Lesson 1: Intro to Estate Planning & the Probate Process Flashcards
Which of the following is not an estate-planning goal?
A) Maximizing the gross estate
B) Minimizing transfer taxes
C) Providing for liquidity at death
D) Fulfilling client’s healthcare decisions
The correct answer is (A).
Minimizing transfer costs, not maximizing the gross estate, is a common estate-planning goal. All of the other answers are common estate planning goals.
Although he has a vast fortune, Tricky has decided not to prepare an estate plan because he believes that his surviving family members will divide his assets appropriately. Which of the following is not a risk associated with failing to plan an estate?
A) Tricky’s estate could incur excessive transfer taxes.
B) Tricky’s favorite car may not be transferred to his ex-wife, Carla.
C) Tricky’s insurance policy on his own life may not be paid out to the named beneficiary.
D) Tricky’s current wife, Dixie, may not provide for his children from a previous marriage
The correct answer is (C).
The proceeds of insurance policies with named beneficiaries pass outside of probate via the state contract law. Tricky’s failure to plan his estate will not affect his insurance policy if he has a named beneficiary.
Which of the following advisors is (are) qualified to give estate-planning advice?
I. Attorneys
II. CPAs
III. Financial planners
A) I only
B) I and II
C) II and III
D) I, II and III
The correct answer is (D).
Some accountants, investment advisors, financial planners, and others (such as insurance experts) are qualified to give estate-planning advice.
All of the following are transfer costs associated with estate planning EXCEPT
A) attorney fees for documents.
B) costs of retitling real estate.
C) estate and inheritance taxes.
D) Property taxes on inherited property.
The correct answer is (D).
Property tax has nothing to do with estate transfers. All of the others are estate transfer costs.
As a non-attorney CFP®, you are asked to assist one of your clients who is very frugal to prepare her will using LegalZoom.com. Which of the following statements is correct?
A) It is permissible as long as you get a waiver from your client.
B) It is permissible as long as you are not an heir, legatee or beneficiary.
C) Advise her that LegalZoom is not very reputable and direct her to a better website.
D) You cannot assist her.
The correct answer is (D).
To assist her would be the unauthorized practice of law.
Dale and Tomi have been in a long-term, non-married, non-traditional relationship. Dale wants to make sure that if he dies first, Tomi will be provided for. Which of the following would you recommend to fulfill Dale’s goal of transferring assets to Tomi at Dale’s death?
A) Name Tomi as the beneficiary of Dale’s retirement plan.
B) Transfer the ownership of Dale’s real estate investments into a tenancy by the entirety arrangement.
C) Advise Dale against writing a will that specifically bequeaths assets to Tomi.
D) Recommend that Dale and Tomi move to a community property state.
The correct answer is (A).
Option (B) is incorrect: Dale and Tomi cannot own property in a tenancy by the entirety because they are not married. Option (C) is incorrect: Dale should write a will that specifically bequeaths property to Tomi if he wants Tomi to have that property. Option (D) is incorrect: even if they moved to a community property state, they would not be subject to the community property regime because they are not married.
Which of the following assets will pass through probate?
A) A life insurance policy with a named beneficiary
B) Assets held in an inter-vivos trust
C) A pay-on-death account with a named beneficiary
D) Household goods left to family members via a side letter
The correct answer is (D).
All of the other options describe assets that pass outside of probate.
Cara owns the following property:
- A personal residence titled as sole ownership fee simple valued at $400,000.
- A $500,000 life insurance policy on her own life. The named beneficiary is Cara’s brother James, who died 6 months ago leaving two children, Michael and Carol.
- A car valued at $20,000 titled JTWROS with Cara’s mother.
- An IRA valued at $200,000 with Cara’s mother as the named beneficiary.
What is the current value of Cara’s probate estate?
A) $400,000
B) $900,000
C) $920,000
D) $1,320,000
The correct answer is (B).
The probate estate will include the personal residence and the life insurance policy. The life insurance policy is included because the named beneficiary had predeceased Cara’s death. The car is not included because of the JTWROS ownership, thus it transfers by operation of law. The IRA is not included because there is a living named beneficiary and thus will transfer via state contract law.
You are reviewing the group-benefit-plan statements of two married clients. You notice that they have designated each other as beneficiary of their respective group life insurance coverage. Their wills call for the establishment of a testamentary trust upon the first death. How should they proceed?
A) Advise them that the group insurance proceeds are subject to probate.
B) Advise them that the group insurance proceeds will be in their gross estate
C) Advise the purchase of additional personal life insurance coverage with a spousal beneficiary designation for both of them.
D) Suggest naming the testamentary trust as the beneficiary of the policies.
The correct answer is (B).
If the life insurance proceeds go directly to the beneficiary and not into the estate, there may not be adequate funding for the testamentary trust. Option (A) is incorrect because the proceeds are not subject to probate. Option (C) is incorrect because nothing indicates the additional need for life insurance. Option (D) is incorrect because a revocable trust would subject the policies to probate.
Joe appointed his son, Mike, aged 30, as his power of attorney for all property. Joe recently passed away leaving a sizable estate that includes a number of investment accounts, real estate and retirement plans. His will names his wife, Lisa, aged 65, as his sole executrix and calls for an outright distribution to her. Lisa is unsure if she wants this responsibility. Which of the following options are available to Lisa?
A) Have Mike manage Joe’s property under the power of attorney.
B) Establish a testamentary spousal trust to hold the assets for her.
C) Hire professional advisors to help her to administer the estate.
D) Appoint Mike as the executor.
The correct answer is (C).
Lisa does not have the power to establish a power of attorney or testamentary trust, or to name a different executor, for Joe’s estate. However, she can hire professionals to assist her.
