Deck 43: Insurance, Wills, and Trusts

Question 1

In most states, the testator's marriage after the execution of a will may affect the distribution of the estate.

Answer 1

True

Question 2

Once an insurer has accepted a risk, and an event occurs that gives rise to a claim, the insurer has a duty to investigate to determine the facts.

Answer 2

True

Question 3

By insuring property, its owners protect themselves.

Answer 3

True

Question 4

Because a general bequest or devise does not single out any particular item of property to be transferred by will, a testator does not have to know the nature and extent of his or her property to create a valid will.

Question 5

A divorce occurring after a will has been written does not revoke dispositions of property made under the will to the former spouse.

Question 6

Because an insurance agent is an agent of an applicant for insurance, not the insurance company, the agent owes fiduciary duties to the applicant.

Question 7

Courts interpret the words used in an insurance policy as if most people have the special training necessary to understand the intricate terminology.

Question 8

Insurance is an arrangement for transferring and allocating risk.

Question 9

An insurance company can raise as a defense against payment on a policy any of the defenses that would be valid in an ordinary action on a contract.

Question 10

The formalities of a will are intended to ensure that the testator understood his or her actions at the time a will was made and to help prevent fraud.

Question 11

A valid will is one that represents the maker's intent to transfer and distribute his or her property.

Question 12

A testator can revoke a will by having someone else tear it up in the testator's presence and at his or her direction.

Question 13

Insurance is a contract in which the insurer promises to reimburse the insured or a beneficiary in the event of a loss.

Question 14

Insurance policies differ in relation to the interests that they protect because the types of losses that are expected vary with the nature of an activity.

Question 15

Insurance contracts are usually obtained through an agent, who works as an independent contractor.

Question 16

For a will to be valid, the testator's signature must appear on it, generally at the end.

Question 17

An insurable interest in property need not exist when a policy insuring against its damage or loss is purchased.

Question 18

The laws governing how property is transferred on the death of its owner are a corollary to the concept of the private ownership of property.

Question 19

Customarily, an insurance company offers to insure individuals and businesses by advertising for applicants, who can either accept or reject the offer.

Question 20

Life insurance requires that an insurable interest in the continued life of the insured exist when a policy is obtained.

Question 21

A trust must be express because the essential elements of a trust include a writing.

Question 22

If a trustee fails to comply with the terms of the trust or the governing statute, he or she is personally liable for any loss.

Question 23

At the grantor's death, assets held in a living trust revert to the decedent's estate.

Question 24

The trustee's duty of loyalty requires that he or she act in the exclusive interest of the grantor or settlor.

Question 25

Cutting Edge Corporation makes and sells knives, scissors, garden shears, and other cutting devices. To cover injuries to consumers if the products prove defective, Cutting Edge should obtain

A) malpractice insurance.
B) key-person insurance.
C) liability insurance.
D) life insurance.

Question 26

With a resulting trust, assets held in the trust can pass to the heirs after going through probate.

Question 27

With a constructive trust, a court declares a property owner to be a trustee for parties who are, in fairness, entitled to the benefits that flow from the property.

Question 28

Once a will is admitted to probate, the decedent's family members can agree among themselves how to distribute the estate, and no court order is needed to clear title to the assets.

Question 29

The elements of a trust include actual delivery by the grantor to the beneficiary with the intent of passing title.

Question 30

Rita is the chief executive officer for Sales Inc., a successful market research firm. The company obtains insurance on Rita's life from Tempo Insurance Company. This policy is

A) key-person insurance.
B) liability insurance.
C) life insurance.
D) none of the choices.

Question 31

On the death of the owner, property can be transferred through a will, a trust, or a state law prescribing its distribution. This indicates our laws require that, on death, title to property must be

A) dissociated from a decedent's estate.
B) disposed of by a trustee.
C) dissolved in favor of a beneficiary.
D) delivered in full somewhere.

Question 32

An insurance broker is most likely

A) an employee of an insurance company.
B) an independent contractor.
C) an underwriter.
D) a beneficiary.

Question 33

Under intestacy laws, a surviving spouse receives the decedent's entire estate.

Question 34

Greta applies for a homeowners' policy with Home Insurance Company through Ivy, an insurance agent. As a general rule, Home is bound by

A) Ivy's acts.
B) Greta's acts.
C) the acts of both Greta and Ivy.
D) the acts of neither Greta nor Ivy.

Question 35

In an irrevocable living trust, legal title to the trust property passes to the beneficiary.

Question 36

Intestacy laws determine the distribution of property of one who dies without a valid will, and attempt to carry out the likely intent and wishes of the decedent.

Question 37

One way to transfer property outside the probate process, and thereby avoid the costs, is to own property in joint tenancy.

