OHIO STATE BAR ASSOCIATION. Estate Planning Trust & Probate Law Certification Sample Examination Questions

Transcription

1 OHIO STATE BAR ASSOCIATION Estate Planning Trust & Probate Law Certification Sample Examination Questions

2 1. Your Ohio resident client dies a widower. He spent winters in Florida and has real property there on which he has placed an elaborate mobile home. He has a sizeable checking account and brokerage account with a Florida bank and its investment arm. Most of his bank accounts, his home residence and his investments were in Ohio. You begin Ohio probate. Concerning the probate of the estate, you should inform the client that: A. Florida probate is necessary for all those assets located in Florida. B. all assets are probatable in Ohio. * C. a Florida probate is necessary for the Florida land and the mobile home only. 2. Tom Trustee comes to you this week to ask about terminating his deceased father s trust. There are four beneficiaries, one of whom is a minor. He asks you if it can be terminated without substantial litigation or expense. The total trust corpus is $44,000 and, because of its small size, all four beneficiaries agree it should be terminated. You advise him that it: * A. can be terminated by filing an application in court requesting termination. B. cannot be terminated until the minor reaches majority. C. can only be terminated if all beneficiaries, including the minor s guardian, sign a consent and waiver. 3. A 90-year-old client s total taxable estate is $800, He tells you that the reason he wants to set up an irrevocable trust is because he knows exactly how he wants to distribute his estate to his 4 children, and he wants to minimize federal estate tax. The best way to meet the client s needs is to: A. draw up the irrevocable trust and help him with the asset transfers. B. draw up the trust after first giving the client a letter outlining the potential problems of an irrevocable trust. * C. advise the client that there is no tax advantage to setting up the irrevocable trust.

3 4. As a young entrepreneur concerned for his family s security, Harold C. Cranchford took out a $1 million whole life policy on himself from Riskaverse Mutual Life Insurance Company. He named his wife, Ruth, as the primary beneficiary, with his children as alternates. If Harold dies, survived by Ruth, the insurance proceeds are: A. not included in his gross estate for federal estate tax purposes. B. included in his gross estate for federal estate tax purposes and subject to tax. * C. included in his gross estate for federal estate tax purposes, but no tax will be due because of the unlimited marital deduction. 5. Jane Jones wants to execute powers of attorney appointing her daughter to act for her in financial matters and also in health care matters. If both powers of attorney are to be effective and the financial power is to be recordable, the crew at signing must be at least the client: A. and two witnesses. * B. and a notary. C. alone. 6. Jim Jones, a long-time client of yours with a substantial estate, asks that you prepare a will for him leaving several $10,000 bequests. In preparing the will, you know that you can name, as beneficiary of the bequests, your: A. secretary s father. * B. law partner who is a brother-in-law of your client. C. part-time law clerk.

4 7. Wanda Goldigger, a 28-year-old former beauty queen married John Gotrocks, an 80- year-old retired pharmacist. John passed away one year after their marriage. This was a first marriage for Wanda and a second marriage for John. John has two adult children from his first marriage. Wanda has just met with John s attorney and has been informed that under John s will she is entitled to a $250,000 specific cash bequest. The residue of John s estate is divided equally to his two children. John s net estate before estate taxes comes to $600,000. Wanda has just hired you to advise her in John s estate proceedings. Wanda informs you that she is in it to maximize her total take from John s estate. You meet with Wanda and advise her to elect to take: * A. under the will because the $250,000 specific cash bequest maximizes her take. B. against the will because under Ohio s election statute the surviving spouse takes two-thirds of the estate. C. against the will because under Ohio s election statute the surviving spouse takes one-half of the net estate. 8. The failure to state that a power of attorney shall not be affected by the disability of the principal: A. results in the power of attorney terminating only upon the death of the principal. B. results in the power of attorney terminating only upon the incompetency of the principal. * C. results in the power of attorney terminating upon the death or the incompetency of the principal. 9. Your client, Chuck Schwab, has died with a portfolio of stocks purchased by him on the internet over recent years. After his death, two of his stocks have plummeted while the remainder have appreciated slightly. His surviving spouse executor asks about the tax implications of these post-death changes in the value of Chuck s securities. Which one of the following statements is accurate? A. The valuation chosen (alternate versus date of death) for Ohio estate tax purposes will also affect the cost basis of those assets transferred from or sold by the estate. * B. The valuation chosen for federal estate tax purposes (alternate versus date of death) will also affect cost basis of those assets transferred from or sold by the estate. C. You cannot consider alternate value of estate assets if you plan to utilize a QTIP election on the estate tax return(s).

