Estate Planning Flashcards
What are four time delays that estate owners face?
Answer:
Complications involving property disputes Complications involving tax returns Complications involving accountings Complications involving property receipts
When most people think of probate court, they think about the probate of the estates of the decedents. What are three other major areas of focus for the probate process?
Answer:
Probate of estates and the supervision of trusts Guardianships and conservatorships Commitment of the mentally ill
Once an interested party has been given notice and fails to contest the probate process within _______ months from the date of the last publication that the will has been admitted to probate, the interested party is barred from raising any further challenges to the probate of the will.
Answer:
Once an interested party has been given notice and fails to contest the probate process within six months from the date of the last publication that the will has been admitted to probate, the interested party is barred from raising any further challenges to the probate of the will.
For the personal representative of either the testate or intestate estate, what does administration usually involve?
Answer:
An inventory of all probate assets, payment of creditors’ claims, and distribution of the probate estate according to the terms of the decedent’s will, or according to the laws of intestacy, if the decedent dies without a will.
What are four time delays that estate owners face?
Answer:
Complications involving property disputes Complications involving tax returns Complications involving accountings Complications involving property receipts
What additional costs may be involved in the probate procedure?
Answer:
Additional costs for probate may include appointment of guardians, conservators, or appraisers. Many of these costs can be eliminated if the probate process is avoided—the appointment of guardians is always a part of the probate process, therefore, probate substitutes will NOT avoid the cost associated with that selection.
What are the common reasons for probate settlement?
The common reasons for probate settlement are judicious settlement of beneficiaries’ disputes in the probate court and provision of legal titleholder to the client.
What does the provision of legal titleholder do?
Answer:
The provision of legal titleholder helps to avoid property or title disputes.
Can a will dispose of real property of the decedent located in a state other than that of the decedent’s residence?
Yes, a valid will can be used to dispose of separately-owned assets wherever the assets are located. However, in order to dispose of real estate which the decedent owned as a separate asset, the estate will be subject to an additional procedure.
What additional procedure is required to dispose of real estate of the decedent that is located in a state other than that of the decedent’s residence?
Answer:
Ancillary probate procedure is required to dispose of real estate of the decedent that is located in a state other than that of the decedent’s residence. Ancillary probate is needed if property is located in more than one state even if the decedent did not execute a will.
Which of the following is not a reason to avoid probate?
- The cost associated with the probate process
- When a will is probated, it is a private document and only heirs have the ability to view it
- The probate process can be lengthy and subject to time delays
- When a will is probated, it is a private document and only heirs have the ability to view it
Which of the following is not a reason to avoid probate?
- The cost associated with the probate process
- When a will is probated, it is a private document and only heirs have the ability to view it
- The probate process can be lengthy and subject to time delays
When a will is probated, it is a private document and only heirs have the ability to view it
John owns the following assets:
Which of the following assets will be subject to probate?
A 401k worth $500,000
A car owned in his individual name
A stock portfolio worth $1,000,000 held in his revocable trust
A savings account held in his name
A checking account held in JTWROS with his spouse
car & savings acct
Which of the following is not subject to probate and does not require consent of others to transfer ownership?
Individual Owner
Joint Tenancy With Right of Survivorship
Tenants by the Entirety
Tenants in Common
JTWROS
Which of the following is not a characteristic of the probate process?
The probate estate most likely requires an inventory of all assets that are subject to probate
Letters testamentary are given by the probate court giving authority to act on behalf of the estate
If the descendent dies intestate, the will must be filed with the probate court
Ancillary probate is required when the decedent owned individual property in a state other than their state of residence
If the descendent dies intestate, the will must be filed with the probate court
Given the manner in which the client’s assets are owned, a will may never transfer any property. So, why is a will still the most important estate planning document?
Answer:
(1st) it is only within the provisions of the will that the decedent can appoint the executor of the estate. (2nd) if the decedent has minor children, it is only within the provisions of the will that the guardians for the minor children may be appointed.
Given the manner in which the client’s assets are owned, a will may never transfer any property. So, why is a will still the most important estate planning document?
