Understanding Living Trusts

Transcription

1 Understanding Living Trusts Course Instructions and Final Examination Understanding Living Trusts Denis Clifford CPE Edition Distributed by The CPE Store The CPE Store 819 Village Square Drive Tomball, TX

2 Understanding Living Trusts Table of Contents Page Course Objectives... 3 Course Instructions... 3 Final Examination... 5

3 COPYRIGHT 2013 The CPE Store ALL RIGHTS RESERVED. No portion of this material may be reprinted, reproduced, transmitted, stored in a retrieval system, or otherwise utilized, in any form or by any means, electronic or mechanical, including photocopying or recording, now existing or hereinafter invented, nor may any part of this course be used for teaching without written permission from the publisher and the author

4 Course Objectives After completing this course, you will be able to: Identify the important difference between a living trust and a will Determine the first document which must be prepared when setting up a working trust Pinpoint the exemption amount for federal estate tax for 2013 Recognize when you might need to transfer property out of a trust and back into your name Determine the best option for transferring a home to your children, while also protecting your spouse, when you are in a second marriage Recognize a situation where you would need a living trust Determine who might be least likely to benefit from a living trust Identify the definition of a catastrophic illness clause Discern the best option to setting up a living trust when you live in two states Spot the definition of homestead rights Pinpoint the amount of profit from the sale of your principal home which may be excluded from your taxable income Determine whether you can sell or give away trust property while you are alive Determine when it would be a good idea for spouses to create individual living trusts Recognize a situation which requires the consent of both spouses who are co-trustees of a basic shared living trust Determine the definition of an AB trust Identify the reason an AB disclaimer trust includes the word disclaimer Recognize an action a surviving spouse must do for Trust A Identify the type of items which should not be put in your trust Recognize the best method for passing your bank accounts to your survivors Determine what happens to your property if you move from a community property state to a common law state Discern what happens to separately owned property that gets commingled with community property Determine who acts as the initial trustee of a basic shared living trust Recognize why a medical doctor might refuse to issue a statement regarding your mental capacity Identify the two types of beneficiaries for a basic probate-avoidance living trust Determine what happens to the property of the first spouse who dies when a basic shared living trust is in place Recognize the consequences of naming multiple beneficiaries for property that cannot be divided Spot the definition of survivorship period Pinpoint the most significant difference between a child s trust and a UTMA gift Select the preferable method of inheritance for a minor beneficiary who will inherit between $50,000 and $100,000 Identify the major risk of using a 529 plan Recognize the difference in responsibilities of a custodian vs. a trustee for a child s trust Determine what property schedule most married couples need Recognize the best way to list your personal property within a living trust Identify the requirement which must be met before a successor trustee can take over a trust upon your incapacitation Indicate what you should do to ensure that if a beneficiary does not survive you by a specified period of time, your property will go to your alternate beneficiary Pinpoint what happens to the property in a child s trust when the beneficiary reaches age 35 (if no age is specified in the trust document) Identify the document which assigns property without a document of title to the trust Recognize the extra step which is required for transferring joint tenancy property into a living trust Discern the most serious mistake you can make when completing a living trust Select the correct definition for a Certification of Trust Determine what happens if you do not register your trust with a local court Determine when you should amend your living trust Recognize the legal term for changing ownership of trust property Identify when some states can automatically revoke the provisions in your living trust which affect your spouse Identify the successor trustee s first two duties Recognize the dates on which a successor trustee can assess the value of the estate Indicate the additional duty a surviving spouse has for a basic shared living trust Recognize features of pay-on-death financial accounts Pinpoint when federal estate tax is due - 3 -