5 10. A husband is married and has two adult children, both from this marriage. The husband writes his own will leaving everything to his wife if she survives him, but if his wife does not survive him, he leaves their daughter a token bequest of $5,000 and gives the rest of his estate to his son. His will is witnessed by his wife and daughter. The husband dies with this will as his last will. The husband s estate will pass: * A. all to his wife. B. all to his daughter. C. equally between his two children. 11. John Smith has come to you for estate planning. His assets include a $100,000 IRA plan in which he has named his wife, Sue, as a beneficiary. John has been happily married for the last 10 years to Sue. John is 40 years old and Sue is 38 years old. Their combined estates are $600, John would really like to leave his IRA plan to his son, Steve, since he believes it will teach Steve how to invest in the stock market. The rest of his assets he plans to leave to Sue. The most adverse consequence of removing Sue as a beneficiary of John s IRA plan is the: * A. loss of the spousal rollover. B. loss of the marital deduction for this asset. C. the federally mandated spousal notice. 12. John Buckeye died a resident of Ohio on January 14, His wife, Mary, died on January 24, Under John s will, his wife was named as the sole residuary beneficiary of his estate and Ohio State University was the sole contingent residuary beneficiary. Under Mary s will, John was named as sole residuary beneficiary of her estate and the University of Michigan was the sole contingent residuary beneficiary. Under Ohio law, the assets of John s estate pass to: A. the University of Michigan. * B. Mary Buckeye s estate. C. Ohio State University

6 13. A husband, who is an Ohio resident, wants to take care of his second wife after he dies. However, after the surviving wife s death, he wants the remainder to be distributed to his own children (not hers). To best accomplish all his goals, he should: * A. use a qualified terminable interest property plan. B. enter into a postnuptial agreement with his second wife requiring her to leave to his children any of his assets which have been received by her. C. make substantial lifetime gifts to his own children. 14. Henry Worker died with probate assets worth $305,000 and a profit-sharing plan from his former employer. His probate estate, under his will, went in equal shares to his five nieces. This profit-sharing distribution also went to his five nieces as beneficiaries equally in the total amount of $128,722. His former employer wrote to you that the total amount of the $128,722 came from funds of $105,400 wholly contributed by the company and that no funds were contributed by Henry. In calculating the total Ohio estate tax on probate and non-probate property, you should: * A. exclude the total payment of $128,722. B. include the total payment of $128,722. C. include only the appreciation from $105,400 to $128, A trust provides that all of its income is to be distributed at least annually to John. In addition, the trustee can distribute trust principal for John s support, health and education. During the calendar year, the trust receives dividends of $10,000, tax-exempt interest of $5,000 and capital gains of $12,000 that are allocated to principal. Notwithstanding the requirement that all income is to be distributed to John, the trustee does not distribute any amount to John. For the calendar year, John will be taxed income from the trust in the amount of: A. $0, because no amount was distributed to him. * B. $10,000. C. $22,000.

7 16. Decedent died leaving a surviving spouse and one minor child who is also the child of the surviving spouse. Decedent s will leaves everything to the surviving spouse. At the time of his death, decedent owned in his own name only a small yacht worth $500,000, an antique automobile worth $45,000 and a Lexus automobile worth $40,000. Administration expenses total $10,000. There is only one valid claim ($5,000 in amount) against the estate which, for personal reasons, the surviving spouse would prefer not to pay. The claim will: * A. not be paid because the total of the $40,000 allowance for support plus the administration expenses exceed the total probate estate remaining after the surviving spouse s exclusions. B. be paid because only the $40,000 Lexus may be excluded from the probate estate by the surviving spouse. C. be paid because the value of the yacht exceeds $40, Sam, a domiciliary of Ohio, died in 2002 and left his residuary estate to his unfunded revocable trust. Sam had established the revocable trust in 1995 for the primary benefit of his children. None of Sam s children reside in Ohio, and the trustee of the trust also does not reside in Ohio. For purposes of the Ohio income tax laws, Sam s trust will: * A. always be considered a resident of Ohio because Sam was a domiciliary of Ohio at the time of his death and the trust received its funds pursuant to Sam s will. B. never be considered a resident of Ohio because none of the beneficiaries or the trustee resides in Ohio, notwithstanding that Sam was a domiciliary of Ohio at his death. C. be a resident of Ohio only in those years when at least one beneficiary resides in Ohio.

