Estates Ch 1 Intro.

Question 1

Which of the following is included in the definition of estate planning?

1. Asset management.
2. Accumulation of wealth.
3. Asset preservation.

a. 1 only.
b. 1 and 2.
c. 2 and 3.
d. 1, 2, and 3.

Answer 1

The correct answer is d.

All of the items listed are included in the definition of estate planning. Estate planning is the process of accumulation, management, conservation, and transfer of wealth considering legal, tax, and personal
objectives.

Question 2

Which of the following individuals does not need estate planning?

a. Jeb, age 30, married with two minor children, and a net worth of $375,000.
b. Quynh, age 35, never been married, one severely disabled son.
c. Cynthia, age 45, single, has a net worth of $450,000 and two dogs. d. All of the above need estate planning.

Answer 2

The correct answer is d.

All of the people listed need a will, a plan for incapacity, and a plan for dependents and/or to care for animals.

Question 3

Who on the estate planning team usually calculates the adjusted basis of assets and addresses tax issues?

a. Licensed attorney.
b. Certified Public Accountant (CPA).
c. Financial planner.
d. Trust officer.

Answer 3

The correct answer is b.

A CPA is generally involved as a member of the estate planning team because the process requires the
identification of assets, the calculation of the related adjusted basis, and other tax issues

Question 4

Hardey is a financial planner in the state of Iowa. Although he attended one year of law school, Hardey is not a licensed attorney. Which of the following actions would be considered the practice of law?

a. Drafting wills, trust documents, and powers of attorney.
b. Reviewing wills, trust documents, and powers of attorney.
c. Directing a client to seek legal advice from a licensed attorney.
d. Acting as trustee for a client’s trust.

Answer 4

The correct answer is a.

Drafting legal documents is considered practicing law. Any of the other actions would not be considered
practicing law. (Note: This varies according to state law and could be different in some states.)

Question 5

Yara would like to meet with you regarding her estate plan. Yara is 55-years-old, and currently has an estate that would be subject to estate tax. Her spouse died of lung cancer last year. Yara has three children, ages 23, 26, and 32, and one grandchild, age 4. She does not have any dependents.
Which of the following options would be the least likely reason for Yara to have an estate plan?

a. Minimize estate and transfer taxes.
b. Minimize costs.
c. Plan for his children.
d. Plan for his incapacity

Answer 5

The correct answer is c.

Planning for children generally refers to planning for minor or dependent children. Because all of Yara’s
children are non-dependent adults, Yara does not need to plan for the children’s basic needs (i.e., food,
clothing, shelter, etc.). All of the other options are reasons Yara should have an estate plan

Question 6

everyone has their own objectives with regard to estate planning. Which of the following objectives is most important for a financial advisor to keep in mind when counseling a client?

Maximize net to heirs.
Minimize estate tax.
Minimize administrative burdens.
Effectively transfer assets.

Answer 6

Effectively transfer assets.

Rationale

The most important objective is to transfer assets in accordance with the transferor’s wishes - this is defined as an effective transfer.

Question 7

Mahogany contacts you by phone. She is 65 and has accumulated over $3,000,000 in assets. She informs you that she is not married, and wants to leave all of her assets equally to her three adult children. She agrees to come meet with you, but asks what she should bring.
Which one of the following items would be least important for Mahogany to bring if the topic of discussion is estate planning?

A copy of her will and any codicils.
A copy of children’s birth certificates.
A copy of life insurance policies.
A copy of latest bank statements.

Answer 7

A copy of children’s birth certificates.
Rationale

To develop her estate plan, you would not need copies of her children’s birth certificates. You would need all of the other items

Question 8

Which of the following tasks is typically performed by a financial planner who is not a licensed attorney or accountant?

Drafting wills, trust documents, and powers of attorney.
Calculating asset basis.
Managing trust assets.
Collecting data and assisting with investment decisions.

Answer 8

Collecting data and assisting with investment decisions.
Rationale

The financial planner generally assists in collecting data, analysis, and investment decisions. If the financial planner is also a licensed attorney or a CPA, the financial planner may take on the role of the attorney or CPA as well. A trust officer will typically be responsible for managing trust assets.

Question 9

Which of the following is included in the definition of estate planning?