Answer:
(1st) it is only within the provisions of the will that the decedent can appoint the executor of the estate. (2nd) if the decedent has minor children, it is only within the provisions of the will that the guardians for the minor children may be appointed.
What are the basic execution requirements of a will, regardless of the state of residence?
Answer:
The testator must be the age of majority, at least 18 years of age. The testator is the person who is creating the will. The testator must be of sound mind and have mental capacity. In other words, the testator must know the nature and extent of his or her property and know who the "natural objects of their bounty," rightful heirs, would be. The will must be declared the last will and testament of the testator. The will must be in writing, signed by the testator, and witnessed by competent witnesses.
What are the most common types of wills? (Check all that are true.) simple wills holographic wills pour-over wills joint wills nuncupative wills
All are common
this is a stupid question
What are two disadvantages of a joint will?
Answer:
(1) Upon the death of the first spouse, the survivor may not have the ability to change the terms of the will. (2) The first spouse's property interests are often construed as being terminable interests and therefore will not qualify for the marital deduction.
What are some of the elements the power of attorney should include?
Answer:
Should be very specific as to which aspects of the principal's affairs it covers. Should include a provision authorizing the agent to make elections with respect to retirement plan assets. Should include a provision dealing with making annual exclusion or lifetime gifts. Should give the agent authority to transfer assets into a trust created by the principal.
To qualify for Social Security disability benefits on the wage earner’s record:
An unmarried child must be…?
Answer:
under 18 under 19 and a full-time high school student or 18 or older with a disability that started before age 22
To qualify for Social Security disability benefits on the wage earner’s record:
A spouse must be…?
Answer:
age 62 or older caring for a child who is disabled or under 16 50 or older and disabled before the wage earner's death or within seven years after death
An ex-spouse must be…?
Answer:
50 or older disabled and married to the wage earner for 10 years or longer
Which statement is correct?
A mutual will can also be a reciprocal will
A pour-over will transfers property into a testamentary trust
Property will avoid intestacy if the owner has a valid will at death
An elective share statute allows the heirs to take a percentage of the decedent’s estate in lieu of property left to them in the will.
A will can change the beneficiary of a trust
✔ A mutual will can also be a reciprocal will.
A mutual will is an agreement to bequeath property to another person, and with a reciprocal will, both spouses agree to leave their entire property interests to each other. So in this case, a mutual will can also be a reciprocal will.
Why the other answers are incorrect:
A pour-over will transfers property to a trust that must exist prior to the decedent's death. A testamentary trust is created by a will, which goes into effect after the testator dies. Partial intestacy can occur if the will lacks a residuary clause, or if property is bequeathed to an ex-spouse, in some states. An elective share statute only applies to a surviving spouse- not to all heirs. Only a revocable trust document can change the terms of a trust or change the trust beneficiaries- not a will. People can write anything they want in their will, but that doesn't mean their property will be distributed that way. For example, if you hold property as JTWROS with your spouse, but your will appoints the property to your son, then your son won't receive the property even though it was bequeathed to him in the will. So the way in which property is owned and titled may dictate how property is ultimately transferred to others.
What type of power of attorney can represent the principal before and after the principal becomes incapacitated? Springing durable power of attorney Durable power of attorney Health care power of attorney Non-durable power of attorney
Durable power of attorney
Why the other answers are incorrect:
A springing POA becomes activated when doctors certify that the principal is mentally incompetent. A health care power of attorney is used when the principal is unable to make medical decisions for himself- not before A non-durable POA goes into effect immediately but ceases when the principal becomes incapacitated.
Which statement is NOT correct
A Standby revocable trust must be created before the grantor becomes incompetent.
A plenary guardian is limited to only managing a ward’s property and financial affairs.
Limited guardianships can be awarded to manage only specific aspects of an incompetent person’s care, giving that individual some control over his circumstances.
If a trustee of a Special Needs trust pays for something that is already covered by a government program, then benefits may be reduced by this amount.
A plenary guardian is only limited to managing a ward’s property and financial affairs – is not correct.
A plenary guardian can also manage a ward’s personal care in addition to the ward’s property and financial affairs.
