FIN 409 Midterm ch. 1-7

Which of the following is/are considered tangible personal property? 1. Stocks 2. Automobile 3. Rental house 4. Land

2 only. Rationale Tangible personal property is property that has physical substance (may be touched) and is not realty. An automobile is tangible personal property. Stocks are intangible personal property. A rental house and land are realty.

Sully died owning the following property. Which would not be included in Sully's probate estate? 1. A certificate of deposit, in Sully's name, at the local bank. 2. An interest in investment real estate held tenancy in common with Sully's son. 3. Retirement plan proceeds made payable to Sully's daughter. 4. A mountain vacation home Sully owns jointly (JTWROS) with his wife

3 and 4. Rationale Items 3 and 4 are not included in Sully's probate estate. Retirement plan proceeds payable to a listed living beneficiary transfer by contract law, and property owned JTWROS transfers by operation of state law to the surviving joint tenants. Items 1 and 2 are included in Sully's probate estate. A certificate of deposit in Sully's name would be included in Sully's probate estate. Interest in property held as a tenancy in common does not have an automatic right of survivorship and thus must transfer through the probate process for retitling.

Which of the following is/are considered real property? 1. Stocks 2. Automobile 3. House 4. Land held for investment

3 and 4. Rationale Real property is land and anything permanently attached to the land (e.g., buildings). The nature of the property in the hands of the owner (investment, personal, inventory) does not affect the type of property. Stocks are intangible personal property and automobiles are tangible personal property.

Arnold and Willis agree to purchase a condo at the beach for $200,000 as tenants in common. Willis will contribute $150,000 of the price, and Arnold will contribute the remaining $50,000. They have agreed to split all income and expenses at 75%/25%, the same as their ownership percentages. What is the gift from Willis to Arnold for the year relating to this property?

$0. Rationale Willis is not deemed to have made a gift to Arnold relating to this property because they have contributed amounts equal to their ownership percentages. When the property is owned tenancy in common, a gift occurs if one tenant in common owns a greater proportional share than his pro rata contribution. In this case, Arnold and Willis contributed amounts equal to their proportional share.

Perry's father sold the family business to him using a private annuity. The private annuity was structured such that Perry would pay his father $40,000 per year plus interest, for the remainder of his father's life. At the date of the sale, Perry's father's life expectancy was 20 years and Perry's father was in great health. After six years, Perry's father died of a heart attack and Perry sold the business for $2,000,000 six months after his father's death. What is Perry's capital gain/loss on the transaction?

$1,760,000. Rationale A buyer's adjusted basis of property purchased with a private annuity is equal to the sum of all annuity payments paid. In this scenario, Perry made six annuity payments of $40,000, or a total of $240,000. Since he sold the property for $2,000,000, his gain is calculated by subtracting his basis from the sales price to arrive at $1,760,000 ($2,000,000-$240,000).

Three years ago, Jack and Diane, a married couple, agreed to purchase some real property and titled it as joint tenants with right of survivorship. At the time of the purchase, Diane did not have any cash, so Jack paid the $50,000 purchase price himself. Over the next five years, Jack and Diane allocated the income and expenses of the property equally, and luckily for them the value of the property increased to $350,000. If Jack dies this year, how much will his executor include in his federal gross estate as the value of this real property?

$175,000. Rationale When a married couple owns property joint tenancy with right of survivorship, there is an automatic assumption that each spouse contributed 50% to the original purchase price. In this case, the contribution rule will deem that each would include 50% of the value of the property in the decedent's federal gross estate. At Jack's death, his executor will include 50% of the value of the property or $175,000 (50% x $350,000) in Jack's federal gross estate.

Todd purchased his mother's home through use of a SCIN. Under the terms of the SCIN, Todd was to pay his mother $20,000, plus interest, and a SCIN premium, per year for 10 years. If Todd's mother died after 4 payments were made, what would be Todd's adjusted basis in the home?

$200,000. Rationale The buyer's adjusted basis in property transferred in exchange for a SCIN is the fair market value of the property at the date of the sale regardless of the number of payments made by the seller. In this case, the fair market value of the property must have been the annual principal payment times the expected term of the SCIN, or $200,000 ($20,000 x 10).

Cedric's executor has located all of his property. Given the following property listing, what is the total value of Cedric's probate estate? Life Insurance Face $1,000,000 Beneficiary is Antonio, Cedric's son. 401(k) Balance $350,000 Beneficiary is Lorna, Cedric's daughter Vacation Home Value $460,000 Titled Tenancy by Entirety with Tiara Automobile Value $24,000 Owned by Cedric

$24,000. Rationale Only the automobile, valued at $24,000, would be included in Cedric's probate estate. Because Cedric has a named beneficiary, the life insurance and the 401(k) will transfer per contract law to the listed beneficiaries. The property owned tenancy by the entirety will transfer automatically, per the state law, to Cedric's spouse, Tiara.

Three years ago, brothers Zach and Cody, purchased real property and titled it as joint tenancy with right of survivorship. At the time of the purchase, Zach did not have any cash, so Cody paid the $50,000 purchase price himself. Over the next five years, Zach and Cody allocated the income and expenses of the property equally, and luckily for them the value of the property increased to $350,000. If Cody dies this year, how much will his executor include in his federal gross estate as the value of this real property?

$350,000. Rationale The contribution rule applies to property owned as a joint tenancy with right of survivorship. Because Zach did not contribute any amount towards the original purchase price of the property, Cody's executor must include the full fair market value of the property in Cody's gross estate for federal estate tax purposes.

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.

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.

Kane transferred $5,500,000 to a GRAT naming his two children as the remainder beneficiaries while retaining an annuity valued at $500,000. If this is the only transfer Kane made during the year, what is Kane's total taxable gift for the year?

$5,000,000. Rationale The remainder interest is a taxable gift from Kane to his children equal to the value of the property contributed to the GRAT less the value of the annuity retained, $5,500,000-$500,000 = $5,000,000. Because the remainder interest is a gift of a future interest it is not eligible for the annual exclusion.

During the year, Shiloh created a trust for the benefit of her five children. The terms of the trust declare that her children can only access the trust's assets after the trust has been in existence for 15 years and the trust does not include a Crummey provision. If Shiloh transfers $85,000 to the trust during the year, what is his total taxable gifts for the year?

$85,000. Rationale Because the trust does not include a Crummey provision, the transfer to the trust is a gift of a future interest not available to be offset by the annual exclusion. As such, the entire transfer to the trust for the year is subject to gift tax.

In 2023, Laila paid Badlaw University $12,000 for her nephew's tuition and gave her nephew $26,000 in cash. Laila is single and did not make any other gifts during the year. What is the amount of Laila's taxable gifts for the year?

$9,000. Rationale The transfer to Badlaw University would be a qualified transfer not subject to gift tax and the $26,000 cash transfer would be eligible for the annual exclusion of $17,000 ($26,000-$17,000=$9,000) for 2023. $16,000 ($26,000-$16,000 = $10,000) for 2022.

