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Quizzes > Quizzes for Business > Finance

Take the Estate Planning Knowledge Quiz

Assess Your Wills and Trusts Expertise

Difficulty: Moderate
Questions: 20
Learning OutcomesStudy Material
Colorful paper art promoting an Estate Planning Knowledge Quiz

Use this estate planning quiz to check what you know about wills, trusts, and executor duties in 15 multiple-choice questions. You'll spot gaps fast and practice key ideas before class, an exam, or a client meeting. When you finish, try the retirement planning quiz or the strategic planning quiz .

What is the primary purpose of a will?
To distribute a person's assets upon death
To appoint someone to manage finances if incapacitated
To hold assets during a person's lifetime
To minimize ongoing generation-skipping transfer taxes
A will directs how a person's property is distributed after death, making asset distribution its primary purpose. It does not function as a living document for managing assets during life.
Which individual is responsible for carrying out the instructions in a will?
Executor
Trustee
Guardian
Beneficiary
The executor is the individual appointed by the testator to administer the estate, paying debts and distributing assets. Trustees manage trusts, not wills.
Which type of trust is revocable during the grantor's lifetime but becomes irrevocable upon their death?
Testamentary trust
Charitable trust
Irrevocable trust
Revocable living trust
A revocable living trust can be altered or revoked by the grantor during life but automatically becomes irrevocable upon death. Irrevocable trusts are permanent from inception.
Which document appoints a person to make health care decisions if the grantor becomes incapacitated?
Last will and testament
Health care proxy
Living will
Durable power of attorney for finances
A health care proxy is a legal document that designates a person to make medical decisions if the grantor is incapacitated. Living wills express wishes but do not appoint an agent.
In most jurisdictions, which requirement must be met for a will to be considered valid?
Approved by a court before death
Signed by the testator and witnessed by two individuals
Notarized and registered with the state
Filed with the local county recorder
Most states require a will to be signed by the testator and witnessed by at least two individuals to be valid. Court approval or registration is not typically required before death.
Which type of trust is commonly used to avoid probate by holding assets during the grantor's lifetime?
Revocable living trust
Irrevocable trust
Charitable remainder trust
Special needs trust
A revocable living trust holds assets during the grantor's lifetime and allows them to avoid probate, ensuring privacy and faster distribution. Irrevocable trusts cannot be changed once established.
What is the approximate federal estate tax exemption threshold as of 2023?
$12.92 million
$5 million
$25 million
$1 million
As of 2023, the federal estate tax exemption threshold is approximately $12.92 million per individual. Estates valued below this amount are not subject to federal estate tax.
Which gifting strategy allows an individual to reduce their taxable estate by giving a set amount per recipient each year?
Qualified personal residence trust
Charitable remainder trust
Generation-skipping trust
Annual gift tax exclusion
The annual gift tax exclusion permits individuals to give a specified amount per recipient each year without incurring gift tax. This strategy reduces the taxable estate over time.
In trust administration, what role does a beneficiary typically have?
Appoints the trustee
Receives distributions according to the trust terms
Manages the trust assets
Drafts the trust document
Beneficiaries receive distributions from the trust according to its terms and can enforce the trustee's duties. They do not manage trust assets or draft trust documents.
Which clause in a will specifies a gift of a particular item or sum of money to a beneficiary?
Residuary clause
Specific bequest clause
Testamentary trust clause
Pour-over clause
A specific bequest clause names a particular item or amount of money to a beneficiary. Residuary clauses handle any remaining property not specifically bequeathed.
What occurs when a will is admitted to probate in court?
The will is sealed and never reviewed by beneficiaries
Assets automatically transfer to heirs without court oversight
The trustee takes control of assets
The court validates the will and oversees asset distribution
When a will is admitted to probate, the court validates its authenticity and supervises the distribution of estate assets. Stakeholders may challenge the will during this process.
How can a testator revoke a previously executed will?
By executing a new will or performing a physical act like destruction
By beneficiary consent
By notifying the executor in writing
By filing a revocation notice with the court
A testator can revoke a will by executing a new will that explicitly revokes previous ones or by physically destroying the original document. Written or beneficiary consent alone is insufficient.
Which legal document grants an agent the authority to manage a grantor's financial affairs if they become incapacitated?
Living will
Health care proxy
Trust instrument
Durable power of attorney
A durable power of attorney grants an agent authority to manage finances and property if the grantor becomes incapacitated. Health care proxies specifically address medical decisions.
What is the purpose of a pour-over will?
To pour over assets into a charity
To transfer any remaining assets into an existing trust upon death
To allocate personal property among heirs
To fund life insurance trusts
A pour-over will ensures any assets not already transferred into a trust during the grantor's lifetime are 'poured over' into a designated trust upon death. It complements a living trust.
During trust administration, what is the trustee's primary fiduciary duty?
Distribute all assets immediately
Maximize estate tax liability
Act in the best interests of the beneficiaries
Avoid diversification
Trustees owe a fiduciary duty to act in the best interests of beneficiaries, managing assets prudently and in accordance with the trust terms. This duty includes loyalty and care.
Which trust type is specifically designed to remove life insurance proceeds from a grantor's taxable estate?
Charitable remainder trust
Irrevocable life insurance trust (ILIT)
Qualified terminable interest property trust (QTIP)
Grantor retained annuity trust (GRAT)
An irrevocable life insurance trust (ILIT) holds life insurance policies so that proceeds are not included in the grantor's taxable estate. Other trust types serve different tax planning goals.
Under the three-year gift recapture rule, what happens to gifts made within three years of the grantor's death?
They automatically transfer to the residuary beneficiary
They are protected from estate taxes
They qualify for generation-skipping transfer tax exemption
They are included in the decedent's taxable estate
The three-year gift recapture rule includes gifts made within three years of death back into the decedent's estate for estate tax purposes. This prevents last-minute gifting solely to avoid taxes.
Which provision in a trust can prevent beneficiaries' creditors from accessing trust assets?
Testamentary clause
No-contest clause
Spendthrift clause
Pour-over clause
A spendthrift clause limits a beneficiary's ability to transfer or pledge their future trust interest, protecting trust assets from creditors. It enforces the settlor's conditions on distributions.
What standard of proof is generally required to contest a will on grounds of undue influence?
Beyond a reasonable doubt
Clear and convincing evidence
Preponderance of the evidence
Probable cause
Contesting a will for undue influence typically requires clear and convincing evidence of coercion or manipulation. This intermediate standard is higher than preponderance but lower than beyond a reasonable doubt.
Under the Uniform Prudent Investor Act, what is the primary investment standard for trustees?
Investing solely in real estate
Avoiding all marketable securities
Highest possible return regardless of risk
Prudent investor rule requiring diversification and risk management
Under the Uniform Prudent Investor Act, trustees must follow the prudent investor rule, focusing on diversification, risk analysis, and portfolio-wide strategies. The goal is to balance risk and return for beneficiaries.
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Learning Outcomes

