift will be included in James' gross estate for estate tax purposes.
B) In 2019, the $5,000,000 payout will not be included in James' gross estate for estate tax purposes as he had outlived the transfer by more than 1 year.
C) James will get an annual exclusion of $50,000 (i.e., 1% of the gift amount in 2019).
D) In 2019, James will be eligible for a unified tax credit of $500,000 (i.e., 10% of the gift amount, as he has outlived the transfer by more than 1 year).
E) James cannot avail the charitable deduction in 2019, as he did not outlive the transfer by more than 1 year.

Question 61

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement.
Legal title to the property in a trust is held by the [ grantor | trustee ].

Question 62

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement.
Generally, a gift's increase in value after it was given is [ included in | excluded from ] the donor's estate.

Question 63

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement.
If you want to create a living trust that provides tax advantages, you will need to establish [ a revocable | an irrevocable ] living trust.

Question 64

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement.
The estate tax applies [ only to transfers that a deceased actually makes at death | only to certain transfers made during a person's lifetime ].

Question 65

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement.
Federal law permits [ a limited | an unlimited ] deduction for gift tax and estate tax purposes on property given or left to a spouse who is a U.S. citizen.

Question 66

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement.
You need to make a minor revision in your will. You should write a [ codicil | new will ].

Question 67

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement.
Through a [ living will | durable power of attorney for health care ], you authorize an individual to make health care decisions for you if you are unable to do so.

Question 68

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement.
A letter of last instructions [ is | is not ] a legally enforceable document.

Question 69

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement.
With a revocable living trust, the value of the assets placed into the trust [ do | do not ] become public knowledge.

Question 70

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement.
In 2017, the U.S. House of Representatives voted to eliminate the [ gift | estate ] tax in 2026.

Question 71

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement.
The credit shelter trust is also referred to as the [ Crummey | bypass ] trust.

Question 72

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement.
[ A living will | An ethical will ] includes a personal statement of your values, blessings, life's lessons, and hopes and dreams for the future.

Question 73

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement.
Mike and Tristan, father and son, own property as tenants in common. Tristan [ can | cannot ] write a valid will leaving his part of this property to his friend Joe.