Module 9: Estate Planning Basics

Which one of the following is a true statement about Coverdell Education Savings Accounts? Coverdell Education Savings Accounts can be opened for anyone under age 21. Coverdell Education Savings Accounts can only be used for postsecondary expenses. A Coverdell Education Savings Account must be fully distributed by the time the beneficiary reaches age 30.

A Coverdell Education Savings Account must be fully distributed by the time the beneficiary reaches age 30.

Which one of the following statements regarding property held in a custodial account (UTMA or UGMA) is correct? The beneficiaries of custodial accounts can be minors or disabled adults (as defined by state law). A custodial account can have more than one beneficiary. A custodial account is generally less costly to create than a trust.

A custodial account is generally less costly to create than a trust. When a custodial account is created, a trust agreement does not have to be drafted because the state statutes determine what can and cannot be done with the property. A custodial account is established simply by titling property in the name of the minor pursuant to the act (UTMA or UGMA) that was adopted by the appropriate state and then naming a qualified custodian.

Which one of the following would be considered community property? Bank accounts owned separately by the spouses containing income that each earned before marriage. A parcel of real estate titled solely in the husband's name that was acquired after the marriage with joint funds. Property that was inherited by the wife from her parents during the marriage.

A parcel of real estate titled solely in the husband's name that was acquired after the marriage with joint funds.

Which one of the following is a correct statement about estate planning documents? (LO 9-2) A durable power of attorney is effective even after the principal's death. A living will is an irrevocable document where a person states what life-sustaining measures they would want in the event they were unable to consent to treatment. A valid will written in one state will be valid in another state; however, state statutes may interpret some parts of the will differently.

A valid will written in one state will be valid in another state; however, state statutes may interpret some parts of the will differently.

Which of the following is not a common type of custodial account for minors? UGMA DSUE UTMA

DSUE

Which one of the following accurately describes property that is owned as tenants in common? A single piece of property can only be owned by one tenant. Each tenant can own a different percentage share of ownership. When a tenant dies, his or her interest will not have to pass through the probate process. When a tenant dies, his or her interest will pass by will substitute.

Each tenant can own a different percentage share of ownership.

Living wills are irrevocable

False

Henry had a will drafted in North Carolina, and has now moved to Alabama. Which one of the following statements about his will is true? His will is not valid in Alabama. His will is valid in Alabama, but Alabama state statutes may interpret some sections differently than North Carolina. His will would be valid as long as he files it with the court in Alabama.

His will is valid in Alabama, but Alabama state statutes may interpret some sections differently than North Carolina.

Which one of the following is a correct statement regarding the characteristics of intestate succession laws, including state intestacy statutes? If there is a surviving spouse and/or children, it is unlikely that other blood relatives of the decedent will receive any of the decedent's property. The statutes can be used to make sure that property is distributed based upon the decedent's wishes. The statutes make provisions for transfer of property to charity.

If there is a surviving spouse and/or children, it is unlikely that other blood relatives of the decedent will receive any of the decedent's property. This statement is true because state intestacy statutes assume that a decedent would want to provide for a surviving spouse and children to the exclusion of any other relatives.

Which one of the following accurately describes a weakness or disadvantage of a will? Homestead and personal property allowances granted by state law are superseded by property distribution outlined in a will. In common law states, a surviving spouse may be entitled to take more property than is specifically given to him or her by a will. There is a limit in some states on the amount that may be given to a surviving spouse under a will.

In common law states, a surviving spouse may be entitled to take more property than is specifically given to him or her by a will. In common law states; a surviving spouse in such states has a right to "elect against the will" and take a statutory share of the estate if he or she is dissatisfied with the amount given by the will.

Which one of the following is correct about intestate succession statutes? Not all states have intestate succession statutes. Intestate succession statutes are nearly identical in all states. Intestate succession statutes favor spouses and blood relatives.

Intestate succession statutes favor spouses and blood relatives.

Which one of the following is a strength or advantage of making a will? It cannot be changed once written. It will pass property outside of probate. It can be used to establish a testamentary trust.

It can be used to establish a testamentary trust. The provisions of a testamentary trust are placed within a will.

Which one of the following is a correct statement regarding a buy-sell agreement? It is used to transfer a principal residence to another individual at the death of the owner. It is used to transfer a business interest at the death of the owner. An entity buy-sell agreement obligates the other owners to purchase the interest of a deceased owner.

It is used to transfer a business interest at the death of the owner.

Which one of the following statements concerning the $15,000 (2018) annual gift tax exclusion amount is correct? The $15,000 annual exclusion amount is not subject to gift taxes, but does use $15,000 of the $11.2 million (2018) exemption amount. Only one $15,000 exclusion is allowed for a married couple if they file jointly. One may gift up to $15,000 to an unlimited number of individuals, and still be able to claim an exclusion from gift taxes.