5 Identify a drawback of a QTIP trust Indicate how a generation-skipping trust works Recognize the states which impose an inheritance tax Determine the definition of a spendthrift trust Identify the definition of a pour-over will Determine who should witness you signing your will Recognize recommended ways to find a lawyer Course Instructions To fully benefit from this course, please follow all of the steps below. 1. Read each chapter in the text to get a good understanding of the material. 2. Answer the study guide problems which appear at the end of each chapter. After answering the problems, compare your answers with the correct answers to ensure that you understand the material. 3. When you feel that you have a good understanding of the material contained in the chapter, answer the questions on the final examination. 4. When you have completed the final examination, submit your answers for grading. A score of 70% or better is required to pass. Please also complete the course evaluation. Upon passing you will receive a Certificate of Completion stating that you have successfully completed the course and earned the continuing education credit. Prerequisites and Advance Preparation No prerequisites or advance preparation are required for this course. CPE Credit This course is recommended for 18 CPE credits. Final Exam Grading Online: By Mail: By Fax: Refunds Our fastest option, with instant results. Simply go to and click the link for online grading. Just follow the instructions from there. When you finish entering your answers, you ll receive instant test results and a Certificate of Completion to print. Mail your test and course evaluation to us. We grade the tests the day we receive them and mail the results and Certificate of Completion to you the following business day. Please use this option only if you need fast turnaround (we want to keep this as a free service). Just fax your answer sheet to If you need us to fax the Certificate of Completion back to you, please provide us with your fax number and write please fax back on your answer sheet. If you don t need the Certificate faxed back, please write no fax needed on your answer sheet. The CPE Store guarantees your satisfaction. If, for any reason, you are not completely satisfied with your purchase, return it to us unused within 30 days for a prompt refund, no questions asked. (Sorry, but shipping fees are not refundable.) Customer Service The CPE Store holds itself to the highest standards. If we have not met your expectations, something is missing, or you just have a question please contact us at or customerservice@cpestore.com. About Our Courses The CPE Store s courses are developed to satisfy the continuing education requirements of the American Institute of Certified Public Accountants, each state s Board of Accountancy and the National Association of State Boards of Accountancy (NASBA). If your state requires registration of sponsors, our sponsor number will appear on your Certificate of Completion. Our courses are designed to meet the continuing education requirements of accounting professionals. A great deal of care has been taken to ensure that the course material is both interesting and relevant to the practice of accounting. The information presented is, to the best of our knowledge, current and accurate. However, The CPE Store is not in the business of rendering legal, accounting or other professional advice and as such, the material presented in our courses is intended as an overview. If legal advice or other expert assistance is required, the services of a competent professional should be sought

6 Understanding Living Trusts 18-Hour Course Final Examination A score of 70% or higher is required to pass the exam. If you score less than 70% on your first attempt, we will allow you to take the test a second time. Chapter 1 Overview of Living Trusts 1. What is the important difference between a living trust and a will? A. The will allows you to avoid probate B. The will requires property to go through the probate court process C. The trust requires probate proceedings D. A will requires only a signature; the trust requires notarization and a lot of paperwork 2. What document must you prepare and sign as the first step to setting up a working trust? A. Living Will B. Declaration of Trust C. Trust Document D. Declaration of Beneficiary form 3. For deaths in 2013, how much property is exempt from federal estate tax? A. $5.25 million dollars B. $5 million dollars C. $1.65 million dollars D. An unlimited amount 4. Which of the following statements is true regarding living trusts? A. They are irrevocable once they are notarized except for certain changes like naming new beneficiaries when one dies B. Creditors have up to one year to make their claims on your trust property after your death C. Out-of-state property placed in a trust will still have to go through probate in that state D. You do not have to file separate tax returns for living trusts 5. When might you need to transfer property out of the trust and back into your name? A. When you want to refinance trust real estate B. When you want to sell it C. When you want to avoid transfer taxes D. When you want to shield it from an ex-spouse Chapter 2 Human Realities and Living Trusts 6. John and Melanie, a married couple, each have children from prior marriages. Both spouses want to eventually leave their property to their own children, but both also want to protect the interest of the survivor. They own a house in equal shares. What is their best option with regard to the house? A. They should each leave the property to their own children B. They should leave each other a life estate C. They should leave the property to the executor of the estate to oversee until the second person dies D. None of the above is a viable option Chapter 3 Common Questions About Living Trusts 7. In which of the following situations would you need a living trust? A. You have a sizeable estate with real estate in multiple states, little debt, and many beneficiaries B. You live in Wisconsin and would like to transfer everything to your spouse C. You want a backup strategy for your joint tenancy property and payable-on-death bank accounts D. You need to name a custodian for your three young children - 5 -

