Personal Finance Estate Planning Practice Quiz
Which of the following is the primary purpose of a will?
A. To reduce estate taxes
B. To distribute assets after death
C. To avoid probate
D. To establish power of attorney
What is a trust primarily used for?
A. To assign a guardian for minors
B. To transfer assets while avoiding probate
C. To declare healthcare wishes
D. To allocate debts after death
A durable power of attorney is used to:
A. Manage a person’s financial and legal affairs if they become incapacitated
B. Distribute assets upon death
C. Create a living trust
D. Write a healthcare directive
What type of trust allows the grantor to retain control over the assets during their lifetime?
A. Irrevocable trust
B. Revocable living trust
C. Charitable remainder trust
D. Testamentary trust
Which of the following statements is true regarding a testamentary trust?
A. It takes effect during the grantor’s lifetime
B. It is created through a will and goes into effect upon death
C. It is used only for charitable purposes
D. It allows the grantor to avoid estate taxes
Topic: Estate Taxes and Inheritance Planning
What is the main purpose of estate taxes?
A. To tax the income of beneficiaries
B. To tax the value of the deceased’s estate before distribution
C. To ensure equitable distribution among heirs
D. To tax retirement accounts
What is the federal estate tax exemption for 2024?
A. $5 million
B. $12.92 million
C. $15 million
D. $20 million
Which of the following can reduce the value of an estate for tax purposes?
A. Naming multiple beneficiaries
B. Setting up a charitable trust
C. Avoiding probate
D. Writing a healthcare directive
Inheritance taxes are typically paid by:
A. The estate
B. The executor
C. The beneficiaries
D. The probate court
What is the purpose of gifting as part of inheritance planning?
A. To bypass probate
B. To reduce the taxable value of the estate
C. To appoint a healthcare proxy
D. To avoid writing a will
Topic: Beneficiaries and Probate Process
A contingent beneficiary is someone who:
A. Inherits assets if the primary beneficiary predeceases the owner
B. Receives equal shares of the estate by default
C. Manages the probate process
D. Serves as the executor of the estate
Which of the following assets typically avoids probate?
A. Real estate held solely in the decedent’s name
B. Life insurance with a named beneficiary
C. Personal property without a title
D. Bank accounts without a payable-on-death designation
Probate is the process of:
A. Reducing estate taxes
B. Validating a will and distributing assets
C. Avoiding legal disputes over an estate
D. Transferring assets through a trust
What is one disadvantage of the probate process?
A. It increases the value of the estate
B. It is a public process that can be time-consuming and costly
C. It eliminates disputes between beneficiaries
D. It bypasses estate taxes
A payable-on-death (POD) account is:
A. An account that requires probate
B. Automatically transferred to the named beneficiary upon the account holder’s death
C. Only valid for retirement accounts
D. Used for healthcare directives
Topic: Power of Attorney and Healthcare Directives
A healthcare directive is also known as:
A. A living will
B. A testamentary trust
C. A durable power of attorney
D. An inheritance plan
What is the purpose of a power of attorney for healthcare?
A. To name a guardian for minors
B. To appoint someone to make medical decisions on your behalf
C. To avoid probate
D. To manage financial matters after death
Which type of power of attorney is effective only if the principal becomes incapacitated?
A. General power of attorney
B. Durable power of attorney
C. Springing power of attorney
D. Limited power of attorney
Who should you appoint as your healthcare proxy?
A. Your estate executor
B. Someone you trust to make medical decisions aligned with your wishes
C. Your attorney
D. A professional fiduciary
A living will provides instructions regarding:
A. Asset distribution after death
B. Financial decisions during incapacity
C. Medical treatment preferences if the individual is unable to communicate
D. Establishing a trust for minors
General Knowledge
What is the main benefit of having a revocable trust?
A. It avoids estate taxes
B. It bypasses the probate process
C. It cannot be altered after creation
D. It reduces gift tax obligations
The role of an executor is to:
A. Avoid probate for the estate
B. Carry out the terms of the will and manage the estate
C. Establish a power of attorney for the deceased
D. Create a healthcare directive
What happens to assets in a joint tenancy upon one owner’s death?