Question 38

Under intestacy laws, if no heirs exist, then the state assumes ownership of the property of an estate.

Question 39

If a will does not provide how an estate will be distributed to grandchildren, under the per stirpes method of distribution, all heirs in a certain class inherit equally.

Question 40

If a will does not provide how an estate will be distributed to grandchildren, under the per capita method of distribution, an heir takes the share that his or her deceased parent would have been entitled to inherit.

Question 41

Dawn applies for a life insurance policy with Equity Insurance Company through Fletch, an agent who works for Equity. Dawn pays the initial premium. Fletch writes a binder, which

A) acknowledges the application and promises to consider it.
B) attests to the truth of each statement in the application
C) evidences receipt of the payment of the initial premium.
D) indicates that a policy is pending and states its essential terms.

Question 42

Jason does not execute a will before he dies. With respect to his estate, the assets are distributed first to

A) pay the debts of the decedent.
B) support the surviving spouse and children.
C) benefit the collateral heirs.
D) satisfy gifts to the lineal heirs.

Question 43

Sally handwrites her will on a sheet of blank paper. This will is

A) invalid.
B) holographic.
C) nuncupative.
D) residuary.

Question 44

Miles obtains a property insurance policy from Nova Insurance Company for Miles's restored 1957 Chevy. Nova can cancel the policy if Miles

A) fails to pay the premiums.
B) files a claim under the policy.
C) appears as a witness in a case brought against Nova.
D) any of the choices.

Question 45

In her will, Delia makes a gift of $10,000 to Esteban. This is

A) a bequest.
B) a devise.
C) a legacy.
D) residuary.

Question 46

Grover does not execute a will before he dies. His survivors include his spouse Helene and their two children, Irene and John. With respect to Grover's estate, under intestacy laws, Helene will probably receive

A) everything.
B) nothing.
C) one-half.
D) one-third.

Question 47

Red obtains a fire insurance policy on his vacation cabin near Smoky Mountain from Torchlight Insurance Company. The cabin is lost in a fire, but the parties dispute the amount of Torchlight's liability under an ambiguous clause in the policy. A court would most likely

A) interpret the clause against Red.
B) interpret the clause against Torchlight.
C) rewrite the clause and apply it as rewritten.
D) strike the clause from the policy.

Question 48

Molly is not married and has no children. She executes a will, disposing of her estate to her sister Nina. Later, Molly marries Owen. They have no children. Molly does not execute a new will before she dies. With respect to Molly's estate, Owen is entitled to

A) everything.
B) nothing.
C) one-half.
D) one-third.

Question 49

Neon Signs LLC wants to insure the equipment and supplies that it uses to create its products. To obtain insurance, Neon must have an insurable interest in the property

A) at the time a premium is paid.
B) at the time a loss occurs.
C) at the time a policy is obtained.
D) continuously from the time a policy is obtained to the time a loss occurs.

Question 50

Clark obtains from Dependable Insurance Inc. a policy that provides if a dispute arises between the parties concerning the settlement of a claim, the dispute must be submitted to an impartial third party, not a court, for resolution. This is

A) an antilapse clause.
B) an arbitration clause.
C) an appraisal clause.
D) an incontestability clause.

Question 51

Lena executes a separate written instrument to revoke her prior will. This separate document is

A) a residuary clause.
B) a codicil.
C) none of the choices.
D) a type of trust.

Question 52

Mace is asked to serve as a witness to Niles's will. To qualify, Mace must be

A) a U.S. citizen.
B) all of the choices.
C) at least eighteen years old.
D) mentally competent.

Question 53

According to the terms of Kim's will, specific gifts are made, and taxes and other estate debts are paid. The assets of the estate that remain are most likely to be distributed through

A) a codicil.
B) a type of trust.
C) none of the choices.
D) a residuary clause.

Question 54

Les executes a will in which he leaves everything to his spouse, Mindy, and in which he appoints Norma to administer the estate. The will must be signed by

A) Les only.
B) Les and Mindy only.
C) Les, Mindy, and Norma.
D) a probate judge.

Question 55

A life insurance company insures a large number of people with the knowledge that only a small proportion of them will die in any one year. The large number of premiums provides the funds to pay for the small number of deaths. This is

A) risk management.
B) risk pooling.
C) responsibility avoidance.
D) a liability shift.

Question 56

Patty executes a will, leaving her estate to her spouse Quentin. They have a daughter Rita. Later, Patty and Quentin divorce. Patty does not execute a new will before she dies. With respect to Patty's estate, Quentin is entitled to

A) everything.
B) nothing.
C) one-half.
D) one-third.

Question 57

Faye executes a will in which Gail is appointed to administer the will. After Faye dies, Gail lacks the capacity to serve, and a court appoints Hedy to handle the probate of Faye's estate. In this situation, the administrator is

A) Faye.
B) Gail.
C) Hedy.
D) the court.

