NALA Estate Planning and Probate 3 — Questions and Answers
Question 1: A testamentary trust created in a will becomes irrevocable:
- When the will is executed
- Upon the testator's death when the trust is funded (Correct answer)
- When the court admits the will to probate
- When the trustee accepts the appointment
Correct answer: Upon the testator's death when the trust is funded
A testamentary trust is created and funded at the testator's death; once the testator dies, the trust becomes irrevocable.
Question 2: Under federal estate tax law, the marital deduction allows a spouse to transfer:
- Up to $5 million to a surviving spouse tax-free
- An unlimited amount to a surviving U.S. citizen spouse free of estate tax (Correct answer)
- Assets equal to the applicable exclusion amount to a surviving spouse
- Only community property assets to a surviving spouse without tax
Correct answer: An unlimited amount to a surviving U.S. citizen spouse free of estate tax
The unlimited marital deduction allows a decedent to transfer any amount to a surviving U.S. citizen spouse free of federal estate tax.
Question 3: A 'spendthrift clause' in a trust primarily serves to:
- Prevent the trustee from making improvident investments
- Protect the beneficiary's interest from their creditors and from voluntary alienation (Correct answer)
- Limit distributions to amounts the beneficiary can prudently spend
- Require beneficiaries to provide budgets before receiving distributions
Correct answer: Protect the beneficiary's interest from their creditors and from voluntary alienation
A spendthrift clause restricts a beneficiary's ability to voluntarily assign their interest and bars creditors from reaching trust assets before distribution.
Question 4: Which document formally authorizes a personal representative to act on behalf of a testate estate?
- Letters testamentary (Correct answer)
- Letters of administration
- Affidavit of heirship
- Certificate of trust
Correct answer: Letters testamentary
Letters testamentary are issued by the probate court to authorize the executor named in a valid will to administer the estate.
Question 5: A 'disclaimer' in estate planning allows a beneficiary to:
- Challenge the validity of the decedent's will
- Refuse to accept an inheritance, causing it to pass as if the disclaimant predeceased (Correct answer)
- Redirect inherited property to a charity of their choice
- Negotiate a larger share of the estate
Correct answer: Refuse to accept an inheritance, causing it to pass as if the disclaimant predeceased
A qualified disclaimer causes the disclaimed interest to pass as if the disclaimant had predeceased the transferor, which can be a useful tax-planning tool.
Question 6: Under the concept of 'per stirpes' distribution, if a child of the testator predeceases the testator leaving two children (grandchildren of the testator), those grandchildren collectively receive:
- Nothing, because they are not named in the will
- An equal share with the surviving children of the testator
- The share their parent would have received, divided equally between them (Correct answer)
- A double share to compensate for the loss of their parent
Correct answer: The share their parent would have received, divided equally between them
Under per stirpes distribution, the deceased child's share passes by representation to that child's descendants, who divide the share equally among themselves.
Question 7: A durable power of attorney for financial matters differs from a regular power of attorney primarily because it:
- Requires court approval before becoming effective
- Remains effective even if the principal becomes incapacitated (Correct answer)
- Can only be used for real estate transactions
- Automatically terminates upon the principal's 70th birthday
Correct answer: Remains effective even if the principal becomes incapacitated
A durable power of attorney contains language that allows it to survive the principal's subsequent incapacity, unlike a standard power of attorney which terminates upon incapacity.
NALA Estate Planning and Probate 3
A testamentary trust created in a will becomes irrevocable: