Deck 17: Estate Planning: Saving Your Heirs Money and Headaches

Question 1

Which of the following is/are a typical cash need(s) of one's estate?

A) funeral expenses
B) legal fees
C) outstanding debt
D) estate and inheritance taxes
E) All of the above.

Answer 1

All of the above.

Question 2

The correct equation to determine your estate's net worth is: value of your estate ‑level of estate's liabilities.

Answer 2

True

Question 3

Gifts reduce the taxable value of your estate and allow you to help out your heirs while you're still alive.

Answer 3

True

Question 4

The first step in estate planning is to determine the value of your estate.

Question 5

Herbert Dix picked up a booklet at his attorney's office that described estate planning. All of the following were included as primary objectives of estate planning except

A) distribute property according to your wishes and provide for your dependents.
B) develop a plan that will minimize estate and inheritance taxes.
C) develop a plan that minimizes settlement costs, including legal and accounting fees.
D) utilize a living will to describe your choices in a terminal situation and a health care proxy to identify those to whom you relinquish health care decision-making authority in the event of physical or mental impairment.
E) estate planning involves all of the above objectives.

Question 6

You are engaging in ________ when you plan for what happens to your accumulated wealth and your dependents after you die, as well as determining decision-making authority should you be physically or mentally impaired.

A) estate planning
B) retirement planning
C) unified planning
D) death establishment
E) None of the above is correct.

Question 7

Which of the following does not have to be paid out of your estate before distribution to your heirs?

A) legal fees
B) funeral expenses
C) outstanding debt
D) estate and inheritance taxes
E) All of the above must be paid prior to the distribution of assets.

Question 8

You and your spouse wish to give each of your three grandchildren a yearly tax-free gift from your estate. If you give each of your three grandchildren the maximum amount allowed by law, what is the total amount that you as a couple would pay out in gifts in 2011?

A) $12,000 per year
B) $36,000 per year
C) $48,000 per year
D) $78,000 per year

Question 9

To determine your estate's net worth, you would

A) add the amount of your estate's assets to the amount of your estate's liabilities.
B) add the amount of your estate's accounts receivable to the amount of your estate's assets.
C) subtract the amount of your estate's assets from the amount of your estate's liabilities.
D) subtract the amount of your estate's liabilities from the amount of your estate's assets.
E) ask your lawyer the amount of your estate's worth and deduct it from the amount of your estate's market value.

Question 10

What steps would you take in the estate planning process?

Question 11

The process of determining what your heirs will receive from your estate occurs in which step of the estate planning process?

A) step 1
B) step 2
C) step 3
D) step 4
E) step 5

Question 12

Provide some common sense approaches to estate planning.

Question 13

The final step in estate planning is determining which estate planning techniques are most appropriate to achieve your goals.

Question 14

Describe the typical funeral and administrative expenses.

Question 15

There is no limit to the size of transfers that can be made between spouses on a tax-free basis.

Question 16

The unified tax credit effectively nullifies the taxes on the first $5 million of one's estate.

Question 17

Estate planning is important because it protects your family against major catastrophes and helps keep taxes to a minimum.

Question 18

The law allows you to give $25,000 per year tax free in 2011 to as many people as you'd like.

Question 19

If you give $13,000 as a gift to someone who is not a blood relative, you will pay taxes on these funds and so will the recipient.

Question 20

All of the following are commonly used estate planning tools except

A) a will.
B) durable power of attorney and joint ownership of assets.
C) life insurance.
D) gifts and trusts.
E) All of the above are commonly used estate planning tools.

Question 21

The main purpose of probate is to make sure the beneficiaries are treated equally.

Question 22

A married couple with 2 children and 5 grandchildren has an estate valued at $4 million. They decide to use gifts as a means to transfer some of their wealth to their family now and lower the value of their estate. If for a five-year period the couple give the maximum tax-free gift to each of their children and grandchildren, the value of their estate would be reduced to

A) $84,000.
B) $420,000.
C) $3,090,000.
D) $3,916,000.

Question 23

The unified tax credit

A) Allows individuals to give $13,000 tax-free each year to as many people as they like.
B) Ensures that almost half of any amount that you pass on beyond the first $3.5 million of an estate will be lost in taxes.
C) Lets money be passed down from a grandparent to a grandchild tax-free.
D) Essentially nullifies the taxes on the first $5 million of an estate.

Question 24

How can you use the unlimited marital deduction to your advantage?

Question 25

A living will is a directive to a physician that allows you to state your wishes regarding medical treatment in the event you are unable to make decisions for yourself.

Question 26

The introductory statement of a will identifies whose will it is and revokes any prior wills.

Question 27

Outline the steps in calculating estate taxes.

Question 28

A durable power of attorney means that the attorney who wrote the will for you is your legal guardian in case you become incapacitated and can't make decisions yourself.

Question 29

Your estate tax burden can be reduced by giving gifts to your heirs prior to your death. This has the effect of reducing the value of your estate and thus lowering your tax obligation. As of 2011, each spouse can give up to $________ each year to ________.

