Module 13

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Module 13
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2012-09-13 23:10:47
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Module 13
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  1. Estate planning is something that should be addressed by most seniors of all levels of wealth.

    a) True
    b) False
    a) True
  2. One of the first steps of an estate plan is for a senior to recognize the assets and values of what is owned and the amount of debt that is owed.

    a) True
    b) False
    a) True
  3. An irrevocable trust is the primary device used to dispose of a senior person's property at death.

    a) True
    b) False
    b) False

    A will is the primary estate planning document specifying an individual's wishes concerning the disposition of property at death.
  4. In this modern age, adult children are usually the ones who approach their senior parents about the parents' estate plans and long-term care intentions.

    a) True
    b) False
    b) False

    Although obviously all families are different, children generally are hesitant to begin conversations about their parents' estate and financial matters for fear of appearing greedy and intrusive. Children are also reluctant to introduce the subject of their parents' long-term care lest they give their parents the impression that the parents will be a burden if they are unable to care for themselves.
  5. Despite variable financial status and/or care and attentiveness to them, most senior parents wish their children to receive equal inheritances from them.

    a) True
    b) False
    a) True
  6. The National Academy of Elder Law Attorneys (NAELA) is a professional organization formed by an association of attorneys dedicated to improving legal services for seniors residing in the U.S. who are not U.S. citizens.

    a) True
    b) False
    b) False

    NAELA is a professional association of attorneys committed to the improvement of legal services for seniors who are American citizens and not for resident noncitizens.
  7. A surviving divorced spouse from a long-term marriage could be entitled to Social Security benefits based on his or her former spouse's earnings.

    a) True
    b) False
    a) True
  8. By law, the designation of a divorced person's insurance policies naming the former spouse as beneficiary is automatically revoked.

    a) True
    b) False
    b) False

    There is no automatic revocation of life insurance designations when spouses divorce. Changing beneficiary designations benefiting a previous spouse is a commonly overlooked but often necessary step resulting from divorce.
  9. A springing durable power of attorney is one that becomes operative only at the time of the principal's death.

    a) True
    b) False
    b) False

    A springing durable power of attorney is an incapacity planning document that becomes operative only at the time of the principal's incompetency. The viability of durable powers of attorney expires at the death of the principal.
  10. When a trust document is created but the trust has not been funded by the grantor, it is often referred to as a "standby trust."

    a) True
    b) False
    a) True
  11. An OBRA '93 payback (self-settled) trust is a type of special-needs trust (SNT) that can be funded only by nonfamily parties to benefit an incapacitated person.

    a) True
    b) False
    b) False

    An OBRA '93 payback (self-settled) SNT is a type of special-needs arrangement established for an incapacitated individual that is funded by the court, guardian, family, or the disabled person. At the beneficiary's death, any excess trust corpus is used to pay the state back for benefits incurred on the beneficiary's behalf.
  12. If a senior's will is 10 or more years old, many advisors recommend that the terms of the will be reviewed and, if still appropriate, be formally re-executed.

    a) True
    b) False
    a) True
  13. A legacy or ethical will is one through which a testator passes the value of his or her assets equally to lineal descendants.

    a) True
    b) False
    b) False

    A legacy or ethical will is a will that has been drafted to embrace a testator's life lessons; it may be used to capture and pass on the testator's hopes and objectives for posterity.
  14. When a depositor makes a contribution to a Totten trust, the depositor has made a taxable gift to the account's beneficiary.

    a) True
    b) False
    b) False

    A transfer to a Totten trust is not a taxable gift because the depositor remains in control of the account and is able to withdraw funds from the Totten trust at any time.
  15. A Coverdell Education Savings Account (CESA) is a custodial account established to pay qualified education costs for a named child beneficiary of the account.

    a) True
    b) False
    a) True
  16. Reverse mortgages are a popular estate planning device for less-than-wealthy seniors because they allow homeowners to take some or all of their home equity out as a loan without having to pay anything back to the lender for a term of 5 years.

    a) True
    b) False
    b) False

    With reverse mortgages, homeowners do not have to pay anything back to the lender (bank) until they move out of their home or die.
  17. A life settlement is an arrangement in which an insured senior sells an existing life insurance policy to a third-party company engaged in the business of buying policies for an immediate payment representing a portion of the policy's net death benefit.

