Module 12: Estate Planning and Considerations
A technique used in managing the property of an incapacitated adult individual is A) a durable power of attorney B) an irrevocable living trust C) a custodianship under the Uniform Gift to Minors Act D) a living will
a, A durable power of attorney is used to manage the property of an incapacitated adult individual. A living will is used to express the desire to limit medical treatment in the event of a terminal illness. A revocable (but not irrevocable) trust may provide for a successor trustee in the event of the grantor's legal incapacity.
******Which of the following statements properly describes the concept of gift splitting under federal gift tax law? A) The filing of a return is required by the donor spouse even if the split-gift value is below the annual exclusion. B) Because they are split, the gifts are subject to 2 separate tax rates depending on who makes the gift. C) The annual exclusion is applied to each gift before the splitting of taxable value and determination of tax liability occur. D) The gift-splitting election may be made by any related party who joins in the making of the gift.
a, If a married couple elects to split gifts in any one year, the donor spouse must file a gift tax return even though the total gift may otherwise be less than the annual exclusion amount. The non-donor spouse must consent to the gift on the filing of this return.
An estate whose assets are subject to a valid will is referred to as A) a testate estate B) a standby estate C) an intestate estate D) a primary estate
a, If an individual dies testate, or after executing a valid will, the assets passing under the will become subject to the probate laws of the state in which the decedent was domiciled as of his or her date of death.
Which of the following statements regarding a living will and a durable power of attorney for health care is NOT correct? A) A living will is probably preferable to the durable power of attorney for health care because it may be used in more medical situations; however, many individuals execute both documents. B) A durable power of attorney for health care employs a third-party agent to speak on the principal's behalf. C) A durable power of attorney for health care will take effect under nonterminal medical conditions. D) A living will is effective only if an individual is declared to be terminal.
a, The correct answer is "a living will is probably preferable to the durable power of attorney for health care because it may be used in more medical situations; however, many individuals execute both documents." The durable power of attorney for health care is probably preferable to the living will because it may be used in more medical situations; however, many individuals execute both documents.
Which of the following statements regarding a living trust is/are CORRECT? 1.A living trust is a probate-avoidance method in which property is transferred to a trust during an individual's lifetime and is distributed according to the terms of the trust. 2.Because the trust rather than the grantor owns and manages the trust assets at the time of the grantor's death, the trust assets do not pass through probate. A) Both I and II B) II only C) Neither I nor II D) I only
a, The correct answer is "both I and II." Both of statements I and II are correct.
Which of the following statements regarding gifts is/are CORRECT? 1.An individual can give up to $15,000 (2020) tax free to each of an unlimited number of donees. 2.Donors can avoid estate and inheritance taxes by giving property away during their lifetimes. 3.The responsibility for payment of any gift taxes due is that of the donor and not the donee. 4.A donor may gift an unlimited amount of money to a spouse or qualified charity free of tax. A) II and IV B) I, II, III, and IV C) III only D) I only
b, All of these statements are correct.
Which of the following estate planning techniques is/are effective method(s) of limiting, reducing, or avoiding federal estate taxes? 1.Use of the gift tax annual exclusion 2.Creation of an irrevocable life insurance trust 3.Use of the unlimited marital deduction A) II and III B) I, II, and III C) III only D) I and II
b, All of these techniques will assist in reducing the gross estate or the taxable estate.
******Which of the following statements regarding property owned in joint tenancy with right of survivorship (JTWROS) are CORRECT? 1.Ownership is transferred to the surviving joint tenant by operation of law. 2.Couples who hold property in JTWROS may not be able to take advantage of the separate exemption equivalent available to both spouses. 3.The property is subject to probate. 4.The property may be included in a decedent's gross estate. A) I, III and IV B) I, II, and IV C) II and III D) II, III, and IV
b, Property owned in joint tenancy with right of survivorship (JTWROS) will transfer to the surviving co-owner automatically by operation of law, rather than by the probate process; however, a portion of the asset's value may be included in the decedent's gross estate. Couples who hold property in JTWROS may not be able to take advantage of the separate exemption equivalent available to both spouses and may be limited to the effective use of only 1 of these exemption equivalents, thereby resulting in a potential estate tax liability. not A or d
*****In 2020, Allison gave an outright gift of $60,000 to a friend, Stacy, who needed the money to pay her medical expenses. In filing her gift tax return, Allison was entitled to an annual exclusion of A) $30,000 B) $15,000 C) $0 D) $60,000
b, The correct answer is "$15,000." The gift is an outright gift of a present interest to Stacy and, therefore, qualifies for the $14,000 annual exclusion (for 2016). This is not a qualified transfer for medical purposes because the payment was not made directly to a medical care provider.