Why the other answers are correct:
A Standby revocable trust must be created before a grantor becomes incompetent, because only a grantor can create a trust—not the grantor's agent. Guardians can be awarded full or limited guardianships. Special Needs trusts are created to pay for additional services that government benefits do not provide.
At what dollar value will an individual with disabilities lose their eligibility to receive SSI benefits if the ABLE 529 exceeds: $50,000 $150,000 $100,000 $11,700,000
$100,000
How much in countable assets can you have and still qualify for Medicaid? $5000 $2000 $2500 $14000
$2,000
How long is the look-back period for Medicaid? 60 months 5 months 6 years 30 months
60 months
Which of the following is not an Activity of Daily Living? Eating Toileting Excercising Bathing
Exercising
What are two considerations that an offer from a viatical settlement firm primarily depends on?
Cash value of policy and insured’s life expectancy
Face value of policy and insured’s life expectancy
Cash value of policy and illness that the insured has
Face value of policy and cash value of policy
Face value of policy and insured’s life expectancy
Mr. Smith would like to name his son as his Power of Attorney. He would like his son to not have any authority to act on his behalf until the time when Mr. Smith becomes incapacitated. Which type of POA should Mr. Smith have?
Non-Durable Power of Attorney
Durable Power of Attorney
Springing Power of Attorney
Springing Power of Attorney
Which of the following is not typically the basis for a will contest?
The testator of the will is not of sound mind
The testator was deceived by fraud
The testator specifically omitted a child
The testator suffered from an insane delusion
The testator specifically omitted a child
CFP Board Released Question 1996
Which one of the following goals can be accomplished using a “pour over” provision in a will?
transfer of assets from an estate into a trust created prior to the “pour over” provision
minimization of estate taxes resulting from assets owned prior to the existence of the “pour over” provision
transfer of assets from an estate to the estate of another person who died within the past three years
reduction of probate expenses during administration
transfer of assets from an estate into a trust created prior to the “pour over” provision
CFP Board Released Question 1996
Doris Jenkins is a 71 year-old widow with a son and daughter ages 43 and 45 and six grandchildren. Doris has an estate currently worth $572,000 which includes her home worth $250,000 and a life insurance policy on her life with a face value of $160,000. Her children are named as primary beneficiaries. Doris recently suffered a severe stroke that left her paralyzed on her right side. She is home from the hospital but her health will continue to decline and she will need to go into a nursing home within one year. The only estate planning she has done to date is to write a will in 1989 which left all her assets to her children equally. Of the following estate planning considerations, which is/are appropriate for Doris at this time?
(1) Transfer ownership of her home to her children so it will not be counted as a resource should she have to go into a nursing home and apply for Medicaid.
(2) Execute a durable general power of attorney and a durable power of attorney for health care.
(3) Place all of her assets in an irrevocable family trust with her children as beneficiaries.
(4) Start a gifting program transferring assets up to the annual exclusion amount to each of her children and grandchildren.
(1) , (2), (3) and (4) only
(2) and (3) only
(1) and (4) only
(4) only
(2) only
(2) only
Lifetime gifting also has nontax advantages. What are the three nontax advantages?
Answer:
Watching the donee enjoy the gifted property Allowing the donor to witness how a donee utilizes the gifted asset Making the donor feel good about being able to make a gift
Gerald Carter owns an asset which is worth $100,000 today. It is anticipated that the asset will appreciate at the rate of 10% per year, i.e., in 10 years it will be worth approximately $260,000. If the property is given away now, the gift tax is computed on the $_________ (less the annual exclusion if allowable).
Answer:
$100,000 is the correct answer. If the asset is not given away and it becomes part of the estate (ten years from today), the estate tax is computed on approximately $260,000. Thus, a gift made currently removes future appreciation from the estate.
If the spouses are still married, the entire gift is returned to the community estate. However, if the community has been terminated by divorce or death, what percentages of the gift will the spouse have the right to recapture?
Choose the best answer. 20 percent 50 percent 80 percent 100 percent
20 percent
✔ 50 percent
80 percent
100 percent
The spouse has the right to recapture only one-half of the gift. The other half is allowed to remain with the donee. Therefore, it is advisable to obtain both spouses’ consent prior to the lifetime transfer of community assets.
