Estate Planning and Probate Flashcards
What is Estate Planning?
Occurs during person’s lifetime - preparation of legal documents setting fort one’s wishes how to manage one’s personal and financial affairs prior to death or in the event of incapacity
May consist of a will, trust, power of attorney, living will, or advance health care directives - without estate planning, the laws of the state determine who manages and controls the personal and financial affairs upon incapacity or death
What is Estate Administration and an Estate?
Estate Administration = Occurs after death - the process of collecting the decedent’s property, paying the decedent’s debts, and distributing the remainder of the decedent’s property to the beneficiaries or heirs at law
Estate = All the property owned by a person at the time of death
What is Real Property?
Land or anything permanently affixed or built on the land such as buildings, apartment complexes, houses, or garages - also includes anything permanently affixed to those buildings such as fixtures
What is Personal Property?
Anything moveable, not permanently affixed to the land including items such as vehicles, furniture, furnishings, jewelry, art, stocks, or cash
Personal property is personal possessions, aka CHATTEL
What is Joint Tenancy?
Form of ownership by 2 or more parties with equal share and rights to property
Upon death of one of the parties, decedent’s share transfers to the remining joint tenants through operation of law and avoids probate administration
Right by survivorship-doesn’t pass to beneficiaries/heirs via will, trust, or intestate succession
What is Tenancy in Common?
Form of ownership by 2+ parties
No right of survivorship - ownership of the parties is a separate transferable interest
Decedent’s interest transfers through testate or intestate procedures - surviving tenant in common will be co-owner with decedent’s beneficiaries or heirs
What is Tenancy by the Entirety?
Method of ownership - only for legally married persons
Upon death of one spouse, property automatically passes to the surviving spouse - not available for community property states
What is Community Property?
Form of ownership - only for legally married persons in community property states
Applies to property acquired during marriage - each spouse owns an undivided one-half interest in the property
Upon death of one spouse, surviving spouse retains the one-half acquired during marriage and the deceased spouse’s one-half interest will pass by will or state law
Community Property with Rights of Survivorship = automatically transfers ownership of decedent’s one-half interest to the surviving spouse - individuals have the right to transfer title to the property upon death
What is a Life Estate?
Form of ownership - holder of life estate doesn’t hold title in a manner to transfer property
Holder of life estate has permission to use the property during the holder’s life
Upon death of life estate holder, property transfers in accordance with person’s estate plan who created the life estate
What is a Payable on Death Clause (POD)?
Transfers title of a bank or investment account directly to the named beneficiary or beneficiaries upon the account holder’s death to avoid probate
What is a Totten Trust?
Not really a true trust - bank account in holder’s name “in trust for” someone else
Upon death of the account holder, funds pass to the person named on the account as beneficiary
What is a Last Will and Testament (aka Will) and Testator?
Last Will and Testament (aka Will) = Legal document expressing one’s final wishes as to what should occur with one’s property and debts upon death - explains and clarifies disposition of decedent’s estate such as who will inherit the estate and when
Testator = Person who makes or creates a valid will
What is a Formal Will?
Most common will
Usually prepared by attorney
Document prepared on computer or typed and properly signed by testator before witnesses
What is a Statutory Will?
Informal will not recognized by all states
Pre-printed standardized form that includes state’s statutory provisions of a will
Testator fills in blanks and properly executes document before witnesses
Advantage: simplicity and ease in completing
Disadvantage: may not fulfill all of testator’s needs
What is a Holographic Will?
Informal will - handwritten by testator in own handwriting, not typed or computer generated
Not all states permit holographic wills - must follow state requirements to avoid a will contest
What is a Nuncupative?
Informal will - oral will, set of instructions expressed orally by testator
Majority of states don’t permit nuncupative wills
What is a Pour-over Will?
Formal last will & testament used in conjunction with living trust
Property that passes through a will upon death is transferred or poured over, into the trust
Must contain clause/provision allowing property not previously titled in trustee’s name of living trust to transfer to current trustee of living trust
What is Testamentary Capacity?
