Deck 21: Financial and Estate Planning

Question 1

The legal process of administering the assets of an estate that begins with the appointment of an estate administrator is called the probate process.

Answer 1

False

Question 2

Financial planning primarily focuses on choosing between investment opportunities.

Answer 2

False

Question 3

Financial planning is a subset of estate planning.

Answer 3

False

Question 4

Inheritance taxes are levied by states.

Question 5

If a person dies without a valid will, an administrator may be appointed to administer the affairs of the estate.

Question 6

A credit shelter trust can be used to reduce the amount of estate tax owed at the death of the second spouse to die by preserving the benefit of the unified transfer tax credit of the first spouse to die.

Question 7

Another term for the surrender cost index is the net payment index.

Question 8

Testamentary trusts are often effective during the lifetime of the donor.

Question 9

A trust involves the transfer of property from a donor to a trustee for the benefit of one or more beneficiaries.

Question 10

The beneficiaries hold legal title to the property in a trust.

Question 11

When selecting an insurer, the insurer's financial strength is of relatively low importance because insurance benefits are guaranteed by the federal government.

Question 12

The most commonly used source to rate the financial strength of life insurers is the publication Best's Insurance Reports, issued annually by A.M. Best Company.

Question 13

Life insurance can provide a very effective tool to add liquidity to an estate.

Question 14

A life insurance trust generally is established by naming the insurer as the beneficiary of a life insurance policy, for the benefit of named trust beneficiaries.

Question 15

In 2004, the operation of the unified transfer tax credit had the practical effect of exempting the first $1,500,000 of otherwise taxable transfers from federal transfer taxation.

Question 16

Match the descriptions with their terms:

-To die ________________ means to die without a valid will.

A) administrator
B) charitable deduction
C) credit shelter trust
D) decedent
E) estate tax
F) Financial planning
G) inheritance tax
H) inter vivos
I) intestate
J) living trust
K) marital deduction
L) net payment index
M) Probate
N) probate court
O) surrender cost index
P) testamentary trust
Q) trustee
R) unified transfer tax credit

Question 17

Match the descriptions with their terms:

-A/An ________________ trust is another term for a living trust.

A) administrator
B) charitable deduction
C) credit shelter trust
D) decedent
E) estate tax
F) Financial planning
G) inheritance tax
H) inter vivos
I) intestate
J) living trust
K) marital deduction
L) net payment index
M) Probate
N) probate court
O) surrender cost index
P) testamentary trust
Q) trustee
R) unified transfer tax credit

Question 18

Match the descriptions with their terms:

-A/An ________________ is appointed by a court to oversee the administration of the estate of a decedent who died without a valid will.

A) administrator
B) charitable deduction
C) credit shelter trust
D) decedent
E) estate tax
F) Financial planning
G) inheritance tax
H) inter vivos
I) intestate
J) living trust
K) marital deduction
L) net payment index
M) Probate
N) probate court
O) surrender cost index
P) testamentary trust
Q) trustee
R) unified transfer tax credit

Question 19

Match the descriptions with their terms:

-A/An ________________ is levied by the federal or state government against an estate.

A) administrator
B) charitable deduction
C) credit shelter trust
D) decedent
E) estate tax
F) Financial planning
G) inheritance tax
H) inter vivos
I) intestate
J) living trust
K) marital deduction
L) net payment index
M) Probate
N) probate court
O) surrender cost index
P) testamentary trust
Q) trustee
R) unified transfer tax credit

Question 20

Match the descriptions with their terms:

-A/An ________________ is allowed for the value of all qualified transfers to the decedent's spouse.

A) administrator
B) charitable deduction
C) credit shelter trust
D) decedent
E) estate tax
F) Financial planning
G) inheritance tax
H) inter vivos
I) intestate
J) living trust
K) marital deduction
L) net payment index
M) Probate
N) probate court
O) surrender cost index
P) testamentary trust
Q) trustee
R) unified transfer tax credit

Question 21

Match the descriptions with their terms:

-A/An ________________ is created during the life of the grantor.

A) administrator
B) charitable deduction
C) credit shelter trust
D) decedent
E) estate tax
F) Financial planning
G) inheritance tax
H) inter vivos
I) intestate
J) living trust
K) marital deduction
L) net payment index
M) Probate
N) probate court
O) surrender cost index
P) testamentary trust
Q) trustee
R) unified transfer tax credit

Question 22

Match the descriptions with their terms:

-________________ is the process of establishing financial goals, developing and implementing a plan for achieving those goals, and periodically reviewing and revising the overall plan.

A) administrator
B) charitable deduction
C) credit shelter trust
D) decedent
E) estate tax
F) Financial planning
G) inheritance tax
H) inter vivos
I) intestate
J) living trust
K) marital deduction
L) net payment index
M) Probate
N) probate court
O) surrender cost index
P) testamentary trust
Q) trustee
R) unified transfer tax credit

Question 23

Match the descriptions with their terms:

-The ________________ is the deceased person whose property comprises the estate.

