CRPC Estate Planning Objectives 2 — Questions and Answers
Question 1: Which estate planning tool allows an individual to transfer assets to a trust during their lifetime while retaining control and avoiding probate?
- Testamentary trust
- Revocable living trust (Correct answer)
- Charitable remainder trust
- Spendthrift trust
Correct answer: Revocable living trust
A revocable living trust is created during the grantor's lifetime, allows the grantor to retain control, and transfers assets outside of probate upon death.
Question 2: What is the primary purpose of a durable power of attorney in an estate plan?
- To transfer property at death without probate
- To authorize someone to act on your behalf if you become incapacitated (Correct answer)
- To reduce estate taxes
- To name a guardian for minor children
Correct answer: To authorize someone to act on your behalf if you become incapacitated
A durable power of attorney remains effective even if the principal becomes incapacitated, allowing the named agent to manage financial affairs.
Question 3: Under current federal law, the estate tax marital deduction allows a surviving spouse to receive:
- Up to $5 million in assets tax-free
- Up to $10 million in assets tax-free
- An unlimited amount of assets free of estate tax (Correct answer)
- Only assets held in joint tenancy tax-free
Correct answer: An unlimited amount of assets free of estate tax
The unlimited marital deduction allows a decedent to transfer any amount of property to a surviving U.S. citizen spouse free of federal estate tax.
Question 4: A QTIP trust (Qualified Terminable Interest Property trust) is most commonly used to:
- Provide income to a surviving spouse while controlling ultimate distribution of assets (Correct answer)
- Avoid all estate taxes in blended family situations
- Transfer business interests to family members
- Fund charitable bequests at death
Correct answer: Provide income to a surviving spouse while controlling ultimate distribution of assets
A QTIP trust qualifies for the marital deduction, provides income to the surviving spouse, but allows the decedent to direct where the principal passes after the spouse's death.
Question 5: Which document specifies an individual's wishes regarding medical treatment if they become unable to communicate their decisions?
- Durable power of attorney for finances
- Advance healthcare directive (living will) (Correct answer)
- Testamentary trust
- Letter of instruction
Correct answer: Advance healthcare directive (living will)
An advance healthcare directive or living will outlines a person's medical treatment preferences when they cannot speak for themselves.
Question 6: What is portability in the context of federal estate taxes?
- The ability to move assets across state lines without tax
- A surviving spouse's ability to use the deceased spouse's unused estate tax exemption (Correct answer)
- The transfer of retirement accounts to a spouse tax-free
- The carryover of capital losses from a deceased spouse
Correct answer: A surviving spouse's ability to use the deceased spouse's unused estate tax exemption
Portability allows the executor of a deceased spouse's estate to elect to transfer any unused federal estate tax exemption to the surviving spouse.
Question 7: Which of the following assets typically passes OUTSIDE of probate?
- Assets titled solely in the decedent's name
- Assets held as tenants in common
- Life insurance with a named beneficiary (Correct answer)
- Personal property bequeathed by will
Correct answer: Life insurance with a named beneficiary
Life insurance proceeds paid to a named beneficiary pass directly to that beneficiary by contract and are not subject to probate.
CRPC Estate Planning Objectives 2
Which estate planning tool allows an individual to transfer assets to a trust during their lifetime while retaining control and avoiding probate?