7 8. Of the following, who would benefit the least from a living trust? A. Someone who is elderly B. A middle-aged happily married couple with no children C. Someone who ones a lot of property and has many children D. Someone who just wants to list a custodian for his children 9. Will a basic living trust reduce estate taxes? A. Yes; The law states that no estate taxes will be paid on inheritances from a living trust B. Yes; Because the estate is now considered protected, it is not liable for estate taxes C. No; Tax savings are not part of most living trusts D. It is impossible to know beforehand, without seeing how the living trust is setup 10. When assets do not go through probate, what is the cut-off period when creditors can no longer make claims against your estate? A. 7 years B. 1 year C. 10 years D. There is no cut-off period, so all your property remains liable for your debts 11. What is a catastrophic illness clause? A. An insurance rider you need to purchase to ensure that your life insurance pays for death due to catastrophic illness B. A clause in your medical insurance plan that may deny payment of medical bills due to a catastrophic illness C. A clause that prevents assets from being used to pay for a major illness when you are trying to get government aid to help pay the bills D. A clause in your living trust that specifies what to do in case of a catastrophic illness, similar to an advance care directive 12. If you live in two states, how should you proceed with setting up your living trust? A. Register the trust with both states B. Register the trust with whichever state you spend the most time in C. Arrange your affairs so that your legal residence is in just one state (the state with the most advantageous inheritance tax law) and sever ties with the other state D. Set up two trusts, one for the assets in one state and another for the remaining assets 13. When will a living trust remain valid when the person moves to another U.S. state? A. Only when the two states have reciprocity for living trusts B. Revocable living trusts are valid and used in every state, and your trust remains valid if you move to a different state C. Living wills are not transferable between states D. Only when moving between community-property states or when moving between common law states 14. What are homestead rights? A. The right to keep your principal home even when a government construction project (like a new highway) wants to take over your land B. A legal device that protects a limited amount of equity in your home from creditors C. The right to build a home on any land you own D. The right to build a home on abandoned or public land (with a statute of limitations) 15. How much of the profit from the sale of your principal home can you exclude from your taxable income? A. $100,000 per individual ($200,000 per married couple) with some limitations B. $100,000 per individual ($200,000 per married couple) without limitation C. $250,000 per individual ($500,000 per married couple) every two years D. $250,000 per individual ($500,000 per married couple) without limitation - 6 -

8 16. Which of the following is true regarding putting real estate in a trust? A. You must also transfer your homeowner s insurance policies to the trust, since the trust technically owns the property now B. You will most likely have to pay transfer taxes and your mortgage lender can enact the due-onsale clause when you transfer ownership to the trust C. You still maintain your $25,000 exception to the passive income rules for rental property if the property is placed in a living trust D. You can record transfer deeds in just one of the counties where you own property 17. What is the best way to handle contaminated property within your living trust? A. Don t put it in your trust, since your beneficiary will be responsible for its clean-up B. Obtain prior permission from the environmental board of the state where the property is located C. Include it in the living trust the same way you would include any other property; there is essentially no difference D. Put it in your living trust, and give it to someone with the financial resources to clean it up 18. Can you sell or give away trust property while you are alive? A. No; It is the property of the trust B. No; It is illegal to sell or give away any part of a living trust while you are still alive C. Yes; It is still your property, and you can sell, transfer, or give it away D. Yes; But only if it was previously stated in the trust that it could be transferred out of the trust 19. Which of following is not a common challenge brought against a living trust? A. The validity of the trust; i.e. the trust was signed under duress B. If at least half of the estate is not left to your spouse, they may sue for their due share C. A lawsuit brought by a child who was seemingly left out of the will or trust D. Other non-familial beneficiaries who believe they were due more because of the nature of their personal relationship Chapter 4 What Type of Trust Do You Need 20. When would it be a good idea for spouses to create individual living trusts? A. When they are in the middle of a divorce B. If they own all or most of their property separately C. If they want to name different beneficiaries for their specific gifts D. If they want to name different successor trustees 21. Which of the following requires the consent of both spouses who are co-trustees of a basic shared living trust? A. Removing assets from the trust B. Naming beneficiaries for either spouse s property C. Revoking the trust D. Changing the successor trustee Chapter 5 The Tax-Saving AB Trust 22. What is an AB trust? A. A trust that allows both spouses to make use of their personal tax exemptions by creating a separate trust for the property of the first spouse to die B. AB is absolute beneficiary. In this type of trust, the individual named absolute beneficiary has final say over the property if any squabbles arise C. AB is alternate beneficiary. This type of trust simply allows you to name alternate beneficiaries D. With an AB trust, the surviving spouse (A) gets half the property in the trust, and the beneficiaries (B) split the remainder - 7 -

