G.62 Postmortem estate planning techniques Flashcards
(10 cards)
Mr. Jones passed away without any estate planning documents. He left behind an estate valued at $3 million, including a primary residence, stocks, and bonds. He is survived by his wife and two adult children from a previous marriage. Which of the following is the most likely outcome?
A) His entire estate will go to his wife
B) His estate will be divided evenly among his wife and two children
C) His estate will be distributed according to the intestacy laws of his state
D) His wife will automatically get the primary residence, while the children will split the stocks and bonds
His estate will be distributed according to the intestacy laws of his state
Explanation: If an individual dies without an estate plan (i.e., intestate), the distribution of his or her estate will typically follow the intestacy laws of the respective state. The exact division among family members will vary by jurisdiction.
Mrs. Smith recently lost her husband and wants to make sure that her estate will bypass probate upon her death. Which of the following strategies would best achieve this goal?
A) Having a will
B) Creating a revocable living trust
C) Assigning a power of attorney
D) Gifting all her assets before death
Creating a revocable living trust
Explanation: A revocable living trust, once funded, allows assets to pass outside of probate. A will, on the other hand, is a probate document. Power of attorney is not relevant upon death, and gifting all assets might not be practical and could have tax implications.
After the death of Mr. Thompson, his family discovered he had a large collection of valuable artwork. None of these pieces were specifically mentioned in his will. What will likely happen to this collection?
A) The artwork will be sold, and the proceeds will be distributed according to the will
B) The artwork becomes the property of the state
C) The artwork will be distributed as part of the residuary estate
D) The artwork will be donated to a museum
The artwork will be distributed as part of the residuary estate
Explanation: Items not specifically bequeathed in a will typically become part of the residuary estate and are distributed according to the provisions for the residuary estate in the will.
Mrs. Daniels died with an outstanding mortgage on her home. She left the home to her daughter in her will. What will happen to the mortgage?
A) The mortgage is forgiven upon her death
B) The mortgage holder will inherit the home
C) The mortgage is paid from the assets of the residuary estate before distribution
D) The bank takes possession of the house
The mortgage is paid from the assets of the residuary estate before distribution
Explanation: When an individual dies, their debts, including a mortgage, are typically repaid from their estate (if possible) before any inheritances are distributed to heirs. If Mrs. Daniels’s estate has enough assets to pay off the mortgage, it will be paid in that manner. If not, the daughter may inherit the home but also inherit the obligation to pay off the remaining mortgage balance. The daughter might choose to keep paying the mortgage, pay it off, or sell the property to satisfy the debt. The specific processes can depend on jurisdiction, the local laws regarding inheritance, and the specific terms of the mortgage agreement.
Mr. and Mrs. Gonzalez set up an AB trust as a part of their estate plan. Upon Mr. Gonzalez’s death, what happens to the assets in his portion of the trust?
A) They are transferred to Mrs. Gonzalez’s trust
B) They are directly distributed to the beneficiaries
C) They remain in his trust, with income usually provided to Mrs. Gonzalez during her lifetime
D) They are donated to charity
They remain in his trust, with income usually provided to Mrs. Gonzalez during her lifetime
Explanation: In an AB trust setup, upon the first spouse’s death, his or her portion of the assets typically remain in the “B” trust (often called the “Bypass” or “Credit Shelter” trust). The surviving spouse may have access to the income or even principal under certain circumstances, but the principal usually remains preserved for the eventual beneficiaries upon the second spouse’s death. This is often used as a strategy to maximize estate tax exemptions.
Mr. Harper, a widower with three adult children, passed away owning property in three different states. He had a will in place, which was created in his home state. How will the out-of-state properties be handled upon his death?
A) The properties will be subject to ancillary probate in their respective states
B) The properties will automatically transfer to his children
C) The home state’s probate process will address all properties
D) The out-of-state properties are exempt from probate due to their locations
The properties will be subject to ancillary probate in their respective states
Explanation: When a decedent owns real property in a state other than their state of residence, that property may be subject to an ancillary probate in its respective state.
Ms. White, a single woman, passed away with a payable-on-death (POD) bank account naming her niece as the beneficiary. How will these funds be treated?
A) They will be distributed as part of the residuary estate
B) They will bypass probate and go directly to her niece
C) They will be used to pay off any of Ms. White’s debts before going to her niece
D) They will be equally divided among all her living relatives
They will bypass probate and go directly to her niece
Explanation: Payable-on-death accounts are designed to bypass probate. Upon the account holder’s death, the funds go directly to the named beneficiary.
Mr. Green established a family limited partnership (FLP) as part of his estate planning strategy. What is the primary benefit of such a setup?
A) It ensures that the family business remains in the family after his death
B) It allows for a reduction in the value of estate assets, potentially reducing estate taxes
C) It guarantees that Mr. Green’s wishes regarding the distribution of personal items are honored
D) It ensures that all of Mr. Green’s debts are paid off immediately upon his death
It allows for a reduction in the value of estate assets, potentially reducing estate taxes
Explanation: A Family Limited Partnership can allow for valuation discounts on transferred assets, thus reducing the potential estate tax liability. It also offers some level of control over family assets and businesses.
Mrs. Lewis had set up an irrevocable life insurance trust (ILIT) prior to her passing. Which of the following is a primary reason for doing so?
A) To provide immediate cash for her heirs upon her death
B) To change the beneficiaries of her life insurance policy anytime she wants
C) To ensure the life insurance proceeds are not included in her taxable estate
D) To borrow against the life insurance policy during her lifetime
To ensure the life insurance proceeds are not included in her taxable estate
Explanation: An ILIT is a trust designed to own a life insurance policy, removing the death benefit from the taxable estate. This can be a strategic move to reduce potential estate taxes.
Mr. Patel, upon reviewing his estate planning documents, realizes he has named his minor granddaughter as the beneficiary of a substantial asset. Concerned about her receiving this outright at a young age, he should consider:
A) Disinheriting her entirely
B) Establishing a custodial account under the Uniform Transfers to Minors Act (UTMA)
C) Setting up an annuity that pays her a monthly amount
D) Naming his eldest son as the beneficiary instead
Establishing a custodial account under the Uniform Transfers to Minors Act (UTMA)
Explanation: A UTMA account allows an adult to transfer assets to a minor and appoint a custodian to manage those assets until the minor reaches the age of majority (which can vary by state). This ensures that the minor does not receive the assets outright at a young age, but still benefits from them.
