Chapter 16

A married couple with 2 children and 5 grandchildren has an estate valued at $4 million. They decide to use gifts as a means to transfer some of their wealth to their family now and lower the value of their estate. If for a five-year period the couple give the maximum tax-free gift to each of their children and grandchildren, the value of their estate would be reduced to A) $84,000. B) $420,000. C) $3,090,000. D) $3,916,000.

$3,090,000

You and your spouse wish to give each of your three grandchildren a yearly tax-free gift from your estate. If you give each of your three grandchildren the maximum amount allowed by law, what is the total amount that you as a couple would pay out in gifts in 2014? A) $14,000 per year B) $42,000 per year C) $54,000 per year D) $84,000 per year

$84,000 per year

Your estate tax burden can be reduced by giving gifts to your heirs prior to your death. This has the effect of reducing the value of your estate and thus lowering your tax obligation. As of 2011, each spouse can give up to $________ each year to ________. A) 7,000; 2 people B) 8,000; 3 people C) 9,000; 4 people D) 10,000; 5 people E) 14,000; as many people as you like

14,000; as many people as you like

) Which of the following is a requirement of a valid will? A) You must be mentally competent when the will is written. B) You can't be under undue influence of another person. C) Your will must conform to the laws of the state. D) All of the above E) Only A and B

All of the above

All of the following are commonly used estate planning tools except A) a will. B) durable power of attorney and joint ownership of assets. C) life insurance. D) gifts and trusts. E) All of the above are commonly used estate planning tools.

All of the above

Carey is a widow with two teenagers, Brenda age 13 and Terry age 15. Her health has declined and she knows that a will should be drafted. Which of the following statements is not an important reason to have a will? A) Without a will the court will choose Brenda's and Terry's guardian(s). B) Without a will the court will appoint an administrator for the estate. C) The children's best interests may not be served without a will. D) Without a will, the estate administration fees may cost more, thus leaving less to heirs. E) All of the above are reasons Carey should have a will.

All of the above

Madonna is a famous singer; as such, she may select to settle her estate through a trust because of which reason(s)? A) Trusts are harder to challenge. B) Trusts reduce estate taxes. C) Trusts provide confidentiality. D) Trusts allow for professional management. E) All of the above

All of the above

What is/are advantage(s) to establishing a trust? A) Trusts bypass probate. B) Trusts can ensure that children from a previous marriage will receive some inheritance. C) Trusts can be used to shelter assets from estate taxes. D) A trust does not become a matter of public record, so it offers confidentiality. E) All of the above are advantages to using a trust.

All of the above

The unlimited gift tax exclusion for medical or education expenses can only be gifted to which of the following? A) Blood relatives B) Siblings C) Your biological children D) Anyone regardless to how they are related to you E) None of the above

Anyone regardless to how they are related to your

Within Herbert's will he designates ________ who are willed his property, an ________ who will be responsible for carrying out the provisions of the will, and a(n) ________ who will care for any of his children under age ________. A) trustees; attorney; executor; 18 B) heirs; executor; nanny; 16 C) beneficiaries; executor; guardian; 18 D) heirs; attorney; guardian; 16 E) heirs; attorney; guardian; 21

Beneficiaries; executor; guardian; 18

Alfred has appointed an executor in his will. This person will be responsible for A) carrying out Alfred's wishes. B) acting under the durable power of attorney. C) managing Alfred's property until the estate is passed on to the heirs. D) acting under the durable health care power of attorney. E) both A and C.