Component of age and mental ability with intent
Legal age for a testator to make and execute a will is 18 years old
Testator must have mental ability to know the natural objects of testator’s bounty (nearest relatives), know nature and extent of testator’s property, and purpose of creating a will freely and voluntarily
What is a Residuary Clause?
Testator to make wishes known on how to dispose of the residue of the testator’s estate or the remaining property of the estate
Disposes of the residue of the estate to the entitled beneficiaries as outlined in the will
What is an Anti-Lapse Provision?
Provides for deceased beneficiary’s issue to inherit the specific gift or residual estate
If there’s not an anti-lapse provision, specific gift or residual estate will pass to the heirs-at-law in accordance with the state’s statute
What is an Executor?
Personal representative named in a will to carry out the terms of the will
What is the Guardianship Clause?
Provides testator ability to nominate guardian of minor child or children
Takes effect if minor child/children have no surviving parents to care for them - guardian will serve as guardian of the person and estate of the minor child, caring for the child and managing the inheritance until the minor attains the age of majority
What is the Testamentary Trust Clause?
Trust created through probate process after death of testator - specific gift or residual estate benefits a person for a specific time, such as until the beneficiary attains the age of 25 years
Testamentary trust terminates after trustee satisfies the terms of the trust and distributes assets to the beneficiary
What is the Execution of the Will?
Testator declares that it’s the Last Will and Testament before witnesses and signs the will in the presence of at least two witnesses
Without proper execution of the will, the will is invalid
What is the Attestation Clause?
Appears after testator’s signature and is statement signed by the witnesses
Adult witnesses attest they saw testator sign the will, that testator is of sound mind and testator signed the will without being under duress, menace, fraud, misrepresentation, or undue influence
Witnesses sign the will in the presence of each other and the testator
What is an Affidavit?
Signed by witnesses before notary affirming that they observed testator sign the will and that testator stated it was the testator’s will
Aka Self-Proving Will - serves as substitute for live testimony of the attesting witnesses in court if the validity of the will is not contested
What is a Codicil?
Amendment to the existing will if testator later desires to make changes - used rather than preparing a new will
Can amend, change, or delete provisions of existing will and incorporate other terms of the will by reference in the codicil
Executed by testator before witnesses attesting to the document, making codicil a valid document accompanying a will
What is a Will Contest?
Occurs when a will or codicil is challenged as to its validity - persons who have standing may bring action before courts to challenge validity of will or contest the will
Grounds to contest will include:
- Testamentary Capacity = testator lacked capacity at the time of the signing of the will, not knowing the nature & extent of the property or the natural bounty of the estate
- Proper Execution = execution didn’t conform to statutory requirements or holographic will wasn’t entirely written by testator’s own handwriting
- Forgery of Testator’s Signature = signature isn’t testator’s, may require analysis by handwriting expert
- Induced by Duress or Fraud = testator didn’t act freely on own free will to execute a will
- Induced by Undue Influence = testator was convinced by a person in close position to execute a will
What are the 2 Basic Types of Trust and the Parties Involved in a Trust?
2 Basic Types of Trust:
- Revocable Trust = trustor may amend or revoke trust
- Irrevocable Trust = trustor may NOT amend or revoke trust
Parties Involved in a Trust:
- Trustor/Grantor/Settlor = person who creates a trust
- Trustee = person who manages a trust
- Beneficiary = person who benefits from a trust
What is a Living Trust?
Most common revocable trust
Aka inter vivos trust
Person creates living trust while alive, defining operative guidelines, transferring assets to trust, providing provisions how to distribute trust assets upon death while avoiding probate
What is Right of Respresentation?
Aka Per Stirpes
Lineal descendants of the person creating the trust or will
Person wishes estate to be divided equally among one generation of beneficiaries, most often the children and if one of the children predeceases the creator of the trust or will then to that child’s descendants
What is Per Capita?
Head count or total number of individuals in a class or generation who receive an equal share
What is an Irrevocable Trust and Types of Irrevocable Trusts?
