Question 1

A ________ is a trust that distributes income according to need, as determined by the discretion of the trustee rather than according to some preset formula.

Accepted Answer

A sprinkling trust, also known as a discretionary trust, allows the trustee to distribute income among the beneficiaries based on their individual needs, rather than using a fixed formula. This gives the trustee greater flexibility and control over the distribution of income. The other answer choices are not accurate terms for this type of trust.

Question 2

You and your roommate have decided to purchase a house together. If you want your share of the asset to pass on to your relatives named in your will, what type of ownership should you establish for the house?

Accepted Answer

With tenancy in common, each owner has a distinct, separate share of the property, and can leave their share to whomever they choose in their will. This allows you to ensure that your share of the house goes to your chosen beneficiaries. Joint tenancy with the right of survivorship, community property, and tenancy by the entirety all have survivorship rights, which means that if one owner passes away, their share automatically goes to the other owner(s), which may not align with your wishes.

Question 3

Identify three advantages and three disadvantages of revocable living trusts.

Accepted Answer

The answer of Identify three advantages and three disadvantages of...

Question 4

Identify three advantages and three disadvantages of irrevocable living trusts.

Accepted Answer

The answer of Identify three advantages and three disadvantages of...

Question 5

The legal procedure that establishes the validity of a will, and then distributes the assets of the estate including the payment of any taxes, is called ________.

Accepted Answer

The process described in the question is commonly known as probate. This involves proving the validity of the will and administering the estate, including paying any outstanding taxes and distributing assets to beneficiaries. Verification, certification hearing, and establishment hearing are not commonly used terms in the probate process.

Question 6

Through the portable estate exemption a surviving spouse's exemption amount will do which of the following?

Accepted Answer

Through the portable estate exemption, the unused exemption amount of the deceased spouse can be transferred to the surviving spouse's exemption. This effectively increases the surviving spouse's exemption amount. Therefore, the answer is A) increase.

Question 7

Under ________, ownership passes directly on to the surviving owner or owners, bypassing the will. With ________, when one spouse dies assets become part of the deceased's estate and are distributed through the will.

Accepted Answer

Joint tenancy with right of survivorship is the arrangement where the surviving owner or owners inherit the ownership directly without any intervention from the deceased's will. On the other hand, tenancy in common implies that assets become part of the deceased's estate upon death and they are distributed through the will. Hence, joint tenancy with right of survivorship and tenancy in common compare two types of ownership that differ in how they handle the transfer of assets upon the death of an owner.

Question 8

A(n) ________ is a trust established to transfer assets to your children, while allowing the surviving spouse access to funds in the trust, if necessary. Trust assets are distributed to the children tax free upon the death of the surviving spouse.

Accepted Answer

The answer of A(n) ________ is a trust established to...

Question 9

________ is a type of ownership where two or more individuals share asset ownership, but the asset is passed to the deceased owner's estate and is distributed according to his or her will.

Accepted Answer

Tenancy in common is a type of ownership where two or more individuals share asset ownership, but the asset is passed to the deceased owner's estate and is distributed according to his or her will. This is different from joint tenancy with the right of survivorship, where the asset automatically passes to the surviving owner(s) upon one owner's death.

Question 10

Which of the following is a disadvantage of joint ownership?

Accepted Answer

The answer of Which of the following is a disadvantage...

Question 11

You and your brother have decided to invest in the stock market together. You will put in $5,000 each and open a single account at a brokerage. How should the ownership of this account be established if both of you wish the other to keep all the money in the event that the other should die?

Accepted Answer

Joint tenancy with the right of survivorship would ensure that if either of the siblings were to pass away, the other would receive full ownership of the account without probate. This option is ideal for siblings who wish to keep the account simple and do not plan on leaving their share to anyone but their co-owner.

Question 12

In some states, property that is acquired during a marriage is referred to as ________ and upon the death of either spouse, his/her half is distributed according to the will, or if intestate, according to state law.

Accepted Answer

Community property is the term used in some states to describe property acquired during a marriage, which is considered equally owned by both spouses. Upon the death of either spouse, his/her half is distributed according to the will, or if intestate, according to state law.

Question 13

A trust in which you relinquish title and control of the assets when they are placed in the trust, which becomes a separate legal entity, is called a(n) ________.

Accepted Answer

An irrevocable living trust is the only option listed in which the person creating the trust gives up title and control of the assets placed in it, as the trust becomes a separate legal entity. A family trust, revocable living trust, and testamentary trust all allow the creator to retain some degree of control over the assets placed in the trust.

Question 14

The unlimited gift tax exclusion for medical or education expenses can only be gifted to which of the following?

Accepted Answer

The unlimited gift tax exclusion for medical or education expenses can be gifted to anyone regardless to how they are related to you.

Question 15

________ is a type of ownership that exists only between married couples.

Accepted Answer

Tenancy by the entirety exists only between married couples, where both parties have equal rights to the property and neither can transfer their interest in the property without the consent of the other. This type of ownership also includes the right of survivorship, meaning that if one spouse passes away, their share automatically goes to the surviving spouse.

Question 16

A legal entity in which you control the assets and can receive income, but also have the option to leave or remove assets, is called a(n) ________.

Accepted Answer

A revocable living trust allows the individual to maintain control of the assets and receive income, but also has the option to remove or change the assets in the trust. The other options listed (family trust, irrevocable living trust, and testamentary trust) do not have the same level of flexibility, either because they are created at a specific time (testamentary trust), have stricter rules about control and removal of assets (irrevocable living trust), or are designed for a specific purpose and cannot be changed (family trust).

Question 17

If you were to create a trust by your will, which becomes active only after you die, then you have created a(n) ________.

Accepted Answer

A trust that becomes active only after the death of the individual who created it is called a testamentary trust. It is created by a person's last will and testament, and only comes into effect after they die, allowing for greater control over the distribution of their estate. Terminal trusts, revocable living trusts, and irrevocable living trusts are different types of trusts, but are not created by a will and do not become active only after the person's death.

Question 18

A ________ 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 to whomever else the individual wants the funds to go.

Accepted Answer

The trust described in the question is a type of qualified terminal interest property trust (Q-TIP), which allows the grantor to provide for their spouse during their lifetime and then distribute assets to other beneficiaries at the spouse's death.

Question 19

For someone who dies intestate, or without a valid will, ________ and the applicable state laws allow for the orderly distribution of the estate.

Accepted Answer

When someone dies intestate, probate is the legal process by which the assets of the deceased are distributed according to state laws. Durable power of attorney, letter of last instructions, and testamentary trust are all documents that can be included in a valid will, but they are not relevant in the context of intestacy. Therefore, the only applicable option for distributing the estate of someone who dies intestate is probate.

Question 20

Make a list of ways to avoid probate.

Accepted Answer

The answer of Make a list of ways to avoid...

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