Both A and C

In some states, property that is acquired during a marriage is referred to as ________ and upon the death of either spouse, his/her half is distributed according to the will, or if intestate, according to state law. A) ownership property B) community property C) marriage assets D) common assets E) none of the above

Community property

The ________ allows for the distribution of money and property in a will. A) attestation and witness clause B) payment of debt and taxes clause C) common disaster clause D) disposition of property clause E) introductory statement

Disposition of property clause

What is the name for a document that provides for someone to act in your place for legal and financial matters in the event that you become mentally incapacitated? A) Specific power of attorney B) Revocable power of attorney C) Incapacitated power of attorney D) Durable power of attorney E) None of the above

Durable power of attorney

We may prepare a ________ to appoint someone to legally act on our behalf in the event we become mentally incapacitated and a ________ to state our wishes in the event of a terminal illness or injury. A) living will; common disaster clause B) durable power of attorney; living will C) last letter of instruction; living will D) living will; durable power of attorney E) durable power of attorney; last letter of instruction

Durable power of attorney; living will

The unified tax credit A) Allows individuals to give $14,000 tax-free each year to as many people as they like. B) Ensures that almost half of any amount that you pass on beyond the first $3.5 million of an estate will be lost in taxes. C) Lets money be passed down from a grandparent to a grandchild tax-free. D) Essentially nullifies the taxes on the first $5.34 million of an estate.

Essentially nullifies the taxes on the first $5.34 million of an estate

Herbert Dix picked up a booklet at his attorney's office that described estate planning. All of the following were included as primary objectives of estate planning except A) distribute property according to your wishes and provide for your dependents. B) develop a plan that will minimize estate and inheritance taxes. C) develop a plan that minimizes settlement costs, including legal and accounting fees. D) utilize a living will to describe your choices in a terminal situation and a health care proxy to identify those to whom you relinquish health care decision-making authority in the event of physical or mental impairment. E) estate planning involves all of the above objectives

Estate planning involves all of the above

The purpose of a ________ trust is to reduce estate tax liability when one spouse predeceases the other. A) sprinkling B) family C) Q-TIP D) revocable

Family

Because Toby and Jenny's children are under the age of 18 they should name a ________ to care for them and manage their property should Toby and Jenny pass away. A) juvenile attorney B) guardian C) proxy D) godparent E) none of the above

Guardian

Through the portable estate exemption a surviving spouse's exemption amount will do which of the following? A) Increase B) Decrease C) Remain the same D) None of the above

Increase

You and your brother have decided to invest in the stock market together. You will put in $5,000 each and open a single account at a brokerage. How should the ownership of this account be established if both of you wish the other to keep all the money in the event that the other should die? A) Tenancy by the entirety B) Joint tenancy with the right of survivorship C) Tenancy in common D) Community property

Joint tenancy with the right of survivorship

Under ________, ownership passes directly on to the surviving owner or owners, bypassing the will. With ________, when one spouse dies assets become part of the deceased's estate and are distributed through the will. A) tenancy in common, community property B) tenancy in common, tenancy by the entirety C) joint tenancy with the right of survivorship, tenancy in common D) joint tenancy, the right of survivorship E) tenancy in the entirety, uncommon tenancy

Joint tenancy with the right of survivorship, tenancy in common

You were almost killed in a recent mountain bike accident and have decided to write a will. You also plan to construct a(n) ________, which will give information and directions with respect to the execution of your will. A) codicil B) letter of last instructions C) living trust D) appointment clause E) attestation and witness clause

Letter of last instructions

A ________ provides a directive to a physician that allows you to state your wishes regarding medical treatment in the event of a terminal illness or injury that renders you unable to make decisions regarding life support or other medical treatments. A) letter of last instructions B) revocable will C) living will D) termination letter E) none of the above

Living will

Which of the following is a disadvantage of joint ownership? A) Jointly owned assets avoid probate. B) It makes it legal for one party to "take the money and run." C) It discourages compromise in the case of a divorce. D) None of the above is a disadvantage of joint ownership.

None of the above is a disadvantage of joint ownership

Which feature makes it possible for a married couple to transfer up to $10.68 million and avoid federal estate tax, all without having to use a family trust? A) Propaganda B) Portability C) Sustainability D) Revocable

Portability

A trust that gives the individual establishing the trust the ability to direct income from the trust to his or her spouse over the spouse's life, and then, at the spouse's death, to choose to whom the assets go is called a A) sprinkling trust. B) Q-TIP. C) A-B trust. D) credit-shelter trust. E) unified credit trust.