A. They are subject to probate
B. They pass directly to the surviving owner(s)
C. They are taxed as inheritance
D. They must be transferred through a will
Which document is essential for individuals with minor children?
A. Healthcare directive
B. Durable power of attorney
C. A will naming a guardian
D. A living trust
What type of account can directly transfer assets without going through probate?
A. Savings account with no beneficiaries
B. Jointly owned account
C. Certificate of deposit
D. Retirement account without a designated beneficiary
What is the purpose of a spendthrift clause in a trust?
A. To protect the trust from creditors of the beneficiary
B. To allow the beneficiary unrestricted access to funds
C. To distribute assets evenly
D. To reduce estate taxes
What happens if someone dies without a will?
A. The estate is distributed based on state intestacy laws
B. The estate is automatically given to the government
C. All assets go through a trust
D. The executor decides how to distribute assets
Which document would specify a person’s wishes regarding organ donation?
A. A trust
B. A living will
C. A general power of attorney
D. A testamentary trust
The purpose of estate planning is to:
A. Eliminate probate entirely
B. Minimize taxes and provide for the orderly distribution of assets
C. Avoid the creation of trusts
D. Simplify the legal process after death
Which of the following is an irrevocable trust often used to reduce estate taxes?
A. Charitable remainder trust
B. Revocable living trust
C. Testamentary trust
D. Spendthrift trust
Topic: Wills, Trusts, and Power of Attorney
A will becomes effective:
A. Immediately upon signing
B. Only after the testator’s death and validation through probate
C. As soon as it is notarized
D. When a trust is established
What is the main advantage of a living trust over a will?
A. It allows the executor to control assets
B. It avoids probate and provides privacy
C. It eliminates the need for estate taxes
D. It names guardians for minor children
What is the key difference between a revocable trust and an irrevocable trust?
A. Revocable trusts are subject to estate taxes
B. Irrevocable trusts cannot be changed once established
C. Revocable trusts do not protect assets from creditors
D. Irrevocable trusts are always created through a will
Which of the following is not typically included in a power of attorney document?
A. Naming a healthcare proxy
B. Authorization to make legal decisions
C. Permission to manage finances
D. Designating asset beneficiaries
Who should be named as an executor in a will?
A. A minor child
B. A trusted individual or professional capable of handling the estate
C. A beneficiary of the estate
D. A healthcare provider
Topic: Estate Taxes and Inheritance Planning
Estate planning strategies that reduce estate taxes typically include:
A. Setting up an irrevocable trust or charitable trust
B. Naming multiple beneficiaries in a will
C. Transferring assets only after death
D. Avoiding probate entirely
Which of the following is excluded from estate tax calculations?
A. Assets held in a revocable trust
B. Life insurance proceeds payable to a named beneficiary
C. Real estate owned outright by the deceased
D. Retirement accounts without a beneficiary
What is the purpose of the annual gift tax exclusion?
A. To reduce the taxable value of a person’s estate by allowing tax-free gifts
B. To minimize probate costs
C. To reduce inheritance taxes for beneficiaries
D. To avoid reporting gifts to the IRS
A Qualified Personal Residence Trust (QPRT) is used to:
A. Reduce the taxable value of a primary residence by transferring it to a trust
B. Eliminate probate for real estate
C. Ensure equal distribution of assets to heirs
D. Avoid paying inheritance taxes on real estate
Which of the following is an advantage of gifting assets before death?
A. Reduces the taxable estate and avoids probate
B. Increases estate taxes for beneficiaries
C. Reduces the need for a will
D. Ensures all assets remain in the estate
Topic: Beneficiaries and Probate Process
What is the primary role of a probate court?
A. To approve the distribution of assets and validate the will
B. To eliminate estate taxes
C. To appoint a guardian for minors
D. To oversee the creation of trusts
A beneficiary designation on a retirement account typically overrides:
A. The terms of a will
B. The probate process
C. State inheritance laws
D. Power of attorney documents
What happens to assets without a named beneficiary?
A. They automatically go to the spouse
B. They are subject to probate and distributed according to the will or state laws
C. They are transferred to a trust
D. They are exempt from estate taxes
Which of the following can delay the probate process?