9 23. What allows a surviving spouse to use any portion of a deceased spouse s estate tax exemption that wasn t used by the deceased spouse? A. The portability provision B. The transfer clause C. The couple s personal exemption D. A tax benefit for the wealthy, since they pay higher income taxes throughout their lifetimes 24. Why does an AB disclaimer trust include the word disclaimer? A. The disclaimer is that if the surviving spouse does not use the funds in Trust A as the deceased spouse specified, he or she will no longer have access to the funds B. The surviving spouse has the legal right to disclaim any or all of the deceased spouse s trust property left to her and place it in Trust A C. The surviving spouse is allowed to disclaim some of the property and give it to the specific beneficiaries D. The disclaimer is that the life beneficiary can use only the income from Trust A and must leave the principal for the final beneficiaries 25. What does the surviving spouse have to do for Trust A? A. Include all income from Trust A with her personal income tax returns B. Prepare new title documents C. Name final beneficiaries to inherit Trust A after her death D. Have a lawyer review Trust A and validate it 26. What do IRS regulations not allow the surviving spouse to do with Trust A? A. Receive all interest and income from the trust property B. Own the property outright C. Use and control the property D. Spend trust money to maintain his accustomed manner of living Chapter 6 Choosing What Property to Put in Your Living Trust 27. What types of items should be kept out of your trust? A. Items that propose too great of a hassle to transfer B. Your most valuable items should not be put in the trust because then it will be easier for your successor trustee to steal them without anyone knowing C. Items you are still using regularly D. Items that are of relatively low value or that can be easily transferred using another probate avoidance method 28. Which of the following cannot legally be put in a living trust? A. IRAs and cash B. Bank accounts C. Patents and copyrights D. Jewelry and other precious metals 29. What type of an asset is a timeshare? A. Small business interest B. Real estate C. Information asset D. Royalty 30. Of the following, what is the best method for passing your bank accounts to your survivors? A. Listing the accounts in your will, and naming a primary beneficiary B. Putting the accounts in your trust C. Holding accounts in joint tenancy with your primary beneficiary D. Listing the accounts in your will and naming your trust as the beneficiary - 8 -

10 31. Which state can be either a community property state or a common law state, depending on the written community property agreement? A. Arkansas B. Arizona C. Alabama D. Alaska 32. What may your property be reclassified as when you move to California, Idaho, Washington, or Wisconsin? A. Real estate B. Common law property C. Quasi-community property D. Joint tenancy property 33. What happens to your current property if you move from a community property state to a common law state in terms of ownership? A. Nothing your ownership rights in the property already acquired stay the same B. It may be reclassified as community property just as if it were acquired in that state C. It may be reclassified as common law property unless you have a written property agreement D. It belongs to whichever spouse registers or files the appropriate paperwork with the state 34. What happens to separately owned property that gets mixed ( commingled ) with community property? A. It may become community property B. It depends on the marital agreement C. Nothing; community property law states that all property owned by either spouse is owned equally by both spouses D. It will later be distributed equally among both spouse s beneficiaries 35. How can couples make sure they equally co-own property in a common law state A. Draft and notarize a marital property agreement B. Put both names on the title as joint tenancy with right of survivorship C. Put both names on the title as tenants in common D. Put both names on the title as equally, as tenants in common Chapter 7 Trustees 36. Who is (are) the initial trustee(s) of a basic shared living trust? A. Either the husband or the wife, depending on what they agree on B. Both spouses C. The first successor trustee D. The executor 37. Why might a medical doctor refuse to issue a statement regarding your mental capacity? A. Your insurance doesn t cover these types of services B. Only the successor trustee is allowed to decide your mental capacity C. HIPAA severely restricts the release of a patient s medical information; issuing such a statement could be a HIPAA violation D. Determinations of mental capacity are better left to a psychologist or psychiatrist; a medical doctor may lose his license if the family disagrees with his decision and sues Chapter 8 Choosing Your Beneficiaries 38. What are two types of beneficiaries for a basic probate-avoidance living trust? A. Primary; specific B. Specific; final C. Final; alternative D. Alternative; residuary - 9 -