Question 58

Roma obtains a fire insurance policy on her house with Safe-wise Insurance Company. This policy is an arrangement for

A) avoiding the assumption of responsibility.
B) predicting a potential loss based on unknown factors.
C) shifting the imposition of liability.
D) transferring and allocating risk.

Question 59

Anne obtains a liability insurance policy for her Bagels & Coffee Shop from Choice Insurance Company. In their dealings, the parties must

A) act in good faith.
B) attempt to deny or reduce any claim.
C) prevent the other from asserting certain defenses.
D) have an insurable interest.

Question 60

Finn does not execute a will before he dies, with no surviving spouse or child. His survivors include his grandson Gage and his niece Hailey. In most states, his estate would pass to

A) Gage only.
B) Hailey only.
C) Gage and Hailey in equal measure.
D) the state.

Question 61

Flem owns shares of stock in Gas & Oil Inc. To create a trust with the stock for the benefit of his spouse Hanna, Flem must convey the shares to

A) a grantor.
B) a settlor.
C) a trustee.
D) a court.

Question 62

Serena decides to create a trust for the benefit of her children. She deeds her property to the trust but retains the power to amend, alter, or revoke the trust. She also serves as the trustee and receives income earned by the property. This is

A) not a trust.
B) a revocable living trust.
C) an irrevocable living trust.
D) a constructive trust.

Question 63

Under intestacy laws, if Darlene has no heirs, then the property of her estate

A) passes to a person designated by a probate court.
B) is transferred to the state.
C) devolves to a preselected charity.
D) is held in trust for future beneficiaries.

Question 64

Emmett has two children, Frank and Gene, both of whom predecease Emmett. Frank is survived by his daughter Heidi. Gene is survived by his sons Ike and Jake. On Emmett's death, if the distribution of his estate is per stirpes, Heidi will receive

A) everything.
B) nothing.
C) one-half.
D) one-third.

Question 65

Rollo opens an account for $250,000 at Savers Bank. The account provides that the funds are held in trust for Thea, Rollo's daughter. This is

A) a constructive trust.
B) a living trust.
C) a resulting trust.
D) a testamentary trust.

Question 66

Maria does not execute a will before she dies. The distribution of her estate is regulated by

A) the comprehension of the natural objects of her bounty.
B) the decisions of a trustee appointed by a probate court.
C) the state's intestacy statutes.
D) the terms of a different decedent's will disposing of a similar estate.

Question 67

Aron owns a certificate of deposit with Beth, his sister, and an apartment building with Carl, his brother, in both cases as a joint tenant. Aron, a partner with Debra in Aron & Debra Accountants, obtains a life insurance policy with Debra as the designated beneficiary. Aron writes a will that gives particular items of personal property, as well as specific amounts of cash, to his children and his friends. The will leaves the residue of the estate to Eve, Aaron's favorite cousin. Carl dies. Aron, on his deathbed, makes a gift to the United Way. Will the certificate of deposit, the apartment building, the proceeds from the life insurance policy, and the gift to the United Way become part of Aron's estate and be distributed under the will? If not, how will these items be distributed and to whom?

Question 68

Idina executes a deed conveying ownership of her home to a trust for the benefit of her son Jim. The trust designates Idina as the trustee. When she dies, the house will pass without going through probate to

A) Jim.
B) Idina's estate.
C) the trust.
D) the state.

Question 69

Kit has two children, Lea and Merl, both of whom predecease Kit. Lea is survived by her son Nat. Merl is survived by her daughters Opal and Pearl. On Kit's death, if the distribution of the estate is per capita, Pearl will receive

A) everything.
B) nothing.
C) one-half.
D) one-third.

Question 70

Estimable Credit Company loans funds to Farmland Granaries, LLC, to buy a silo. Estimable obtains an insurance policy from Grangers Insurance, Inc., to cover the silo. Farmland also obtains a policy from Grangers to cover the silo. Later, Farmland sells the silo to Hi-Yield Harvest Company but keeps the policy. Hi-Yield also obtains a policy from Grangers to cover the silo. Estimable agrees to finance Hi-Yield's purchase of the property. A fire totally destroys the silo. Who can recover for the loss?

Question 71

Carl dies without a will, survived by his granddaughter Dora and her brother Elton. The grandchildren are Carl's

A) collateral heirs.
B) decedents.
C) trustees.
D) lineal heirs.

Question 72

The conduct of Edie and Floyd indicate an intention to create a trust. The circumstances raise an inference that Edie is holding legal title to property for Floyd's benefit. This is

A) not a trust.
B) a living trust.
C) a resulting trust.
D) a constructive trust.