A. Disputes among beneficiaries
B. The existence of a revocable trust
C. Naming contingent beneficiaries
D. Avoiding estate taxes
Why might someone choose to name a contingent beneficiary?
A. To avoid paying estate taxes
B. To ensure assets are distributed even if the primary beneficiary is unable to inherit
C. To reduce probate costs
D. To eliminate the need for a will
Topic: Power of Attorney and Healthcare Directives
A springing power of attorney becomes effective:
A. Immediately after signing
B. Only if the principal becomes incapacitated
C. Upon the death of the principal
D. When the principal establishes a trust
Which of the following is true of a living will?
A. It names beneficiaries of an estate
B. It outlines medical care preferences in case of incapacitation
C. It is the same as a last will and testament
D. It is used to manage financial affairs
A durable power of attorney differs from a general power of attorney because it:
A. Can remain effective even if the principal becomes incapacitated
B. Is automatically revoked upon the principal’s death
C. Is only valid for healthcare decisions
D. Cannot manage financial matters
A healthcare directive is designed to:
A. Allocate inheritance among beneficiaries
B. Specify medical treatments the individual wants or does not want
C. Eliminate the need for a will
D. Reduce probate costs
What is one key feature of a power of attorney for finances?
A. It terminates automatically upon the principal’s death
B. It allows the agent to make medical decisions
C. It replaces the need for a trust
D. It can be used to allocate assets to beneficiaries
General Knowledge
Which of the following is an example of an estate planning tool that avoids probate?
A. Revocable living trust
B. Last will and testament
C. General power of attorney
D. Healthcare directive
Which of the following is typically handled by an estate executor?
A. Establishing a trust for beneficiaries
B. Settling the deceased’s debts and taxes
C. Drafting a healthcare directive
D. Setting up a power of attorney
Assets held in joint tenancy pass to:
A. The probate court
B. The surviving owner(s) automatically
C. The executor of the will
D. A trust designated by the will
What is the primary purpose of a special needs trust?
A. To provide for a beneficiary without affecting their eligibility for government benefits
B. To avoid probate for minors
C. To distribute assets equally among all beneficiaries
D. To minimize inheritance taxes for all heirs
Which of the following is an important step in estate planning for individuals with dependents?
A. Appointing a guardian in a will
B. Creating a durable power of attorney
C. Establishing a living trust
D. Setting up a healthcare directive
Topic: Wills, Trusts, and Power of Attorney
Which document allows a person to state their wishes regarding the distribution of their property after death?
A. Living will
B. Durable power of attorney
C. Last will and testament
D. Revocable trust
What happens if someone dies without a valid will?
A. Their estate is automatically transferred to a trust
B. Their estate is distributed according to state intestacy laws
C. Their heirs must pay additional estate taxes
D. Their assets are given to the federal government
A testamentary trust is created:
A. During the grantor’s lifetime
B. Through a will and becomes effective upon the grantor’s death
C. Automatically through a living trust
D. Only to avoid estate taxes
What is a benefit of a durable power of attorney?
A. It provides instructions for healthcare decisions
B. It allows an agent to make financial decisions even if the principal becomes incapacitated
C. It avoids probate for all assets
D. It protects the principal from creditors
Which of the following is NOT a role of a trustee?
A. Managing trust assets
B. Distributing income to beneficiaries
C. Drafting a will
D. Ensuring the trust follows legal requirements
Topic: Estate Taxes and Inheritance Planning
The estate tax is a tax on:
A. The income earned by an estate after the owner’s death
B. The transfer of assets from a deceased person to their heirs
C. The sale of inherited property
D. Charitable donations made by an estate
Which strategy can help reduce estate tax liability?
A. Gifting assets within the annual gift tax exclusion limit
B. Creating a revocable trust
C. Naming multiple executors in a will
D. Avoiding a healthcare directive
Inheritance taxes are paid by:
A. The estate before distribution
B. The beneficiaries who receive the assets
C. The executor of the will
D. The trustee of a trust
Which of the following is a feature of a charitable remainder trust?
