Trust and Estate Planning Flashcards

What is the primary objective of estate planning?

Answer: To manage and transfer assets efficiently

Estate planning ensures that an individual’s assets are distributed according to their wishes while minimizing taxes and legal complications.

Which estate planning document designates a person to make medical decisions on your behalf?

Answer: Healthcare power of attorney

A healthcare power of attorney is a legal document that allows you to appoint a trusted individual to make medical decisions on your behalf if you become unable to do so yourself. This ensures your healthcare wishes are honored, providing guidance for medical treatments and end-of-life care. It is distinct from a last will or financial power of attorney, which cover different aspects of estate planning.

Why is a living trust often used in estate planning?

Answer: To bypass probate court

A living trust is frequently used in estate planning to bypass the probate court process. Assets held within a properly funded living trust can be distributed directly to beneficiaries upon the grantor's death, avoiding the often lengthy, public, and costly court supervision of probate. This streamlines asset transfer, maintains privacy, and can reduce administrative expenses.

What is a key advantage of making annual exclusion gifts?

Answer: They reduce the taxable estate over time

A key advantage of making annual exclusion gifts is that they reduce the donor's taxable estate over time. These gifts allow individuals to transfer a specified amount of money or assets each year to multiple recipients without incurring gift tax or using their lifetime estate tax exemption. By consistently removing assets from the estate, the donor can significantly lower the total value subject to estate taxes upon their death.

Who typically benefits from a special needs trust?

Answer: Individuals with disabilities

A special needs trust (SNT) is specifically designed to benefit individuals with disabilities. It allows assets to be held for their care and support without jeopardizing their eligibility for crucial means-tested government benefits, such as Medicaid or Supplemental Security Income (SSI). The trust funds can supplement, rather than replace, public assistance, covering expenses that improve the beneficiary's quality of life.

What role does a financial power of attorney serve in estate planning?

Answer: It enables financial decision-making for another

A financial power of attorney serves to enable financial decision-making for another person, known as the principal. This legal document grants an appointed agent the authority to manage the principal's financial affairs, including paying bills, managing investments, and handling banking transactions. It is a critical tool for ensuring financial responsibilities are met if the principal becomes incapacitated or is otherwise unable to manage their own finances.