Deck 14: Estate Planning

Question 1

The process of developing a plan for what will happen to your wealth and dependents when you die is known as

A) probate planning.
B) estate planning.
C) retirement planning.
D) second to die planning.

Answer 1

estate planning.

Question 2

Which of these should cause you to revisit your estate plan?

A) Birth of a child
B) Death of a beneficiary
C) Change of state of residence
D) All of these choices are correct.

Answer 2

All of these choices are correct.

Question 3

A person's net worth at the time of their death is known as their

A) estate.
B) inheritance.
C) probate.
D) trust.

Answer 3

estate.

Question 4

A person's estate is

A) his or her net worth at death.
B) his or her net worth during life.
C) the value of the assets he or she owned at death.
D) the value of the assets he or she owned during life.

Question 5

What is the first step in the estate-planning process?

A) Developing estate-planning goals
B) Deciding whom you want to leave your money to
C) Analyzing your current finances
D) Evaluating estate-planning strategies

Question 6

During the process of estate planning, what should you do after you have developed estate-planning goals?

A) Analyze your current finances.
B) Evaluate estate-planning strategies.
C) Implement your plan, at least being sure to have a valid will.
D) Reevaluate and revise your plan as needed.

Question 7

Which of the following financial costs may be associated with failure to do estate planning?

A) Federal estate tax
B) State inheritance tax
C) Probate costs
D) All of these costs

Question 8

Which of the following costs will not be impacted by your failure to have an estate plan in place when you die?

A) Federal income taxes
B) State inheritance taxes
C) Probate costs
D) Federal estate taxes

Question 9

The legal process of settling an estate is known as

A) inheritance.
B) probate.
C) a will.
D) liquidation.

Question 10

Why is it recommended that you make a will and/or an estate plan when you are young?

A) You likely do not have dependents yet.
B) Your estate is complicated.
C) Your death is unpredictable.
D) You can accumulate more wealth.

Question 11

A person designated to receive something from an estate after a person's death is a

A) testator.
B) beneficiary.
C) escheat.
D) probate.

Question 12

Beneficiaries are those persons or entities who

A) will benefit from being the trustee of a trust.
B) will benefit from being an agent of a living will.
C) receive a distribution under the terms of a will.
D) receive the guardianship of minor children via a will.

Question 13

Raul just named his daughter as the person to whom his estate will be passed upon his death, making her his

A) heir.
B) trustee.
C) grantor.
D) escheat.

Question 14

If you die without a valid will and have no living relatives, all your assets become the property of the state government through a legal process known as

A) probate.
B) escheat.
C) caveat emptor.
D) living will.

Question 15

If you die without a valid will, this is known as

A) intestate.
B) contested.
C) escheat.
D) interred.

Question 16

If you die "intestate," you have died

A) with a valid will.
B) without a valid will.
C) in a state other than your state of residence.
D) with an estate plan.

Question 17

When you die without a will and your assets become the property of the state government, which legal rule is being acted upon?

A) Escheat
B) Probate
C) Intestate
D) Power of attorney

Question 18

A ________ is designed to state a person's medical preferences if that person is unable to make medical decisions due to illness or disability.

A) will
B) living will
C) letter of instruction
D) letter of last instruction

Question 19

______________are a relatively new by-product of modern medical care.

A) Wills
B) Living wills
C) Estate trusts
D) Living trusts

Question 20

An attorney is not needed to prepare a _________ since it is not a legal document.

A) living trust
B) do-not-resuscitate order
C) letter of last instruction
D) letter of intestate

Question 21

A long list of minor belongings to be distributed at the time of your death belongs best in a

A) living will.
B) will.
C) letter of last instruction.
D) trust.

Question 22

The best place to keep wills and powers of attorney is

A) in a safe-deposit box.
B) at your estate attorney's office.
C) in your home office.
D) in your business office.

Question 23

A living will go into effect when

A) you are unable to make medical decisions for yourself.
B) you die.
C) probate processes begin.
D) an heir contests a decision.

Question 24

Carrie has been diagnosed with a terminal illness. She decided to obtain a __________ to appoint someone to make specific legal medical decisions for her when she is incapacitated.

A) letter of last instruction
B) durable power of attorney
C) living will
D) will

Question 25

Charles is 23 years old. He recently graduated from college and is making ends meet by working two retail jobs. His only asset is his car. Robin is 35 years old and is working her way up the career ladder at a financial firm. Robin has been married for almost 10 years and has three children. Which of these two people would benefit most from an estate plan, and why?

A) Charles and Robin have an equal need for an estate plan.
B) Charles, because he has more time to develop an estate plan and shield any future income from estate taxes.
C) Robin, because she has a more complex estate and beneficiaries, as well as fewer years until she reaches her estimated life.
D) Neither Robin nor Charles, because they are both relatively young and have not had the chance to develop complex estates that would require plans.

Question 26

Marina is 24 years old and is planning on marrying her fiancé. She already has a will, and it names her older sister as her beneficiary. Marina's fiancé, Jared, 32, has been divorced once and has a two-year-old son. Jared also has a will, wherein his ex-wife and son are named the beneficiaries. Should they both draft new wills once they are married, and why or why not?

A) Yes, because both Marina and Jared will likely wish to have wills that name each other as beneficiaries to prevent Marina's assets from going to her sister and Jared's from spending a long time in probate because of legal ambiguity.
B) No, only Marina needs to draft a new will because Jared's ex-wife is no longer his beneficiary because of their divorce, and his son is automatically his beneficiary.
C) No, only Jared needs to draft a new will because he needs to explicitly remove his ex-wife as a beneficiary and designate Marina as his son's guardian in the event of death.
D) No, neither Marina nor Jared need to draft new wills because their marriage legally makes the other spouse their beneficiary, and Jared's son is already provided for.

Question 27

Grace's cousin was kept on life support for three years after a car accident left him brain-dead while his wife and parents argued and fought in court over whether or not to take him off life support. Grace wants to prevent this same thing from happening to her or her husband. Because of this, Grace has created a living will that lays out in very specific language what they would like to happen should either her or her husband suffer brain death. Has Grace made the correct decision?

A) Yes, a living will can legally bind her family and doctors to follow her instructions should she become incapacitated.
B) Yes, by drafting a very specific living will, Grace has made sure that she will have her wishes met in the event of brain death.
C) No, Grace also needs to draft a durable power of attorney wherein she names a specific member of her family to carry out the wishes she outlined in her living will.
D) No, Grace also needs to draft a letter of last instruction or there will be no legal requirement for anyone to follow the instructions in her living will.

Question 28

What is the difference between a living will and a letter of last instruction?

A) Living wills are nonlegal documents that describe an individual's wishes should they ever become incapacitated, while the letter of last instruction is a legal document that instructs survivors on dealing with financial details after an individual's death.
B) Living wills are legal documents that detail exactly how individuals would like their medical decisions handled should they become incapacitated, while a letter of last instruction is a nonlegal document that details how an individual would like his or her finances handled after death.
C) Both are legal documents that instruct family members on how an individual would like certain specifics to be handled. However, living wills express persons' wishes with regard to medical care should they become incapacitated, and a letter of last instruction discusses wishes regarding things such as funeral arrangements and access to personal financial information in the event of an individual's death.
D) Both are nonlegal documents that give instructions for family members or survivors on how an individual would like certain specifics to be handled. However, living wills express people's wishes with regard to medical care should they become incapacitated, and a letter of last instruction discusses wishes regarding things like funeral arrangements and access to personal financial information in the event of an individual's death.

Question 29

A legal entity that holds and manages assets on behalf of someone else is known as a

A) will.
B) living will.
C) trust.
D) testator.

Question 30

The person writing a will is known as the

A) grantor.
B) heir.
C) testator.grantee.

Question 31

A testator is a person who

A) is the beneficiary of assets distributed under the terms of a will.
B) manages a trust.
C) writes a will.
D) is the beneficiary of assets in a trust.

Question 32

Cynthia Blair is currently typing up her will so that she can have an attorney look it over to ensure her nieces and nephews receive any inheritance due. What role does Cynthia Blair have in the will preparation process?

A) Executor
B) Executrix
C) Testator
D)Beneficiary

Question 33

Which of the following is not required for a valid will?

A) The will must be dated.
B) The person writing the will must be at least 21 years old.
C) You must intend for the document to be your will.
D) The will must be signed in the presence of two witnesses who are not named beneficiaries in the will.

Question 34

Of the following, which is typically the primary purpose of a will?

A) Payment of debts
B) Appointment of a guardian
C) Distribution of assets
D) Settling of taxes owed

Question 35

Kangaroo Inc., a very popular kids' show, just released their top talent from her contract when she turned 16 years old. The star has made $17 million dollars performing over the last seven years and is about to launch her solo career. She, herself, drafted a will naming her parents and siblings as beneficiaries and had it witnessed by two of her employees. Is her will valid?

A) Yes, her witnesses were not beneficiaries or family members.
B) Yes, her estate is large enough to require the drafting of a will.
C) No, a person must be at least 18 years old for his or her will to be valid under the law.
D) No, an attorney must write a will for it to be legally valid.

Question 36

Which of the following is not a term used to describe a person designated to handle the settlement of an estate?

A) Executrix
B) Executor
C) Personal representative
D) Testator

Question 37

The _______ has the legal and ethical obligation to distribute your assets as you have directed and pay taxes according to the law.

A) executor
B) testator
C) codicil
D) beneficiary

Question 38

_________ is a legal term for the process of signing and witnessing a document to make it legally valid. To be properly executed, a will generally must be in writing and signed by the testator in the presence of at least two witnesses.

A) Appointment
B) Execution
C) Escheat
D) Probate

Question 39

________ of estates receive the assets.

A) Executors
B) Testators
C) Beneficiaries
D) Guardians

Question 40

In community property states, any property owned by one spouse is assumed to be owned by both spouses,

A) regardless of who acquired it or when it was acquired.
B) if acquired during the marriage.
C) if acquired before the marriage.
D) upon the death of a spouse.

Question 41

If Mark Johnson were to name his two grown children as those who receive the inheritance when he dies, what do his two children represent as a party to the will?

A) Testators
B) Executors
C) Witnesses
D)Beneficiaries

Question 42

Under requirements for a valid will, what area does "being of sound mind and body" cover?

A) Legal age
B) Named representative
C) Witnesses
D)Capacity

Question 43

If your estate is complex, you should consider naming a(n) ________ as executor.

A) lawyer
B) smart family member
C) spouse
D) trusted friend

Question 44

Lucinda Morales has three small children and is preparing a will. In addition to a guardian, who will take care of her children and what other individual should she name to manage their inheritance?

A) Trustee
B) Testator
C) Beneficiary
D) Executor

Question 45

If a question of mental capacity could arise during a modification of a will, what is the recommended action to maintain the validity of the will?

A) Have a family member sign an addendum to the will attesting to the testator's soundness of mind and body.
B) Have beneficiaries sign a notarized statement declaring the intent to receive an inheritance.
C) Have witnesses sign a notarized statement declaring the testator is acting in full mental capacity.
D)Have the testator sign a notarized statement declaring the beneficiaries' validity to receive the inheritance.

Question 46

Which is not a requirement to show the mental capacity to make a will?

A) You must understand the nature and extent of your assets.
B) You must understand to whom you intend your assets to be distributed.
C) You must understand how the executor will distribute the assets.
D) You must understand how you are distributing your assets.

Question 47

What element of a will discusses funeral expenses?

A) Appointment of executor
B) Payment of debts and taxes
C) Distribution of assets
D) Execution of will

Question 48

The appointment of a(n) ________ identifies who will take care of a person's children upon death.

A) beneficiary
B) trustee
C) executor
D) guardian

Question 49

Medical expenses are covered under which element of a will?

A) Appointment of an executor or executrix
B) Distribution of assets
C) Execution
D) Payment of debts and taxes.

Question 50

To make small changes to a will, you write a(n)

A) tenancy agreement.
B) escheat.
C) intestate.
D) codicil.

Question 51

Frank Johnson wants to make a small change to his will. He should write a

A) codicil.
B) distribution modification.
C) joint tenancy.
D) community addendum.

Question 52

When two people own property together, one way for them to automatically avoid probate is to

A) name each other as executor.
B) own the property in joint tenancy with right of survivorship.
C) witness each other's wills.
D) serve as each other's guardians.

Question 53

One of the disadvantages of ________ with right of survivorship is that you have no say over what happens to the property after you die.

A) community property
B) sole tenancy
C) joint tenancy
D)Tenancy in common

Question 54

The type of ownership in which you maintain the right to transfer your ownership of an asset independently of the person with whom you share the asset is known as

A) joint tenancy with right of survivorship.
B) tenancy in common.
C) beneficiary tenancy.
D) community tenancy.

Question 55

How would you own a vacation cottage with your brother and retain the right to transfer your ownership interest to your spouse, upon death?

A) Joint tenancy
B) Tenancy in common
C) Community property
D) Right of survivorship

Question 56

With the passage of the _______________, Congress has reduced the likelihood that you will personally be subject to the estate or gift tax.

A) American Tax Relief Act of 2012
B) Tax Cuts and Jobs Act of 2017
C) Patient Protection and Affordable Care Act of 2010
D) Consumer Financial Protection Act of 2010

Question 57

The federal estate tax rate

A) is a progressive tax with the highest marginal rate at 55 percent.
B) is a flat tax of 40 percent on the gross estate.
C) is assessed only on the amount of an estate that exceeds the exemption amount.
D) has increased in the past 20 years.

Question 58

Which of the following is true of the estate tax?

A) The unified exemption is gradually being reduced.
B) The unified exemption increases annually with inflation.
C) The maximum tax rate is the highest it has ever been.
D) If your estate owes federal estate taxes, it will also owe state estate taxes.

Question 59

The estate tax in the United States is a(n)

A) flat tax.
B) regressive tax.
C) progressive tax.
D) income tax.

Question 60

Michael Johnson, an attorney for the estate of Marcus Williamson III, has to file a gift tax return. What paperwork should he file?

