Estate Planning - Module 4

C.J. Yee's taxable income fluctuates from year to year. Her adjusted gross income this year is $60,000, but it will probably be less in the future. Her major objective is to reduce income taxes for the current year. She plans to contribute $35,000 to the American Red Cross. Which one of the following is the most appropriate property for C.J. to gift to the American Red Cross to maximize her current-year charitable income tax deduction?

A life insurance policy with a face value of $35,000; net premiums, paid by C.J., of $24,000; and a replacement cost of $30,000

Robert Williams is thinking of retitling a brokerage account that is currently solely in his name to add a provision that the account be transferred on his death to his daughter. Which of the following statements is CORRECT regarding an advantage or a disadvantage of retitling the account in this manner?

An advantage is that Robert has reduced his probate estate.

Your client currently has a large gross estate that includes the following assets: A payable on death (P.O.D.) bank account in favor of client's son at death A residence owned as joint tenants with right of survivorship with his spouse Stocks held in a revocable trust that continues after his death for the benefit of his surviving spouse and family Which one of the following is a CORRECT statement regarding the advantages or disadvantages for this client of using these will substitutes?

An advantage of the way the bank account is titled is that it is more easily and inexpensively created than a revocable trust.

Assuming that a decedent left no valid last will and testament, which one of the following assets will pass by the laws of intestate succession?

Assets held by the decedent and his spouse as community property in a community property state that were designated community property by a nuptial agreement

Alice Greenlee, a widow, would like to reduce the value of her probate estate. She is retired and needs to retain all the income from her assets. She wants all of her estate to go to her daughter, Bonnie, and son, Charles, in equal shares, while minimizing the legal and administrative costs. She currently has the following property: a personal residence, valued at $130,000 rental real estate, valued at $105,000 a stock portfolio, valued at $70,000 pension benefits, valued at $270,000 Given Alice's situation and objectives, which one of the following will substitutes would not be appropriate?

Changing the title of the rental real estate so that Alice, Bonnie, and Charles are joint tenants

Alex and Megan need to have their wills updated; however, they would like to avoid the expense of writing entirely new wills. Which one of the following techniques would best meet their needs?

Execute codicils

Herbert Lawson, who lives in a common law state, has a will that gives his entire probate estate in equal shares to his three children. All of Herbert's $16.8 million gross estate is owned in his sole name except for his residence, which is owned as joint tenants with right of survivorship with his spouse. Herbert's interest in this residence is valued at $500,000. Despite having been married for 30 years, Herbert's spouse has no substantial estate of her own. Herbert has made $400,000 in adjusted taxable gifts since 1976. Herbert's spouse is named personal representative (PR) of his estate. Assuming Herbert is survived by his spouse and children, which one of the following is a disadvantage of the probate process for Herbert?

Herbert's spouse will have the right to elect against the will even though she is named as the PR of the estate. With no substantial estate of her own, Herbert's spouse will be tempted to elect against the will to get part of the probate estate. While the amount she can get by this election is controlled by state law, and this amount may be reduced by the value of his interest in the residence, most states will allow a surviving spouse (especially in a marriage of this duration) to receive a substantial portion of the probate estate. The probate process does not restrict the right to disclaim. A spouse can elect against the will and retain what is given to him or her by will substitute. The amount given by will substitute is simply deducted from the amount given by making the election. And the spouse receives the difference from the probate estate.

Which of the following are property interests that must go through the probate process? A car that passes to the decedent's spouse by the state's intestate succession statute. A government savings bond that is titled in the name of the decedent payable on death to the decedent's daughter. Life insurance proceeds payable to the decedent's estate. Assets in a revocable trust that pass to the decedent's children at the decedent's death.

I and III Assets that pass by the laws of intestacy (option I) are subject to probate. Although life insurance proceeds that are payable to a named beneficiary pass by will substitute, when they are payable to the decedent's estate (option III) they become subject to the probate process. The government savings bond (option II) passes by will substitute because of the beneficiary designation. Assets in a revocable trust (option IV) also pass by will substitute, because the trust names remainder beneficiaries.