11 39. With a basic shared living trust, what happens to the property of the first spouse who dies? A. The property is wholly distributed to the surviving spouse, regardless of what the living trust says B. The property is distributed to the beneficiaries of the deceased, and property left to the surviving spouse remains in the trust of the surviving spouse C. Upon approval by the remaining spouse, the beneficiaries will receive their remaining share D. All property stays in the trust until both spouses die; therefore nothing happens to any of it 40. What might happen if you use a collective term to name beneficiaries for a specific piece of property? A. The property will have to go through probate because only property left to people by their legal names can pass without going through probate B. The beneficiaries will have to bring their birth certificates and other supporting documents to the title holders to prove they are part of that group of beneficiaries C. The law may give the beneficiary s children the right to inherit their parent s share if one of the beneficiaries dies before you D. The successor trustee gets to decide which of the beneficiaries get the property 41. What do you need to keep in mind when naming multiple beneficiaries for property that cannot be divided? A. If one of the co-owners does not want to keep it, he or she could go to court to force a partition and sale B. Multiple inheritors means more inheritance tax coming out of your estate C. You will need to have each person s spouse sign an agreement that it will not become community property D. If one of the beneficiaries predeceases you, then the residuary beneficiary becomes a new joint owner, so you ll have to make sure this person gets along with all beneficiaries of this property 42. What is a survivorship period? A. The amount of time that must pass before the living trust comes into full effect B. The period of time between when the first spouse dies and the second spouse dies C. The amount of time that the beneficiary must outlive the original grantor D. The clause stipulating that the beneficiary can use the trust property during their lifetime and the property goes to your named alternate beneficiaries after their death 43. When are your grandchildren entitled to a share of your estate? A. Whenever you name any other grandchild as a beneficiary B. If their parent (your child) dies, they essentially take the place of the deceased child and are entitled to whatever your child would have been legally entitled to C. When they live in your house D. If they are not explicitly disinherited in the will Chapter 9 Property Left to Minor Children or Young Adults 44. What is the most significant difference between a child s trust and a UTMA gift? A. The age at which the beneficiary receives the trust outright the child s trust can last longer than a custodianship B. How the money must be used before the beneficiary receives the trust outright C. A trust is better at handling large amounts of property D. Custodianship has better tax advantages 45. Which is the preferable method of inheritance for a minor beneficiary who will inherit between $50,000 and $100,000? A. Life insurance B. 529 plan C. UTMA custodianship D. Child s trust 46. What is a major risk that a 529 plan is subject to? A. Stock market pitfalls B. Inflation risk C. Withdrawal risk D. The risk of the child deciding not to go to college