    a) True
    b) False
    a) True
  18. With an endowment care cemetery trust, the cemetery business usually holds the trust in its business name and withdraws earnings from the trust on a regular basis for maintenance of the gravesite.

    a) True
    b) False
    a) True
  19. QTIP trusts are marital deduction arrangements through which a grantor spouse is able to provide for a surviving spouse for life while simultaneously providing protection of trust principal for beneficiaries other than the surviving spouse.

    a) True
    b) False
    a) True
  20. Incentive trusts often require trust beneficiaries to achieve specific objectives established by the grantor prior to receiving trust distributions.

    a) True
    b) False
    a) True
  21. Family limited partnerships are created by senior business owners to pass control and voting rights to junior family members by giving them small portions of business ownership over a period of time.

    a) True
    b) False
    b) False

    While family limited partnerships and family limited liability companies are used for estate reduction benefits through gifting and valuation discounts, the senior business owner typically retains control of the business.
  22. For gift tax purposes, the value of limited partnership interests can be discounted below the actual value of the partnership assets.

    a) True
    b) False
    a) True
  23. A family life insurance partnership (FLIP) is the reverse of an irrevocable life insurance trust (ILIT)-the limited partners apply for and own the policies on the lives of the general partners.

    a) True
    b) False
    b) False

    Under the FLIP approach, the partnership entity is the applicant, owner, and beneficiary of the life insurance policy on the parent or grandparent's life. Policy premiums are paid for out of partnership assets, or the insured makes additional contributions to the partnership when policy premiums are due.
  24. Qualified personal residence trust (QPRT) arrangements are the same as sale-leaseback arrangements.

    a) True
    b) False
    b) False

    Although QPRTs may appear to have some similarities with sale-leaseback arrangements, they are a completely different type of estate planning device. QPRTs are irrevocable trust arrangements based on a term of years that the senior grantor must survive to achieve estate tax savings benefits.
  25. Which of the following event(s) requires the need to review a senior’s estate plan?

    I. Marriage of a child

    II. Sale of the family home

    A) I only
    B) Both I and II
    C) Neither I nor II
    D) II only
    B) Both I and II
    (this multiple choice question has been scrambled)
  26. Depending upon geographic location, alternative forms of ownership seniors may wish to consider include

    I. tenancy by the entireties
    II. community property

    A) I only
    B) II only
    C) Both I and II
    D) Neither I nor II
    C) Both I and II
    (this multiple choice question has been scrambled)
  27. Which of the following statements concerning the personal aspects of senior estate planning is correct?

    A) Currently, if an external list of property items and intended recipients is handwritten and signed by the transferor-decedent, it is given legal recognition in all jurisdictions.
    B) The most practical way for seniors to pass heirlooms of sentimental value to their children is by having many specific bequest provisions in their wills.
    C) Generally planners advise seniors to avoid family discord by not divulging estate planning intentions to their adult children.
    D) A common source of inheritance inequity involves a family business in which only some of the children are active.
    D) A common source of inheritance inequity involves a family business in which only some of the children are active.

    It is generally advisable for seniors to discuss their estate planning intentions with family members whenever feasible to promote family harmony and understanding.

    Leaving many objects of sentimental value as specific bequests in a will is impractical as the testator may later find it necessary to change the will with respect to the specific bequest items.

    Many states will not give legal recognition to a document external to a testator’s will.
    (this multiple choice question has been scrambled)
  28. Which of the following trusts is a type of special-needs trust (SNT)?

    A) Medicaid SNT
    B) pooled SNT
    C) spousal SNT
    D) incapacity SNT
    B) pooled SNT

    The four types of SNTs are pooled, third-party, settlement, and family.
    (this multiple choice question has been scrambled)
  29. All the following statements concerning family limited partnerships (FLPs) are correct EXCEPT

    A) All limited partnerships have at least one general partner who has management authority and unlimited liability.
    B) Since limited partnership interests have restrictions, their value is less than the value of the underlying property the interests represent.
    C) Since limited partnership interests constitute future interests, gifts of the interests are disqualified for the annual exclusion.
    D) An FLP may provide creditor protection since creditors generally cannot reach underlying partnership assets unless the partnership is liquidated.
    C) Since limited partnership interests constitute future interests, gifts of the interests are disqualified for the annual exclusion.