8 18. In 2003 an Ohio resident wishes to establish a fund for his nephew who is an adult dependent child receiving governmental assistance. The fund will be $250,000 and will provide quality of life benefits without jeopardizing governmental assistance. You advise the client that: A. an intervivos trust should be created limiting distributions to health, maintenance and support. * B. the Ohio safe harbor special needs trust limits the amount by which such a trust may be funded. C. there is no method available by which a $250,000 fund can be created for the nephew without causing loss of some of the nephew s benefits from governmental assistance. 19. Jim is engaged to marry Beth. Jim is a 55-year-old neurosurgeon recently divorced from his first wife, Cathy. Jim has two adult children from his first marriage. Beth is a 35- year-old stockbroker, never married. Beth has a law degree and an MBA in finance. Jim has $3,000,000 in assets. Beth has $50,000 in assets. At his death, Jim wants to leave his entire estate to his two adult children. Beth wants to leave all of her assets to Jim. Jim asks you to prepare an antenuptial agreement to accomplish his wishes. You should tell Jim that you: A. CANNOT follow his instructions but must prepare an antenuptial agreement that is fair and reasonable for Beth under all the surrounding facts and circumstances. * B. can prepare an antenuptial agreement in accordance with his instructions if it contains a full and complete disclosure to Beth of the nature, extent and value of his property. C. CANNOT follow his instructions but must prepare an antenuptial agreement providing an equalization of the assets between Beth and Jim.

9 20. After discussions with a husband and wife, the attorney is in the process of setting up revocable living trusts for them. Privately, the husband tells the attorney that he wants to leave some assets to his lover without his wife knowing about it. The attorney s best response is to: A. set up another, separate trust for the husband and fund it with the assets he wants to leave to his lover. B. write a codicil to the husband s will naming his lover as one of his beneficiaries. * C. finish the living trusts and decline to further represent either the wife or the husband. 21. Jim Wayne is a 16-year-old entrepreneur who was abandoned by his parents at age 10. Jim was a brilliant student and has invented a computer software program that is widely used. Jim earns over $100,000 per year and is beginning to accumulate a substantial estate. Jim resides in a nice home in suburban Columbus with his 18-year-old wife, Sue, and their one-year-old son, Ben. Jim comes to see you seeking your advice on preparing a will for him disposing of his estate that is already estimated to be over $200,000. You advise him that: A. since he is an emancipated minor you can prepare a will for him. * B. you CANNOT prepare a will for him since in Ohio you must be 18 years of age or older in order to make a will. C. you CANNOT prepare a will for him since in Ohio you must be 21 years of age or older in order to make a will.

10 22. Decedent s will named X to be executor of the estate. In addition to other powers not relating to the sale of real estate, the will provided: My fiduciary shall have the power to sell any real estate and personal property at public or private sale to any person upon such conditions of cash or credit and at any price he deems appropriate, and may transfer title to any such property by deed, bill of sale or other appropriate instrument of conveyance. X was appointed. The decedent s house was sold by X as executor to a third party in a fair transaction under the power of sale in the will. After the sale a timely will contest was filed. It was determined that the will was NOT the last will of the decedent due to the decedent s lack of competency. The sale of the house: A. is void because the will was invalid. B. may be set aside by an action for rescission based upon mutual mistake of fact that the parties believed there was a valid power of sale at the time of the sale. * C. is valid and may not be set aside or voided. 23. You are drafting an estate plan for a widower who expects to have a net estate of $2,240,000. When his wife died, she left her entire estate to the client. The client has two children, Alice and Bernard. Alice is married and has three children. The client believes that Bernard will never marry and will never have children. The client intends to leave $1,120,000 of his estate in trust for Alice and then to her children, and to leave the rest of his estate in trust for Bernard and then to Alice s children. Alice is wealthier than her father. Bernard has almost no assets and will simply live on whatever funds his father s trust provides for him. Therefore, you conclude to use the client s GST exemption for Alice s trust. After explaining generation-skipping transfer (GST) taxes, you can tell the client that the GST tax: A. concerns can be eliminated by giving Bernard the power to appoint the remainder of his trust among Alice s children. * B. can be avoided by giving Bernard the power to appoint the trust among his nephews and nieces and the creditors of his estate and hoping that Bernard will not be so vindictive as to exercise the power in favor of his creditors. C. can be avoided by allocating the client s predeceased spouse s $1,120,000 GST exemption to Bernard s trust.

11 24. An elderly client has vacant real estate that has significant worth, but has a low tax basis for income tax purposes. The client enters into a contract to sell this property, but he dies before closing. The executor of client s estate closes the deal in accordance with the contract and collects the net sale proceeds. The tax consequence resulting from the above is that: A. the gain recognized will be reported in the client s final income tax return. * B. the gain recognized will be reported in the estate s taxable year in which the closing occurred. C. no gain is recognized because the estate receives a step-up in basis for the decedent s property. 25. Decedent died on January 1, You find that the decedent s father had set up a trust containing a 5-and-5 power for the decedent. The decedent never exercised the power. The trust was worth $100,000 at the time of its creation and was worth $500,000 on the date of the decedent s death. You are preparing the Form 706. With respect to the 5- and-5 power, you should include: * A. $25,000 in the decedent s gross estate. B. $5,000 in the decedent s gross estate. C. nothing in the decedent s gross estate because the power lapsed without being exercised. 26. John owns a $1 million whole life policy on himself from ABC Mutual Insurance Company. He named his wife primary beneficiary and his children as contingent beneficiaries. If John transfers ownership of the insurance policy to an irrevocable trust, with ABC Mutual Insurance Company s trust department acting as trustee, the insurance proceeds will: * A. be included in his federal estate tax gross estate if he dies within three years of making the transfer. B. not be included in his federal estate tax gross estate under any circumstances. C. be included in his federal estate tax gross estate no matter when he dies.