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, 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

Before her death, Meg loaned Ryan $400,000 in return for a note. The terms of the note directed Ryan to make monthly payments including interest at the applicable federal rate. If Meg dies before the note is repaid, which of the following affects the valuation for Meg's gross estate? 1. Ryan's inability to make payments timely 2. The market rate of interest 3. The remaining term of the note 4. Meg forgives the note as a specific bequest in her will

1, 2, and 3. Rationale If Meg dies before Ryan repays the note, the note is included in Meg's gross estate at the fair market value of the note plus any accrued interest due at Meg's date of death. This fair market value is affected by the interest rate, maturity date, and Ryan's ability to make the note payments, but not by Meg's forgiveness of the note in her will. The forgiveness of the note is deemed a specific bequest and the fair market value of the note is still included in Meg's gross estate.

Jenny's will leaves her car to her brother, her boat to her sister, and her vacation home to her cousin. Her will directs the remainder of her assets to be divided equally among her two children. Jenny's will directs all debts and taxes to come from the children's assets. Of the following, which are included in Jenny's will? 1. Residuary clause 2. Specific bequests 3. Payment of debts and taxes clause

1, 2, and 3. Rationale Jenny's will includes all of the listed items. The residuary clause directs the remainder of Jenny's assets transfer to her children. Specifically listing the property and the person to whom she is leaving the property, as with her brother, sister, and cousin, are specific bequests. Jenny also directs the payment of debts in her will.

Of the following types of ownership, which is available for married couples? 1. Tenancy by the entirety 2. Tenancy in common 3. JTWROS 4. Tenants by marriage

1, 2, and 3. Rationale Of the property types listed, tenancy by the entirety is an ownership form exclusive to married couples. Tenants in common and JTWROS are available to anyone, including married couples. Tenants by marriage is not a form of property ownership.

Which of the following is/are considered intangible personal property? 1. Stocks 2. Patents 3. Bonds 4. Land held for investment

1, 2, and 3. Rationale Realty is not intangible personal property. Stocks, bonds, patents, and copyrights are common examples of intangible personal property. Land held for investment is real property.

As part of his military duties in the Army Reserves, Tillman has been called to active duty. Six years ago, in anticipation of being called to service, Tillman gave his brother a power of attorney over all of his property that should only be effective when Tillman is on active duty. Of the following, what should this power of attorney include? 1. Springing powers 2. Durable powers 3. Limited powers of appointment 4. General powers of appointment

1, 2, and 3. Rationale The power Tillman gives to his brother should include springing provisions, should be limited, and should be durable. The power should spring to force only when Tillman is on active duty in the military. The limited powers would deny Tillman's brother the ability to appoint the property to himself, to ensure that his brother cannot misuse the powers for his own gain. It would also keep the value of Tillman's assets out of his brother's gross estate, if his brother were to die before him. Including a durability feature in the power would keep the power of attorney in force even if Tillman becomes incapacitated or disabled. Remember, however, that no power of attorney survives death.

Which of the following is included in the definition of estate planning? 1. Asset management 2. Accumulation of wealth 3. Asset preservation

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

Which of the following clauses are commonly found in a will? 1. Residuary clause 2. Secondary clause 3. Witness attestation clause 4. Simultaneous death clause

1, 3, and 4. Rationale A secondary clause does not exist so it is not a clause commonly found in a will. A residuary clause directs the transfer of the balance of any assets not already bequeathed. A witness attestation clause is a declaration that the will was signed in front of witnesses. A simultaneous death clause provides an assumption of which person died first in the event that two people die simultaneously.

Mork and his wife, Mindy, want to establish a family limited partnership (FLP) and transfer their business to the FLP. The value of the business interest is $4,000,000. They want to make use of the annual exclusion and have been advised that a 25% discount is appropriate for gifting a minority interest of limited partnership shares. The general partnership interest (1%) is valued at $40,000. They have eight family members (children and grandchildren) to whom to transfer limited partnership interests. Mork and Mindy are unwilling to utilize any of their lifetime exemptions. Presuming the annual exclusion remains the same and the value of the business interest remains unchanged in the future, how many years does it take them to transfer all of the limited partnership interest?

11 years. Rationale2023: $17,000 ÷ (1-25%) = $22,666.67 pre-discount unit value that can be transferred under the annual exclusion 2022: $16,000 ÷ (1-25%) = $21,333.33 pre-discount unit value that can be transferred under the annual exclusion 2023: $3,960,000 ÷ $22,666.67 = 174.71 units 2022: $3,960,000 ÷ $21,333.33 = 185.63 units8 beneficiaries and 2 donors = 16 units per year 2023: 174.71 ÷ 16 = 10.92 years (rounded up to 11 years) 2022: 185.63 ÷ 16 = 11.60 years (rounded up to 12 years)

Carl is married and owns and manages several rental properties. He is concerned that if he became incapacitated, the properties would not be properly managed and his tenants would be upset. Of the following arrangements, which one could fulfill Carl's desire to plan for the management of his rental properties in the case of his unanticipated physical or mental incapacity?

A durable power of attorney. Rationale A durable power of attorney would give the power-holder the ability to manage the property if Carl become incapacitated. Note, if the property is owned joint tenancy or tenancy by the entirety, the joint tenant could manage the property in the event of Carl's incapacity. A will does not solve the problem as it directs property to be distributed after one's death. A living will deals with life sustaining treatments, such as feeding tubes. A side instruction letter goes along with the will and is only applicable after death. While Carl could have a letter of instruction for incapacity, it is designed to guide the agent under the power of attorney; therefore, if Carl does not have a durable power of attorney, the letter of instruction may not accomplish his goals.

Cora is planning to purchase a vacation home and would like to ensure that upon her death, her non-spouse life partner, Rebel, can live on the property for the remainder of Rebel's life. At Rebel's death, Cora would like to be assured that the property will transfer to Cora's only child, Wilson. Which of the following is most likely to accomplish Cora's goals? A - Joint tenants in common with Cora, Rebel, and Wilson as equal joint tenants. B - Tenancy by the entirety with Rebel; with a bequest of the property to Wilson in Cora's will. C - Joint tenancy with right of survivorship with Cora, Rebel, and Wilson as equal owners. D - A life estate granted to Rebel, with Wilson as the remainderman.

A life estate granted to Rebel, with Wilson as the remainderman. Rationale Option a is incorrect because, upon Cora's death, Rebel will own 1/3 of the property, and, assuming Cora leaves her 1/3 of the property to Wilson, Wilson will own 2/3 of the property. There is no guarantee that Rebel and Wilson will be in agreement regarding Rebel living on the property. Furthermore, Rebel's 1/3 of the property will transfer via the probate process at Rebel's death, to the person of Rebel's choosing (who may not be Wilson). Option b is incorrect because tenancy by the entirety is available only for married couples (also note that, if it were available, TE does not pass through probate, so the bequest to Wilson in Cora's will accomplishes nothing). Option c is incorrect because, upon Cora's death, Rebel and Wilson would automatically become 1/2 owners. As with option a, there is no guarantee that they will agree upon Rebel living on the property. In addition, the property can be severed during lifetime so there is no guarantee that Wilson will ultimately own the property. The method that will assure Cora's goals are reached is to grant a life estate to Rebel with Wilson as the remainderman.

All of the following statements are correct except: A - A person named in a will to receive property is referred to as a legatee. B - A person who dies with a valid will is said to die intestate. C - The term devisee is used to refer to a person who inherits real property under the will. D - A person who receives property under the state intestacy laws is called an heir.

A person who dies with a valid will is said to die intestate. Rationale The other statements are correct. Option b is incorrect as it describes testate.