A) 7,000; 2 people
B) 8,000; 3 people
C) 9,000; 4 people
D) 10,000; 5 people
E) 13,000; as many people as you like

Question 30

The executor is the individual who is responsible for carrying out the provisions of your will.

Question 31

The U.S. tax code allows ________ to transfer the entire estate to the survivor tax-free, assuming the recipient is a U.S. citizen.

A) a generation-skipping clause
B) gift taxes
C) a common disaster clause
D) tenancy in common
E) an unlimited marital deduction

Question 32

What does the generation skipping tax do?

A) It imposed additional tax on gifts and bequests that are made from grandparent to grandchild.
B) It allows grandparents to skip paying taxes on funds gifted to grandchildren.
C) It encourages parents to skip leaving funds to their own children and to plan on leaving their estate to their grandchildren.
D) All of the above
E) none of the above

Question 33

Individuals to whom you have willed your property are known as executors.

Question 34

A will is a legal document that describes how you want your property to be transferred to others.

Question 35

An attestation and witness clause is an attachment to a will that alters or amends a portion of the will signed in front of two witnesses.

Question 36

Probate is the legal process of distributing an estate's assets.

Question 37

A will can be amended by a codicil for relatively minor changes.

Question 38

A will created by an attorney cannot be contested.

Question 39

We may prepare a ________ to appoint someone to legally act on our behalf in the event we become mentally incapacitated and a ________ to state our wishes in the event of a terminal illness or injury.

A) living will; common disaster clause
B) durable power of attorney; living will
C) last letter of instruction; living will
D) living will; durable power of attorney
E) durable power of attorney; last letter of instruction

Question 40

A living will allows you to state your wishes regarding medical treatment in the event of an illness or injury that renders you unable to make decisions regarding your health care.

Question 41

John Kennedy Jr. and his wife Caroline both perished in the same plane crash. Which of the following clauses would identify who is assumed to have perished first?

A) Appointment clause
B) Common disaster clause
C) Attestation clause
D) Witness clause
E) Bimodal death clause

Question 42

An individual who is responsible for carrying out the provisions of your will and managing your property until the estate is passed on to your heirs is called the ________.

A) attorney
B) lease
C) executor
D) receptor
E) none of the above

Question 43

You were almost killed in a recent mountain bike accident and have decided to write a will. You also plan to construct a(n) ________, which will give information and directions with respect to the execution of your will.

A) codicil
B) letter of last instructions
C) living trust
D) appointment clause
E) attestation and witness clause

Question 44

All of the following features are common to a basic will except

A) introductory statement.
B) payment of debt and taxes clause.
C) disposition of property clause.
D) establishment of a trust.
E) appointment clause.

Question 45

The ________ allows for the distribution of money and property in a will.

A) attestation and witness clause
B) payment of debt and taxes clause
C) common disaster clause
D) disposition of property clause
E) introductory statement

Question 46

Herbert's will is missing the section revoking any earlier wills. A young lawyer prepared the will and made this oversight. What dangers are present because of this omission?

A) There may be a prior conflicting will.
B) Multiple wills make a mess out of the probate process.
C) The probate process will slow down tremendously.
D) It could be many years before the heirs receive their inheritance.
E) all of the above

Question 47

Within Herbert's will he designates ________ who are willed his property, an ________ who will be responsible for carrying out the provisions of the will, and a(n) ________ who will care for any of his children under age ________.

A) trustees; attorney; executor; 18
B) heirs; executor; nanny; 16
C) beneficiaries; executor; guardian; 18
D) heirs; attorney; guardian; 16
E) heirs; attorney; guardian; 21

Question 48

Carey is a widow with two teenagers, Brenda age 13 and Terry age 15. Her health has declined and she knows that a will should be drafted. Which of the following statements is not an important reason to have a will?

A) Without a will the court will choose Brenda's and Terry's guardian(s).
B) Without a will the court will appoint an administrator for the estate.
C) The children's best interests may not be served without a will.
D) Without a will, the estate administration fees may cost more, thus leaving less to heirs.
E) All of the above are reasons Carey should have a will.

Question 49

Which of the following is a requirement of a valid will?

A) You must be mentally competent when the will is written.
B) You can't be under undue influence of another person.
C) Your will must conform to the laws of the state.
D) All of the above.
E) Only A and B.

Question 50

What is/are advantage(s) to establishing a trust?

A) Trusts bypass probate.
B) Trusts can ensure that children from a previous marriage will receive some inheritance.
C) Trusts can be used to shelter assets from estate taxes.
D) A trust does not become a matter of public record, so it offers confidentiality.
E) All of the above are advantages to using a trust.

Question 51

An attachment to a will that alters or amends a portion of the will is called a ________.

A) proxy
B) codicil
C) letter of last instructions
D) revocation
E) none of the above

Question 52

Provide a description of the basic features and clauses found in a will. What might invalidate your will?

Question 53

Alfred has appointed an executor in his will. This person will be responsible for ________ .

A) carrying out Alfred's wishes
B) acting under the durable power of attorney
C) managing Alfred's property until the estate is passed on to the heirs
D) acting under the durable health care power of attorney
E) Both A and C

Question 54

Someone who receives assets or money from a person after death is called the deceased's ________.

