Estate Planning Tools: Wills, Trusts, and Powers of Attorney

Question 1

In estate planning, which ethical principle should be prioritized?

Accepted Answer

Prioritizing the client's wishes

Answer

Minimizing the estate planner's compensation

Answer

Reducing the estate's tax burden

Answer

Excluding family members from the planning process

Question 2

Which of the following is NOT a typical estate planning tool used to manage and distribute assets after death?

Accepted Answer

Conservatorship

Answer

Will

Answer

Trust

Answer

Power of attorney

Question 3

What is the primary purpose of a will?

Accepted Answer

To distribute assets after death

Answer

To appoint a guardian for minor children

Answer

To create a trust

Answer

To manage financial affairs in the event of incapacity

Question 4

Which type of trust is typically established during the lifetime of the grantor and allows for modifications or termination?

Accepted Answer

Revocable living trust

Answer

Testamentary trust

Answer

Irrevocable living trust

Answer

Charitable trust

Question 5

What is the main advantage of using a power of attorney in estate planning?

Accepted Answer

Allows for financial management in case of incapacity

Answer

Enables the creation of a trust

Answer

Appoints a guardian for minor children

Answer

Distributes assets immediately upon death

Question 6

What is the key difference between a revocable and an irrevocable trust?

Accepted Answer

Revocable trusts can be modified or terminated by the grantor, while irrevocable trusts cannot

Answer

Irrevocable trusts offer tax benefits, while revocable trusts do not

Answer

Revocable trusts are typically established during the grantor's lifetime, while irrevocable trusts are created posthumously

Answer

There is no difference between revocable and irrevocable trusts

Question 7

Which of the following is NOT a requirement for a valid will under the Uniform Probate Code?

Accepted Answer

The testator must be at least 21 years of age.

Answer

The testator must be of sound mind.

Answer

The will must be signed by the testator.

Answer

The will must be witnessed by two or more credible witnesses.

Question 8

Which type of trust allows the settlor to retain control over the assets and modify or revoke the trust at any time?

Accepted Answer

Revocable trust

Answer

Irrevocable trust

Answer

Testamentary trust

Answer

Spendthrift trust

Question 9

What is the primary purpose of a durable power of attorney for healthcare?

Accepted Answer

To allow a designated agent to make medical decisions for the principal if they become incapacitated.

Answer

To grant authority to someone to manage the principal's finances.

Answer

To authorize someone to make burial arrangements for the principal.

Answer

To administer the principal's estate after their passing.

Question 10

Which of the following is NOT a potential tax implication of establishing a trust?

Accepted Answer

Sales tax.

Answer

Gift tax.

Answer

Estate tax.

Answer

Generation-skipping tax.

Question 11

Which of the following is NOT a benefit of a power of attorney?

Accepted Answer

Can only be revoked by the principal.

Answer

Allows a designated agent to act on your behalf when you are unable to.

Answer

Can be used for both financial and medical matters.

Answer

Provides protection against financial exploitation.

Question 12

A holographic will is valid if:

Accepted Answer

It is entirely handwritten and signed by the testator

Answer

It is witnessed by two disinterested witnesses

Answer

It is notarized

Answer

It is filed with the probate court

Question 13

A pour-over will typically directs the distribution of assets:

Accepted Answer

To a trust

Answer

To a specific beneficiary

Answer

To a charity

Answer

To the testator's next of kin

Question 14

A durable power of attorney for financial matters:

Accepted Answer

Remains valid even if the principal becomes incapacitated

Answer

Can only be used for a specific purpose

Answer

Must be renewed every year

Answer

Is automatically revoked upon the principal's death

Question 15

Which of the following is NOT a reason for contesting a will?

Accepted Answer

Compliance with all statutory requirements

Answer

Lack of testamentary capacity

Answer

Undue influence

Answer

Forgery

Question 16

Which of the following is **not** a common type of testamentary trust?

Accepted Answer

Totten trust

Answer

Charitable trust

Answer

Spendthrift trust

Answer

Naked trust

Question 17

What is the primary purpose of a power of attorney for healthcare?

Accepted Answer

To make medical decisions

Answer

To manage financial affairs

Answer

To distribute assets

Answer

To create a trust

Question 18

What is the Rule Against Perpetuities?