Which of the following statements is correct? A - A person who dies with a valid will is said to die intestate. B - A person who dies without a valid will is said to die testate. C - A person named in a will to receive property is referred to as a devisee. D - A person who receives property under the state intestacy laws is called an heir.

A person who receives property under the state intestacy laws is called an heir. Rationale Options a and b are mixed up. Option c is false as it describes a legatee.

Which of the following statements regarding private annuities is correct? A - If a seller dies before the end of the private annuity term, the buyer continues to pay the annuity to the seller's estate. B - A private annuity must include a risk premium to compensate the seller for the possibility of cancellation at the seller's death. C - A private annuity cannot give the seller a security interest in the property. D - With a private annuity, the buyer must make the annuity payments for the lesser of the term of the annuity or the life of the seller.

A private annuity cannot give the seller a security interest in the property. Rationale A private annuity cannot give the seller a security interest in the property or the private annuity treatment is disallowed. Options a and d are incorrect because a private annuity requires the buyer to pay the annuity payment for the remaining life of the seller. Option b is incorrect because the risk for the buyer in the private annuity is that the seller lives longer than his life expectancy and the buyer overpays. To compensate for this risk, the buyer does not have to make the payments if the seller dies before his life expectancy.

Duane drafted his own will utilizing the "Will-Maker" software that he purchased online and sends it to you for a review. In your first review of the will, you look for which of the following most common provisions?

A statement of the domicile of the testator. Rationale A well-drafted will contains the statement of the domicile of the testator. Both a left-over clause and a primary clause are made up terms. A codicil is an amendment or supplement to the will, not a provision of a will.

After listening to a popular radio financial planning talk show, Kesha decided to grant a durable power of attorney to her neighbor, Tarik. All of the following statements regarding the durable power of attorney are correct except? A - At the creation of the durable power of attorney, Kesha must be at least 18 years old and competent. B - The power can spring at a certain age or event. C - After Kesha's death, the power remains in force. D - If Kesha becomes disabled, the power remains in force.

After Kesha's death, the power remains in force. Rationale A durable power of attorney does not remain in force after the death of the principal, but a durable power of attorney does remain in force after the disability or incapacity of the principal. All of the other statements are true

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 - A copy of her will and any codicils. B - A copy of children's birth certificates. C - A copy of life insurance policies. D - A copy of latest bank statements.

B - 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.

All of the following statements concerning community property are correct, except? A - If one spouse inherits property during the marriage, that property is generally not considered community property. B - Assets acquired by either spouse before marriage generally become community property upon their marriage. C - Community property assets are included in probate. D - If one spouse utilizes his paycheck from work performed during the marriage to purchase property, the property is community property.

Assets acquired by either spouse before marriage generally become community property upon their marriage. Rationale Option b is the only incorrect statement because assets acquired before marriage remain separate property.

All of the following statements concerning joint tenancy with rights of survivorship are correct, except: A - At the death of a joint tenant, the deceased tenant's interest in the property will transfer to the beneficiary listed in the deceased tenant's will. B - Property owned JTWROS transfers by operation of law. C - Each tenant owns the same fractional share in the property. D - During his life, each joint tenant has the right to sever his interest in the property without consent of the other joint tenants.

At the death of a joint tenant, the deceased tenant's interest in the property will transfer to the beneficiary listed in the deceased tenant's will. Rationale Option a is the only incorrect statement because the property will pass to the surviving tenants by operation of law, without regard to any provisions contained in a will.

Which of the following statements regarding installment sales is correct? A - All payments received by the seller in an installment sale are considered interest income. B - At the death of the seller, the principal balance of the installment sale is included in the seller's gross estate. C - The present value of the expected remainder value of the property sold in an installment sale is subject to gift tax at the date of the transfer. D - An installment sale would never be used with a related party.

At the death of the seller, the principal balance of the installment sale is included in the seller's gross estate. Rationale At the death of the seller, the fair market value of the remaining payments from the installment sale is included in the seller's gross estate. Option a is incorrect because the payments received by the seller, depending upon the seller's adjusted basis in the property, are allocated as return of capital, capital gain, and interest income. Option c is incorrect because an installment sale is a sale and does not have an expected remainder value - at the end of the installment payments, $0 principal remains on the note. Option d is incorrect because an installment sale may be used to transfer potentially appreciating property to a related party. Even though an installment sale would not create a related party advantage, future income and appreciation from the property sold are removed from the seller's gross estate.

Of the following statements regarding a Qualified Personal Residence Trust (QPRT), which is true? A - At the end of the QPRT term, the residence reverts to the grantor. B - At creation of the QPRT, the grantor has a taxable gift to the remainder beneficiary eligible for the annual exclusion. C - At the end of the QPRT term, the grantor must begin paying rent to the remainder beneficiaries of the QPRT if he continues to live in the residence. D - A QPRT is ideal for a personal residence that is expected to appreciate at a lower rate than the Section 7520 rate.

At the end of the QPRT term, the grantor must begin paying rent to the remainder beneficiaries of the QPRT if he continues to live in the residence. Rationale Option c is a true statement. Option a is incorrect because the residence transfers to the remaindermen at the end of the QPRT term. Option b is incorrect because the remainder interest is not eligible for the annual exclusion. Option d is incorrect because the QPRT is ideal for a personal residence which is expected to appreciate at a higher rate than the Section 7520 rate.

Martin has given his father, Lawrence, a springing durable power of attorney over his real estate holdings. The power of attorney springs if Martin is ever out of the country. Of the following statements regarding this power, which is not true? A - If Martin becomes disabled while travelling in Italy, Lawrence can continue making decisions regarding the real estate. B - If Martin dies while travelling in Taiwan, Lawrence can continue making decisions regarding the real estate under the power of attorney. C - Martin can revoke the power at any time. D - Lawrence can do anything that Martin can do with respect to the real estate.

B - If Martin dies while travelling in Taiwan, Lawrence can continue making decisions regarding the real estate under the power of attorney. Rationale No power of attorney survives death. If Martin dies, the executor of Martin's estate or the court appointed administrator of Martin's estate, controls the property and will act in Martin's place. All of the other options are correct with regard to the power of attorney.

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.

Both statements 1 and 2.

Which of the following statements regarding sole ownership is not true? A - Sole ownership is the complete individual ownership of property with all rights associated with outright ownership. B - Property owned as solely passes through probate at the death of the owner. C - Property owned as sole ownership is excluded from the federal gross estate of the owner. D - Sole ownership allows the owner to use, sell, gift, alienate, convey or bequeath the property without others' approval.

C - Property owned as sole ownership is excluded from the federal gross estate of the owner. Rationale The question asked what is NOT true regarding property owned as sole ownership. Property owned as sole ownership is included in the gross estate of the decedent. All of the other statements regarding property owned fee simple are true.

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

Certified Public Accountant (CPA). Rationale 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.

Chelsey inherited the property listed below from her father upon his death. Which of the following property interests passed to her through probate? A - A 2005 Porsche titled and held within a revocable living trust. B - Chelsey's father's community property share of a vacation property. C - A $300,000 distribution to Chelsey, as listed beneficiary, from her father's 401(k) plan. D - Title to a Manhattan condo previously owned within a trust with Chelsey listed as the beneficiary at her father's death.

