AFC - Accredited Financial Counselor Retirement and Estate Planning 2

Question 1

A client dies without a will. What legal process determines how their assets are distributed?

Accepted Answer

Probate court applies intestacy laws

Answer

The surviving spouse automatically receives everything

Answer

The employer determines distribution

Answer

Assets are forfeited to the state

Question 2

What is the primary advantage of a revocable living trust over a will?

Accepted Answer

Trust assets avoid probate, enabling faster and more private transfer to beneficiaries

Answer

Trusts provide better tax benefits

Answer

Trusts are less expensive to create

Answer

Trusts cannot be contested

Question 3

A client named their estate as beneficiary of their 401(k). Why is this problematic?

Accepted Answer

Assets passing through the estate are subject to probate, lose stretch distribution options, and are exposed to creditors

Answer

The estate cannot legally be a beneficiary

Answer

The plan administrator will reject it

Answer

There is no issue

Question 4

What is the current federal estate tax exemption and what percentage of estates does it typically affect?

Accepted Answer

Approximately $13.6 million per person; less than 0.1%

Answer

$1 million; about 40% of estates

Answer

$5 million; about 10%

Answer

$25 million per couple; about 5%

Question 5

What is the difference between an estate tax and an inheritance tax?

Accepted Answer

An estate tax is levied on the total estate before distribution; an inheritance tax is levied on each beneficiary based on what they receive

Answer

They are the same tax

Answer

Estate tax applies to real property; inheritance tax to financial assets

Answer

Estate tax is federal; inheritance tax is always state-level

Question 6

A client wants to ensure their adult child with special needs receives an inheritance without losing government benefits. What should the counselor recommend?

Accepted Answer

Establish a special needs trust (supplemental needs trust)

Answer

Leave the inheritance directly in the will

Answer

Disinherit the child to preserve benefits

Answer

Give the inheritance to another family member informally