A. It avoids probate for all assets
B. It allows the donor to receive income for life while donating the remainder to charity
C. It eliminates the need for a will
D. It protects the donor’s estate from creditors
Portability of the estate tax exemption refers to:
A. The ability to transfer unused exemption to a surviving spouse
B. The exclusion of charitable gifts from estate taxes
C. The use of trusts to avoid estate taxes
D. The reduction of estate taxes for minor children
Topic: Beneficiaries and Probate Process
Which of the following assets typically bypass probate?
A. Real estate titled in the deceased’s name only
B. Retirement accounts with a named beneficiary
C. Personal property without a clear title
D. Assets listed in a will
How can a person ensure their minor children are cared for if they pass away?
A. Name a guardian in their will
B. Transfer assets to a revocable trust
C. Set up a durable power of attorney
D. Avoid creating a will
What is one drawback of the probate process?
A. It avoids estate taxes
B. It can be time-consuming and costly
C. It ensures privacy for the deceased’s estate
D. It reduces disputes among beneficiaries
What is the role of a probate court in estate planning?
A. To distribute assets directly to heirs
B. To validate wills and oversee the distribution of assets
C. To eliminate the need for a will
D. To draft healthcare directives
Which of the following is a primary function of a beneficiary designation?
A. To avoid estate taxes
B. To ensure assets pass directly to a designated individual without probate
C. To name an executor for the estate
D. To distribute assets evenly among heirs
Topic: Power of Attorney and Healthcare Directives
Which type of power of attorney allows someone to act on behalf of another in both financial and healthcare decisions?
A. Durable power of attorney
B. Limited power of attorney
C. General power of attorney
D. Springing power of attorney
A healthcare proxy is also known as:
A. A living will
B. A medical power of attorney
C. A revocable trust
D. An advance directive
What happens if no healthcare directive is in place?
A. Doctors follow the wishes stated in a will
B. The probate court decides on healthcare decisions
C. Family members or a court-appointed guardian make decisions
D. The state government takes control of medical care
A living will is typically used to:
A. Name an executor of the estate
B. State preferences for medical treatment in case of incapacity
C. Designate beneficiaries of assets
D. Avoid the probate process
When does a durable power of attorney terminate?
A. Upon the death of the principal
B. When the agent is incapacitated
C. After the creation of a will
D. When probate is initiated
General Knowledge
Why is it important to periodically review estate planning documents?
A. To reduce taxes on all assets
B. To ensure they reflect current wishes and changes in the law
C. To avoid probate entirely
D. To eliminate the need for an executor
Which of the following assets is typically not subject to probate?
A. Jointly owned property with right of survivorship
B. Real estate owned outright by the deceased
C. Personal bank accounts without a beneficiary
D. Vehicles listed in the deceased’s name
How can someone reduce the likelihood of disputes over their estate?
A. By avoiding a will
B. By clearly documenting wishes in a will and discussing them with beneficiaries
C. By leaving all assets in probate
D. By excluding healthcare directives
What is the primary purpose of estate planning?
A. To reduce inheritance taxes for heirs
B. To ensure assets are distributed according to the individual’s wishes
C. To avoid creating a trust
D. To maximize probate court involvement
What is an advance directive?
A. A document that names beneficiaries of an estate
B. A legal document outlining healthcare preferences in case of incapacitation
C. A financial plan for retirement
D. A trust created to avoid estate taxes
Topic: Wills, Trusts, and Power of Attorney
What is the primary purpose of a revocable living trust?
A. To ensure that the estate avoids probate
B. To eliminate all estate taxes
C. To provide an income stream for the beneficiaries
D. To serve as a substitute for a durable power of attorney
A pour-over will:
A. Directs the distribution of assets into a trust upon death
B. Is a will that avoids probate entirely
C. Automatically eliminates estate taxes
D. Names beneficiaries for retirement accounts
A durable power of attorney is terminated:
A. When the principal becomes incapacitated
B. Upon the death of the principal
C. If the agent refuses to act
D. When a living will is created
A spendthrift clause in a trust protects the beneficiary by:
A. Eliminating estate taxes on trust distributions
B. Preventing creditors from claiming trust assets
C. Requiring probate court approval for distributions
D. Allowing the trustee to change the beneficiaries
Which of the following is an advantage of a testamentary trust?