1. Asset management
2. Accumulation of wealth
3. Asset preservation
   1 only.
   1 and 2.
   2 and 3.
   1, 2, and 3.

Answer 9

1, 2, and 3.
Rationale

All of the items listed are included in the definition of estate planning. Estate planning is the process of accumulation, management, conservation, and transfer of wealth considering legal, tax, and personal objectives.

Question 10

Which of the following statements is the best definition of estate planning?

Estate planning is the process of accumulation, management, conservation, and transfer of wealth considering legal, tax, and personal objectives.

Estate planning is the management, conservation, and transfer of wealth considering estate tax transfer costs.

Estate planning is the management, conservation, and transfer of wealth considering legal, tax, and personal objectives.

Estate planning is the process of accumulation, management, conservation, and transfer of wealth considering estate and generation-skipping transfer tax costs.

Answer 10

Estate planning is the process of accumulation, management, conservation, and transfer of wealth considering legal, tax, and personal objectives.
Rationale

The best definition of estate planning includes the accumulation of wealth and the consideration of all legal, tax, and personal objectives. Estate planning is the process of accumulation, management, conservation, and transfer of wealth considering legal, tax, and personal objectives.

Question 11

Of the following, who should generally be a member of the estate planning team?

1. Attorney
2. Certified Public Accountant (CPA)
3. Life insurance consultant
4. Loan officer

1 and 2.
1 and 4.
1, 2, and 3.
1, 2, 3, and 4.

Answer 11

1, 2, and 3.
Rationale

A loan officer is not usually included in the estate planning team. The estate planning team consists of an attorney, CPA, life insurance consultant, trust officer, and financial planner.

Question 12

Which of the following is a risk of failing to plan for one’s estate?

1. Property transfers contrary to the client’s wishes.
2. The client’s family may not be provided for financially.
3. The estate suffers liquidity problems at the client’s death.
4. The estate may bear higher transfer costs.

2 only.
2 and 3.
1, 3, and 4.
1, 2, 3, and 4.

Answer 12

1, 2, 3, and 4.
Rationale

All the risks listed are risks of not planning for the estate. Proper estate planning can transfer property per a decedent’s desires, develop a plan for continued family support, create liquidity at death, and potentially reduce transfer costs

Question 13

The first step in the estate planning process includes:

Meeting with the client to gather information regarding the client’s assets, family structure, current estate planning documents, and desires, as needed to understand the client’s circumstances.

Prioritizing the client’s goals.

Developing a formal written estate plan.

Identifying key areas of concern in relation to the client’s plan - taxes, cash on hand, etc.

Answer 13

Meeting with the client to gather information regarding the client’s assets, family structure, current estate planning documents, and desires, as needed to understand the client’s circumstances.
Rationale

Initially, a financial planner must meet with the client and gather information regarding the client’s assets, family structure, and current estate planning documents. Without this information, the financial planner cannot properly begin the estate planning process. Next, the financial planner and client would identify and prioritize the client’s goals. Based on the information gathered during the initial meeting, the financial planner would identify key areas of concern and utilize this information during the remainder of the estate planning process. After analyzing the current plan and considering alternative courses of actions, the financial planner would then develop a formal written estate plan. The financial planner would review the formal written estate plan with the client to ensure that the client’s goals have been properly identified and that the formal written estate plan includes the transfer of all of the client’s assets. The final steps are to implement the estate planning recommendations, and monitor and update the plan as needed.

Question 14

Which of the following statements concerning estate planning is correct?

1. An effective transfer occurs when a person’s assets are transferred to the person or institution intended by that person.
2. An efficient transfer occurs when transfer costs are minimized consistent with the greatest assurance of effectiveness.

1 only.
2 only.
Both statements 1 and 2.
Neither 1 nor 2.

Answer 14

Both statements 1 and 2.
Rationale

These are the definitions of effective and efficient transfers.

Question 15

Skip does not want to write a will. It upsets him to contemplate his own death and he simply desires to avoid the estate planning process. All of the following are risks Skip’s estate may face due to his inaction, except:

Skip’s property transfers contrary to his wishes.
Skip’s estate may face liquidity problems.
Skip’s estate faces increased estate administration fees.
Skip’s estate faces increased debt payments for outstanding debts at death.