Which of the following forms of ownership pass through probate when an owner dies? Fee simple Tenancy by the entirety Community property Joint tenancy with right of survivorship (JTWROS)

I and III JTRWOS and tenancy by the entirety do not pass through probate because they both include a right of survivorship and pass to the surviving joint owner(s) by operation of law.

Which of the following should be included in a will? Provision for guardians of minors Funeral instructions Beneficiaries for retirement accounts

I only

Which of the following statements would avoid probate at the owner's death? Payable on death (P.O.D.) account Tenancy by entirety Funded inter vivos trust Joint tenancy with right of survivorship (JTWROS)

I, II, III, and IV

Which of the following estate planning objectives can be accomplished through a will? Creating a presumption of survivorship Establishing a priority for eliminating or reducing bequests if the estate has insufficient assets Avoiding probate of estate assets Naming a residuary beneficiary to take all assets that remain after specific bequests are allocated

I, II, and IV

Wiley Willmaker lives in a common law state that has adopted the Uniform Probate Code. Wiley has been married to Jane for 28 years. All family assets are in Wiley's name only. His will, executed in 2001, is structured as follows: It leaves specified tangible personal property and all real property, which amounts to 28% of his estate, to Jane. It leaves specified tangible and intangible personal property, which amounts to 45% of his estate, to "my children, Carrie and Maureen, in equal shares." It leaves specified intangible personal property, which amounts to 25% of his estate, to a qualified charity. It is attested to and witnessed by his daughter, Maureen. No other provisions disposing of property exist. Wiley has two children from his current marriage, Maureen and Chad, and a daughter, Carrie, from his prior marriage. Relations with Chad have become strained, and Wiley feels that Chad has been so disrespectful he should not receive any property from Wiley. Which of the following statements is CORRECT about why Wiley's will needs to be amended? The will needs to be properly witnessed by a disinterested party. Chad may still be able to receive a share of Wiley's property unless the current will is changed. The estate will not be subject to the intestacy statutes. The will needs a residuary clause.

I, II, and IV

If Marleen Harris died and her daughter Tasha Harris decided to disclaim part or all of her inheritance, which of the following steps should Tasha take to make sure that any such disclaimer is a qualified disclaimer? The disclaimer must be irrevocable. The disclaimer must be in writing. The disclaimer must be filed within six months of Marleen's death. Tasha cannot have benefited from any disclaimed assets before execution of the disclaimer.

I, II, and IV Tasha should make sure the disclaimer is writing and is irrevocable. Additionally, she should make sure that it is filed with the executor within nine months, not six months. Finally, Tasha cannot have benefited from disclaimed assets and cannot try to direct Marleen's disclaimed assets to particular heirs.

Which of the following statements regarding a payable-on-death (POD) account is(are) CORRECT? A payable on death account is a bank or savings account controlled by the depositor so long as living, but with a provision that the account is payable to another if still open when the depositor dies. Payable-on-death accounts are included in the depositor's probate estate. Payable-on-death accounts are considered a will substitute. Payable-on-death accounts could create guardian problems if paid to a minor beneficiary.

I, III, and IV

Which of the following statements should be considered to minimize the probability of a successful will contest? Leaving every heir a bequest, even if it is small Executing a codicil that appoints a new executor of the estate Establishing a trust during lifetime to provide for testamentary disposition to the heirs Including an in terrorem clause in the will if these clauses are generally enforced in the testator's state

I, III, and IV

Leon Brown has consulted a CFP® professional for estate planning advice. One of the CFP® professional's recommendations is that Leon take steps to avoid probate when he dies. In communicating this recommendation to Leon, which of the following statements made by the CFP® professional would be CORRECT? Probate will not be necessary if Leon dies testate. Avoiding probate will help keep Leon's affairs private after he dies. Probate might delay the distribution of Leon's assets to his heirs.