A) receptor
B) receptee
C) obtainee
D) beneficiary
E) none of the above

Question 55

What should you do once your will has been drawn up?

Question 56

Ingrid is single with no dependents. She has been in the hospital with a coma for the last 2 weeks. Her bills are piling up and her rent on her apartment is due. Who is legally empowered to take care of her banking and bill paying while she is incapacitated?

A) Whoever is named as her executor.
B) Whoever is named in her living will.
C) Whoever is named in her durable power of attorney.
D) Whoever is named in her durable health care power of attorney.

Question 57

Because Toby and Jenny's children are under the age of 18 they should name a ________ to care for them and manage their property should Toby and Jenny pass away.

A) juvenile attorney
B) guardian
C) proxy
D) godparent
E) none of the above

Question 58

The individual you name who will care for your minor aged children is known as their ________.

A) executor
B) beneficiary
C) guardian
D) personal representative
E) Only A and B are correct.

Question 59

A trust that gives the individual establishing the trust the ability to direct income from the trust to his or her spouse over the spouse's life, and then, at the spouse's death, to choose to whom the assets go is called a

A) sprinkling trust.
B) Q-TIP.
C) A-B trust.
D) credit-shelter trust.
E) unified credit trust.

Question 60

Give five good reasons to have a will.

Question 61

A qualified terminable interest property trust gives the individual establishing the trust the ability to direct income from the trust to his or her spouse over the spouse's life, and then, at the spouse's death, to choose to whom the assets go.

Question 62

Madonna is a famous singer; as such, she may select to settle her estate through a trust because of which reason(s)?

A) trusts are harder to challenge
B) trusts reduce estate taxes
C) trusts provide confidentiality
D) trusts allow for professional management.
E) All of the above

Question 63

The purpose of a ________ trust is to reduce estate tax liability when one spouse predeceases the other.

A) sprinkling
B) family
C) Q-TIP
D) revocable

Question 64

If a family has young children, or there are children from a previous marriage, then a trust is probably the best way to go for estate planning.

Question 65

For most married couples, tenancy by the entirety is the best way to establish ownership.

Question 66

You know that the advantages of having a will likely outweigh the disadvantages associated with probate. Which is not a disadvantage of probate?

A) Legal fees and court costs must be paid.
B) The will is validated.
C) There are typically executor fees for settling the estate (unless the executor is a family member who chooses only to be reimbursed for expenses).
D) Costs of probate can equal 1 to 8 percent of the value of the estate.
E) The process may be slow, particularly if someone challenges the will.

Question 67

Trusts are much more difficult to challenge in court than are wills which is what makes them more attractive.

Question 68

During the lifetime of Jack and his wife, they acquired assets individually and as members of former marriages. During their marriage, they acquired more joint property, but his wife left all of her estate to her children. Upon his wife's death, Jack would have received the other half of their ________.

A) property owned as joint tenants with right of survivorship
B) community property, if residents of a community property state
C) property owned as tenants by the entirety
D) All of the above.
E) Only A and C.

Question 69

Under joint tenancy with the right of survivorship, two or more individuals share ownership of the assets; when one of the owners dies that owner's share of the assets becomes part of the deceased's estate and is distributed according to the deceased's will.

Question 70

A trust is created when a grantor transfers property to a trustee for the benefit of one or more people.

Question 71

A ________ provides a directive to a physician that allows you to state your wishes regarding medical treatment in the event of a terminal illness or injury that renders you unable to make decisions regarding life support or other medical treatments.

A) letter of last instructions
B) revocable will
C) living will
D) termination letter
E) none of the above

Question 72

A durable health care power of attorney allows you to designate another person to make life support decisions if you are unable to.

Question 73

Giving assets away as a gift reduces the value of your estate and allows you to help your heirs while you're still alive.

Question 74

What methods exist to avoid probate, or to establish non-probate property?

A) gifts
B) trusts
C) contracts like life insurance and retirement plans
D) joint ownership
E) all of the above

Question 75

The difference between a testamentary trust and a living trust is that a testamentary trust ________.

A) is written by an attorney
B) is created by a will
C) exists only after probate
D) is controlled by the heirs
E) Both B and C .

Question 76

Through joint tenancy in common, George was able to transfer his share of his assets in a company he owns with his best friend to his son instead of to his best friend.

Question 77

If you have children from a previous marriage and you get remarried and own property jointly with your new spouse, then tenancy by the entirety should be sufficient for you if you wish your children to inherit your property.

Question 78

What is the name for a document that provides for someone to act in your place for legal and financial matters in the event that you become mentally incapacitated?

A) specific power of attorney
B) revocable power of attorney
C) incapacitated power of attorney
D) durable power of attorney
E) none of the above

Question 79

In which kind of trust can you place your assets while still alive?

A) a revocable living trust
B) sprinkling trust
C) an irrevocable living trust
D) none of the above
E) both A and C above

Question 80

In most states, community property is recognized and trumps any allocations in your will.