Estate Planning Team Assignment
1. True or False. Broadly speaking, estate planning is about planning what will happen at your death including health care related decisions and decisions that may need to be made in the event of incapacitating illnesses or injuries.
2. True or False. A simple definition of an estate or gross estate is all the assets or property you own at your death.
3. True or False. There are federal estate taxes but the individual exemption is over $5 million for an estate.
4. True or False. While there can be other purposes, a will is a legal document that provides information how an estate is to be distributed upon the death of a person.
5. True or False. One of the purposes of a will is to name a guardian to raise a person’s children if the person passes away.
6. True or False. A will names an executor (the person executing the will) and describes the powers of the executor.
7. What is an ethical will?
8. True or False. A trust is a legal entity where one party (trustor) gives another party (trustee), the right to hold and manage assets for the benefit of a third party (beneficiary)
9. True or False. Upon death of an individual, probate is the legal process that goes through the court system to determine the validity of and interprets the will, transfers assets, pays taxes, distributes funds, sells property, and pays creditors.
10. Which of the following is true.
a. Most probate assets are not available to the survivors during the probate period which can last over 1 year.
b. Probate documents are open to the public
c. Total fees (court, attorney, appraisals, accounting, executor) can cost between 3 and 10 percent of the estate value
11. There are two classes of property: 1) probate property and 2) nonprobate property.
a. Define each.
b. Are the following nonprobate means of property distribution? If so, when are they used?
- Trust
- Joint tenancy with right of survivorship
- Tenancy by the entirety
- Beneficiary designation
- POD-payable on death
- TOD-transfer on death
12. True or False. Jointly owned property with a right of survivorship (commonly used by married couples) automatically passes to the other owner when one owner dies.
13. What are the benefits of avoiding probate?
14. True or False. Payable on death accounts avoid probate and are used with bank accounts where an account holder names the person to inherit the money in the account in the event of death.
15. True or False. Transfer on death accounts avoid probate and are used with brokerage accounts where an account holder names the person to inherit the stocks, bonds, and so forth in the event of death.
16. True or False. A living trust assets avoid probate; however, the assets are counted as part of the estate for federal estate tax purposes.
17. True or False. Retirement accounts avoid probate and go directly to the beneficiary.
18. Do life insurance proceeds go through the probate process? Are life insurance proceeds part of a person’s estate?
19. True or False. A (financial) power of attorney is a document that gives another person, an agent, the right to act on your behalf. The rights can be very broad or very narrow.
20. True or False. A living trust a) functions why you are still alive, b) avoids probate, and c) guarantees privacy (vs. a will that is public).
21. True or False. “Durable” in relation to a power of attorney-- durable power of attorney (DPOA)—means the power of attorney survives or can be in force if the person is incapacitated.
22. True or False. A durable power of attorney for financial matters is a document that in which you name someone to manage your finances if you are unable to do so.
23. True or False. The annual gift tax exclusion is the amount that can be given away to a person in a year without any federal gift tax consequences.
24. True or False. Many estate planning decisions vary depending on the state of residence.
25. True or False. While there are many cheaper alternatives, an attorney should be consulted, especially when an estate is complex.
26. True or False. An estate plan is very private and should not be shared with anyone.
27. True or False. In general, an inherited traditional IRA is taxed and inherited Roth IRA is not taxed and can be “stretched” so the payout is over time.
28. True or False. If you inherit a 401k, you can roll it over into an IRA and have the funds “stretched”/paid out to you over time.
29. True or False. The specific rules related to inheriting 401ks and IRAs are complex and depend on a number of factors including whether you were married to the deceased individual.
30. Normally, when someone inherits an asset, the basis is “stepped-up” on the date of the death. What is the taxable income in the following situations?
______John bought a stock for $10,000 many years ago. The value of the stock upon death is $100,000. Jason inherits the stock and sells it three years later for $140,000.
______John bought a house for $50,000 and added $50,000 in improvements. On the date of his death, the appraised value equaled $200,000. Jason inherited the house and sold it for $200,000.