Accepted Answer

A rule that limits the time during which property can be held in trust

Answer

A rule that requires all wills to be notarized

Answer

A rule that prohibits the creation of certain types of trusts

Question 19

Which of the following is a disadvantage of a joint tenancy?

Accepted Answer

Both of the above

Answer

Lack of privacy

Answer

Loss of control over the property

Question 20

What is the purpose of a codicil?

Accepted Answer

To amend or supplement an existing will

Answer

To create a new will

Answer

To revoke a will

Question 21

Which of these is NOT typically required for a valid will?

Accepted Answer

Notarization

Answer

The testator's signature

Answer

Witness signatures

Question 22

Which of the following is not an essential element for a valid will?

Accepted Answer

Notary Public acknowledgment

Answer

Capacity to make a will (testamentary capacity)

Answer

Signature of the testator

Answer

Presence of witnesses

Question 23

A trust that is created during the lifetime of the grantor and distributes assets to beneficiaries upon the grantor's death is known as a:

Accepted Answer

Inter vivos trust

Answer

Testamentary trust

Answer

Revocable trust

Answer

Irrevocable trust

Question 24

In the United States, a holographic will is considered valid if:

Accepted Answer

It is completely handwritten.

Answer

It bears the signatures of two witnesses.

Answer

It is notarized.

Answer

It is witnessed by an attorney.

Question 25

A testamentary trust is a trust that is:

Accepted Answer

Created by a will

Answer

Established during the lifetime of the grantor

Answer

Revocable by the grantor

Answer

Used to avoid probate

Question 26

Which type of power of attorney allows the agent to make financial decisions on behalf of the principal while the principal is still living?

Accepted Answer

Durable

Answer

Medical

Answer

Springing

Question 27

What is the primary objective of an estate plan?

Accepted Answer

To ensure that assets are distributed according to the wishes of the deceased after their death

Answer

To minimize taxes

Answer

To avoid the probate process

Answer

To protect heirs from legal disputes

Question 28

What is the primary responsibility of an executor in an estate?

Accepted Answer

To administer the estate and distribute assets according to the deceased's wishes

Answer

To contest the validity of the will

Answer

To represent the heirs in court proceedings

Answer

To file tax returns on behalf of the estate

Question 29

A durable power of attorney for healthcare:

Accepted Answer

Empowers an agent to make medical decisions for the principal even if the principal becomes incapacitated.

Answer

Is only valid for a limited duration.

Question 30

A will is considered legally valid if:

Accepted Answer

It is in writing, signed by the testator, and witnessed by two credible individuals.

Answer

It is registered with the probate court.

Answer

It is notarized by a public notary.

Question 31

A pour-over will:

Accepted Answer

Directs the transfer of assets into a pre-established trust upon the testator's demise.

Answer

Can only be used with revocable living trusts.

Answer

Revokes any pre-existing trusts.

Question 32

A holographic will:

Accepted Answer

Is entirely written and signed by the testator without witnesses.

Answer

Is only valid in certain states.

Answer

Must be witnessed by two credible individuals.

Question 33

A conservatorship:

Accepted Answer

Is a legal arrangement where a court appoints a person to manage the affairs of an individual who is unable to do so themselves.

Answer

Is a type of trust.

Question 34

Which of the following is NOT a recognized type of will?

Accepted Answer

Intestate Will

Answer

Holographic Will

Answer

Testamentary Will

Answer

Nuncupative Will

Question 35

What is the primary purpose of establishing a trust?

Accepted Answer

Management and transfer of assets according to the grantor's wishes

Answer

Settlement of estates

Answer

Avoidance of estate taxes

Answer

Provision of legal representation

Question 36

Which of the following is NOT a power typically granted by a power of attorney?

Accepted Answer

Power to vote in elections

Answer

Power to sell real estate

Answer

Power to handle financial affairs

Answer

Power to make medical decisions

Question 37

In most states, what is the legal minimum age at which an individual can create a valid will?

Accepted Answer

18

Answer

16

Answer

21

Answer

25

Question 38

What is the fundamental distinction between a testamentary trust and an inter vivos trust?

Accepted Answer

Timing of creation and legal effect

Answer

Tax treatment of assets

Answer

Ownership of assets

Answer

Rights granted to beneficiaries

Question 39

What is the primary duty and obligation of a trustee?

Accepted Answer

To manage and administer assets for the benefit of the beneficiaries

Answer

To distribute assets to heirs according to the will

Answer

To create a will for the grantor

Question 40

What is the purpose and function of a codicil?

