Personal Finance Chapter 19

What is the difference between tax avoidance and tax evasion?

Tax avoidance is legal while tax evasion is illegal.

True or false: To reduce your taxable estate, you can give away assets during your lifetime.

True

An estate tax is:

a federal tax collected on the value of property of a deceased person at the time of death

A federal tax collected on the value of a deceased person's property at the time of his or her death is called a(n) ______ tax.

estate

Your net taxable ______ is the testamentary net worth after subtracting your debts, liabilities, probate costs, and administrative costs.

estate

A(n) ______ will is a document that dispenses emotional and spiritual wealth to heirs.

ethical

Tax ______ is the use of illegal methods to reduce or escape income taxes.

evasion

Because a will clearly details how you want your property to be distributed when you die, its preparation is considered the most practical ______ step in the estate planning process.

first, 1st, or sensible

To reduce your taxable estate, you can:

give away assets during your lifetime

Estate liquidity is:

having enough cash to pay estate taxes and costs without having to sell assets or borrow heavily

A(n) ______ will is one that is handwritten.

holographic

If a will is handwritten it is known an a:

holographic will

Joint ownership is a poor substitute for a will because:

it gives you less control over the disposition

Estate ______ is having enough cash to pay taxes and costs without selling assets or borrowing heavily.

liquidity

A credit-shelter trust allows ______ to avoid federal estate taxes.

married couples

Your net taxable estate is calculated as:

net worth after subtracting all liabilities, probate costs, and administrative costs

The federal estate tax is due and payable in cash ______ months after death.

nine or 9

The drawback to a holographic will is that it is:

not recognized in some states

A fee for administering a trust is usually based on the ______ of the assets in the trust.

value, amount, or size

Death causes a transfer of your estate to:

your heirs and charities

According to the text, a married couple can give up to what amount of money per person in one year (based on 2018 exclusion amount) without incurring a gift tax?

$30,000

If total assets are $1,000,000 and liabilities are $400,000, what would be the taxable estate if probate costs are $4,000 and administrative costs are $10,000?

$586,000

The two main components of estate planning involve ______ your estate through various strategies (such as savings, investing, and insurance) and ______ your estate at death according to your wishes.

(building, growing, or increasing) (transferring, distributing, or allocating)

A will is the legal ______ that specifies how you want your property to be ______ after your death.

(document or declaration) (distributed, disposed, allocated, divided, transferred, conveyed, dispersed, or split)

The need to organize and plan your estate is especially great when you are ______ to ______ years away from retirement.

(five or 5) (ten or 10)

With many nontraditional households as a result of divorces, e.g., unmarried couples, single parents, which of the following is likely true?

There are many unique estate planning problems that need to be solved.

True or false: An estate is everything you own.

True

True or false: Death causes the transfer of your estate to charities and your heirs.

True

If you have not named an executor in your will, the probate court will:

appoint an administrator to carry out the instructions of your will

A durable power of ______ is a legal document authorizing someone to act on one's behalf.

attorney

Using legal methods to reduce or escape income taxes is called tax ______

avoidance

A(n) ______ is a document that modifies provisions in an existing will.

codicil

To be sure your desires are known at your death they should be accessible, understandable, and legally ______

documented or written

A(n) ______ includes everything you own.

estate

An ethical will is ______.

not legally binding

The most practical first step in estate planning is the ______ of a will. (Enter only one word per blank.)

preparation, writing, creation, creating, drafting, establishing, declaration, or making

A letter of last instruction:

provides important final information

A ______ will is often called an "I love you" will and is sufficient for smaller estates. This is a one word answer.

simple

A ______ will leaves everything to the spouse. This is also called an "I love you" will.

simple

It is critical to take ______ to ensure that your beneficiaries will have the information and knowledge needed to survive emotionally and financially when you die.

steps, actions, action, or time

When you die with a will already prepared, it is called being ______ in the eyes of the law.

testate

A will is a way to ______ property after you die.

transfer, distribute, allocate, or bequeath

A(n) ______ is a legal arrangement through which one's assets are held by a trustee.

trust

Jointly ______ property passes directly to the joint owner and may be appropriate for some ______, such as a home.

(owned or held) (assets)

A trust can help you avoid ______ and immediately ______ your assets to the beneficiaries.

(probate) (transfer, distribute, or give)

Which of the following statements best characterizes estate planning as part of the retirement and financial planning process?

- Estate planning involves planning how to distribute your assets at death through a manner you have specified. - Estate planning involves building assets through savings, investing, and insurance.

A letter of last instruction usually contains which of the following?

- Location of safe-deposit box - Details of funeral arrangements - Location of bank accounts - Names of people to be notified in the event of death

Which pieces of advice would financial planners and estate attorneys generally offer single parents and other single persons?

- Married couples have protections under estate law, but there are may pitfalls for single people and therefore expert help is often necessary. - Plan early and get expert help.

Which of the following are requirements in the preparation of the holographic will?

- The will must be signed. - The will must be dated. - The will must be written in your own handwriting.

The three factors necessary to make your desires known upon death are:

- accessible - documented - understandable

A living will provides for your wishes to be followed if you:

- become physically disabled and cannot act on your own behalf - become mentally disabled and cannot act on your own behalf

The building of an estate is done through:

- insurance - investments - savings

The benefits of establishing a trust include:

- providing for the payment of estate taxes - avoiding probate - reducing estate taxes - ensuring your property serves a desired purpose after your death - providing income to beneficiaries

Which type of trust allows married couples to leave everything to each other tax free?

Credit-shelter

True or false: A letter of last instruction is a document authorizing someone to handle the business affairs of another person prior to death.

False

True or false: A living will is a document that is executed while someone is living that tells how the estate should be distributed after death.

False

True or false: Joint ownership is a good substitute for a will.

False

True or false: Jointly owned property passes directly to the surviving children and may be appropriate for some assets, such as a home.

False

True or false: The purpose of a will is to make it clear how you want your property to be distributed during your lifetime before your death.

False

True or false: The two main components of estate planning are insurance planning and investing.

False