    Gifts of family limited partnership interests are generally structured as present-interest gifts to qualify for the annual exclusion.
    (this multiple choice question has been scrambled)
  30. All the following statements concerning qualified personal residence trusts (QPRTs) are correct EXCEPT

    A) Since QPRTs are an exception from Sec. 2702 anti-estate freeze rules, the subtraction method of valuation may be used for the retained and remainder interests.
    B) Because a QPRT is an irrevocable trust, for gift tax purposes the remainder interest becomes a completed gift at the time the grantor establishes the trust.
    C) The regulations limit a taxpayer to being a term holder in only one primary personal residence during a retained term period.
    D) For a QPRT to be effective for estate tax savings purposes, it is crucial for the transferor to survive the retained interest time period.
    C) The regulations limit a taxpayer to being a term holder in only one primary personal residence during a retained term period.

    A taxpayer may be a term holder in only two QPRTs at a time-one primary and one secondary residence.
    (this multiple choice question has been scrambled)
  31. All the following statements concerning pre-need funeral and cemetery trusts are correct EXCEPT

    A) A service and merchandise cemetery trust is similar to a funeral trust since grantors are able to select and prefund items like gravesite stones.
    B) Funeral trusts are arrangements that individuals make with funeral directors and banks who set aside funds to prepay their future funerals.
    C) Endowment care cemetery trust arrangements pool individual grantors’ contributions to provide for ongoing maintenance of cemetery grounds.
    D) If the election for qualified funeral trust treatment is made under Code Sec. 685, the grantor of the trust is responsible for the income tax liability on trust earnings.
    D) If the election for qualified funeral trust treatment is made under Code Sec. 685, the grantor of the trust is responsible for the income tax liability on trust earnings.

    When an election for qualified funeral trust treatment is made under Code Sec. 685, it is the trustee that has responsibility for any income tax liability on trust earnings.
    (this multiple choice question has been scrambled)
  32. All of the following statements are correct regarding personal aspects of senior estate planning EXCEPT:

    a) Seniors should consider the advantages and disadvantages of alternate forms of property ownership.
    b) An “external list of property items and intended recipients” document does not receive legal
    recognition in many states.
    c) The most practical way to pass family heirlooms to children is by having many specific bequest provisions in a will.
    d) It is generally advisable for seniors to discuss their estate planning intentions with family members whenever feasible.
    c) The most practical way to pass family heirlooms to children is by having many specific bequest provisions in a will.

    Specific bequests in a will become impractical if there are many separate items to be distributed. Arevocable living trust, or a series of lifetime gifts, may be more practical.
  33. Which of the following statements is/are correct regarding personal aspects of senior estate planning?

    I. A will is the primary estate planning document used to dispose of property at a senior person’s death.

    II. If a spouse is named as the beneficiary of a life insurance policy, the designation will be automatically revoked at the time of a divorce.

    A) Neither I nor II.
    B) Both I and II.
    C) Only I.
    D) Only II.
    C) Only I.

    II is incorrect. The designation will does not become automatically revoked at the time of a divorce.
    (this multiple choice question has been scrambled)
  34. Based upon the senior person’s geographic location, alternate forms of property ownership that should be considered include:

    I. Joint tenancy with rights of survivorship.

    II. Tenancy by the entireties.

    A) Only II.
    B) Only I.
    C) Neither I nor II.
    D) Both I and II.
    D) Both I and II.
    (this multiple choice question has been scrambled)
  35. All of the following events require the need to review a senior’s estate plan EXCEPT:

    A) The divorce of an adult child.
    B) The death of a spouse.
    C) A grandchild’s admission to college.
    D) The receipt of Social Security benefits.
    D) The receipt of Social Security benefits.

    A properly designed estate plan would only need to be revised in the case of major life events, such asdeath or divorce. The receipt of Social Security retirement benefits should be considered when an estateplan, or any other type of financial plan, is originally developed.
    (this multiple choice question has been scrambled)
  36. Which of the following statements is correct regarding senior marital issues?