A) administrator
B) charitable deduction
C) credit shelter trust
D) decedent
E) estate tax
F) Financial planning
G) inheritance tax
H) inter vivos
I) intestate
J) living trust
K) marital deduction
L) net payment index
M) Probate
N) probate court
O) surrender cost index
P) testamentary trust
Q) trustee
R) unified transfer tax credit

Question 24

Match the descriptions with their terms:

-A/An ________________ is a trust created by a will.

A) administrator
B) charitable deduction
C) credit shelter trust
D) decedent
E) estate tax
F) Financial planning
G) inheritance tax
H) inter vivos
I) intestate
J) living trust
K) marital deduction
L) net payment index
M) Probate
N) probate court
O) surrender cost index
P) testamentary trust
Q) trustee
R) unified transfer tax credit

Question 25

Match the descriptions with their terms:

-A/An ________________ decides on the authenticity and validity of a will, appoints an executor, and oversees the work of the executor.

A) administrator
B) charitable deduction
C) credit shelter trust
D) decedent
E) estate tax
F) Financial planning
G) inheritance tax
H) inter vivos
I) intestate
J) living trust
K) marital deduction
L) net payment index
M) Probate
N) probate court
O) surrender cost index
P) testamentary trust
Q) trustee
R) unified transfer tax credit

Question 26

Match the descriptions with their terms:

-The ________________ is available to offset federal estate or gift taxes that would otherwise be payable.

A) administrator
B) charitable deduction
C) credit shelter trust
D) decedent
E) estate tax
F) Financial planning
G) inheritance tax
H) inter vivos
I) intestate
J) living trust
K) marital deduction
L) net payment index
M) Probate
N) probate court
O) surrender cost index
P) testamentary trust
Q) trustee
R) unified transfer tax credit

Question 27

Match the descriptions with their terms:

-A/An ________________ is the person or organization that holds legal ownership to trust property and is responsible for the administration of the trust assets.

A) administrator
B) charitable deduction
C) credit shelter trust
D) decedent
E) estate tax
F) Financial planning
G) inheritance tax
H) inter vivos
I) intestate
J) living trust
K) marital deduction
L) net payment index
M) Probate
N) probate court
O) surrender cost index
P) testamentary trust
Q) trustee
R) unified transfer tax credit

Question 28

Match the descriptions with their terms:

-A/An ________________ is sometimes levied by a state government against the beneficiaries or heirs who receive property from a decedent.

A) administrator
B) charitable deduction
C) credit shelter trust
D) decedent
E) estate tax
F) Financial planning
G) inheritance tax
H) inter vivos
I) intestate
J) living trust
K) marital deduction
L) net payment index
M) Probate
N) probate court
O) surrender cost index
P) testamentary trust
Q) trustee
R) unified transfer tax credit

Question 29

Match the descriptions with their terms:

-A/An ________________ is allowed against federal estate taxes for all transfers to a qualified charity.

A) administrator
B) charitable deduction
C) credit shelter trust
D) decedent
E) estate tax
F) Financial planning
G) inheritance tax
H) inter vivos
I) intestate
J) living trust
K) marital deduction
L) net payment index
M) Probate
N) probate court
O) surrender cost index
P) testamentary trust
Q) trustee
R) unified transfer tax credit

Question 30

Match the descriptions with their terms:

-A/An ________________ is established to protect the benefit of the unified transfer tax credit of the first spouse to die by assuring that the assets are not included in the estate of the surviving spouse.

A) administrator
B) charitable deduction
C) credit shelter trust
D) decedent
E) estate tax
F) Financial planning
G) inheritance tax
H) inter vivos
I) intestate
J) living trust
K) marital deduction
L) net payment index
M) Probate
N) probate court
O) surrender cost index
P) testamentary trust
Q) trustee
R) unified transfer tax credit

Question 31

Match the descriptions with their terms:

-The ________________ is computed for the Nth year through the use of the following formula: (P - D - CV) / A, where P is the accumulated premiums for N years, D is the accumulated dividends for N years, CV is the cash value at the end of N years, and A is the accumulated value of an annuity of $1 for N years.

A) administrator
B) charitable deduction
C) credit shelter trust
D) decedent
E) estate tax
F) Financial planning
G) inheritance tax
H) inter vivos
I) intestate
J) living trust
K) marital deduction
L) net payment index
M) Probate
N) probate court
O) surrender cost index
P) testamentary trust
Q) trustee
R) unified transfer tax credit

Question 32

Match the descriptions with their terms:

-The ________________ is a cost comparison tool that does not incorporate the cash value as of a particular time.