Q-TIP

A ________ gives the individual establishing the trust the ability to direct income from the trust to his or her spouse over the spouse's life, and then to whomever else the individual wants the funds to go. A) Q-TIP trust B) sprinkling trust C) family trust D) living trust

Q-TIP trust

A ________ is a trust that distributes income according to need, as determined by the discretion of the trustee rather than according to some preset formula. A) family trust B) sprinkling trust C) needs distribution trust D) compassion trust E) none of the above

Sprinkling trust

The process of determining what your heirs will receive from your estate occurs in which step of the estate planning process? A) Step 1 B) Step 2 C) Step 3 D) Step 4 E) Step 5

Step 2

To determine your estate's net worth, you would A) add the amount of your estate's assets to the amount of your estate's liabilities. B) add the amount of your estate's accounts receivable to the amount of your estate's assets. C) subtract the amount of your estate's assets from the amount of your estate's liabilities. D) subtract the amount of your estate's liabilities from the amount of your estate's assets. E) ask your lawyer the amount of your estate's worth and deduct it from the amount of your estate's market value.

Subtract the amount of your estate's liabilities from the amount of your estate's assets

________ is a type of ownership that exists only between married couples. A) Survivorship tenancy B) Tenancy by the entirety C) Common tenancy D) Marriage tenancy E) Conjugal tenancy

Tenancy by the entirety

You and your roommate have decided to purchase a house together. If you want your share of the asset to pass on to your relatives named in your will, what type of ownership should you establish for the house? A) Tenancy in common B) Community property C) Joint tenancy with the right of survivorship D) Tenancy by the entirety

Tenancy in common

You know that the advantages of having a will likely outweigh the disadvantages associated with probate. Which is not a disadvantage of probate? A) Legal fees and court costs must be paid. B) The will is validated. C) There are typically executor fees for settling the estate (unless the executor is a family member who chooses only to be reimbursed for expenses). D) Costs of probate can equal 1 to 8 percent of the value of the estate. E) The process may be slow, particularly if someone challenges the will.

The will is validated

Ingrid is single with no dependents. She has been in the hospital with a coma for the last 2 weeks. Her bills are piling up and her rent on her apartment is due. Who is legally empowered to take care of her banking and bill paying while she is incapacitated? A) Whoever is named as her executor B) Whoever is named in her living will C) Whoever is named in her durable power of attorney D) Whoever is named in her durable health care power of attorney

Whoever is named in her durable power of attorney

Herbert's will is missing the section revoking any earlier wills. A young lawyer prepared the will and made this oversight. What dangers are present because of this omission? A) There may be a prior conflicting will. B) Multiple wills make a mess out of the probate process. C) The probate process will slow down tremendously. D) It could be many years before the heirs receive their inheritance. E) All of the above

all of the above

What methods exist to avoid probate, or to establish non-probate property? A) Gifts B) Trusts C) Contracts like life insurance and retirement plans D) Joint ownership E) All of the above

all of the above

Which of the following does not have to be paid out of your estate before distribution to your heirs? A) Legal fees B) Funeral expenses C) Outstanding debt D) Estate and inheritance taxes E) All of the above must be paid prior to the distribution of assets.

all of the above

Which of the following is/are a typical cash need(s) of one's estate? A) Funeral expenses B) Legal fees C) Outstanding debt D) Estate and inheritance taxes E) All of the above

all of the above

The U.S. tax code allows ________ to transfer the entire estate to the survivor tax-free, assuming the recipient is a U.S. citizen. A) a generation-skipping clause B) gift taxes C) a common disaster clause D) tenancy in common E) an unlimited marital deduction

an unlimited martial deduction

Someone who receives assets or money from a person after death is called the deceased's A) receptor. B) receptee. C) obtainee. D) beneficiary. E) none of the above.