Accepted Answer

To modify or amend an existing will

Answer

To create a new will

Answer

To appoint an executor for the estate

Answer

To revoke a will in its entirety

Question 41

Which of the following is NOT a factor considered when evaluating the validity of a power of attorney?

Accepted Answer

Age of the appointed agent

Answer

Mental capacity of the grantor

Answer

Purpose and scope of the power

Answer

Duration of the power

Question 42

A high-net-worth individual seeks to preserve their wealth, minimize estate taxes, and distribute assets seamlessly to heirs. Which estate planning tool is most likely to achieve these goals?

Accepted Answer

Living Trust

Answer

Living Will

Answer

Power of Attorney

Answer

Will

Question 43

A will is a legally binding document that directs the distribution of a person's assets after death. What is the primary purpose of a will?

Accepted Answer

Estate distribution

Answer

Estate tax reduction

Answer

Asset management during life

Question 44

An individual intends to make a charitable contribution upon their demise. Which estate planning tool would facilitate such an action?

Accepted Answer

Will

Answer

Trust

Answer

Life Insurance

Answer

Joint Tenancy

Question 45

What is the key distinction between revocable and irrevocable trusts?

Accepted Answer

Revocable trusts can be modified or revoked, while irrevocable trusts are generally permanent.

Answer

Revocable trusts are used for lifetime asset management, while irrevocable trusts are for post-mortem asset distribution.

Answer

Revocable trusts are suitable for smaller estates, while irrevocable trusts are for larger estates.

Question 46

An individual wishes to empower another person to make medical decisions on their behalf in case of incapacity. Which estate planning tool should be utilized?

Accepted Answer

Healthcare Power of Attorney

Answer

Will

Answer

Living Will

Answer

Durable Power of Attorney

Question 47

Which of the following is a potential disadvantage of utilizing a will as the primary estate planning tool?

Accepted Answer

Probate, which can be time-consuming and involve expenses.

Answer

Estate exposure to creditors

Answer

Limited flexibility to modify after execution

Question 48

Which estate planning tool is primarily used to transfer assets to beneficiaries without undergoing probate?

Accepted Answer

Revocable Living Trust

Answer

Will

Answer

Joint Tenancy

Answer

Power of Attorney

Question 49

A testator intends to leave a vacation home to their child but wants to restrict its sale until the child reaches a certain age. Which estate planning tool is most suitable for this scenario?

Accepted Answer

Testamentary Trust

Answer

Joint Tenancy

Answer

Revocable Living Trust

Answer

Life Estate

Question 50

Which of the following is NOT a function of a will?

Accepted Answer

Avoiding probate entirely

Answer

Distributing assets

Answer

Appointing an executor

Answer

Designating guardians for minor children

Question 51

A power of attorney allows an individual to grant decision-making authority to another person. Which type of power of attorney remains valid even if the grantor becomes incapacitated?

Accepted Answer

Durable Power of Attorney

Answer

Revocable Power of Attorney

Answer

Special Power of Attorney

Answer

General Power of Attorney

Question 52

A couple owns their home in joint tenancy with right of survivorship. What happens to the property when one spouse dies?

Accepted Answer

The surviving spouse automatically inherits the deceased spouse's share.

Answer

The property is divided equally among the couple's heirs.

Answer

The property is subject to probate.

Question 53

What is the purpose of a beneficiary designation in a life insurance policy?

Accepted Answer

To specify the individuals who will receive the death benefit upon the insured's death.

Answer

To determine the amount of the death benefit.

Answer

To designate the executor of the estate.

Question 54

Which of the following statements about estate planning is TRUE?

Accepted Answer

Estate planning involves more than just creating a will.

Answer

Estate planning is only necessary for wealthy individuals.

Answer

A will is sufficient for all estate planning needs.

Question 55

A client wishes to create a trust that will provide for their child's education and living expenses until they reach the age of 25. Which type of trust is most appropriate?

Accepted Answer

Spendthrift Trust

Answer

Revocable Living Trust

Answer

Totten Trust

Answer

Charitable Trust

Question 56

What is the primary purpose of a probate process?

Accepted Answer

To validate the will and distribute the deceased's assets according to its provisions.

Answer

To ensure that the deceased's wishes are followed regarding the disposition of their remains.

Answer

To prevent the deceased's creditors from claiming assets.