12 27. A client would like to leave his entire estate to an adult stepdaughter whom he and his now deceased wife had raised from infancy. He has substantial assets and is concerned that his next of kin, a brother and sister, will contest his will. He would like to protect his stepdaughter and would like to leave her his entire estate. He does not want his stepdaughter to have any trouble in the transfer of his wealth to her, and he does not want to file a petition for declaration of validity of his will under R.C now. The most effective procedure to prevent challenge to his plan is to: A. bequeath some property to the brother and sister, but provide that the bequests will be forfeited in the event of an unsuccessful contest or challenge. * B. designate the stepdaughter an heir. C. fund a revocable trust naming the stepdaughter the beneficiary. 28. Real estate is sold under a valid power of sale in the will for fair and adequate consideration, but the executor neglects to determine or pay the Ohio estate tax. The estate assets are distributed and the beneficiaries and the executor are no longer collectable. The Ohio Department of Taxation: * A. CANNOT take any action against the real estate. B. may enforce the tax deficiency against the property based upon the Ohio estate tax lien against the property. C. may NOT enforce the estate tax lien if it has not filed a notice of the estate tax lien with the county recorder or the probate court prior to the sale of the real estate. 29. Decedent s trust named his widow trustee and sole income beneficiary. Upon her death, decedent s children (widow s stepchildren) will receive the remaining principal of the trust. Your client, the widow, has been told that a trust is a private instrument and she doesn t want to give in to the demands of the stepchildren to let them know how much income she is receiving. You advise her that: A. as attorney for the trustee of the trust, you also represent the trust beneficiaries, and you have a duty to furnish the information to the children as remainder beneficiaries of the trust. B. her stepchildren are not entitled to the information because they are not current income beneficiaries of the trust. * C. she has a statutory duty to furnish the information to her stepchildren.

13 30. You have been an attorney for many years to a single lady who has no immediate heirs. Over the years as both you and your secretary have been in contact with this client, she has developed a strong friendship with your secretary. Your client, who is fully competent, just informed you that she would like to leave ten percent of her estate to your secretary. She asks you to make up a codicil to her will to that effect. You should: A. prepare the codicil containing the bequest to your secretary, providing you also prepare and have executed a written and complete waiver from the client. * B. have another attorney from a different firm prepare the codicil. C. obtain two independent witnesses to the codicil certifying that the client acted freely and without influence from any person. 31. Client Lonely dies intestate with substantial assets. Lonely s spouse and parents predeceased him and there were never any children. Lonely never had sisters, but had three brothers who predeceased him. One brother had one child who survives, another had three children who survive and the last brother had six children who survive. Administrator is ready to distribute. All tax returns have been filed and the one-year period from date of death for filing creditors claims has expired. With regard to making the distributions of the remaining assets, you should instruct the Administrator: A. that the Ohio anti-lapse statute controls the distribution. B. to distribute to nieces and nephews by representation based upon equal treatment of the three deceased brothers who left issue. * C. to distribute to all nieces and nephews equally.

14 32. Harold and Ruth Cranchford sold their successful family business in 1990 and invested the proceeds in publicly-traded mutual funds invested in U.S. companies. Harold died in At that time, Harold had $10 million in his revocable trust. The governing document provided that the entire corpus would be retained in a QTIP-eligible trust for the benefit of Ruth. Harold s executor elected QTIP treatment for $7 million of the $10 million in the trust, resulting in a taxable estate of $3 million and a tax paid of $1.098 million. Ruth died in late 2001, domiciled in Ohio. Her estate is not eligible to make an alternate valuation date election. Ruth s gross estate would include: A. all of Harold s trust at its value on the date of Ruth s death. B. 70% of the value of Harold s trust on date of his death. * C. 70% of the value of Harold s trust, as determined on the date of Ruth s death. 33. Decedent owned the following assets: Home (joint and survivorship with spouse) Brokerage accounts in his name alone Several certificates of deposit, each payable upon death to his favorite relatives IRA with spouse as beneficiary Life insurance policy payable to his children equally Which of the assets are subject to a percentage executor fee by Ohio statute? * A. All assets except for the home residence and life insurance generate an executor fee. B. Only the brokerage account (since it is a probate asset) is the basis for an executor fee. C. All of the assets above are used in the calculation of the executor fee.