A. It avoids all taxes on the estate
B. It ensures that the trust becomes active only after death
C. It avoids the need for a will
D. It eliminates the need for a trustee
Topic: Estate Taxes and Inheritance Planning
The gift tax exemption allows a person to:
A. Transfer unlimited assets without any tax consequences
B. Give up to the annual exclusion amount to any individual tax-free
C. Avoid estate taxes by giving assets away during their lifetime
D. Eliminate income taxes for heirs
Which of the following is a common feature of a bypass trust?
A. It helps reduce estate taxes for married couples
B. It eliminates the need for probate
C. It allows minors to inherit assets directly
D. It provides income only for the surviving spouse
What is the estate tax threshold in most cases?
A. $1 million
B. $5 million
C. The federally allowed exemption amount
D. The value of all the deceased’s real property
What is a Qualified Personal Residence Trust (QPRT)?
A. A trust that holds the primary residence to reduce estate taxes
B. A trust that provides tax-free income for beneficiaries
C. A revocable trust used to avoid probate
D. A healthcare directive for the property owner
The annual gift tax exclusion applies to:
A. All gifts made during a person’s lifetime
B. Gifts made to charities only
C. The first $16,000 (or current threshold) given to an individual per year
D. Trust distributions to beneficiaries
Topic: Beneficiaries and Probate Process
What is the purpose of naming a contingent beneficiary?
A. To avoid estate taxes
B. To identify who inherits assets if the primary beneficiary dies
C. To simplify the probate process
D. To eliminate the need for a trust
Probate is typically required when:
A. A person dies without a valid will
B. Assets are held in a revocable trust
C. The deceased had no debts
D. All assets have named beneficiaries
Which of the following can help reduce disputes among heirs?
A. Leaving an estate to probate
B. Discussing estate plans with family members in advance
C. Avoiding the use of trusts
D. Not updating beneficiary designations
What is the main disadvantage of probate?
A. It eliminates creditor claims on the estate
B. It is a public process and can be costly and time-consuming
C. It eliminates the ability to create trusts
D. It limits the number of beneficiaries who can inherit
What happens to assets that do not have named beneficiaries or joint ownership?
A. They are automatically transferred to a trust
B. They must go through probate
C. They are exempt from estate taxes
D. They are distributed based on the federal tax code
Topic: Power of Attorney and Healthcare Directives
A healthcare directive does NOT include:
A. A living will
B. Financial management instructions
C. A healthcare power of attorney
D. Preferences for medical treatments in case of incapacitation
Which document appoints someone to make medical decisions on behalf of another person?
A. Last will and testament
B. Living trust
C. Healthcare power of attorney
D. Irrevocable trust
When does a springing power of attorney take effect?
A. Immediately upon signing
B. Only when the principal becomes incapacitated
C. Upon the principal’s death
D. When named beneficiaries are unable to act
What is a benefit of an advance healthcare directive?
A. It allows a person to avoid probate
B. It clearly states medical preferences to guide decision-makers
C. It eliminates the need for a power of attorney
D. It ensures assets are distributed equally
Which of the following is NOT a reason to update a power of attorney?
A. A change in marital status
B. A change in state residency
C. The death of the principal
D. A change in financial circumstances
General Knowledge
What is the purpose of a letter of instruction in estate planning?
A. To provide legally binding asset distribution instructions
B. To give informal guidance to heirs and the executor
C. To replace a last will and testament
D. To create a trust
Which of the following is an advantage of joint tenancy with right of survivorship?
A. It avoids probate for the co-owned asset
B. It eliminates all estate taxes
C. It prevents creditors from accessing the asset
D. It creates a revocable trust
What is the primary purpose of estate planning?
A. To minimize taxes and ensure the efficient transfer of assets
B. To distribute income equally among heirs
C. To eliminate healthcare directives
D. To manage investment portfolios
Which asset type typically avoids probate?
A. Property titled in the deceased’s name
B. Life insurance with a named beneficiary
C. Personal bank accounts without a payable-on-death designation
D. Real estate without joint ownership
What is a residuary clause in a will?
