Deck 14: Estate Planning

Question 1

An enduring power of attorney will cease upon the:

A) death of the donor.
B) loss of mental competence of the donor.
C) loss of mental competence of a witness to the power of attorney.
D) loss of mental competence of the attorney.

Answer 1

A

Question 2

In the context of this chapter, the term 'TFM' refers to which of the following?

A) Testator's family maintenance.
B) Trusts for minors.
C) Trusts for females and males.
D) None of the above.

Answer 2

A

Question 3

A will may be successfully contested on which of the following grounds?

A) Lack of testamentary capacity.
B) Undue duress.
C) Incorrect execution.
D) All of the above.

Answer 3

D

Question 4

A valid will requires:

A) signing by the willmaker in the presence of witnesses.
B) signatures to be written in blue or black pen.
C) the witness to have testamentary capacity.
D) all of the above.

Question 5

Superannuation death benefits:

A) cannot be paid into the estate of the deceased.
B) can only be paid to a child over 18 and under 25 where they are a financial dependent.
C) may result in different amounts being paid in taxes when distributed to different SIS Act dependants.
D) none of the above.

Question 6

A person dying without a valid will is:

A) not covered by any state laws and their estate will be distributed in accordance with the common law.
B) not covered by any state laws and their estate will be distributed in accordance with federal legislation.
C) said to have died intestate.
D) both a and c

Question 7

The donor is the person:

A) delegating the power in a power of attorney.
B) receiving the power in a power of attorney.
C) acting as a witness in a power of attorney.
D) none of the above.

Question 8

A generally accepted rule of law is that where both parties to a marriage die simultaneously and it is of relevance to determine which person died first, it is assumed that:

A) the person with the largest amount of net assets died first.
B) the wife died first.
C) the older person died first.
D) the husband died first.

Question 9

Shares acquired by the deceased before the introduction of the capital gains tax (CGT) will not be subject to CGT if sold by the:

A) executor or the beneficiary.
B) executor within 6 months of the date of death.
C) beneficiary within 12 months of the date of death.
D) none of the above.

Question 10

The Income Tax Assessment Act applies which of the following rules to the taxation of a deceased estate?

A) The estate is taxed at individual adult tax rates for up to 2 years from the date of death.
B) The estate is taxed at individual adult tax rates for up to 3 years from the date of death.
C) The estate is taxed at individual adult tax rates for up to 5 years from the date of death.
D) The estate is taxed at company tax rates for up to 2 years from the date of death.

Question 11

In Australia, probate:

A) is granted by the Supreme Court.
B) means 'proof of the will'.
C) is required for all estates.
D) both a and b

Question 12

The person with the ultimate control over a living trust is the:

A) settlor.
B) trustee(s).
C) beneficiary(ies) must settle the trust with a cash sum of at least $100.
D) none of the above.

Question 13

The SIS Act allows for superannuation monies on the death of a member to be paid to any dependant which does not include:

A) a de facto spouse.
B) a previous spouse.
C) a financially dependent person.
D) adopted children.

Question 14

In Australia, a will falls under:

A) state jurisdiction.
B) federal jurisdiction.
C) federal jurisdiction unless seen to be prejudicial to a family member.
D) none of the above.

Question 15

A discretionary trust provides:

A) for the separation of legal and beneficial ownership of trust assets.
B) beneficiaries with a right to minimum future income distributions.
C) protection for trust assets from claims made on beneficiaries by third parties.
D) both a and c

Question 16

The principal residence of the deceased is normally exempt from the CGT where the residence:

A) is sold within 3 years of the date of death.
B) is sold within 5 years of the date of death.
C) becomes the principal residence of the deceased's spouse from the date of death.
D) is sold by the executor with the proceeds distributed to the deceased's children within 5 years of the date of death.

Question 17

A testamentary trust is a trust:

A) established by a general power of attorney.
B) established by living persons.
C) established by a will.
D) created by a settlor.

Question 18

Income derived from a gift provided under a will is taxed in the hands of minors at:

A) minor tax rates on unearned income.
B) adult tax rates.
C) a flat tax rate equal to the highest marginal rate of tax.
D) a flat tax rate equal to the average rate of tax payable on other income.

