CEA Trusts & Probate Administration 2 — Questions and Answers
Question 1: What is the primary purpose of a pour-over will in estate planning?
- To distribute assets directly to heirs without probate
- To transfer assets not already in a trust into the trust at death (Correct answer)
- To name a guardian for minor children
- To minimize federal estate taxes
Correct answer: To transfer assets not already in a trust into the trust at death
A pour-over will directs any assets not previously transferred into a living trust to 'pour over' into the trust upon the testator's death.
Question 2: In probate administration, what does 'Letters Testamentary' authorize an executor to do?
- File estate tax returns on behalf of the decedent
- Act on behalf of the estate in legal and financial matters (Correct answer)
- Distribute assets before debts are paid
- Modify the terms of the decedent's will
Correct answer: Act on behalf of the estate in legal and financial matters
Letters Testamentary is a court-issued document granting the executor legal authority to manage and administer the estate.
Question 3: Which type of trust is commonly used to hold life insurance proceeds outside of the taxable estate?
- Revocable Living Trust
- Irrevocable Life Insurance Trust (ILIT) (Correct answer)
- Charitable Remainder Trust
- Spendthrift Trust
Correct answer: Irrevocable Life Insurance Trust (ILIT)
An ILIT owns the life insurance policy, so proceeds are not included in the insured's gross estate for federal estate tax purposes.
Question 4: During probate, what is the correct order for paying claims against an estate?
- General creditors, secured creditors, administrative costs, taxes
- Administrative costs, funeral expenses, taxes, then creditors by priority (Correct answer)
- Beneficiaries first, then creditors, then taxes
- Taxes first, then beneficiaries, then administrative costs
Correct answer: Administrative costs, funeral expenses, taxes, then creditors by priority
Most states follow a priority order: administration expenses, funeral costs, family allowances, taxes, then unsecured creditors before distributions to beneficiaries.
Question 5: A trust that provides income to a surviving spouse and then passes the remainder to children from a prior marriage is best described as a:
- Spendthrift Trust
- Qualified Terminable Interest Property (QTIP) Trust (Correct answer)
- Blind Trust
- Totten Trust
Correct answer: Qualified Terminable Interest Property (QTIP) Trust
A QTIP Trust qualifies for the marital deduction while allowing the grantor to control who ultimately receives the remainder, commonly used in blended families.
Question 6: What is 'intestate succession'?
- Distribution of assets according to the terms of a valid will
- Distribution of assets by state law when someone dies without a valid will (Correct answer)
- The process of contesting a will in probate court
- A method for calculating estate taxes on large estates
Correct answer: Distribution of assets by state law when someone dies without a valid will
Intestate succession refers to the statutory rules that determine how a decedent's estate is distributed when there is no valid will.
Question 7: Which document allows a trustee to prove their authority to act on behalf of a trust without revealing the full trust document?
- Durable Power of Attorney
- Certificate of Trust (Correct answer)
- Letters of Administration
- Affidavit of Heirship
Correct answer: Certificate of Trust
A Certificate of Trust is a summary document that confirms the trust's existence and the trustee's powers without disclosing confidential terms.
CEA Trusts & Probate Administration 2
What is the primary purpose of a pour-over will in estate planning?