Chelsey's father's community property share of a vacation property. Rationale Community property passes through probate. Property held within a revocable living trust transfers per the trust document, thus avoiding the probate process. A distribution to a listed beneficiary of a qualified retirement plan passes per contract law, thus avoiding the probate process. Real estate included in a trust transfers per the trust document, thus avoiding the probate process.

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

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.

Which of the following would not meet the ascertainable standard requirement if it appeared in a trust or POA document?

Comfort. Rationale Comfort could be viewed as creating a general power of appointment. The ascertainable standard words are health, education, maintenance and support (HEMS).

Of the following, which is not a clause commonly found in a will? A - Introductory clause. B - Payment of debts clause. C - Payment of taxes clause. D - Conclusory clause.

Conclusory clause. Rationale A conclusory clause does not exist so it is not a clause commonly found in a will. An introductory clause identifies the testator. A payment of debts clause directs which heirs/assets will bear the debts of the estate. A payment of taxes clause directs which heirs/assets will bear the taxes of the estate.

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: A Skip's property transfers contrary to his wishes. B Skip's estate may face liquidity problems. C Skip's estate faces increased estate administration fees. D Skip's estate faces increased debt payments for outstanding debts at death.

D 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.

If Kenzie died with each of the following property interests, which will be excluded from her probate estate? A - Property owned as community property. B - Property held tenancy in common. C - Death proceeds of life insurance payable to a living stranger. D - Property owned solely.

Death proceeds of life insurance payable to a living stranger. Rationale All options except c are included in a decedent's probate estate. Life insurance and other death proceeds are included in the decedent's gross estate for estate tax purposes, but are not included in the decedent's probate estate.

Alice recently passed away. She had three children, Diego, Cate, and Brennan. Diego has two children, Cate has four children, and Brennan has one child. Diego died before Alice. What is the distribution for Alice's estate based on the per stirpes method?

Diego's two children receive 1/6 each and Cate and Brennan receive 1/3 each. Rationale Under per stirpes, Cate and Brennan each receive 1/3 of the estate, and Diego's two children split Diego's 1/3 or 1/6 each. In other words, Diego's two children receive the share that Diego would have enjoyed had he lived.

Alice recently passed away. She had three children, Diego, Cate, and Brennan. Diego has two children, Cate has 4 children, and Brennan has one child. Diego died before Alice. What is the distribution for Alice's estate based on the per capita method?

Diego's two children, Cate and Brennan each receive 1/4 of the estate.

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?

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.)

Which of the following documents appoints a surrogate decision-maker for health care? A - Durable power of attorney for health care. B - General power of appointment. C - Life insurance beneficiary designation. D - All of the above.

Durable power of attorney for health care. Rationale A durable power of attorney for health care appoints a surrogate decision-maker for health care decisions. A general power of appointment gives the power holder the ability to appoint the principal's assets to anyone, including the power holder, and for whatever reason. It does not give any powers related to health care decisions. A life insurance beneficiary designation only designates the beneficiary of life insurance proceeds.

Which of the following statements regarding joint tenancy is correct? A - Joint tenancies may only be established between spouses. B - Tenancy by the entirety is a special form of joint tenancy only available to residents of Louisiana. C - Joint tenancies can only be severed with the permission of a court. D - Each joint tenant in a joint tenancy has an undivided, equal interest in the property.

Each joint tenant in a joint tenancy has an undivided, equal interest in the property. Rationale Each joint tenant in a joint tenancy owns an equal, undivided interest in the property. Option a is false because joint tenancies can be established by any persons, related or unrelated. Option b is false because tenancy by the entity is available in other states. Option c is false because joint tenancies can be partitioned at the request of one joint tenant. Court approval is not required to sever a joint tenancy.

Which of the following statements regarding joint tenancy with rights of survivorship is correct? A - Each tenant may bequeath their interest in the property at their death. B - Joint tenancy with rights of survivorship is the same as community property. C - Only spouses can establish joint tenancies. D - Each tenant under a joint tenancy with rights of survivorship has an undivided interest in the property.

Each tenant under a joint tenancy with rights of survivorship has an undivided interest in the property. Rationale Only option d is a correct statement. Option a is incorrect because a joint tenant in a JTWROS can transfer their interest during life, but at death the interest is automatically transferred to the surviving tenants. Option b is incorrect because JTWROS is not the same as community property. Community property can only be entered into between married couples and does not provide an automatic right of survivorship. Option c is incorrect because anyone can own property JTWROS, and at the death of one joint tenant, their interest will transfer automatically to the surviving joint tenants.

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?

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.

Medicare is primarily for those people who meet the following eligibility requirements:

Elderly. Rationale Medicare is primarily for the elderly, age 65 and above, but it can cover the disabled.

Who needs estate planning?

Everyone needs a will, a plan for incapacity, and a plan for dependents and/or to care for animals.

Which of the following is least likely to be included in a letter of instruction for incapacity? A - Name, address, and phone number of insurance agent. B - Funeral instructions. C - Location of marriage certificate and military discharge (DD 214). D - List of assets and liabilities.

Funeral instructions. Rationale A letter of instruction for incapacity will provide instructions for the attorney-in-fact, providing important information needed while the principal is alive but incapacitated. Option a is necessary for the attorney-in-fact to determine whether an insurance policy may cover a period of disability or cover additional costs associated with the incapacity. Option c is necessary in situations where the attorney-in-fact must file for Social Security or Veteran's benefits. Option d is needed to guide the attorney-in-fact regarding obligations to be paid and resources available. Option b is not needed because all powers of attorney cease at death; therefore, the attorney-in-fact is not responsible for funeral arrangements. A side letter of instruction for death is used to provide the executor of the estate with instructions regarding the funeral, location of the will, and other important information needed to settle the estate.

Jocelyn, age 60, owns 400 shares of ABC Corporation, which she expects to increase 300% over the next four years. Jocelyn eventually wants to transfer the stock in ABC Corporation to her son, Stevie, but Stevie is currently incapable of managing the stock or the income from the stock. Jocelyn expects Stevie to be responsible in five years. Of the following, which transfer method would work best to remove the expected appreciation of the stock from Jocelyn's gross estate and protect the property for Stevie?

GRAT. Rationale The GRAT with a term of five or more years will allow Jocelyn to transfer the stock to Stevie at a gift tax cost equal to the current fair market value of the stock (before the 300% appreciation) less the sum of the annuity payments that will be paid back to Jocelyn. This transfer method is not as ideal as a direct gift of the property because the annuity payments will return to Jocelyn and will be included in her gross estate. Also, if Jocelyn dies during the term of the GRAT, the amount necessary to replace the annuity payments specified in the GRAT (up to a maximum of the value of trust assets), at Jocelyn's date of death, will be included in her gross estate. Neither a private annuity nor a sale will meet Jocelyn's goals because both give Stevie access to the stock immediately. A QPRT is also not an option because a QPRT is a special GRIT which transfers a personal residence.

Glen's will leaves all of his property to his spouse. If his spouse does not survive him by more than eight months, the property will transfer to Glen's only son. Glen dies on April 13 and his spouse dies the following January 12. Of the following statements, which is true? A - Glen's property will transfer to his son. B - Glen's property will not transfer to his spouse. C - Glen's property will transfer to his spouse, but the property will not be eligible for the unlimited marital deduction in Glen's estate. D - Glen's property will transfer to his spouse and the property will be eligible for the unlimited marital deduction in Glen's estate.