12 47. What is a difference in responsibilities of a custodian vs. a trustee for a child s trust? A. The trustee is not allowed to use trust funds for anything except for the support/education of the beneficiary; the custodian is allowed to use funds to hire a professional to help manage the custodianship property B. The trustee of a child s trust must file a separate tax return for the subtrust; the custodian only has to keep separate records of trust transactions for the beneficiary to report on his or her own tax return C. The successor trustee is entitled to reasonable compensation for his or her services; a custodian is not, since they do less work D. The successor trustee has to decide when the beneficiary is mature enough to handle trust funds; the custodian simply follows the UMTA Chapter 10 Preparing Your Living Trust Document 48. What property schedules do married couples need? A. Only a shared property schedule B. Wife and husband s personal property schedules C. Wife and husband s personal property schedules, and a shared property schedule D. Head of household schedule only 49. What is the best way to list your personal property within a living trust? A. Alphabetically B. In the manner determined by the local courts C. In any manner that ensures that the property is distributed evenly and without prejudice D. In any manner that describes the property clearly enough so that the surviving spouse or successor trustee can identify it and transfer it to the right person 50. What is the best way to include undeveloped land without an address in a living trust? A. Copy the full legal description from the deed as the description in your trust documents B. Circle the area on a map, and include the map with your living trust C. List of the address of other properties nearby D. Find the addresses of the closest properties on either side of you, and pick the next number in the sequence 51. What requirement must be met before a successor trustee can take over the trust upon your incapacitation? A. A hospital administrator must declare that you are temporarily or permanently incapacitated B. At least two of the three people you named determine that you re not able to manage the trust C. Thirty days must pass after an incapacitation before your living trust is automatically taken over by the successor trustee D. The successor trustee must decide when you are incapacitated 52. What is the minimum required method to identify the beneficiaries of your living trust? A. Listing beneficiaries by their full legal name, Social Security number, and current known address B. Listing beneficiaries by their full legal name and current known address C. Simply giving the name that clearly identifies a beneficiary, so that your successor trustee understands to whom the gift is to be made D. Listing beneficiaries by any method that clearly identifies them to a court 53. What should you do to ensure that if a beneficiary does not survive you by a specified period of time, your property will go to your alternative beneficiary? A. Impose a simultaneous death clause B. Impose a restriction that requires that the property be transferred to the alternative beneficiary upon the death of the primary beneficiary C. Impose a survivorship period D. Impose a requirement that all property must be transferred back to the trust upon the primary beneficiary s death

13 54. What is not a benefit of a residual beneficiary named in the living trust? A. Receiving property left to a primary or alternative beneficiary who predeceases you B. Receiving property transferred to the trust, but not listed in the trust documents C. Receiving property not listed in the trust D. Receiving property left through a pour-over will 55. If you choose to set up a child s trust for a young beneficiary, what are you not allowed to do? A. Leave that same beneficiary a gift through the Uniform Transfers to Minors Act B. Specify the age at which the beneficiary inherits the gift outright (state law specifies the age) C. Leave another beneficiary a gift through the Uniform Transfers to Minors Act, since you have to pick only one method per trust D. Name your trust as beneficiary for your life insurance proceeds, since you would have to instead name the child s trust as the beneficiary 56. If you do not specify an age, what happens to the property in a child s trust when the beneficiary reaches age 35? A. It dissolves B. The trust funds go to their final beneficiaries (as the child no longer needs them for support) C. The successor trustee inherits the rest as compensation for managing the trust D. The beneficiary receives the trust property outright 57. What is not one of the final steps you should do when creating a living trust? A. Distribute notarized copies of your living will to all beneficiaries B. Proofread account and serial numbers C. Make sure you didn t leave any property to a minor that isn t held within a child s trust D. Ensure that all of your beneficiaries are clearly included in your living trust Chapter 11 Transferring Property to Your Trust 58. What is the document that assigns property without a document of title to the trust? A. This can t be done; everything listed in the trust must have formal ownership papers B. Beneficiary Property Assignment document C. Spousal Property Ownership document D. Assignment of Property document 59. What extra step is required for transferring joint tenancy property into a living trust? A. Creating a new title document that transfers it in your name as tenancy by the entirety B. Preparing and executing an additional deed or title document transferring that property from you as joint tenants to you as tenants in common, in equal shares C. Getting married, since only married couples can own property in joint tenancy D. Getting the ownership document notarized 60. What is the most serious mistake you can make when completing a living trust? A. Listing beneficiaries in a manner that is not crystal clear to the successor trustees B. Choosing a basic shared living trust when you should have used an AB disclaimer trust C. Intentionally not including a previous spouse in your living trust D. Failing to transfer any of the property into the trust 61. What is a Certification of Trust? A. A document that lays out all the details of the trust B. A receipt that proves that the trust has been correctly filed C. A receipt that proves that the trust has been registered with the local court D. A shorthand version of your trust documents 62. What step must you complete to transfer your mortgaged property to your living trust after signing the deed in front of a notary public? A. The mortgage must also be transferred to the trust, since that is where the property is B. The lending company must be notified C. Transfer of ownership documentation must be sent to all involved parties D. Record a copy of the deed with the county land records office