Irrevocable Trust = trustor gives up right to change provisions of trust and beneficiary
Types of Irrevocable Trusts:
- Charitable Remainder Trust - transfer highly appreciated asset
- Credit Shelter Trust - aka Bypass Trust or A-B Trust, available to married couples, maximize the use of federal exemptions from estate taxes by both parties
- Life Insurance Trust - funded by life insurance policy with main goal to avoid federal estate taxes for a taxable estate
- Crummey Provision - allows trustor to make gifts to irrevocable trust
What is Power of Attorney and Types of Power of Attorneys?
Power of Attorney = authorizes another to act on one’s behalf to transact financial or business affairs
Durable Power of Attorney = most common PoA, names agent to act on principal’s behalf as “attorney in fact” and gives agent broad powers, takes effect immediately upon execution and continues even if principal becomes incapacitated
Springing Power of Attorney = doesn’t take effect immediately, springs into action or takes effect only upon certain conditions occurring and principal lacking capacity
Limited Power of Attorney = authorized agent a specific power clearly defined
What is a HIPAA Authorization?
Permits personal representative to have various rights to access the individual’s protected health care records and treatment information
Allows personal representative the ability to communicate with health care professionals and health insurance companies, takes immediate effect upon execution and remains effective after death for 50 years
What are End of Life documents?
Living Will = person creates to express desires and preferences of medical and life support decisions, takes effect when there’s a terminal illness or person is no longer able to communicate wishes - designated agent makes decisions in accordance with provisions of living will, type of advance directive
Advance Health Care Directive = person expressing desires and preferences of medical and life support decisions including organ donation and designation of primary physician, takes effect immedfiately
What is Probate?
Legal process through court proceeding overseeing distribution of decedent’s estate to beneficiaries or heirs-at-law and payment to creditors or estate is administered if no will
What is Intestate?
Person dies without valid will - state makes a will for decedent - assets pass to closest blood relative or next of kin except when there’s a legal spouse
Table of Consanguinity = relation by blood, diagrams degrees of relationship
Affinity = persons related by marriage not blood relatives
What is Petition for Probate?
Requests court to appoint personal representative to administer the estate and issue Letters Testamentary to an executor
What is a Bond?
Protects decedent’s estate if personal representative is incompetent, fraudulent, or commits unethical behavior
What are the Letters?
Letters Testamentary or Letters of Administration - official court document authorizing executor, administrator general or specific powers to administer the estate
What is a Personal Representative?
Executor or administrator - has fiduciary responsibilities for administering the estate
What is Escheatment?
If decedent dies with no heirs (no living blood relatives), estate will go to the state
Estate reverts to the government of the state where decedent resided and court-appointed personal representative will administer decedent’s estate through probate procedures
What are IRS Tax Forms 1041, 706, 709, and SS-4?
1041 = form personal representatives use to report income for decedent’s estate or trust if estate generates $600+ in annual gross income
706 = for very large estates when value of decedent’s estate meets or exceeds threshold for paying federal estate taxes
709 = for use by individual to report taxable gifts and also allocates lifetime use of a taxpayer’s generation-skipping transfer tax exemption (ex. more than $15,000), some gifts are exempt
SS-4 = personal representative uses form to apply for taxpayer identification number for decedent’s estate number instead of decedent’s SSN when transacting business during estate administration and when filing fiduciary or estate tax returns
Jerry Smith, a single man, dies intestate at the age of 29. Jerry has a sister, Anne Smith. Anne meets with an attorney to administer Jerry’s estate. Anne will receive Jerry’s interest in the real property without going through probate. Which of the following best describes how Jerry Smith held title?
A - Jerry Smith and Anne Smith, as tenants in common
B - Jerry Smith and Anne Smith, as joint tenants
C - Jerry Smith and Anne Smith, as tenancy in partnership
D - Jerry Smith, a single man
B - Jerry Smith and Anne Smith, as joint tenants
A person’s wishes with respect to their health care can be included in the following documents, except:
A - Living will
B - Do-not-resuscitate directive
C - Statutory will
D - Advance directive
C - Statutory will
If a person dies without a valid will, what happens to the person’s property?