beneficiary

In which kind of trust can you place your assets while still alive? A) A revocable living trust B) Sprinkling trust C) An irrevocable living trust D) None of the above E) Both A and C above

both a and c above

The difference between a testamentary trust and a living trust is that a testamentary trust A) is written by an attorney. B) is created by a will. C) exists only after probate. D) is controlled by the heirs. E) both B and C.

both b and C

An attachment to a will that alters or amends a portion of the will is called a A) proxy. B) codicil. C) letter of last instructions. D) revocation. E) none of the above.

codicil

John Kennedy Jr. and his wife Caroline both perished in the same plane crash. Which of the following clauses would identify who is assumed to have perished first? A) Appointment clause B) Common disaster clause C) Attestation clause D) Witness clause E) Bimodal death clause

common disaster clause

All of the following features are common to a basic will except A) introductory statement. B) payment of debt and taxes clause. C) disposition of property clause. D) establishment of a trust. E) appointment clause.

establishment of a trust

You are engaging in ________ when you plan for what happens to your accumulated wealth and your dependents after you die, as well as determining decision-making authority should you be physically or mentally impaired. A) estate planning B) retirement planning C) unified planning D) death establishment E) None of the above is correct.

estate planning

An individual who is responsible for carrying out the provisions of your will and managing your property until the estate is passed on to your heirs is called the A) attorney. B) lease. C) executor. D) receptor. E) none of the above.

executor

A(n) ________ is a trust established to transfer assets to your children, while allowing the surviving spouse access to funds in the trust, if necessary. Trust assets are distributed to the children tax free upon the death of the surviving spouse. A) family trust B) revocable living trust C) irrevocable living trust D) pre-probate trust

family trust

The individual you name who will care for your minor aged children is known as their A) executor. B) beneficiary. C) guardian. D) personal representative. E) Only A and B are correct.

guardian

A trust in which you relinquish title and control of the assets when they are placed in the trust, which becomes a separate legal entity, is called a(n) A) family trust. B) revocable living trust. C) irrevocable living trust. D) testamentary trust.

irrevocable living trust

What does the generation skipping tax do? A) It imposed additional tax on gifts and bequests that are made from grandparent to grandchild. B) It allows grandparents to skip paying taxes on funds gifted to grandchildren. C) It encourages parents to skip leaving funds to their own children and to plan on leaving their estate to their grandchildren. D) All of the above E) None of the above

it imposed additional tax on gifts and bequests that are made from grandparent to grandchild

Only about ________ Americans have created a trust as part of an estate plan. A) one out of three B) one out of five C) five out of 10 D) eight out of 10

one out of five

During the lifetime of Jack and his wife, they acquired assets individually and as members of former marriages. During their marriage, they acquired more joint property, but his wife left all of her estate to her children. Upon his wife's death, Jack would have received the other half of their A) property owned as joint tenants with right of survivorship. B) community property, if residents of a community property state. C) property owned as tenants by the entirety. D) all of the above. E) only A and C.

only A and C

For someone who dies intestate, or without a valid will, ________ and the applicable state laws allow for the orderly distribution of the estate. A) durable power of attorney B) letter of last instructions C) probate D) testamentary trust E) all of the above

probate

The legal procedure that establishes the validity of a will, and then distributes the assets of the estate including the payment of any taxes, is called A) probate. B) verification. C) certification hearing. D) establishment hearing.

probate

A legal entity in which you control the assets and can receive income, but also have the option to leave or remove assets, is called a(n) A) family trust. B) revocable living trust. C) irrevocable living trust. D) testamentary trust.

revocable living trust

________ is a type of ownership where two or more individuals share asset ownership, but the asset is passed to the deceased owner's estate and is distributed according to his or her will. A) Survivorship tenancy B) Ownership tenancy C) Tenancy in common D) Tenancy without distribution E) Joint tenancy with the right of survivorship

tenancy in common

) If you were to create a trust by your will, which becomes active only after you die, then you have created a(n) ________. A) terminal trust B) revocable living trust C) irrevocable living trust D) testamentary trust

testamentary trust