One may gift up to $15,000 to an unlimited number of individuals, and still be able to claim an exclusion from gift taxes.

Which one of the following statements regarding the federal gift tax annual exclusion is correct? The annual exclusion is unlimited in amount. The annual exclusion can only be applied to a limited number of donees. The annual exclusion is generally only allowed for gifts of a present interest.

The annual exclusion is generally only allowed for gifts of a present interest. Present interest gifts, which satisfy for the annual exclusion, are those that a donee can use, possess, or enjoy immediately, without restriction.

Which one of the following is a correct statement about federal gift and estate taxes? The federal gift and estate tax share a common tax rate table. Federal gift taxes and estate taxes are two different types of taxes that are unrelated to each other. Upon death the deceased will not have to pay any estate taxes if his or her estate is valued at less than $11.2 million (in 2018), regardless of the amount of lifetime gifts that were made.

The federal gift and estate tax share a common tax rate table.

Which one of the following is a correct statement regarding property held as tenants by the entirety? It is owned by two or more people. The interest of a deceased tenant passes by right of survivorship outside of the probate process. The tenants have the option to make unequal ownership interests.

The interest of a deceased tenant passes by right of survivorship outside of the probate process. Tenancy by the entirety has the same right of survivorship feature as joint tenancy, and thus it acts as a will substitute.

Which one of the following is a correct statement regarding the generation-skipping transfer tax? (LO 9-3) The tax is imposed when property is transferred to a skip person. Taxes apply to all generation-skipping gifts that are made; there is no exclusion or exemption amount. This tax negates the need to pay gift or estate tax due on a transfer.

The tax is imposed when property is transferred to a skip person.

Which of the following statements is correct concerning estate planning? Estate planning is primarily about avoiding estate taxes. Titling of assets is an important part of the estate planning process. Estate planning is not relevant for young families with children.

Titling of assets is an important part of the estate planning process.

Which one of the following statements is correct concerning Medicaid planning? Eligibility for Medicaid benefits is subject to federal, not state, rules. To be eligible for Medicaid an applicant must pass both medical and financial tests. One must sell his or her primary residence in order to be eligible for Medicaid. An ABLE account balance of $100,000 lessens the amount of medical assistance available from Medicaid.

To be eligible for Medicaid an applicant must pass both medical and financial tests.

In planning for incapacity, which one of the following is an advantage of trusts? Trusts and the authority of a trustee are routinely accepted by financial institutions. Trusts are under the continuing supervision of a court to prevent misappropriation of property. Trusts put an incapacitated person's financial affairs into public view.

Trusts and the authority of a trustee are routinely accepted by financial institutions.

Which one of the following terms is not properly associated with structuring a will? codicil bequest intestate personal representative

bequest

Each of the following describes a method of giving a gift, except outright. custodial account. bequest. trust.

bequest. A bequest is a transfer of property made by a will after the owner is dead. One has to be alive in order to give a gift.

Which one of the following is a medical proxy that authorizes another to make health care decisions on an individual's behalf? living will durable power of attorney for health care notarized letter of authorization

durable power of attorney for health care A durable power of attorney for health care is the medical proxy for another to make health care decisions.

Which one of the following types of property could not be placed into a testamentary trust? investment assets intestate property real estate

intestate property

Which one of the following assets would not receive either a full or partial step-up (or step-down) in basis in an estate? stock held in a traditional IRA account stock held as joint tenants with right of survivorship (JTWROS) with a spouse sole owner of a bond fund real estate held as tenants in common with a sibling

stock held in a traditional IRA account Traditional IRA accounts are generally funded with pre-tax dollars, and will be subject to income taxes as distributions are taken, even by beneficiaries. There is no step-up in basis for IRA assets.

Which one of the following is not an example of a will substitute? revocable trust irrevocable trust tenants in common joint tenant with right of survivorship

tenants in common The deceased's ownership interest as a tenant in common will go through probate and distributed per the will or the state's intestate succession statutes if there is not a will.

Which one of the following is a characteristic of the probate process? private relatively inexpensive time consuming chaotic

time consuming

An unlimited deduction is allowed for which one of the following? transfer to a U.S. citizen spouse and an unqualified charity. transfer to a U.S. citizen spouse and a qualified charity. transfer to a non U.S. citizen spouse and a qualified charity.

transfer to a U.S. citizen spouse and a qualified charity. There is an unlimited marital (if the spouse is a U.S. citizen) and charitable deduction.

There are four documents that, generally, everyone should have for estate planning purposes. Which of the following is not one of these documents? will durable power of attorney for financial matters living will trust account

trust account Even though a trust may be used in estate planning, it is not needed by everyone, and is not one of the recommended documents that generally everyone should have. The four main documents needed for estate planning are a will, a living will, a durable power of attorney for financial matters, and a durable power of attorney for health care.