Glen's property will transfer to his spouse, but the property will not be eligible for the unlimited marital deduction in Glen's estate. Rationale Glen's will contains a survivorship clause requiring his spouse to survive him by more than eight months to receive his property. Glen's spouse dies nine months after Glen and does receive his property. However, if a will contains a survivorship clause, the clause cannot be written to require the spouse to outlive the decedent by more than six months to qualify for the unlimited marital deduction. In this case, the survivorship clause requires eight months, so Glen's spouse will receive the property, but the property will not qualify for the unlimited marital deduction.

Which of the following is considered an advantage of the probate process? A - The probate process creates delays. B - The probate process is costly. C - Heirs receive property with clear title. D - Information that is filed with the court becomes public information.

Heirs receive property with clear title. Rationale A definite advantage to the probate process is that the heirs are able to secure clear title to assets. Options a, b, and d are all disadvantages to the probate process.

Which type of will is handwritten and does not generally require a witness?

Holographic. Rationale Holographic wills are handwritten. The material provisions of the will must be in the testator's handwriting. The will must be dated and signed by the testator, and does not generally need to be witnessed.

Cammie owns the following property: Property Home Stock in ABC Corp Beach House Checking Account Joint Owner None Brother, Luke Husband, Duff None Titling Sole ownership Tenancy in Common Tenancy by the Entirety Pay-on-Death to Son Which of the following is included in Cammie's probate estate?

Home and stock in ABC Corp. Rationale Cammie's home and her tenancy in common interest in the ABC Corp stock owned with her brother will be included in her probate estate. Cammie owns the home outright and the property will have to pass through probate for retitling. An interest held as a tenancy in common does not have an automatic right of survivorship, and as such, must pass through probate for retitling. The beach house owned tenancy by entirety with her husband, Duff, has an automatic right of survivorship to her husband. The property will pass by operation of state law and will not pass through the probate process. The checking account with the POD beneficiary designation will transfer to Cammie's son per contract law and will not pass through the probate process.

In an effort to keep any of its future appreciation out of her gross estate, Gretchen, a 73-year-old widow, transferred her home into a Qualified Personal Residence Trust (QPRT) naming her only son as the remainder beneficiary. Which of the following statements regarding a QPRT is false? A - If Gretchen has a taxable gift at the date of formation of the trust, the gift is not eligible for the annual exclusion. B - If Gretchen outlives the term of the QPRT and continues to live in the house, she must pay her son rent. C - At the termination of the QPRT, the personal residence is distributed to Gretchen's son. D - If Gretchen dies during the term of the QPRT, her gross estate will include the value of her home at the date of the transfer to the QPRT.

If Gretchen dies during the term of the QPRT, her gross estate will include the value of her home at the date of the transfer to the QPRT. Rationale All of the options are correct with the exception of option d. If Gretchen dies during the term of the QPRT, her gross estate will include the value of her home at her date of death.

Which of the following statements is correct about the probate process? A - A surety bond always has to be posted by an administrator and an executor. B - If a federal estate tax return is required to be filed, the executor must provide basis information to the IRS. C - A grant of letters testamentary is provided to the estate administrator. D - If an asset that is bequeathed to a legatee has been disposed of prior to the decedent's death, the extinction of the legacy is called redemption

If a federal estate tax return is required to be filed, the executor must provide basis information to the IRS. Rationale Option a is incorrect because the bond is not always required for the executor, if provided for by the will. Option c is incorrect, as it applies to an executor not an administrator. Option d should be ademption, not redemption.

Which of the following statements regarding self-cancelling installment notes (SCINs) is correct? A - If a seller outlives the SCIN term, the buyer continues to pay the SCIN payment until the seller's death. B - If the buyer dies before the end of the SCIN term or the death of the seller, his gross estate includes a debt equal to the present value of the remaining payments. C - A SCIN cannot give the seller a collateral interest in the property sold. D - If the seller dies before the end of the note term, the seller is deemed to have made a taxable gift to the buyer equal to the difference between the payments made and total principal payments on the SCIN.

If the buyer dies before the end of the SCIN term or the death of the seller, his gross estate includes a debt equal to the present value of the remaining payments. Rationale If the buyer dies before the end of the SCIN term or the death of the seller, their gross estate includes a debt equal to the present value of the remaining payments. Answer a is incorrect because SCIN payments cease at the earlier of the death of the seller or the end of the SCIN term. Answer c is incorrect because a SCIN can allow the seller to retain a collateral interest in the property sold. Answer d is an incorrect statement because no gift occurs if the seller dies before the end of the term.

Krista would like to reduce the risk of public scrutiny of her assets at her death. Which of the following would not help Krista accomplish this goal? A - Place all property in trust. B - Retitle property so that it is titled with a survivorship feature. C - Include a specific bequest of each and every item Krista owns in her will. D - Use items such as annuities, PODs and TODs.

Include a specific bequest of each and every item Krista owns in her will. Rationale Krista must avoid the probate process if she wants to avoid public scrutiny. The probate estate includes any asset that must be retitled, or does not transfer by operation of law or trust document. Answer c would not help Krista accomplish her goal because even specific bequests are included in the probate estate. Property placed in trust will transfer per the trust document. Property titled with a survivorship feature will transfer per the operation of law. Items such as annuities, PODs, and TODs will transfer per contract law. All of these methods will avoid the probate process, thus helping Krista accomplish her goal of avoiding public scrutiny.

The first step in the estate planning process includes:

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.

Twenty-two years ago, Neil and Patrick began dating, and 19 years ago, they began living together. Last year, Neil inherited over $9,000,000 from his grandfather. He wants to ensure that if he dies first, Patrick will be taken care of for the rest of his life. Despite your insistence, Neil does not have a will, and you have advised him previously that state intestacy laws may not protect non-married partners. Which of the following asset ownership options would fulfill Neil's goal of transferring assets to Patrick at his death? A - Community property. B - Tenancy in common with each other. C - Joint tenancy with rights of survivorship. D - Tenancy by the entirety.

Joint tenancy with rights of survivorship. Rationale When one owner dies owning property held as a joint tenancy with the right of survivorship, his interest is transferred to the other remaining property owners. In this case, if Neil and Patrick own property JTWROS, Patrick will inherit Neil's interest in the property if Neil dies first. When property is owned JTWROS, the property does not pass through probate and the transfer is automatic at death. Neil and Patrick cannot own property via community property or tenancy by the entirety unless they are married. Tenancy in common does not have an automatic survivorship feature and would not accomplish Neil and Patrick's goals.

Which of the following items will pass through probate? A - Retirement plan with someone other than the decedent listed as the beneficiary. B - Investment real estate held JTWROS. C - Personal residence held tenancy by the entirety. D - Life insurance policy with no designated beneficiary.

Life insurance policy with no designated beneficiary. Rationale A life insurance policy without a named beneficiary is included in the decedent's probate estate. Proceeds of a life insurance policy with a listed beneficiary pass to the listed beneficiary by contract law and avoid the probate process. An interest in property held JTWROS passes by state law to the surviving joint tenants and avoids the probate process. An interest in property held tenancy by the entirety passes by state law to the surviving spouse and avoids the probate process.

