Estate Planning and Probate

Question 1

What is Estate Planning?

Answer 1

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

Question 2

What is Estate Administration and an Estate?

Answer 2

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

Question 3

What is Real Property?

Answer 3

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

Question 4

What is Personal Property?

Answer 4

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

Question 5

What is Joint Tenancy?

Answer 5

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

Question 6

What is Tenancy in Common?

Answer 6

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

Question 7

What is Tenancy by the Entirety?

Answer 7

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

Question 8

What is Community Property?

Answer 8

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

Question 9

What is a Life Estate?

Answer 9

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

Question 10

What is a Payable on Death Clause (POD)?

Answer 10

Transfers title of a bank or investment account directly to the named beneficiary or beneficiaries upon the account holder’s death to avoid probate

Question 11

What is a Totten Trust?

Answer 11

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

Question 12

What is a Last Will and Testament (aka Will) and Testator?

Answer 12

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

Question 13

What is a Formal Will?

Answer 13

Most common will

Usually prepared by attorney

Document prepared on computer or typed and properly signed by testator before witnesses

Question 14

What is a Statutory Will?

Answer 14

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

Question 15

What is a Holographic Will?

Answer 15

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

Question 16

What is a Nuncupative?

Answer 16

Informal will - oral will, set of instructions expressed orally by testator

Majority of states don’t permit nuncupative wills

Question 17

What is a Pour-over Will?

Answer 17

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

Question 18

What is Testamentary Capacity?

Answer 18

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

Question 19

What is a Residuary Clause?

Answer 19

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

Question 20

What is an Anti-Lapse Provision?

Answer 20

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

Question 21

What is an Executor?

Answer 21

Personal representative named in a will to carry out the terms of the will

Question 22

What is the Guardianship Clause?

Answer 22

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

Question 23

What is the Testamentary Trust Clause?

Answer 23

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

Question 24

What is the Execution of the Will?

Answer 24

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

Question 25

What is the Attestation Clause?

Answer 25

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

Question 26

What is an Affidavit?

Answer 26

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

Question 27

What is a Codicil?

Answer 27

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

Question 28

What is a Will Contest?

Answer 28

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

Question 29

What are the 2 Basic Types of Trust and the Parties Involved in a Trust?

Answer 29

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

Question 30

What is a Living Trust?

Answer 30

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

Question 31

What is Right of Respresentation?

Answer 31

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

Question 32

What is Per Capita?

Answer 32

Head count or total number of individuals in a class or generation who receive an equal share

Question 33

What is an Irrevocable Trust and Types of Irrevocable Trusts?

Answer 33

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

Question 34

What is Power of Attorney and Types of Power of Attorneys?

Answer 34

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

Question 35

What is a HIPAA Authorization?

Answer 35

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

Question 36

What are End of Life documents?

Answer 36

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

Question 37

What is Probate?

Answer 37

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

Question 38

What is Intestate?

Answer 38

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

Question 39

What is Petition for Probate?

Answer 39

Requests court to appoint personal representative to administer the estate and issue Letters Testamentary to an executor

Question 40

What is a Bond?

Answer 40

Protects decedent’s estate if personal representative is incompetent, fraudulent, or commits unethical behavior

Question 41

What are the Letters?

Answer 41

Letters Testamentary or Letters of Administration - official court document authorizing executor, administrator general or specific powers to administer the estate

Question 42

What is a Personal Representative?

Answer 42

Executor or administrator - has fiduciary responsibilities for administering the estate

Question 43

What is Escheatment?

Answer 43

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

Question 44

What are IRS Tax Forms 1041, 706, 709, and SS-4?

Answer 44

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

Question 45

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

Answer 45

B - Jerry Smith and Anne Smith, as joint tenants

Question 46

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

Answer 46

C - Statutory will

Question 47

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

Answer 47

A - The property passes in accordance to the intestate statue of the decedent’s state of domicile

Question 48

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

Answer 48

A - An advance health care directive

Question 49

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

Answer 49

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

Question 50

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

Answer 50

A - 9 months after the date of the decedent’s death

Question 51

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

Answer 51

B - Life estate

Question 52

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

Answer 52

A - Delegate the performance of trust duties

Question 53

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

Answer 53

C - Die without a valid will

Question 54

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

Answer 54

A - Health Insurance Portability and Accountability Act

Question 55

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

Answer 55

A - A lifetime of income from the CRT assets during the settlor’s life or for a specified number of years