A. A clause specifying who will inherit all remaining assets not otherwise addressed
B. A provision that avoids estate taxes
C. A section that eliminates probate requirements
D. A directive for medical decisions
Topic: Wills, Trusts, and Power of Attorney
What is the main purpose of a testamentary will?
A. To provide a legal way to transfer assets after death
B. To ensure assets avoid probate
C. To appoint a healthcare agent
D. To create an irrevocable trust during a person’s lifetime
What is one key advantage of a revocable trust?
A. It allows for changes during the grantor’s lifetime
B. It eliminates the need for estate taxes
C. It prevents creditors from accessing assets
D. It provides immediate access to retirement accounts
Which of the following can only be created by an attorney?
A. Last will and testament
B. General power of attorney
C. Revocable trust
D. None of the above
A trust created during a person’s lifetime is called:
A. A testamentary trust
B. A living trust
C. A probate trust
D. A statutory trust
Which of the following is true about an irrevocable trust?
A. It can be modified by the grantor at any time
B. It is used primarily for tax and asset protection purposes
C. It eliminates the need for probate court
D. It automatically expires after the grantor’s death
Topic: Estate Taxes and Inheritance Planning
The federal estate tax applies to:
A. All estates, regardless of size
B. Estates exceeding a certain exemption threshold
C. Only estates that include real property
D. Estates of individuals without a valid will
Which of the following is a valid method to minimize estate taxes?
A. Leaving all assets in a will
B. Making gifts to family members during one’s lifetime
C. Avoiding the use of life insurance
D. Transferring assets only after death
What is the maximum federal gift tax exclusion for 2024 (or the current limit)?
A. $10,000 per recipient
B. $16,000 per recipient
C. $17,000 per recipient
D. $20,000 per recipient
A marital deduction allows:
A. Unlimited tax-free transfers between spouses
B. Tax-free transfers to children under age 18
C. Taxable transfers to non-family beneficiaries
D. Reductions in income tax for charitable donations
A dynasty trust is designed to:
A. Protect assets for multiple generations
B. Reduce annual income taxes for beneficiaries
C. Eliminate the probate process for spouses
D. Simplify gift tax exclusions
Topic: Beneficiaries and Probate Process
A primary beneficiary:
A. Is the only person who can inherit from the estate
B. Receives assets first, before contingent beneficiaries
C. Is always exempt from inheritance taxes
D. Must pay creditors before receiving any assets
When a person dies without a valid will, their assets are distributed:
A. Through a court-supervised process according to state intestacy laws
B. To the state government by default
C. Automatically to the closest surviving family member
D. According to the deceased’s verbal wishes
Which of the following assets will go through probate?
A. Life insurance with a named beneficiary
B. Jointly owned real estate with survivorship rights
C. A bank account with no payable-on-death designation
D. Assets in a revocable living trust
Probate costs can be reduced by:
A. Updating beneficiary designations regularly
B. Using payable-on-death and transfer-on-death accounts
C. Transferring assets to a trust during one’s lifetime
D. All of the above
Which is a common reason for contesting a will?
A. The will does not name all family members
B. The will was created under duress or undue influence
C. The estate is too small to be distributed
D. The executor refuses to distribute assets
Topic: Power of Attorney and Healthcare Directives
A general power of attorney grants the agent authority to:
A. Make medical decisions only
B. Manage the principal’s financial affairs
C. Modify the principal’s will
D. Act as a trustee for the principal’s trust
A healthcare directive is commonly used to:
A. Make medical preferences legally binding
B. Eliminate the need for probate
C. Transfer financial assets to beneficiaries
D. Pay for long-term care insurance
Which of the following statements is true about a durable power of attorney?
A. It ends upon the principal’s incapacity
B. It allows the agent to act only after the principal’s death
C. It remains effective even if the principal becomes incapacitated
D. It requires court approval to take effect
What is one limitation of a springing power of attorney?
A. It is valid only for healthcare decisions
B. It is not effective until specific conditions are met
C. It expires automatically after one year
D. It eliminates the need for a living trust
A living will typically addresses:
A. Financial management during incapacity
B. Distribution of assets upon death
C. Medical treatment preferences in end-of-life situations
D. The appointment of an executor
General Knowledge
What happens to jointly owned property with right of survivorship when one owner dies?