Melissa is terminally ill. Her doctors gave her twenty-four months to live thirty-six months ago. Melissa has decided that she does not want to be placed on life support. Which document will direct Melissa's doctors to refrain from putting her on life support?

Living will. aka Advanced Medical Directive Rationale Only a living will would give the doctors the ability to refrain from placing her on life support. A living will, also known as an advance medical directive, is an individual's written last wishes regarding sustaining life. It establishes the medical situations and circumstances in which the individual no longer wants life-sustaining treatment. Neither a power of attorney nor a durable power of attorney would give the ability to end life-sustaining treatment.

Medicaid is primarily for those people who meet the following eligibility requirements: A - Disabled. B - Children. C - Low Income. D - Elderly.

Low Income. Rationale Medicaid is primarily for those with low incomes.

Syngin travels quite often and wants his daughter to have access to his checking account while he is out of town. For this reason, on October 3, 2016, Syngin deposited $100,000 in a checking account. Several years passed and Syngin used the funds for normal living expenses, but his daughter never accessed any of the funds. Recently, on May 2 of this year, Syngin's daughter needed an extra $35,000 to purchase the car of her dreams so she made a withdrawal from the account with full intentions of reimbursing the account. At what date has Syngin made a gift to his daughter?

May 2 of this year. Rationale In the situation of a joint interest in a bank account, the contributing joint account owner is not deemed to have made a gift until the non-contributing joint account owner makes a withdrawal for their own benefit. In this case, Syngin's daughter did not make a withdrawal until May 2 of this year.

Rowena is a wealthy entrepreneur. At 84, a probate court declared that she is legally incompetent and is not capable of making her own decisions. Which of the following types of documents could her lawyer draft to help her redirect her assets to other family members? A - Power of attorney. B - Irrevocable trust. C - Will. D - None of the above

None of the above. Rationale None of the documents can be executed by Rowena at this point since she is incompetent.

While he was in the hospital, Emile told his wife that if he died he wanted to give his fishing tackle to his daughter, Rayna; his golf equipment to his son, Joshua; his truck to his daughter, Dina; and everything else to her (his wife). Emile died the next day without writing anything that he told his wife, but a nurse and another patient were in the room and heard his declarations. What type of will does Emile have, if any?

Nuncupative. Rationale Emile has an oral/nuncupative will - oral dying declarations made before sufficient witnesses. An oral/nuncupative will may or may not be valid in Emile's state of domicile.

Which of the following techniques will not help an individual lower his gross estate? A - Pay-on-Death Arrangement (POD). B - Grantor Retained Annuity Trust (GRAT). C - Sale. D - Self-Cancelling Installment Note (SCIN).

Pay-on-Death Arrangement (POD). Rationale A POD is a transfer mechanism that transfers a bank account to a beneficiary according to contract law. A POD does not reduce an individual's gross estate as the full value of the POD bank account is included in the individual's gross estate. A GRAT, sale, and SCIN may all reduce an individual's gross estate by removing appreciation and future income from the property transferred.

Which of the following property interests of a decedent will avoid probate? A - Proceeds of life insurance payable to the decedent's estate. B - Community property. C - Property owned tenants in common with decedent's father. D - Proceeds of life insurance payable to the decedent's living son.

Proceeds of life insurance payable to the decedent's living son. Rationale Proceeds of a life insurance policy payable to the decedent's living son will avoid probate. Options a, b, and c will be included in the probate estate.

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 her children. D - Plan for her incapacity.

Plan for her children. Rationale 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.

Antonio agreed to sell his house to his brother, but could not attend the closing date of the sale (act of sale). Of the following options, which would allow Antonio's mother to attend the closing and sign the necessary documents on Antonio's behalf?

Power of attorney. Rationale Antonio could give his mother a power of attorney to sign the documents at the closing date of the sale. None of the other options would be appropriate in this case. An advanced real estate directive does not exist.

Which of the following assets are not generally counted for Medicaid planning eligibility purposes? A - Certificates of Deposit. B - Equity Securities. C - Vacation Home. D - Primary Residence.

Primary Residence. Rationale All are counted, except a primary residence.

If Joanne died with the following property interests, which would not be included in her probate estate?

Property held as tenant by the entirety. Rationale All except option c are included in a decedent's probate estate. Property held as tenants by the entirety is not included in the decedent's probate estate as it transfers by law, rather than by will.

Which of the following does not transfer property at death by operation of law? A - Property owned JTWROS. B - Property owned tenancy in common. C - Intestacy. D - A revocable living trust.

Property owned tenancy in common. Rationale Property owned tenancy in common transfers per the will or the state intestacy laws. All of the other options transfer property at death by operation of law.

Sandy, who is 75 years old, owns a beautiful home in Palm Beach. She has been dating a younger man named Danny. While drafting her will, she decides to leave Danny an interest in her home for the rest of his life. Sandy believes that Danny is incapable of providing his own home, so she wants him to have a home for the rest of his life. However, once Danny dies, she wants the property to pass to her great grandchildren, Marty and Sonny. What type of interest has Sandy left Marty and Sonny?

Remainder Interest. Rationale A term interest lasts for a specific period of time, such as three years. A life estate and a usufruct last for the term of a person's life (generally), such as what Sandy left Danny. Sandy's great grandchildren have a remainder interest since their interest begins after the life estate ends.

Charlie has been a party animal his entire life. Many times, after his late night partying, Charlie has been heard telling his friends that when he dies he wants his friends to throw a party in his honor. He tells them that he has even set aside some funds in his estate to pay for the party. If Charlie is serious, in what document should he include this type of information?

Side instruction letter. Rationale Charlie should include this information in a side instruction letter. A side instruction letter details the testator's wishes regarding the disposition of tangible possessions, the disposition of the decedent's body, and funeral arrangements. This type of information should not be included in the will because it may create confusion, the will might not be located timely, and if the testator wants to change his desires, it is much easier to change the side instruction letter. The other options are not appropriate for these details.

Which of the following is generally included in a decedent's probate estate? A - Revocable trust with a named living beneficiary. B - Sole ownership specifically bequeathed in a decedent's will. C - Life insurance with a named living beneficiary. D - Transfer-on-death investment account with a named living beneficiary.

Sole ownership specifically bequeathed in a decedent's will. Rationale Any property owned solely would be included in the probate estate. Generally, the other options listed will avoid probate as long as the listed beneficiary is alive to receive the proceeds of the policy/account or trust. If the beneficiaries have predeceased the decedent, or if beneficiaries have not been named, the proceeds will revert to the decedent's estate and pass through probate.

Dara has owned 100% of the stock of Dara's Baked Goods, a corporation, for 22 years. In the current year, she gifted 50% of the business to her daughter, Sonia, who lives in California with her husband. Sonia does not work at the business and reinvests any income back in the company. With respect to the transfer of the business interest, which of the following statements is correct? A - Sonia's 50% interest in Dara's Baked Goods is community property, owned equally by Sonia and her husband. B - If Sonia's husband dies tomorrow, both his share of Dara's Baked Goods and Sonia's share of Dara's Baked Goods would receive a step-to fair market value in basis. C - Sonia's owns 50% of Dara's Baked Goods outright, and the interest will not be considered community property. D - If Sonia dies tomorrow, the executor of her estate would include 25% of the value of Dara's Baked Goods in her gross estate.