A) administrator
B) charitable deduction
C) credit shelter trust
D) decedent
E) estate tax
F) Financial planning
G) inheritance tax
H) inter vivos
I) intestate
J) living trust
K) marital deduction
L) net payment index
M) Probate
N) probate court
O) surrender cost index
P) testamentary trust
Q) trustee
R) unified transfer tax credit

Question 33

Match the descriptions with their terms:

-________________ is the process of legally establishing the validity of a will.

A) administrator
B) charitable deduction
C) credit shelter trust
D) decedent
E) estate tax
F) Financial planning
G) inheritance tax
H) inter vivos
I) intestate
J) living trust
K) marital deduction
L) net payment index
M) Probate
N) probate court
O) surrender cost index
P) testamentary trust
Q) trustee
R) unified transfer tax credit

Question 34

The unified transfer tax credit in 2005 equals

A) $220,550,
B) $675,000,
C) $1,000,000,
D) $555,800.

Question 35

Which of the following functions includes all of the duties of the other functions?

A) estate planning,
B) financial planning,
C) investment planning,
D) personal risk management.

Question 36

An asset that would not be a part of the probate estate is

A) life insurance without a named beneficiary,
B) the decedent's real property,
C) the decedent's personal property,
D) jointly owned property left with the right of survivorship.

Question 37

Which of the following would not be included in the gross taxable estate of the decedent?

A) the death benefits from a life insurance policy owned by the decedent at the time of death and payable to a living named beneficiary,
B) jointly owned property passing by right of survivorship,
C) tangible property of the decedent,
D) all of this property would be included in the gross taxable estate of the decedent.

Question 38

The primary estate planning objective of holding property in a manner that will escape inclusion of the probate estate involves

A) avoidance of federal and state transfer taxes,
B) reducing administrative costs and delays often associated with the probate process,
C) avoidance of the claims of creditors,
D) escaping the expense associated with writing a valid will.

Question 39

Gifts can be used to reduce the amount of transfer taxes by

A) shifting the property to those in a lower income tax bracket,
B) transferring a revocable future interest in the property,
C) taking advantage of the $11,000 per donee per year gift tax exclusion,
D) gifts can no longer be used to reduce transfer taxation because of the unification of the federal estate and gift tax systems.

Question 40

In order for a trust to become effective, it is not necessary to have

A) a living donor,
B) one or more beneficiaries,
C) a trustee,
D) a transfer of property.

Question 41

Which of the following statements is true regarding a life insurance trust?

A) The life insurer functions as the trustee,
B) Life insurance trusts may provide more flexibility than the payout options offered by the insurer,
C) The life insurer functions as the donor,
D) Life insurance trusts have as their sole purpose the avoidance of federal estate taxation.

Question 42

The most important factor in assessing the financial strength of an insurer is the

A) total face value of insurance written,
B) size of the firm as measured in total assets,
C) relative size of its surplus,
D) amount of dividends paid on participating policies in the last year.

Question 43

Which of the following statements when taken alone has the greatest weight when determining the financial strength of a life insurer?

A) The company has assets of more than $1 billion,
B) Last year the insurer paid a relatively high policy dividend on all participating policies,
C) Last year the company had a surplus of more than $1 million,
D) The insurer currently enjoys an A+ Best's rating.

Question 44

Which of the following statements is not true in relation to evaluating the service provided by an insurer?

A) The level of service provided by the insurer's home office may be more important than that provided by the agent because the agent may leave the employment of the insurer,
B) The level of service provided by the agent is important,
C) Agents may in reality function more as order-takers and not provide any other services of value to the insured,
D) Because life and health insurance policies generally are not long-term contracts, the level of service provided by the agent generally is more important than that provided by the insurer's home office.

Question 45

If a policy is purchased with the intention of being surrendered for its cash value at a specified time, the most appropriate cost comparison method would be

A) a comparison of the premium charges,
B) the surrender cost index,
C) the net payment index,
D) the cash value to premium index.

Question 46

Which of the following statements is true in relation to the net payment index?

A) The net payment index always represents the most accurate reflection of the true cost of a policy for use in comparing the cost to that of other policies,
B) The net payment index is a measure of expected inflation in the future cost of insurance premiums,
C) The net payment index is computed using several factors, including the future value of premiums paid and the policy dividends expected to be received,
D) The premiums paid are indexed net of overhead costs charged by the insurer.

Question 47

Which of the following statements concerning intestacy is not true?

A) When a person dies without a valid will, the laws of intestacy determine the way that the decedent's property is distributed,
B) Intestacy laws may vary from state to state,
C) If a person dies intestate, the person appointed to administer the estate by executing the laws of intestacy is called the executor,
D) A person writing a will does not have to give property in the manner prescribed by the laws of intestacy.