14 63. How do you sign the transfer deed if you changed your name since you bought the real estate? A. Sign using both names B. Sign with your former name C. Sign with your current name D. Sign with your current name and attach a copy of the name-change document 64. Who should you call to obtain a new certificate of registration for an airplane that you want to transfer to a living trust? A. U.S. Department of Transportation B. The nearest large airport C. The department of records for the state in which the plane is stored D. The Federal Aviation Administration Chapter 12 Copying, Storing, and Registering Your Trust Document 65. What happens if you do not register your trust with a local court? A. Nothing there are no legal consequences or penalties if you don t B. Your successor trustee will have a harder time finding a court willing to dispute any conflicts regarding your trust after your death C. Your trust will have no effect on keeping your property out of probate D. Your successor trustee may have difficulty if anyone challenges anything in the trust, including his or her own powers as trustee Chapter 13 Living With Your Living Trust 66. Which of the following statements is true? A. Once you transfer property into a living trust you have a legal obligation to leave that property to the named beneficiaries B. You have to file a separate tax return for your living trust C. You should have a lawyer review your trust every year D. You have complete control over the property you transfer to your living trust 67. When should you amend your living trust? A. On a yearly basis B. When you are getting a divorce C. When you need to make extensive revisions D. When you have a child 68. What is the legal term for changing ownership of trust property? A. Transmutation of property B. Transference of property C. Transferring property D. Transfero Transtuli Translatum 69. When can some states automatically revoke the provisions in your living trust that affect your spouse? A. When you refuse to pay estate taxes B. When you get divorced C. When you get married D. When you move out of the state Chapter 14 After a Grantor Dies 70. Which of the following is a true statement regarding trustees? A. Trustees cannot resign B. Any trustee can appoint someone else to take over if no one named in the trust document can serve C. Co-trustees must always get approval from the other for all transactions regarding trust property D. When one co-trustee resigns, an alternate trustee replaces him or her as co-trustee

15 71. What are the successor trustee s first two duties? A. To execute and record a document establishing that he or she can act for the trust, and obtain an estimate of the value of major trust assets B. To notify creditors of your death and to notify beneficiaries that they will be receiving an inheritance C. To provide copies of the trust documents to all beneficiaries and notify the custodians of their duties D. To notify creditors of your death and provide them with copies of the trust documents 72. The successor trustee can assess the value of the estate immediately after the original grantor s death or at what other time? A. Six months after the original grantor s death B. The next time he files his own tax returns C. A year after the original grantor s death D. Nine months after the original grantor s death 73. What are the consequences of not obtaining an estimate of the major trust assets right away? A. The trustee may not distribute property until this is done B. The IRS may not allow any stepped-up basis when calculating profit or loss from any subsequent sale of the property C. The beneficiaries may be able to sue the successor trustee more easily for stealing some of the trust assets D. The court may step in an assign a wholesale value 74. What additional duty does a surviving spouse have for a basic shared living trust (as compared with the duties of a successor trustee of an individual living trust)? A. Distribute the deceased spouse s share of the trust property according to the trust documents B. Manage property left in a child s trust C. File all applicable tax returns D. Amend Trust 2 to reflect changed circumstances Chapter 15 A Living Trust as a Part of Your Estate Plan 75. Which of the following statements is false regarding pay-on-death financial accounts? A. A pay-on-death financial account avoids probate at least as easily as a living trust B. Your pay-on-death beneficiary becomes a joint account holder and has rights to your money while you are alive C. Pay-on-death financial accounts are primarily allowed for bank accounts, but other types of accounts may offer similar provisions D. Your bank may freeze the account until your successor trustee can show that your estate has sufficient funds to pay taxes 76. Which of the following statements regarding TOD vehicle registration is true? A. Most states have a procedure in place for TOD vehicle registration B. One benefit for TOD vehicle registration is the flexibility to name an alternate beneficiary C. You can easily revoke the vehicle s beneficiary provision by naming a different beneficiary in your will D. The TOD beneficiary has no rights to your vehicle until your death 77. When is federal estate tax normally due? A. Within nine months after your death B. Each year you exceed the gift limit C. Within six months after your death D. After both you and your spouse are deceased 78. When is a gift of your life insurance policy no longer exempt from gift tax? A. When it is given at least three years before your death B. When it is given within two years before your death C. When it is given within a year before your death D. If it is not transferred into the living trust