Sonia's owns 50% of Dara's Baked Goods outright, and the interest will not be considered community property. Rationale Option c is correct because gifted property is generally considered separate property. Option a is incorrect because gifted property is generally considered separate property unless Sonia elected to treat the property as community property (transmutation from separate property to community property), or commingled the assets. In this case, Sonia does not commingle the assets and the question does not mention that she elected community property status over the assets. Option b is incorrect because Sonia's interest in Dara's Baked Goods will not be included in her husband's gross estate. Separate property is only included in the gross estate of the separate property owner. Because the interest is not in her husband's gross estate, it does not receive a step-to fair market value. Option d is incorrect because if Sonia dies tomorrow she must include 100% of the value of all of her assets owned as separate property (thus 50% of Dara's Baked Goods).

At the death of either partner, an unmarried couple would like to ensure that all property, insurance policies, and retirement plans transfer to the surviving partner. Which of the following will not accomplish the couple's goal? A - Each partner is listed as the beneficiary of the other partner's life insurance policy. B - Each partner is listed as the beneficiary of the other partner's qualified pension plan. C - Each partner is a joint tenant in all of the couple's property owned joint tenancy with rights of survivorship. D - State intestacy laws.

State intestacy laws. Rationale State intestacy laws usually do not provide for asset transfers to non-related parties, including the surviving partner of an unmarried couple. The designated beneficiary of a life insurance policy will receive the proceeds of the life insurance policy by state contract law. The designated beneficiary of a qualified pension plan will also receive the assets by state contract law. A joint tenant of property held JTWROS will also receive the decedent joint tenant's interest per the state contract law.

Which type of will complies with the statutes of the domiciliary state and is drawn by an attorney?

Statutory. Rationale Statutory wills are generally drawn by an attorney, complying with the statutes for wills of the domiciliary state. They are usually signed in the presence of two witnesses.

Which of the following clauses in a will would detail the required amount of time a beneficiary must live following the death of the decedent to receive a bequest? A - Survivorship clause. B - Living clause. C - Remaining life clause. D - Simultaneous death clause.

Survivorship clause. Rationale A survivorship clause provides that the beneficiary must survive the decedent for a specified period in order to receive the inheritance or bequest. Neither a living clause nor a remaining life clause exists. A simultaneous death clause provides an assumption of which person died first in the event that two people die simultaneously.

Vince has been married to Lisa for six years. They are about to buy their first home and have come to you with some questions that they have regarding titling of the home. In your explanation of the different property ownership arrangements, which of the following titling structures can only be entered into by spouses?

Tenancy by the entirety. Rationale Of the property ownerships listed, tenancy by the entirety is the only one limited to married couples.

Which of the following does not transfer property at death by contract?

Tenancy by the entirety. Rationale Tenancy by the entirety transfers property by operation of state titling law. All of the other options transfer property by contract.

Sandy, who is 75 years old, owns a beautiful home in Palm Beach. She has been dating a younger man named Danny. While drafting her will, she decides to leave Danny an interest in her home for a period of three years. Sandy believes that three years is enough time for Danny to find alternative living arrangements. After the three-year period, the property will transfer to her two grandchildren, Marty and Sonny. What type of interest has Sandy left Danny?

Term Interest. Rationale A term interest lasts for a specific period of time, such as three years. A life estate and a usufruct last for the term of a person's life.

Parker lives in Florida and dies at age 71. He has the following assets: Assets Home Porshe Furnishings IRA Checking Account Undeveloped Commercial Lot in Alabama Titling TE with his wife, Penny Sole ownership TE with his wife, Penny Penny as Beneficiary Sole Ownership POD to Penny Sole ownership Value $345,000 $65,000 $45,000 $390,000 $350,000 $490,000 Which of Parker's assets have to be retitled through Florida probate?

The Porsche. Rationale The Porsche must be retitled in probate as it is owned solely. The home, furnishings, IRA and checking account transfer in accordance with law or contract. The Alabama property is subject to ancillary probate, not probate in Florida.

define estate planning?

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.

Claudette's cousin, Curtis, gave her a general power of appointment over his assets. Disregarding any fiduciary problems, all of the following statements concerning the power are correct, except: A - Claudette can pay for her own groceries with her cousin's money. B - Claudette can pay for Curtis's groceries with his money. C - Claudette's gross estate will include Curtis's assets if Claudette dies before Curtis. D - The general power of appointment only allows Claudette to appoint Curtis's assets for expenditures related to health, education, maintenance, or support.

The general power of appointment only allows Claudette to appoint Curtis's assets for expenditures related to health, education, maintenance, or support. Rationale A holder of a general power of appointment can appoint the assets of the grantor for any reason, and to anyone, including herself. The holder of a general power of appointment must also include the value of the assets over which the power has been granted in her gross estate if she dies before the principal. A special (or limited) power of appointment, which denies the power holder the power to appoint the assets to herself, would not cause the value of the assets to be included in the power holder's gross estate if the power holder died before the principal.

Tristan lives in Texas, which is a community property state. He dies at age 55. He has the following assets: Assets Home Furnishings Audi S6 Roth IRA Checking Account (POD to Khloe) Boat licensed and docked in Florida Titling CP w/ his wife, Khloe CP w/ his wife, Khloe CP w/ his wife, Khloe Khloe as Beneficiary CP w/ his wife, Khloe CP w/ his wife, Khloe Value $450,000 $50,000 $55,000 $870,000 $250,000 $200,000 Which of Brody's assets have to go through Texas probate?

The home, the Audi, and the furnishings. Rationale The house, car and furnishings will have to go through Texas probate. The POD would avoid probate and the boat, because of title, would be subject to Florida law.

In which of the following circumstances will a corporate or professional executor be preferable to an individual? A - The individual executor lives across the country from the beneficiaries and from the place of probate. B - The individual executor is a close and trusted friend of the decedent and family. C - The decedent's estate is not large or complicated. D - The individual executor is a retired trust officer.

The individual executor lives across the country from the beneficiaries and from the place of probate. Rationale A corporate executor will be preferable when the individual executor is far away from the beneficiaries and the place of probate because the individual executor is likely to have difficulty managing the estate from a distant location. A corporate executor will be in a better position to handle the probate and administration of the estate assets.

Which of the following statements concerning the practice of law is correct? A - The practice of law is defined by each state. B - Special circumstances are sometimes given to financial planners to enable them to draft wills, trust documents, and other legal documents. C - Reviewing wills to ensure client goals are being addressed is considered practicing law. D - A licensed attorney can give anyone the right to practice law as their agent.

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.

Many financial advisors believe that the best estate plan excludes as many assets as possible from the probate estate. Which of the following statements justifies this belief? A - The probate assets are not subject to creditors. B - The probate estate is filed with the court and can become public knowledge. C - The more excluded assets from the probate estate, the more expensive the administration is likely to be. D - The more assets that go through the probate process, the faster the heirs are likely to receive the assets.

The probate estate is filed with the court and can become public knowledge. Rationale The probate estate becomes public knowledge, thus eliminating the privacy of the deceased.

Bentley's attorney has advised him to set up trusts to avoid probate. Which of the following statements regarding the probate process is not correct? A - The distribution of probate assets can be delayed. B - Through the probate process heirs and/or legatees are given clear title to the property. C - Creditors are protected through the probate process. D - The probate process is confidential.