    A) Divorce is one area in which a guardian cannot act on behalf of their ward.
    B)A qualified retirement plan separation agreement (QRPS) is often drafted when divorced spouse has a retirement plan.
    C) The senior divorce rate is expected to decline substantially from now until the year 2030.
    D)Divorced spouses are entitled to receive Social Security benefits based on the other spouse’s earnings, provided the marriage lasted at least five years.
    A) Divorce is one area in which a guardian cannot act on behalf of their ward.

    Marriage and divorce are two areas in which guardians cannot act on behalf of their ward.

    The senior divorce rate is expected to double from now until the year 2030.

    A qualified domestic relations order (QDRO) is often drafted when a divorced spouse has aretirement plan.

    Divorced spouses are entitled to receive social security benefits based on the otherspouse’s earnings, provided the marriage lasted at least 10 (not five) years.
    (this multiple choice question has been scrambled)
  37. Which of the following statements is correct regarding powers of attorney?

    A) A special power of attorney gives the attorney-in-fact broad powers over the principal’s property.
    B) A non-durable power of attorney is the most useful type of power of attorney for estate planning purposes.
    C) A springing power of attorney becomes effective only upon the death of the principal.
    D) A durable power of attorney will remain effective upon the incapacity of the principal.
    D) A durable power of attorney will remain effective upon the incapacity of the principal.

    A durable power of attorney is most useful.

    A special power of attorney gives the attorney-in-fact limited powers to accomplish one ormore specific tasks.

    A springing power of attorney becomes effective upon incapacity. Powers of attorney do not survive the death of the principal.
    (this multiple choice question has been scrambled)
  38. Which of the following statements is/are correct regarding a power of attorney for health care?

    I. A power of attorney for health care can apply in cases of temporary unconsciousness or in case of diseases like Alzheimer’s that affect decision making.

    II. A non-durable power of attorney for health care is an effective document for estate planning purposes.

    A) Only I.
    B) Both I and II.
    C) Only II.
    D) Neither I nor II.
    A) Only I.

    II is incorrect. A power of attorney must be durable to survive the maker’s incapacity. A non-durablepower of attorney would not accomplish an individual’s incapacity planning goals.
    (this multiple choice question has been scrambled)
  39. A court-supervised arrangement to manage the property of an incapacitated individual is referred to as a:

    A) Conservatorship.
    B) Reciprocal spendthrift arrangement.
    C) Durable power of attorney.
    D) Clifford trust.
    A) Conservatorship.

    A conservatorship, called a guardianship in some states, is a court-supervised arrangement to managethe property of an incapacitated individual.
    (this multiple choice question has been scrambled)
  40. Which of the following statements is correct regarding a special needs trust?

    A) The grantor of the trust must be someone other than a parent of the disabled child.
    B) The trust seeks to keep the disabled child eligible for Social Security disability benefits.
    C) The trust assets are included in the disabled child’s gross estate upon death.
    D) Some or the entire trust corpus may be used to replace the disabled child’s public benefits.
    B) The trust seeks to keep the disabled child eligible for Social Security disability benefits.

    A special needs trust attempts to insulate trust assets from governmental claims, and at the same time,keep the disabled child eligible for public benefits, such as Medicaid and Social Security disabilitybenefits.

    No part of the trust corpus can be used to replace the disabled child’s public benefits.

    The trust assets are excluded from a beneficiary’s gross estate.

    Special needs trusts are often established while the child’s parents are still alive. The parent can be the grantor of the trust.
    (this multiple choice question has been scrambled)
  41. Which of the following statements is/are correct regarding a special needs trust?

    I. A special needs trust allows an individual to state whether prolonging life is desired.

    II. Special needs trusts are illegal in some states.

    A) Neither I nor II.
    B) Only II.
    C) Both I and II.
    D) Only I.
    B) Only II.

    I is incorrect. A living will allows an individual to state whether prolonging life is desired.
    (this multiple choice question has been scrambled)
  42. All of the following statements are correct regarding a Totten trust EXCEPT:

    A) Amounts deposited into a Totten trust will not be considered completed gifts for Federal gift tax purposes.
    B) The Totten trust will be excluded from the depositor’s gross estate upon death.
    C) A Totten trust is a type of bank account established for a minor in which the depositor retains control of the account.
    D) The Totten trust will avoid probate upon the death of the depositor.
    B) The Totten trust will be excluded from the depositor’s gross estate upon death.