The tax rates are applied to ______ _______ taxable gifts rather than only to taxable gifts made in the current calendar year.
Answer:
The tax rates are applied to total lifetime taxable gifts. The gift tax is based on the value of the property transferred. It is computed on a progressive schedule based on cumulative lifetime gifts.
Which of the following choices would be included in a broad definition of a gift? (Check all that are true.)
transfers of partnership interests
cancellation of a debt
gifts of royalty rights
gifts of checks or notes to third parties
All of the choices are included in the definition of a gift. Even the forgiving of a note or cancellation of a debt may constitute a gift.
Name three other reasons individuals give property away during their lifetime?
Answer:
Enjoyment of seeing the donee use and enjoy the gift. Opportunity for the donor to see how well or how poorly the donee manages the business or other property. Provision for the education, support and financial well-being of the donee.
A gratuitous transfer of property by a family-owned corporation to the father of the shareholders of a corporation could be treated as a gift from which of the following choices?
Choose the best answer. Children to their father Children to the corporation Father to his children Father to the corporation
✔ Children to their father
Children to the corporation
Father to his children
Father to the corporation
A gratuitous transfer of property by a family-owned corporation to the father of the shareholders of a corporation could be treated as a gift from the children to their father.
Does the right to use property such as money at no charge constitute a gift of property?
Answer:
Yes, interest-free and below-market-rate loans are treated as taxable gifts. A gift tax is imposed on the value of the right to use the borrowed money, the so-called foregone interest, generally the going rate of interest the money could earn in the given situation.
A father transferred property to his children at a price below the fair market value. In return he received noninterest-bearing notes rather than cash, and in the children’s behalf he continued to make certain payments with respect to the property. Do you think the IRS would constitute this as a gift?
The court found these actions showed that in reality he was not dealing with his children at arm’s length. It is possible that the same result could occur if the father employed the son at a wage of $50,000 a year but the son rendered services worth only $20,000 a year. The IRS could claim that the $30,000 difference constituted a gift.
A well-known golfer contracted with a company to make pictures depicting his form and golf style. In return the golfer was to receive a lump sum of $120,000 plus a 50 percent royalty on the earnings of the picture. But before any pictures were made, he sold his father the right to his services for $1. The father, in turn, transferred the rights to the contract to a trust for his son’s three children. The income would be taxable to whom?
the company
the golfer the father the three children
The court held that the entire series of transactions had no tax effect and that the income was completely taxable to the golfer .
If a grandmother purchases a U.S. savings bond that is registered as payable to her and to her two children as co-owners, no gift is made to the grandchildren until one of them ___________ the bond for cash.
No gift is made to the grandchildren until one of them surrenders the bond for cash. Federal rather than state law governs transfer of U.S. government bonds. Even if state law requirements for a valid gift are met, for tax purposes no completed gift has been made until the registration is changed in accordance with federal regulations.
There are certain valuation problems unique to the gift tax. What are these problems associated with?
- Indebtedness with respect to transferred property
- Restrictions on the use or disposition of property
- Transfers of large blocks of stock
- Valuation of mutual fund shares
- Valuation of life insurance and annuity contracts
Let’s assume the donor transfers a $100,000 building subject to a $40,000 mortgage on which he or she is personally liable. The donor’s creditors collect the $40,000 by proceeding against the pledged building and the donee is subrogated to that creditor’s rights against the donor-debtor. Effectively, the donee now stands in the shoes of the creditor. How much more can the donee collect from the donor?
Choose the best answer. $0 $40,000 $80,000 $100,000
The donee can collect an additional $40,000 from the donor.
Chris established an irrevocable trust for his two sons and four grandchildren. He funded the trust with $2 million of securities. The income is payable to his sons for life and the remainder in trust will be distributed to his grandchildren. One son is addicted to opioids and Chris retains the power to withhold distributions to him and to vary the amount of trust income distributed to each son in a given year. Chris also has the power to change the beneficiaries of the trust. What are the tax consequences to Chris for establishing this trust?
