#1
What is the primary purpose of estate planning?
All of the above
ExplanationEstate planning aims to manage and distribute assets, minimize taxes, and address healthcare and guardianship concerns.
#2
Which document allows an individual to designate someone to make medical decisions on their behalf if they become incapacitated?
Advance healthcare directive
ExplanationAn advance healthcare directive empowers an agent to make medical decisions when the individual is unable.
#3
Which of the following is NOT typically a consideration in estate planning?
Health insurance coverage
ExplanationWhile important, health insurance coverage is not a primary consideration in estate planning, which focuses on asset distribution and legal arrangements.
#4
What is the purpose of a durable power of attorney?
To designate someone to handle financial matters if the individual becomes incapacitated
ExplanationA durable power of attorney grants authority to manage financial matters on behalf of an incapacitated individual.
#5
Which of the following is NOT a factor to consider when choosing an executor for your estate?
Geographical proximity
ExplanationWhile factors like trustworthiness and financial acumen matter, geographical proximity is not crucial when selecting an executor for an estate.
#6
What is the purpose of a testamentary trust?
To transfer assets to beneficiaries upon death
ExplanationA testamentary trust comes into effect upon the individual's death, facilitating the transfer of assets to designated beneficiaries.
#7
What is the main advantage of using a revocable living trust in estate planning?
It allows assets to bypass probate
ExplanationA revocable living trust facilitates the transfer of assets without the need for probate, ensuring a smoother and private process.
#8
Which of the following is NOT a common estate planning tool?
Sole proprietorship
ExplanationSole proprietorship is a business structure, not an estate planning tool; common tools include wills, trusts, and powers of attorney.
#9
In estate planning, what does the term 'intestate' mean?
Without a will
ExplanationIntestate refers to the situation where an individual passes away without a valid will, leading to state-defined asset distribution.
#10
Which of the following is an example of a charitable estate planning tool?
Charitable remainder trust
ExplanationA charitable remainder trust allows individuals to donate to charity while retaining income from the donated assets for a specified period.
#11
Which of the following is a potential consequence of failing to update an estate plan?
All of the above
ExplanationFailure to update an estate plan may lead to outdated provisions, legal complications, and unintended distribution of assets.
#12
What does the term 'per stirpes' mean in estate planning?
By representation, through deceased beneficiary's descendants
ExplanationPer stirpes directs the distribution of assets to the descendants of a deceased beneficiary, ensuring representation.
#13
What is the current federal estate tax exemption limit as of 2022?
$11.7 million
ExplanationAs of 2022, the federal estate tax exemption limit is $11.7 million, meaning estates below this value are not subject to federal estate tax.
#14
What is the purpose of a generation-skipping trust in estate planning?
To transfer assets to grandchildren or future generations
ExplanationA generation-skipping trust facilitates the transfer of assets to beneficiaries in subsequent generations, skipping a generation.
#15
What is a 'QPRT' in estate planning?
Qualified Personal Residence Trust
ExplanationA QPRT allows individuals to transfer their primary residence to an irrevocable trust, reducing the value of the estate for tax purposes.
#16
What is a 'Crummey Trust'?
A trust that allows annual gifts to qualify for the gift tax exclusion
ExplanationA Crummey Trust enables individuals to make annual gifts to beneficiaries while leveraging the gift tax exclusion.
#17
What is the purpose of a dynasty trust?
To provide for multiple generations while minimizing taxes
ExplanationA dynasty trust is designed to provide for successive generations by preserving and managing family wealth while minimizing tax implications.