    Because a Totten trust is not a completed gift, the balance of the Totten trust will be included in thedepositor’s gross estate at the time of death.
    (this multiple choice question has been scrambled)
  43. All of the following statements are correct regarding educational gifts EXCEPT:

    A) Income earned inside a Section 2503(b) trust must be distributed to the minor each year.
    B) In a 529 plan, donors can contribute up to five years of annual gift tax exclusion amounts to the account in one single year.
    C)If funds in a Coverdell Education Savings Account are not used for education or distributed before the child reaches age 21, the entire amount becomes fully taxable, plus a 10% penalty applies.
    D)With a Uniform Transfers to Minors Account, beneficiaries are generally entitled to have access to account property once they reach the age of majority.
    C)If funds in a Coverdell Education Savings Account are not used for education or distributed before the child reaches age 21, the entire amount becomes fully taxable, plus a 10% penalty applies.

    If funds in a Coverdell Education Savings Account are not used for education or distributed before thechild reaches age 30 (not 21), the entire amount becomes fully taxable, plus a 10% penalty applies.
    (this multiple choice question has been scrambled)
  44. Scott is terminally ill and is expected to die within the next year. Since he needed cash, he sold his $600,000 ($200,000 basis) life policy to a viatical company for $350,000. What are the tax implications?

    A) Scott will not be taxed on this transaction.
    B) $150,000 is taxable to Scott
    C) The tax treatment will be determined upon Scott’s death.
    D) Scott will be taxed on the $250,000 if he lives longer than 2 years.
    A) Scott will not be taxed on this transaction.

    Scott will not be taxed on this transaction, since he is terminally ill.
    (this multiple choice question has been scrambled)
  45. All of the following statements are correct regarding a defective trust EXCEPT:
    A) Income accumulated within the trust is taxed to the trust.
    B) Grantors may sell their life insurance policy to the trust.
    C) The beneficiaries should not be given Crummey powers over trust assets.
    D) A defective trust is a trust in which the grantor retains certain powers.
    A) Income accumulated within the trust is taxed to the trust.

    A defective trust is a grantor trust, meaning all trust income is taxed to the grantor, regardless of whetherthe income is accumulated or distributed.
    (this multiple choice question has been scrambled)
  46. A trust that typically pays out income to the beneficiary when they have satisfied personal wishes of the grantor is referred to as a:

    A) QTIP trust.
    B) Incentive trust.
    C) Defective trust.
    D) Behavioral control trust.
    B) Incentive trust.

    An incentive trust is a trust that typically pays out income to the beneficiary when they have satisfiedpersonal wishes of the grantor.
    (this multiple choice question has been scrambled)
  47. Which of the following statements is correct regarding a qualified personal residence trust (QPRT)?

    A) If the grantor dies during the QPRT term, the residence will be included in the grantor’s gross estate based on its fair market value at the time the trust was created.
    B) A grantor may create an unlimited number of QPRTs at any one time.
    C) The residence will revert to the grantor at the end of the trust term.
    D) If the grantor dies during the QPRT term, estate liquidity problems could occur.
    D) If the grantor dies during the QPRT term, estate liquidity problems could occur.

    If the grantor dies during the trust term, the residence will be included in the grantor’s estate, potentially causing estate liquidity problems.If the grantor dies during the trust term, the full DATE OF DEATH value of the residencewill be included in the grantor’s gross estate.The residence will pass to the remainder beneficiary(ies) at the end of the trust term.A grantor can create a maximum of two QPRTs at any one time (primary and secondary residence).
    (this multiple choice question has been scrambled)
  48. Which of the following statements is/are correct regarding family limited partnerships?

    I. The junior family members can actively participate in the management of the business.

    II. The family limited partnership is potentially useful to transfer a business to the next generation at a discounted transfer tax cost.

    A) Neither I nor II.
    B) Both I and II.
    C) Only I.
    D) Only II.
    D) Only II.

    I is incorrect. The junior family members are the limited partners.

    Limited partners are not permitted toparticipate in management of the
    business.
    (this multiple choice question has been scrambled)

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