II and III

Which of the following statements is CORRECT regarding the purpose and characteristics of a nuncupative will? A nuncupative will is one whose material provisions are written entirely in the testator's handwriting. A nuncupative will requires at least one witness. State law may limit the types and amounts of property that may be distributed by this form of will. This form of will is recognized in most states.

II and III

Which of the following are interests that must go through probate? A residence that the decedent held in tenancy by the entirety with his spouse An automobile that passes according to state intestacy laws Securities held by the decedent with a T.O.D. designation Real property, located in the state of the decedent's domicile, that is held solely in the decedent's name but that is considered to be community property

II and IV The interest in option I will not go through probate because tenancy by the entirety has a right of survivorship feature. Option III will not go through probate because the T.O.D. (transfer on death) designation is a type of will substitute. The decedent's share of the real property in option IV will be subject to probate in the state in which it is located, as community property must pass through probate.

Which of the following statements is CORRECT regarding a payable on death (P.O.D.) account used as a will substitute? Use of a P.O.D. designation is a completed gift, but is entitled to an annual exclusion for each named beneficiary. The named beneficiary can transfer up to half of the assets in the account. The account assets will be included in the account owner's gross estate. The account assets will be transferred outside of probate.

III and IV

Trusts created under a will are examples of which type of trust?

Testamentary trust

Your data gathering meeting with Colin Greywhale indicated the following about his property interests: He has the right to decide, without limitation, who will receive the entire corpus of his uncle's trust. Colin's will does not exercise this right. His wife owns a paid-up life insurance policy that insures Colin's life; his wife, Lois, is the primary beneficiary. Five years ago, he created the revocable CG Trust for his children and funded it with $80,000 worth of securities; two years ago, when the trust fund was worth $130,000, he made it irrevocable. Two years ago, he had cumulative taxable transfers that exceeded the applicable exclusion amount and paid $32,000 in gift tax to the federal government. If Colin died in the current year, which one of the following would be excluded from his gross estate?

The death benefit of the life insurance policy

If Arthur Greene dies today, which one of the following assets will be included in his probate estate?

The family limited partnership (FLP) he has set up

Which one of the following is an advantage of all will substitutes?

They avoid the probate process.

Wanda Skaggs would like to avoid the time, expense, and inconvenience of probate. She also would like to reduce the size of her gross estate. Which one of the following strategies would be most likely to meet all of Wanda's goals?

Transferring property to her son, Chauncy, in return for his promise to pay her a fixed annuity for the rest of her life based on the value of the property

Which one of the following statements regarding the estate tax marital deduction is NOT correct?

Use of the deduction is elective for all property that qualifies for the deduction.

Juan Valentino's will leaves his half of his probate estate to a testamentary trust in which his spouse and children are income beneficiaries, and his children the remainder beneficiaries. The will gives the remainder of his probate estate outright to his children. Juan wanted to be assured that both his spouse and children will receive some part of his estate while incurring minimal estate administration fees. Juan has a gross estate of $2 million. Since the will was drafted, Juan has had second thoughts about the way he decided to distribute the assets of his estate. Does Juan need to consider amending his will?

Yes, because the existing will does not include a residuary clause and thus could be subject to the intestacy statutes.

The provisions of all of the following types of state statutes can be altered by express provisions in a will except

elective share statutes.

Tess Thomas lives in a common law state. She "wrote out" a will in her own handwriting and signed it. In the will, she left everything to her sister, Kate, because she and her spouse separated last month. Since executing the will, Tess has become concerned about its adequacy. You should refer her to an attorney after informing her that

if she has not met the state's will requirements, her will is unenforceable, and probate property interests will pass according to the intestate succession statute.

Owning property in joint tenancy with right of survivorship (JTWROS) is a will substitute because

the property passes outside of probate.