The probate process is confidential. Rationale The probate process is not confidential. Certain information is required to be filed with the court and becomes public information. Options a, b, and c are true statements

Which of the following is a disadvantage of the probate process? A - The decedent's heirs and/or legatees are given clear title to property. B -The probate process requires several court filings. C - The probate process provides for an orderly distribution of the decedent's assets. D - The decedent's creditors are protected.

The probate process requires several court filings. Rationale The probate process requires several court filings which create additional costs and becomes public information. This is a definite disadvantage to the probate process. Options a, c, and d are all advantages of the probate process.

Which of the following statements regarding a Grantor Retained Annuity Trust (GRAT) is correct? A - The remainder interest of a GRAT is payable to a noncharitable beneficiary. B - The term of the trust should be set equal to the life expectancy of the grantor. C - The remainder beneficiary is taxed on the income in the GRAT each year. D - At the end of the GRAT term, the property reverts to the grantor.

The remainder interest of a GRAT is payable to a non charitable beneficiary. Rationale The remainder interest of a GRAT is payable to a non-charitable beneficiary. Option b is incorrect because the term of the GRAT should be less than the grantor's life expectancy because if the grantor dies during the term of the trust the amount necessary to replace the annuity payments specified in the GRAT, as of the grantor's date of death, is included in their gross estate. Option c is incorrect because the grantor is taxed on the income in the GRAT each year. Option d is incorrect because at the end of the GRAT term, the property is payable to the non-charitable beneficiary.

Erica has come to you for estate planning advice. She has been in a long-term relationship with Jude, but they are not married. Because Erica's family is not aware of the relationship between Jude and Erica, Erica is concerned that at her death, Jude will be overlooked by Erica's family. Of the following recommendations, which would you least likely recommend to fulfill Erica's goal of transferring assets to Jude at Erica's death? A - Transfer the ownership of Erica's real estate investments into tenancy by the entirety. B - Name Jude as the beneficiary of Erica's retirement plan. C - Advise Erica against creating a will, specifically bequeathing her property to Jude. D - Name Jude as the beneficiary of Erica's life insurance policy.

Transfer the ownership of Erica's real estate investments into tenancy by the entirety. Rationale As Erica's financial planner, you would not advise her to transfer the ownership of her property to a tenancy by the entirety as it is an ownership option only available to married individuals. You would advise Erica to name Jude as the beneficiary of her retirement plans and life insurance policies as the beneficiary designation would ensure payment of the proceeds to Jude without the delay of probate and challenges to the will. Advising Erica to create a will and specifically bequeath assets to Jude would fulfill Erica's goal of transferring her assets to Jude, but it also allows for Erica's family to challenge the will. A challenge to the will may create delays, increase the costs of estate administration, and potentially could cause the assets to be distributed to someone other than Jude.

Which of the following statements regarding Family Limited Partnerships (FLPs) is correct? A -The primary purpose of creating a FLP is to provide joint management of the property contributed to the FLP. B - At the creation of the FLP, the transferring individual will have a capital gain equal to the difference between the fair market value of the property transferred and their adjusted basis in the property. C - The limited partners in the FLP control all of the day-to-day functions of the FLP. D - Transfers of the limited partnership interests in the FLP are usually eligible for minority and lack of marketability valuation discounts.

Transfers of the limited partnership interests in the FLP are usually eligible for minority and lack of marketability valuation discounts. Rationale Option d is a correct statement. Option a is incorrect because the primary purpose of the FLP is to transfer interests in property utilizing various valuation discounts and for the general partner to retain complete control. Option b is incorrect because the transfer of property to a partnership is generally a tax-free exchange. Option c is incorrect because limited partners are barred from participating in the day-to-day operations of the FLP.

Colt recently died with a probate estate of $600,000. He was predeceased by his wife, Rhonda, and his daughter, Rain. He has two surviving children, Red and Rud. Colt was also survived by several grandchildren: Red's three children, Jane, James, Jasmine; Rud's three children, Heather, Han, and Heath; and Rain's two children, Bob and Brenda. Colt's will states the following "I leave everything to my three children. If any of my children shall predecease me then I leave their share to their heirs, per stirpes." Which of the following statements is correct? A - Under Colt's will Bob will receive $225,000. B - Under Colt's will Heath will receive $150,000. C - Under Colt's will James will receive $100,000. D - Under Colt's will Rud will receive $200,000.

Under Colt's will Rud will receive $200,000. Rationale Under the will, Red and Rud will each receive 1/3 shares. Rain's 1/3 share will flow to her children, with each of them receiving 1/2 of the 1/3 share or a 1/6 share each.

Will and Jada have lived in Arizona since their marriage. Jada received an inheritance from her father during their marriage. Will and Jada are moving to Massachusetts for a new job and have some questions regarding their move to a common law (separate property) state from a community-property state. Which of the following statements is correct? A - When a couple moves from a community-property state to a common law (separate property) state, separate property will generally remain separate property. B - When a couple moves from a common law (separate property) state to a community-property state, separate property will generally become community property. C - Community property avoids probate at the death of the first spouse and automatically passes to the surviving spouse by operation of law. D - To get the step-to fair market value in basis at the death of the first spouse, a couple who lives in a common law (separate property) state can elect to treat their separate property as community property.

When a couple moves from a community-property state to a common law (separate property) state, separate property will generally remain separate property. Rationale Option a is the only correct statement. When a couple moves from a community property state to a common law (separate property) state, separate property will generally remain separate property. Option b is incorrect because separate property does not generally become community property when a married couple moves from a common law state to a community property state. Option c is incorrect because community property may be disposed of by will and does not automatically pass to the surviving spouse by operation of law. Finally, option d is incorrect because couples living in common law states cannot elect community property treatment at the death of the first spouse in order to get a step-up in basis.

Tinsley's financial planner has advised her of the need to execute estate planning documents. Which of the following is the most important consideration for Tinsley in selecting the person who will serve as her attorney-in-fact?

Whether the individual selected is trustworthy. Rationale Option a is incorrect because the attorney-in-fact does not have to be a family member; it could be a close and trusted friend or even a professional fiduciary. Option b is incorrect because whether the attorney-in-fact is also an estate beneficiary is not an important factor in selecting the attorney-in-fact. Option d is incorrect because the age or birth order of children is an insignificant factor (although many clients will, in fact, select the oldest child simply because they are the oldest child). One of the most significant considerations in selecting fiduciaries, both individual and professional, is trust. The fiduciary is called upon to act in utmost good faith and must have the moral and ethical character to fulfill their duties with the highest degree of trust.

Kobe spent four hours with his attorney drafting his will and ensuring that the will accounted for everything. The will was signed, witnessed, and notarized before it was filed away in the attorney's safety deposit box. Two years later, Kobe reviews the will and determines that he had forgotten to account for grandchildren not yet born at the time the will was written. Which of the following would be the least expensive way for Kobe to add in this new language?

Write a codicil. Rationale Kobe has the option of writing a codicil to amend the will. This would be the least expensive and probably easiest way to amend the will. Kobe could also revoke the prior will and write a new will, but writing a codicil would certainly be less expensive. Neither a generation-skipping transfer clause nor a disclaimer amends a will.