  1. Identify key components of wills and trusts
  2. Analyse estate tax implications and strategies
  3. Evaluate roles of executors and beneficiaries
  4. Apply principles for drafting valid estate documents
  5. Demonstrate understanding of trust administration processes

Cheat Sheet

  1. Essential estate planning documents - Your will, trust, power of attorney, and living will form the dream team for managing your assets and healthcare choices. Each document has its own superpower: the will dictates who gets what, trusts dodge probate, powers of attorney handle finances, and living wills speak for you if you can't. Assembling this toolkit now keeps future you - and your family - out of a scramble.
  2. Revocable vs. irrevocable trusts - Revocable trusts are like clay - you can reshape them as life throws curveballs - while irrevocable trusts are set in stone, offering stronger protection and tax perks. Knowing the trade-offs helps you pick the right tool for privacy, asset protection, or estate tax savings. Dive into the details so you can craft your trust strategy without the guesswork.
  3. Beneficiary designations - Naming beneficiaries on life insurance, IRAs, and 401(k)s is like putting a name tag on your assets - they go straight to your chosen person, bypassing the will. If you forget to update these, ex-spouses or childhood nicknames could accidentally inherit your nest egg. A quick review ensures your legacy lands in the right hands.
  4. The probate process - Probate is the court's way of wrapping up a loved one's estate, but it can be slow, public, and pricey. Learning its steps - filing, inventory, creditor claims, and final distribution - helps you decide if you need probate-busting strategies like living trusts. Knowledge here is power: you can steer clear of delays and extra fees.
  5. Executors and trustees - Executors and trustees are your estate's project managers, charged with gathering assets, paying debts, and distributing inheritances. Picking someone organized, honest, and calm under pressure means smoother sailing for your heirs. A little humor in the job description - think "must love paperwork" - can help set expectations.
  6. Estate tax strategies - Federal and state estate taxes can nibble away at your legacy, but gifting, trusts, and charitable donations can slow the taxman's appetite. Learning exemption limits, gift-tax rules, and valuation discounts helps you pass more to loved ones. Smart moves now translate to bigger inheritances later.
  7. Incapacity planning - Durable powers of attorney and advance healthcare directives are your emergency plan if illness or injury leaves you unable to decide. They appoint trusted allies to handle money and medical choices - no court battles required. Think of it as your financial and health insurance policy for decision-making.
  8. Uniform Probate & Trust Codes - The Uniform Probate Code (UPC) and Uniform Trust Code (UTC) create a playbook for state laws, making estate and trust rules more predictable across the country. Studying these codes sharpens your understanding of legal jargon and standard procedures. It's like learning the rulebook before the game starts.
  9. Updating your estate plan - Marriage, divorce, births, and new jobs all call for a plan checkup - outdated documents can lead to unintended results. Regular reviews ensure your directives and beneficiary lists reflect today's reality. A yearly calendar reminder keeps your estate fresh and foolproof.
  10. Living trusts - Living trusts are VIP passes for your assets, letting heirs skip the probate line, maintain privacy, and ensure management if you're sidelined. You control the trust until the final curtain call, then your successor trustee takes the helm seamlessly. This backstage pass can save time, money, and stress for everyone.
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