CRPC Estate Planning Objectives 5 — Questions and Answers
Question 1: What is the concept of 'titling' assets and why does it matter in estate planning?
- It refers to naming beneficiaries on retirement accounts only
- It determines how assets are owned and therefore how they transfer at death — by will, by operation of law, or by contract (Correct answer)
- It is the IRS process for assessing estate tax liability
- It describes the type of trust used to hold real property
Correct answer: It determines how assets are owned and therefore how they transfer at death — by will, by operation of law, or by contract
How an asset is titled (solely, jointly, in trust, with beneficiaries) controls whether it passes through probate, by survivorship, or directly to a named beneficiary.
Question 2: Which type of joint ownership includes the right of survivorship automatically?
- Tenancy in common
- Community property without right of survivorship
- Joint tenancy with right of survivorship (JTWROS) (Correct answer)
- Tenancy by the entirety for non-married couples
Correct answer: Joint tenancy with right of survivorship (JTWROS)
JTWROS means that when one owner dies, their share passes automatically to the surviving joint owner(s) outside of probate.
Question 3: A Qualified Personal Residence Trust (QPRT) is used to:
- Convert a primary residence to a rental property tax-free
- Transfer a home to heirs at a reduced gift tax value while the grantor retains the right to live there for a term (Correct answer)
- Qualify a vacation home as a primary residence for tax purposes
- Protect a home from Medicaid estate recovery
Correct answer: Transfer a home to heirs at a reduced gift tax value while the grantor retains the right to live there for a term
A QPRT transfers the remainder interest in a home to heirs at a discounted gift tax value, with the grantor retaining the right to occupy the home for a specified term.
Question 4: What is 'per stirpes' distribution in the context of estate planning?
- Equal distribution among all living and deceased heirs
- Distribution by branch of the family tree so a deceased heir's share passes to their descendants (Correct answer)
- Distribution based on financial need of each heir
- A Latin term for the unlimited marital deduction
Correct answer: Distribution by branch of the family tree so a deceased heir's share passes to their descendants
Per stirpes means 'by the branch' — if a beneficiary predeceases the decedent, that beneficiary's share passes to their own descendants.
Question 5: Which of the following is NOT an objective commonly addressed in estate planning?
- Providing liquidity to pay estate taxes and debts
- Minimizing income taxes during the client's working years (Correct answer)
- Ensuring assets pass to intended beneficiaries efficiently
- Protecting heirs from creditors through trust structures
Correct answer: Minimizing income taxes during the client's working years
While income tax minimization is a financial planning goal, the primary objectives of estate planning center on asset transfer, tax efficiency at death, and heir protection — not current income tax planning.
Question 6: What distinguishes a testamentary trust from a revocable living trust?
- A testamentary trust is created during the grantor's lifetime and avoids probate
- A testamentary trust is created by the will and only takes effect after death, requiring probate (Correct answer)
- A revocable living trust requires court oversight after the grantor's death
- A testamentary trust cannot hold real property
Correct answer: A testamentary trust is created by the will and only takes effect after death, requiring probate
A testamentary trust is established within a will, meaning it does not exist until the will is admitted to probate after the testator's death.
Question 7: When a client has a taxable estate, which combination of planning tools most effectively reduces estate taxes while benefiting heirs?
- A simple will and a UTMA account for children
- An ILIT combined with bypass trust planning and annual gifting (Correct answer)
- A revocable living trust with no irrevocable components
- A durable power of attorney and advance directive only
Correct answer: An ILIT combined with bypass trust planning and annual gifting
Combining an ILIT (to remove insurance from the estate), bypass (credit shelter) trust planning (to use both spouses' exemptions), and systematic annual gifting addresses multiple estate tax reduction strategies simultaneously.
CRPC Estate Planning Objectives 5
What is the concept of 'titling' assets and why does it matter in estate planning?