The transfer of securities to the trust is a taxable gift. ✘
The trust assets are removed from Chris’s estate. ✘
The transfer of securities to the trust is an incomplete, non-taxable gift. ✔
The trust assets will be included in Chris’s estate. ✔
The transfer of securities to the trust is an incomplete, non-taxable gift; and the trust assets will be included in Chris’s estate. Chris created an irrevocable trust but retained the right to exercise control over the trust assets. Therefore the transfer of securities to the trust is an incomplete gift. The fair market value of the trust will be included in Chris’s estate when he dies assuming he does not relinquish control over the trust prior to his death.
Susan gifted her life insurance policy to her best friend Beth. From a gift tax perspective, what value would Susan use for the value of the gift? Value of the death benefit cash value in the policy cash value plus unearned premium the replacement cost
In the case of a whole life policy, the value of the gift is generally equal to the interpolated terminal reserve plus unearned premium at the date of the gift.
Which of the following does the IRS not consider a gift?
Payment made to a grandchild for tuition
Reimbursement to your father for medical expenses paid
Gratuitous services
Buying a car for a friend
Payment made to a grandchild for tuition ✘
Reimbursement to your father for medical expenses paid ✘
Gratuitous services ✔
Buying a car for a friend ✘
The IRS does not consider gratuitous services and promises to make a gift as subject to gift tax. Direct payment of tuition made to a school for a grandson is a qualified gift which is exempt from gift taxes. Money given to a grandchild to pay for tuition is subject to gift taxes.
All of the following are requirements for a disclaimer except?
The refusal or rejection of the benefits must be in writing
The date of the person disclaiming has to be over 21 years old
The written rejection must be received by the transferor no later than 9 months
You may have benefited from the property prior to the disclaimer
The refusal or rejection of the benefits must be in writing
The date of the person disclaiming has to be over 21 years old
The written rejection must be received by the transferor no later than 9 months
✔ You may have benefited from the property prior to the disclaimer
You may NOT have benefited or accepted the property prior to disclaiming the property..
Which of the following does not reflect the intent to make a gift?
Was the donor legally competent to make the gift?
Was there clear acceptance of the gift by the donee?
Full consideration was provided to the seller
A delivery to the donee of the subject matter of the gift or the most effective way to command dominion and control of the gift.
Was the donor legally competent to make the gift? ✘
Was there clear acceptance of the gift by the donee? ✘
Full consideration was provided to the seller ✔
A delivery to the donee of the subject matter of the gift or the most effective way to command dominion and control of the gift. ✘
If full consideration was given, then it would not qualify as a gift rather a legal transaction between a buyer and a seller.
Which of the following does not reflect the intent to make a gift?
Was the donor legally competent to make the gift?
Was there clear acceptance of the gift by the donee?
Full consideration was provided to the seller
A delivery to the donee of the subject matter of the gift or the most effective way to command dominion and control of the gift.
Was the donor legally competent to make the gift? ✘
Was there clear acceptance of the gift by the donee? ✘
Full consideration was provided to the seller ✔
A delivery to the donee of the subject matter of the gift or the most effective way to command dominion and control of the gift. ✘
If full consideration was given, then it would not qualify as a gift rather a legal transaction between a buyer and a seller.
There are certain valuation problems unique to the gift tax. What are these problems associated with?
Answer:
Indebtedness with respect to transferred property Restrictions on the use or disposition of property Transfers of large blocks of stock Valuation of mutual fund shares Valuation of life insurance and annuity contracts
If a married individual in a common-law state gives their son a gift worth $20,000 and the requisite gift splitting election is made, for purposes of the gift tax computation, how much is that individual considered to have given?
Choose the best answer. $5,000 $10,000 $20,000 $40,000
For purposes of the gift tax computation, that individual is considered to have given only $10,000. Their spouse is treated as giving the other $10,000, even if, in fact, none of the gift was her property.
If one person has a one-half interest in a tenancy in common, how would a cash gift of $6,000 to the tenancy be treated?
Choose the best answer. $3,000 gift to that person $6,000 gift to that person $9,000 gift to that person $12,000 gift to that person
✔ $3,000 gift to that person
$6,000 gift to that person
$9,000 gift to that person
$12,000 gift to that person
If one person has a one-half interest in a tenancy in common, a cash gift of $6,000 to the tenancy would be treated as a $3,000 gift to that person. This would be added to other gifts made directly by the same donor to determine how much of the exclusion would be allowed.