16 79. What is one drawback of a QTIP trust? A. It is for single people only B. It usually results in higher taxes C. It does not allow the surviving spouse to use trust property, as he/she is not a lifetime beneficiary D. You must live in a community property state to use this type of trust 80. What type of trust allows you to minimize estate taxes by leaving the bulk of your property in trust for your grandchildren, while allowing your children to use the income (not the principal)? A. Child s trust B. Grandchild s trust C. QTIP trust D. Generation-skipping trust 81. How does a generation-skipping trust work? A. It allows you to leave everything to your grandchildren, preventing taxes from being assessed until your children die B. It allows you to leave everything to your children as lifetime beneficiaries and your grandchildren as final beneficiaries C. It allows you to leave everything to your children, allowing your grandchildren to also use trust income D. It allows you to leave the bulk of your trust property to your grandchildren, allowing your children to use only trust income and postponing taxes until your children die 82. Which of the following statements is false regarding life insurance trusts? A. Your life insurance trust must be irrevocable if you want to keep the proceeds out of your taxable estate B. Your life insurance trust must have been set up at least three years before your death if you want to keep the proceeds out of your taxable estate C. You should choose only someone you fully trust, because, as trustee, they will have complete control over the trust and policy D. You cannot be the trustee if you want to keep the proceeds out of your taxable estate 83. Which of the following groups of states impose inheritance tax? A. Indiana, Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania B. Connecticut, Indiana, Iowa, Kentucky, Nebraska, New York, Pennsylvania, Tennessee C. Connecticut, Idaho, Illinois, Massachusetts, New York, Rhode Island, Texas, West Virginia D. Indiana, Iowa, Kentucky, Massachusetts, Nebraska, New Jersey, Pennsylvania, Tennessee 84. What do state inheritance taxes depend on? A. The income tax bracket of the deceased B. The income tax bracket of the beneficiary C. The age of the deceased and the beneficiary D. The relationship of the beneficiary to the deceased 85. What is the legal term for the person you name to manage your financial affairs on your behalf? A. Power of attorney B. Attorney-in-fact C. Financial trustee D. Financial proxy 86. What is a spendthrift trust? A. A trust with limited controls on what the funds may be used for, to curb wasteful spenders B. A trust in which an independent trustee doles out money little by little used primarily when leaving property to an adult who can t handle money C. A type of child s trust for individuals who are no longer minors, yet not quite responsible enough to own property D. A trust that limits spending to under $5,000 a year and keeps the principal intact for the final beneficiaries

17 87. Which type of trust authorizes the successor trustee to decide how to spend trust money for several beneficiaries? A. Spendthrift trust B. Special needs trust C. Sprinkling trust D. QTIP trust Chapter 16 Wills 88. What is a pour-over will? A. A probate-avoidance technique that transfers specified assets into your trust after you die B. A document that takes all the property you haven t transferred to your living trust and, at your death, leaves it to that trust C. A probate-avoidance technique that transfers all property not in your trust into your trust after you die D. A document that transfers all property not assigned to a beneficiary into a flexible trust for the successor trustee to decide how to distribute 89. Ideally, who should witness you signing your will? A. Three adults who are not beneficiaries under your will and who will be easy to locate in the event of your death B. One adult individual who does not stand to inherit from your will C. Your executor plus at least three additional adults D. A notary public and your executor Chapter 17 If You Need Expert Help 90. Which of the following is not a recommended way to find a lawyer? A. A living trust seminar B. A group legal plan C. A recommendation from a friend or other contact D. Online at Thank you for taking our course. We hope you enjoyed it

18 Understanding Living Trusts Course Number: B Qualifies for 18 hours of CPE credit Name as it should appear on your Certificate: License State(s): License Number: Date Course Completed: If you are mailing or faxing your test to us for grading, please fill in Member ID and Validation number. Where should we send your results? * Answer each question A, B, C, D, T or F as appropriate; use T for True and F for False * Be sure you are answering questions from the Final Examination, not from the Study Guide * For instant online grading, go to and click the link for Online Services Page 1 of 1

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