31. True or False. If you inherit a 401k or traditional IRA and “cash in” the proceeds, you would be (income) taxed at the full amount. That is, there is no step up in basis.
32. True or False. 401ks and traditional IRAs will be completely (income) taxed if given to an individual but will be income tax-free if given to charity.
33. A person dies with the following assets: $1,000,000 Roth IRA and $1,000,000 credit card debt. There are no other assets or liabilities. The beneficiary of the IRA is the sister. The executor of the estate is the brother. There are no kids or spouses.
a. Is the IRA outside the estate?
b. Will the IRA avoid probate?
c. Can the executor distribute the $1,000,000 to the beneficiary before the estate is settled?
34. Ethel dies with no debts and the following assets. In all cases, the will designates you to be the owner or you are the beneficiary. On what basis (e.g., named in will, POD, beneficiary) will the funds most likely be distributed to you? What is your basis and/or tax liability going forward?
a. Rental Home: $100,000 fair market value; John’s basis $40,000
b. $100,000 Roth IRA
c. $100,000 Traditional 401K
d. $10,000 Chevy
e. $100,000 Traditional IRA
f. T-shirt that says, “It’s All About Execution”
g. $10,000 checking account, POD
h. $10,000 brokerage account with stock, TOD
Health Care Related
35. True or False. An Advanced Medical Directive (AMD) is a person’s written documentation of what life-sustaining measures he or she will allow/not allow in the event he/she becomes unable to make health related decisions. AMD goes by various names such as living will (a narrow form of AMDs which generally speaks only about life-prolonging measures.)
36. True or False. An AMD or living will is a document that states a person’s wishes about the use of life sustaining treatment in the event of illness in which the sick person is not able to make the decision.
37. True or False. A health care power of attorney, advance health care directive, and a health care proxy all serve the same function and shifts the power to a person to make medical decisions for you.
38. True or False. A HIPAA form is a document that allows medical providers to inform people about a person’s health status and treatment.
39. A Durable Power of Attorney (DPOA) for health care is a document that appoints an agent to make health care decisions on your behalf in the event you are unable to do so. In addition to your attorney, you can obtain these documents at many hospitals.
40. Find an example and (attach the document) of an AMD on a website. Name at least two important decisions an individual must make when completing an AMD.
Additional Considerations for Titling of Assets/Asset Protection
41. True or False
a. _____ The value of a 401k plan is protected from creditors.
b. _____ Knowing state law is very important when it comes to whether assets are protected from lawsuits and creditors.
c. _____ Normally, up to $1 million in an IRA is protected from creditors.
d. _____ Property that is titled in joint ownership may be protected from creditors if the loan is in one person’s name.
e. _____ Having adequate liability insurance (e.g., automobile, home, umbrella) is a potential technique for protecting your assets from lawsuits.
f. _____ Shifting assets to a spouse or child may make it difficult for a plaintiff to collect money from you.
g. _____ Tenancy by the entireties (for property jointly titled with a spouse, available only in some states including NC) titled assets are only subject to claims against joint credit. So, it might be a good idea for a physician to use this method to title assets in this manner to protect from a medical malpractice suit.
h. _____ Holding investment real estate as a limited liability company (LLC) may be a good asset protection idea.
i. _____ A living trust does not protect you from your creditors. That is, if a creditor wins a lawsuit against you, the creditor can go after the trust property.
j. _____ After your death, the property from your living trust could be distributed to the beneficiaries before your creditors find out about your death. It is possible that it may not be worth the creditor’s time to seek the property from the new owners.
42. You would like to minimize losing your assets in a lawsuit where you might be negligent. Which of these assets would be protected from a lawsuit and/or how should the following be titled to protect your assets from a potential lawsuit. Assume you are married with children. Also, assume you will not use trusts.
a. Your home
b. Your car
c. Your boat
d. Your business
What else would you like to know about this subject?