A. It passes directly to the surviving owner(s) without probate
B. It is distributed equally among all heirs
C. It becomes part of the deceased’s probate estate
D. It is sold, and the proceeds are divided among beneficiaries
Which of the following is NOT a benefit of estate planning?
A. Avoiding family disputes
B. Reducing or eliminating estate taxes
C. Creating a clear plan for end-of-life medical decisions
D. Guaranteeing equal asset distribution among heirs
What is the main purpose of a trust protector?
A. To oversee the trustee and ensure they follow the trust’s terms
B. To replace the executor in the probate process
C. To distribute assets directly to beneficiaries
D. To manage healthcare directives
The process of updating a will is called:
A. Revocation
B. Amendment
C. Codicil creation
D. Reinstatement
Which document is typically used to guide family members on funeral preferences?
A. A healthcare directive
B. A letter of instruction
C. A revocable trust
D. A living will
Topic: Wills, Trusts, and Power of Attorney
Which of the following is true about a pour-over will?
A. It transfers assets directly to beneficiaries without probate
B. It ensures any remaining assets are transferred into a trust
C. It eliminates the need for a power of attorney
D. It names a healthcare agent for medical decisions
What is the role of an executor in estate planning?
A. To distribute assets as per the terms of the will
B. To manage healthcare decisions for the deceased
C. To minimize the estate’s tax liability
D. To oversee the creation of trusts for minors
Which type of trust allows the grantor to retain control over the assets during their lifetime?
A. Testamentary trust
B. Irrevocable trust
C. Revocable living trust
D. Charitable remainder trust
A power of attorney terminates:
A. When the principal dies
B. When the agent resigns
C. When the principal becomes incapacitated
D. After one year from the date it is signed
A trust that is created to take effect upon the grantor’s death is called:
A. A living trust
B. A testamentary trust
C. A revocable trust
D. A family trust
Topic: Estate Taxes and Inheritance Planning
Which of the following assets are generally subject to estate tax?
A. Assets held in an irrevocable trust
B. Assets left to a surviving spouse
C. Retirement accounts with named beneficiaries
D. Cash assets over the federal exemption limit
What is the purpose of a gift tax exclusion?
A. To limit the value of annual gifts without taxation
B. To eliminate estate taxes for beneficiaries
C. To increase the taxable estate of the donor
D. To transfer assets tax-free only upon death
When planning for estate taxes, which of the following is a common strategy?
A. Transferring all assets to children before death
B. Using irrevocable life insurance trusts (ILITs)
C. Consolidating all assets into a single account
D. Avoiding the use of beneficiary designations
Estate taxes are generally based on:
A. The size of the probate estate only
B. The fair market value of the decedent’s total assets
C. The income generated by the estate’s assets
D. The age of the deceased at the time of death
What is the estate tax portability provision?
A. It allows the transfer of unused estate tax exemption to the surviving spouse
B. It permits the transfer of assets without probate
C. It increases the lifetime gift tax exemption
D. It eliminates estate taxes for non-U.S. citizens
Topic: Beneficiaries and Probate Process
Which of the following cannot be named as a beneficiary?
A. A minor child
B. A charitable organization
C. A trust
D. A creditor
Probate is required when:
A. The deceased had no will
B. Assets are held jointly with right of survivorship
C. The deceased owned real property in their sole name
D. All assets have designated beneficiaries
Which of the following simplifies the probate process?
A. Designating payable-on-death (POD) accounts
B. Using handwritten wills without witnesses
C. Distributing assets through the probate court
D. Naming multiple executors for the same will
If an estate is insolvent, what is the priority of payment?
A. Beneficiaries are paid first
B. Debts and taxes are settled before distributing assets
C. Assets are distributed equally among creditors and heirs
D. The executor decides the payment order
A contingent beneficiary:
A. Inherits assets only if the primary beneficiary cannot
B. Has the same rights as a primary beneficiary
C. Can contest the will at any time
D. Is responsible for paying the estate’s debts
Topic: Power of Attorney and Healthcare Directives
A healthcare proxy is used to:
A. Manage a person’s financial affairs
B. Make healthcare decisions on behalf of the principal
C. Oversee the execution of a will
D. Create an irrevocable trust for the principal
Which type of power of attorney is specifically designed to manage financial affairs?