Which of the following is an advantage of using the revocable living trust as an estate transfer document? 1.A major advantage of a revocable living trust as a document of estate transfer is, if funded properly, its ability to avoid probate. 2.A major advantage is the trust's failure to provide any income tax or estate tax savings. A) Both I and II B) I only C) Neither I nor II D) II only
b, The correct answer is "I only." A major disadvantage is the trust's failure to provide any income tax or estate tax savings.
Which of the following describes a person who dies testate? A) A person who dies and leaves no surviving heirs B) A person who dies with a valid will C) A person who dies owning real estate in more than 1 state D) A person who dies with no valid will
b, The correct answer is "a person who dies with a valid will." A person dies testate if he has a valid will.
Which of the following statements regarding the filing of an estate tax return is/are CORRECT? An estate tax return must be filed if the value of the gross estate plus adjusted taxable gifts on the date of death exceeds $11,580,000 (in 2020). The estate tax return is due 9 months after the decedent's date of death, although a 6-month extension of time to file may be requested. A) Neither I nor II B) Both I and II C) I only D) II only
b, The correct answer is "both I and II." Both statements I and II are correct.
Which of the following statements regarding a bypass trust is CORRECT? A) The assets in the trust qualify for the marital deduction. B) The purpose of the bypass trust is to take advantage of the estate tax applicable credit amount. C) The surviving spouse cannot receive any income from the trust during her lifetime. D) When the surviving spouse dies, the remaining assets in the bypass trust are included in the surviving spouse's gross estate.
b, The correct answer is "the purpose of the bypass trust is to take advantage of the estate tax applicable credit amount." A bypass trust is used to take advantage of the estate tax applicable credit amount. The assets in the trust do not qualify for the marital deduction and are not included in the surviving spouse's gross estate. The surviving spouse often is entitled to receive the income from the trust for her lifetime.
In a simple will, what is a common provision explaining the disposition of a decedent's property? A) Marital and bypass trusts are included to implement tax planning. B) All property is left in contractual form that cannot be changed after the decedent's death. C) All property is left to the decedent's surviving spouse. D) Numerous charitable bequests supplement the lifetime gifts of the testator.
c, A simple will is one that is executed in small estates that do not have a need for sophisticated tax planning. The distinguishing feature of this type of will is that all property is left to the surviving spouse.
Walter has an estate valued at $25 million. He is married and has 2 adult children. In 2020, he and his financial services professional decide to implement an estate plan using a bypass trust (B trust) and a marital deduction trust (C trust). Which of the following amounts will Walter leave to the bypass trust (B trust) in implementing his plan? A) $7.5 million B) $0 C) $11,580,000 D) $15 million
c, The correct answer is "$11,580,000." To implement his bypass planning, Walter will leave an amount equal to the estate tax lifetime exemption ($11,580,000 in 2020) to the B trust and leave the remainder of his estate to the C trust.
******A guardian is best described by which of the following descriptions? A) The individual appointed by a court to oversee the property management of an incompetent individual B) The individual who serves as the attorney-in-fact to perform designated acts on behalf of the principal C) The individual who is responsible for managing the assets of a trust D) The individual appointed by a court to oversee the personal care of an incompetent individual
d, A guardian is usually a court-appointed individual assigned to oversee the personal care and well-being of an incompetent individual. A conservator oversees the property management of such an individual. Note: The same person can be appointed by the court to perform both roles.
Which legal document, if any, is necessary to transfer property titled in joint tenancy with right of survivorship (JTWROS) at death? A) A beneficiary designation under contract B) A transfer on death designation C) A revocable living trust D) No document necessary
d, Property titled in joint tenancy with right of survivorship (JTWROS) is transferred by operation of law at the decedent's death. Therefore, no legal document is needed to transfer the property.
if a citizen or resident of the United States dies during 2020, an estate tax return must be filed if the tentative tax base at the date of death was valued at more than A) $14,000 B) $1 million C) $3.5 million D) $11,580,000
d, The correct answer is "11,580,000." An estate tax return must be filed if the tentative tax base exceeds the lifetime exemption amount. For 2020, the lifetime exemption amount is $11,580,000.
****In planning for an individual's incapacity or disability, when is a living will effective as a medical directive? A) At the date of signing B) At the individual's date of death C) At the time the individual is no longer able to speak D) At the date the individual is declared to be terminal
d, Unlike a medical durable power of attorney that takes effect when an individual is no longer able to instruct others about his medical wishes, a living will takes effect only in the event that the individual is declared terminally ill. This declaration is usually made with the concurrence of at least 2 physicians' medical opinions.