Question 19

The trust settlor:

A) can only commence a trust following the death of the willmaker.
B) cannot be a beneficiary of the trust.
C) must settle the trust with a cash sum of at least $100.
D) both b and c

Question 20

The superannuation fund trustee has discretion over the distribution of a deceased member's account balance unless there is a valid:

A) binding death benefit nomination.
B) non-binding death benefit nomination.
C) will made by the deceased member.
D) power of attorney made by the deceased member.

Question 21

Outline how the 3-year rule may be potentially used to provide beneficial taxation outcomes for estate beneficiaries.

Question 22

What are the general consequences where a person dies intestate?

Question 23

Outline how the use of a trust can provide useful asset protection for individuals.

Question 24

Briefly explain the differences between a testamentary trust and an inter vivos trust.

Question 25

Differentiate between estate and non-estate assets and include examples of each type.

Question 26

Summarise the principal capital gains tax (CGT) considerations in the event of death.

Question 27

Samantha Nikon is 62 years of age and is in the process of finalising her estate planning requirements and is seeking to make her will as simple as possible whilst taking advantage of any concessions available in the relevant taxation laws. Unfortunately Samantha has a serious illness which has required her to recently finish work and it is unlikely that she will live beyond the end of the current year. She is happily married to William (64 years of age) and has 2 adult children, Audrey and Max (29 and 27 years of age), who are both financially independent.
Samantha presently has the following assets (estate and non-estate) valued at their current market value in her own name:

$\begin{array}{llr} \text { Detail}& \text { Amount}\\ \text { Various shares in listed } &1,500,000\\ \text { companies} &\\\end{array}$

$\begin{array}{l}\text { (all purchased for } \\\$ 135,000 \text { in } 1983)\end{array}$

$\text {Superannuation allocated as:}$

$\begin{array}{ll}\text { Tax free component } & 300,000 \\\text { Taxable component } & \underline{1,200,000} \\\text { Total superannuation } & \underline{1,500,000} \\\text { Total assets at market } & \underline{\underline{3,000, 000}}\end{array}$ Samantha has decided to allocate her total assets in the event of her death
in the following proportions:
$\begin{array}{ll}\text { Name }&\text { Proportion (\%) }\\\text { William } & 50 \\\text { Audrey } & 25 \\\text { Max } & 25\end{array}$ As William has always had an interest in shares Samantha had thought that perhaps she will allocate her husband the total of the shares she owns in specie and each of the 2 children 50% of the superannuation balance. Samantha seeks to have her wishes documented in a formal will. Samantha has approached you for comment as to whether this is the most appropriate allocation of assets.
(a) Provide some comments to Samantha as to whether her request is appropriate to be documented in her will.
(b) Based on the market values as shown in the question and assuming that the shares are immediately sold after distribution to William and the superannuation is paid out as a lump sum to the children, calculate the after-tax cash flows available to each of the members of the Nikon family (as a dollar amount and percentage of the total distribution) should Samantha pass away with the above assets distributed to the family members in specie, in accordance with her wishes. Ignore the effects of the Medicare levy in your calculations.

Question 28

Briefly discuss the circumstances in which a power of attorney can be cancelled.

Question 29

What is the importance of testamentary capacity in the process of making a will?

Question 30

Further to the discussion in Question 28, you have suggested to Samantha that an alternative manner in which she could distribute her estate and non-estate assets may be to allocate the total accumulated superannuation balance to William, with the children each being allocated 50% of the balance of the shares. Given William's interest in shares it is noted that he could easily purchase shares with all or part of the superannuation proceeds which will be paid out in cash.
(a) How can Samantha ensure that William is provided all the proceeds from her superannuation balance following her death?
(b) Calculate the after-tax cash flows available to the Nikon family (as a dollar amount and percentage of the total distribution) arising from your alternative asset allocation as indicated above. Assume that the shares will be immediately sold by the children after distribution. Ignore the effects of the Medicare levy in your calculations.
(c) Arising from the calculations in both this and the previous question, make a final recommendation to Samantha in relation to the maximisation of the after-tax distribution of her estate and non-estate assets following her death. Briefly justify your recommendation.