FINA 4325: Estate Planning- Module 1

In light of the multiple possible estate goals which of the following would be plausible candidates for estate planning?

A client whose wealth is concentrated in a real estate business. A recently married couple expecting their first child. A Pennsylvania domiciled client with a condo in Vail, Colorado.

All of the following statements about the major forms of property ownership are correct EXCEPT:

A community property interest is not subject to probate.

Which of the following statements about the importance of properly arranging the ownership and beneficiary designation are CORRECT? I. The identity of the beneficiary can affect whether the proceeds are available for the intended purpose. II. Life insurance could be a source of income replacement for a surviving spouse.

Both I & II

Which of the following statements concerning titling of assets captures its importance in estate planning? I. Titling determines how the income of an asset as well as the proceeds from its sale would be split. II. The distribution of income or sales proceeds not in fact divided as title dictates likely will create unintended gift and income tax consequences.

Both I & II

Which of the following statements regarding joint tenancy with right of survivorship is CORRECT? I. Property owned as a joint tenancy with right of survivorship avoids probate when the first owner dies. II. When a joint tenancy is created in real estate a joint tenant who contributes more than his or her share of the purchase price makes a gift to the other joint tenant.

Both I & II

Which of the following are essential in establishing and defining the client & planner relationship?

Determine what the planner is to do or not do. Understanding the personal and financial circumstances of the client. Determine how the planner is compensated.

Which of the following is not a tax goal related to income tax?

Freezing or reducing the value of assets subject to tax

Estate planners are often asked to assess whether a client's estate plan has adequate provisions to accomplish client objectives. Which of the following would be appropriate questions to ask and answer?

How titles to property are held. Competency of intended beneficiaries. Marital and family status of client.

You are a CFP® Certificant. A client has come to you for assistance. You should inform the client of which of the following? I. You can provide the client with "fill-in-the-blank" durable power of attorney forms for both finances and health care, as well as living wills, and help the client complete and execute these documents. II. You can be involved in data gathering, identifying goals, and identifying possible weaknesses and problem areas in the client's current situation. III. Your primary role will be working with and coordinating other financial planning professionals. IV. You can review the client's current documents to interpret the contents and indicate what the legal implications of the document are for the client.

I & II

Which of the following is an advantage of spouses holding property jointly with right of survivorship? I. Total administration expenses and attorney fees may be reduced because the property avoids probate at the death of the first spouse. II. The surviving spouse now has a basis equal to the fair market value of the property at death of first spouse.

I only

Which of the following is an advantage of owning property as joint tenants with right of survivorship (JTWROS)? I. When one tenant dies, the property passes directly to the surviving joint tenant. II. Each joint tenant with a right of survivorship has a right to sever or partition the property without the consent of the joint tenant. III. JTWROS is convenient for certain types of assets, such as bank accounts, because either tenant has access to the account.

I, II, & III

Which of the following statements about analyzing the liquidity of an estate are correct: I. Payment of the decedent's debts must be considered. II. Payment of the estate's cost of administration such as appraisal fees must be considered. III. The ease of securing a death certificate must be determined to estimate how quickly survivorship benefits can be paid.

I, II, & III

Which of the statements about maintaining liquidity of an estate are correct? I. Premortem liquidity needs are not considered. II. Postmortem liquidity needs are met primarily with life insurance.

II Only

Which of the following questions would be appropriate in planning with life insurance?

Is the amount of insurance coverage adequate? How would a soon-to-be-issued policy be owned? How is the policy currently owned?

Which one of the following statements regarding different forms of property co-ownership is CORRECT?

Joint tenancy with right of survivorship (JTWROS), tenancy by the entirety (TBE), and community property (CP) are all forms of co-ownership that can be used by a husband and wife.

Which of the following is a nontax-related financial goal?

Maximizing flexibility

Which of the following statements concerning the transfer of a life insurance policy is correct? I. The matured death benefit is always excluded from gross income. II. The matured death benefit may be only partially excludible from gross income and partially includible in gross income.

Neither I or II

Arnie attended a recent seminar about the importance of asset protection. He wants to know which of the following would not provide that protection.

Placing assets in a revocable trust.

Which one of the following is a document that designates a trust as the recipient of all property that has not been otherwise disposed of upon the death of the decedent?

Pourover will

All of the following statements about fee simple ownership are correct EXCEPT:

Property owned at death is not eligible for a step-up in basis to fair market value.

Which of the following types of property will be treated as separate property assuming the couple always has lived in a community property state?

Real estate acquired by one spouse before the marriage

When Craig's uncle died, Craig inherited the right to live in his uncle's home for as long as Craig lives. The will also provides that when Craig dies, the home will pass to Craig's daughter, Monica. What type of interest does Monica have in the home at the uncle's death?

Remainder

Carrie is preparing her estate plan and wants to include instructions for her funeral. What method should she use?

She should leave written instructions to one or more family members likely to survive her and be involved in funeral arrangements.

Which of the following statements best describe the potential for improper planning with life insurance?

Tax-inefficient ownership of the policy Lack of awareness of how the transfer for value rules work. Insufficient coverage

Which one of the following actions would probably not constitute the unauthorized practice of law by a nonattorney financial planner?

Telling a client that property that is titled in joint tenancy with right of survivorship will pass outside of probate at his or her death.

Edward and Dennis are brothers who share the ownership of a farm they purchased together. Edward owns an undivided 40% interest in the property, and Dennis owns an undivided 60% interest. They both have the right to sell their interest in the farm or to leave their interest in the farm to anyone they choose under their will. Which this form of ownership do they have?

Tenancy in common

James leases an office building for use in his business. The lease gives James the right to use the building for 10 years in exchange for annual lease payments of $100,000. What type of ownership interest does James have in this building?

Term of years

Fred and Ethel live in a community property state. They acquired property during their marriage and classified it as separate property pursuant to a formal legal agreement. What is the effect of the formal legal agreement?

The property is separate property so long as the formal legal agreement is valid (i.e., recognized by local law and entered into with the requisite intent).

Which of the following statements regarding the consequences of holding property jointly is CORRECT?

When spouses are joint tenants with a right of survivorship, 50% of the value of the property will be included in the gross estate of the first spouse to die.

All of the following statements regarding joint tenancies with right of survivorship are CORRECT except

jointly held property can be transferred by will.