Answer 15

Skip’s estate faces increased debt payments for outstanding debts at death.
Rationale

Skip’s inaction will cause him to die intestate and be subject to the intestacy laws (laws regarding how assets are distributed among the heirs of a decedent who died without a valid will) of his state. Skip’s inaction will also cause him to die without an estate plan. There is no risk that his estate will be subject to increased debt payments for outstanding debts at death simply because he dies intestate or without an estate plan. All of the other options are risks when someone dies intestate or without an estate plan.

Question 16

Which of the following statements concerning the practice of law is correct?

The practice of law is defined by each state.

Special circumstances are sometimes given to financial planners to enable them to draft wills, trust documents, and other legal documents.

Reviewing wills to ensure client goals are being addressed is considered practicing law.

A licensed attorney can give anyone the right to practice law as their agent.

Answer 16

The practice of law is defined by each state.
Rationale

The practice of law is defined on a state-by-state basis. All of the other statements are false. A financial planner is not given any special rights to draft legal documents, but a financial planner can review documents without practicing law. Licensed attorneys cannot give anyone else the right to practice law - only a state can license an attorney to practice law.

Question 17

Who needs estate planning?

A.Karen - Married with 4 children
B.Donna - Married with no children
C.Bill - Single with 3 cats
D.Kali - Single with no pets or children
E.All of these individuals need estate planning

Answer 17

Solution: The correct answer is E.

The answer is yes to all of them! Theoretically everyone needs some sort of estate plan to make sure that what they want to happen to their assets does actually happen.

Question 18

Which of the following is not a common estate planning goal?

A.Maximizing transfer costs.
B.Minimizing transfer taxes.
C.Providing for liquidity at death.
D.Fulfilling client’s healthcare decisions.

Answer 18

Solution: The correct answer is A.

The solution was looking for the false statement. Minimizing transfer costs, not maximizing transfer costs, is a common estate planning goal.

B is a true statement - Minimizing transfer taxes is common estate planning goals to maximize what the heirs receive.

C is a true statement - Estate planning factors in providing for liquidity at death to have funds available to pay administrative fees and/or estate taxes.

D is a true statement - Proper estate planning allows the client’s healthcare decisions to be known, allowing the burden to be lifted from the family in a difficult time.

Question 19

You are a financial planner and you are preparing for a meeting with your new client, Anne. What would you be most likely to ask Anne to bring to the meeting with her?

A.Pictures of her children
B.Her parents
C.Any previous wills
D.Sales records for her ex-husband’s business

Answer 19

Solution: The correct answer is C.

You would be most likely to ask Anne to bring any previous wills with her. In addition, you would be likely to request copies of any other estate planning documents as well as tax documents.

Question 20

Which of the following is not a transfer cost associated with estate planning?

A.Document preparation
B.Attorney’s fees
C.CPA’s fees
D.Insurance premiums

Answer 20

Solution: The correct answer is D.

Insurance premiums are not a transfer cost associated with estate planning. All of the other answers are costs associated with estate planning.

Question 21

You are opening a new financial planning practice and you would like to put together a team of experts to help your clients. Which of the following groups represents the best team to help your clients?

A.Financial planner, CPA, and attorney
B.CPA, psychiatrist, and insurance salesman
C.Financial planner, attorney, and real estate agent
D.Attorney, insurance salesman, and IRS agent

Answer 21

Solution: The correct answer is A.

The best team for your client would include a financial planner, CPA, and attorney. A licensed insurance specialist is also a good asset to an estate planning team, but the team described in option b is not as good of a team overall as the team in option a

Question 22

You are a CFP and although you never went to law school, you consider yourself to be very good at reviewing wills. Your client, Catherine, asks you to prepare a will for her. Should you prepare a will for Catherine?

A.Yes, Catherine is your best client and you might lose her if you do not prepare the will.

B.Yes, it is permissible for a CFP to prepare a legal document.

C.No, preparing Catherine’s will would be considered the unauthorized practice of law.

D.No, you should only prepare Catherine’s will if you are going to prepare her husband’s will as well.

Answer 22

Solution: The correct answer is C.

Drafting legal documents, such a wills, is an activity reserved for licensed attorneys. If you are not a licensed attorney and you prepare a legal document, you have engaged in the unauthorized practice of law