Assume a donor places $10,000 into a Section 2503(b) trust that is required to pay his 10 year-old daughter all income until she reaches age 25. Assume a 6.0% Section 7520 rate which results in a Table B factor amount of .582735 for 15 years. What is the present value of the income the daughter will receive for the next 15 years?
Choose the best answer. 5,872 5,822 5,827 5,728
5,872
5,822
✔ 5,827
5,728
$5,827 , that is, $10,000 times 0.582735. If the income were payable for her entire life, the present value would jump to almost $9,621. The donor can take an annual exclusion equal to the PV of the income interest, or $5,827, in the year the trust is created.
A life insurance trust will typically provide no payments to beneficiaries unless they survive the ___________.
A life insurance trust will typically provide no payments to beneficiaries unless they survive the insured.
Jerry gave his wife a remainder interest in his Italian villa. Which statement is correct?
Choose the best answer.
A marital deduction is not available to Jerry to reduce the value of this gift.
The Italian villa will be included in his wife’s estate when she dies.
Jerry can make a Q-TIP election on his gift tax return to qualify the gift for a marital deduction.
The Italian villa will be included in his wife’s estate when she dies.
Explanation: Jerry did not give his wife terminable interest property because he gave his wife a remainder interest in the villa- not a life estate. Therefore, a marital deduction is available to reduce the value of this remainder interest gift. The FMV of the villa will be included in his wife’s estate when she dies.
Why the other answers are incorrect:
A marital deduction is not available to Jerry to reduce the value of this gift. This statement is not correct. Jerry can take a marital deduction because a remainder interest is not terminable interest property (TIP).
Jerry can make a Q-TIP election on his gift tax return to qualify the gift for a marital deduction. This statement is not correct. The gift of the remainder interest in the villa is not TIP therefore a QTIP election cannot be made.
David made a charitable gift of $40,000 in 2021. What is the amount of David’s gift tax charitable deduction?
Answer: $25,000.
The gift to charity is reduced by an annual exclusion of $15,000 for a remaining gift tax charitable deduction of $25,000. David’s gift tax liability is zero.
The formula used to compute the donee’s gift tax is:
The donor’s tentative tax ÷ (1+donor’s gift tax rate)
Identify the statement(s) below that correctly identify(ies) gift giving likely to result in favorable tax consequences. (Check all that are true.)
An advantage of giving property with a current value that is less than its basis (“loss property”) is that when the recipient sells the property the loss is available to offset any gains.
Elderly taxpayers should give highly appreciated, low basis property in preference to cash.
Making net gifts is a technique for clients who do not have very much in liquid assets and who want to make taxable gifts.
The donee can depreciate, depreciable property based on its value for gift tax purposes.
An advantage of giving property with a current value that is less than its basis (“loss property”) is that when the recipient sells the property the loss is available to offset any gains. ✘
Elderly taxpayers should give highly appreciated, low basis property in preference to cash. ✘
Making net gifts is a technique for clients who do not have very much in liquid assets and who want to make taxable gifts. ✔
The donee can depreciate, depreciable property based on its value for gift tax purposes. ✘
In order to determine whether or not an asset will be included under IRC 2033, what are three questions that needs to be answered?
What is the “type” of property which is to be included?
Was the decedent’s interest in the property sufficient for inclusion?
Did the decedent hold this property interest on the date of death?
Jack, who had never married, died last year. Two years before his death he paid gift tax of $15,000 as a result of making the following gifts (these were the only gifts he made that year).
stock worth $40,000 to Mickey a $300,000 (proceeds value) life insurance policy on his life to Molly. (The policy was worth $5,000 at the time of transfer.)
At Jack’s death, the stock had increased in value to $70,000 and the life insurance company paid the $300,000 to Molly. Consider the two transfers and the gift taxes paid when answering the following questions.
By how much will Jack’s gross estate be increased?
Choose the best answer.
$15,000
$60,000
$315,000
$355,000
$315,000.
Jack’s gross estate included the $300,000 life insurance policy and the $15,000 gift taxes paid two years before his death.