A) IRS Form 709
B) IRS Schedule 1
C) IRS Form 1040
D) IRS Schedule 4

Question 61

Under 2020 tax law, you and your spouse can give up to

A) $14,000 per person to as many people as you like each year.
B) $14,000 per person as long as it's not your children.
C) $15,000 per person to as many people as you like each year.
D) $15,000 per person as long as it's not your children.

Question 62

In 2020, you gave $15,000 to your brother, $25,000 to your wife, $17,000 to your daughter's college tuition, and $5,000 to your sister. How much will you owe gift tax on?

A) $12,000
B) $10,000
C) $2,000
D) $0

Question 63

Patrick O'Riley, a single man with no children, has a taxable estate of $17.47 million. What is the amount the government will levy an estate tax upon?

A) $17.47 million
B) $11.4 million
C) $6.07 million
D) $0

Question 64

Lionel's gross estate is $21 million. Estate expenses and debts total $500,000. His will leaves $6 million to Colorado State University and the remainder of his estate to his son, Lionel Jr. How much of Lionel's estate will be subject to the federal estate tax in 2019?

A) $14.5 million
B) $9.1 million
C) $3.1 million
D) $0

Question 65

Lionel's gross estate is $25 million. Estate expenses and debts total $500,000. His will leaves $1 million to Colorado State University and the remainder of his estate to his wife, Marilyn. How much of Lionel's estate will be subject to estate tax in 2019?

A) $23,500,000
B) $12,100,000
C) $700,000
D) $0

Question 66

There is no federal estate tax due in 2019 for individual estates of less than

A) $5.45 million.
B) $10 million.
C) $11.4 million.
D) $22.8 million.

Question 67

Which of the following statements is false regarding federal gift taxes?

A) Monetary gifts of any amount given to children are not taxed.
B) There is no gift tax on payments for medical or educational costs if made directly to the provider of the service.
C) You can give your spouse an unlimited amount and not pay gift taxes.
D) If you and your spouse have one child, he or she can be given $30,000 a year and there will be no gift taxes.

Question 68

In 2019, a married couple's estate is allowed a federal estate tax exemption of

A) $10 million.
B) $11.4 million.
C) $20 million.
D) $22.8 million

Question 69

As the executor of an estate, Blaine Thomas is calculating an estate tax for John and Marsha Williamson, who passed away last year. What can be used to reduce the Williamson's adjusted gross estate?

A) Life insurance
B) Estate administration fees
C) Charitable gifts
D) Federal unified credit exemption

Question 70

Which gift category has an annual limit on the amount that can be given?

A) Gifts for the payment of medical expenses paid directly to the care provider
B) Gifts for the payment of educational expenses paid directly to the institution
C) Gifts to a spouse
D) Gifts to children

Question 71

Who can inherit an unlimited estate without being subject to federal estate tax?

A) Spouse
B) Grandchildren
C) Children
D) Parents

Question 72

Martha Lincoln's husband passed away unexpectedly last year. His sole estate was bequeathed to her, and in the event of her passing, was to go to his children. Martha has a $25 million taxable estate. If she dies this year, what tax rate will her beneficiaries have to pay under current law?

A) 0 percent
B) 10 percent
C) 20 percent
D)40 percent

Question 73

If you choose to not give away some of your wealth while you are alive, how can you avoid estate tax?

A) Make personal gifts in excess of annual exclusion after death.
B) Make charitable gifts.
C) Make irrevocable trusts.
D) Make your grandchildren beneficiaries.

Question 74

Which asset must be included in your gross estate for federal estate tax calculations?

A) Life insurance held in irrevocable trust
B) Residence held in irrevocable trust
C) Assets transferred through family limited partnerships
D) Ownership interest in a family corporation

Question 75

Which of the following is excluded from your gross estate for federal estate tax calculations?

A) Stock held in 401(k)
B) Savings accounts held in joint tenant
C) Investment held in IRA
D) Stocks held in an irrevocable trust

Question 76

Your gross estate is not reduced by _________ to arrive at your adjusted gross estate.

A) funeral costs
B) estate administration fees
C) charitable bequests
D) court fees

Question 77

To arrive at your adjusted gross estate for federal estate tax calculations, reduce the gross estate by the

A) estate expenses.
B) marital bequests.
C) charitable bequests.
D) federal unified credit exemption.

Question 78

Inheritances account for ________ of all wealth in the United States.

A) 10 percent
B) 25 percent
C) 40 percent
D) 75 percent

Question 79

States have set their exemption amount

A) at the same level as the federal unified credit.
B) lower than the federal unified credit.
C) higher than the federal unified credit.
D) at various levels.

Question 80

____________ states in the United States impose estate or inheritance taxes.

A) No
B) Only a few
C) About half of the
D) The majority of the