A - The property passes in accordance to the intestate statute of the decedent’s state of domicile
B - The property escheats to the state where the defendant was domiciled
C - The property passes according to the wishes of the decedent’s spouse or next of kin
D - The property passes to the decedent’s children, or to the decedent’s next of kin if decedent has no children
A - The property passes in accordance to the intestate statue of the decedent’s state of domicile
Sally wants to make sure that if she becomes incapacitated, the doctors don’t use artificial means to keep her alive. She wants them to “pull the plug” on her if she is in a permanent vegetative state. What estate planning document should Sally create to make her wishes known?
A - An advance health care directive
B - A durable power of attorney
C - A trust
D - A will
A - An advance health care directive
Marsha Molina’s father, Kevin Molina, recently passed away and left a sizeable estate. Kevin Molina was a widower, and at the time of his death he lived with Betty Nichols, a caregiver that took care of his needs on a daily basis. Mr. Molina’s will was changed about two years ago when Betty Nichols took him to the law office for this purpose. In the new will, Kevin Molina left his entire estate to Betty Nichols. Marsha feels that Betty Nichols coerced her father into changing his will and leaving his sizeable estate to her. Which of the following facts best support Marsha’s beliefs?
A - Betty Nichols was with Kevin Molina every day and had access to him and his business interest
B - Betty Nichols did not like Marsha Molina because she did not visit her father often enough
C - Betty Nichols took Kevin Molina to his doctors’ appointments and ran his errands for him; she threatened to quit if he did not change his will and leave his estate to her
D - Betty Nichols did the laundry and cooking and told Kevin Molina when meals would be served
C - Betty Nichols took Kevin Molina to his doctors’ appointments and ran his errands for him; she threatened to quit if he did not change his will and leave his estate to her
The deadline to file IRS Form 706 to report estate and/or Generation-Skipping Tax is due:
A - 9 months after the date of the decedent’s death
B - 12 months after the date of the decedent’s death
C - 18 months after the date of the decedent’s death
D - 6 months after the date of the decedent’s death
A - 9 months after the date of the decedent’s death
Andrew created a will. In his will, Andres devised his summer cottage that he owns out-right to Chelsea, his friend of 20 years, for her life, and then to his granddaughter, Allison. Chelsea has a:
A - Tenancy in common with Allison
B - Life estate
C - Joint tenancy with Allison
D - Trust estate
B - Life estate
A trustee has certain duties to perform in order to carry out the wishes of the trustor. A trustee may perform the following duties except:
A - Delegate the performance of trust duties
B - Maintain accurate records and accounts
C - Take possession of the trust property and to make it profitable
D - Preserve, protect, and defend the corpus of the trust
A - Delegate the performance of trust duties
What does it mean to die intestate?
A - Die with a valid will
B - Die with a contested will
C - Die without a valid will
D - Die with no living issue
C - Die without a valid will
HIPAA is an acronym for U.S. law designed to provide privacy standards to protect patients’ medical records and other health information provided to health plans, doctors, hospitals, and other health care providers. HIPAA stands for:
A - Health Insurance Portability and Accountability Act
B - Health Insurance Private and Accountability Act
C - Health Insurance Protection and Accountability Act
D - Health Insurance and Public Accountability Act
A - Health Insurance Portability and Accountability Act
A Charitable Remainder Trust (CRT) is used to reduce income and capital gains taxes while increasing the settlor’s immediate cash flow. Some of the benefits for the settlor of this type of trust include:
A - A lifetime of income from the CRT assets during the settlor’s life or a specified number of years
B - An income for the settlor which is free of taxes
C - The CRT trust never ends and continues to perform charitable acts for the beneficiaries without the need for the settlor to be involved
D - Neither settlor nor the CRT will have to file tax returns for the first 10 years after the trust has been established
A - A lifetime of income from the CRT assets during the settlor’s life or for a specified number of years