A. General power of attorney
B. Healthcare power of attorney
C. Springing power of attorney
D. Limited power of attorney
In most states, a living will becomes effective when:
A. The individual is declared terminally ill or incapacitated
B. The individual requests life-sustaining treatment
C. The executor of the estate takes control
D. A trust is created in the individual’s name
Which document is required to appoint someone to make financial decisions during incapacity?
A. General power of attorney
B. Healthcare directive
C. Testamentary will
D. Revocable living trust
What is one limitation of a limited power of attorney?
A. It is valid only for specific transactions or time periods
B. It cannot be used to make healthcare decisions
C. It expires when the agent dies
D. It allows the agent to create a trust for the principal
General Knowledge
A letter of instruction is:
A. A non-binding document providing guidance on personal matters
B. A legally binding document that replaces a will
C. Required by law in estate planning
D. Used to authorize power of attorney
What happens to a power of attorney after the principal’s death?
A. It continues until the executor is appointed
B. It automatically becomes invalid
C. It is transferred to the executor
D. It remains valid for 90 days
Which of the following is typically NOT included in estate planning?
A. Tax planning strategies
B. Asset protection trusts
C. Retirement account contributions
D. Healthcare directives
Which of the following can reduce family conflicts during estate distribution?
A. Updating the will regularly
B. Using clear beneficiary designations
C. Holding family discussions about the estate plan
D. All of the above
A residuary clause in a will:
A. Distributes any remaining assets not specifically mentioned
B. Names the executor of the estate
C. Allocates debts and liabilities to beneficiaries
D. Avoids probate entirely
Topic: Wills, Trusts, and Power of Attorney
What is the main difference between a living will and a last will and testament?
A. A living will outlines healthcare wishes, while a last will distributes assets after death
B. A living will is legally binding, while a last will is not
C. A living will appoints an executor, while a last will does not
D. A living will avoids probate, while a last will does not
Which of the following is NOT a requirement for a valid will?
A. The testator must be of sound mind
B. The will must be signed by the testator
C. The will must be notarized
D. The will must name at least one beneficiary
A testamentary trust is created:
A. While the grantor is alive
B. As part of a living trust agreement
C. Upon the death of the grantor according to their will
D. Through a healthcare directive
The person appointed to carry out the terms of a will is called:
A. A trustee
B. A grantor
C. An executor
D. A power of attorney
Which of the following can a durable power of attorney do?
A. Manage the principal’s financial affairs during incapacity
B. Override the terms of the principal’s will
C. Make medical decisions for the principal after death
D. Administer the estate after death
Topic: Estate Taxes and Inheritance Planning
The annual gift tax exclusion for 2024 is:
A. $10,000 per recipient
B. $15,000 per recipient
C. $17,000 per recipient
D. $20,000 per recipient
Which of the following reduces the taxable estate?
A. Lifetime gifts under the annual exclusion
B. Income earned by the estate
C. Assets transferred into a revocable trust
D. Designating a primary beneficiary for life insurance
A qualified personal residence trust (QPRT) is used to:
A. Transfer a home to beneficiaries while reducing estate taxes
B. Avoid probate for the primary residence
C. Liquidate real estate assets upon death
D. Consolidate debts secured by real estate
Estate tax is levied on:
A. The entire value of the deceased’s assets
B. The value of the estate after deductions and exemptions
C. Only assets held jointly with a spouse
D. All gifts made during the decedent’s lifetime
Which of the following is NOT a factor in calculating estate taxes?
A. Debts owed by the deceased
B. The federal estate tax exemption
C. Life insurance policies included in the estate
D. The number of beneficiaries
Topic: Beneficiaries and Probate Process
If no will exists, how is an estate distributed?
A. According to state intestacy laws
B. At the discretion of the executor
C. Equally among all living relatives
D. According to federal inheritance laws
What is a “payable-on-death” (POD) account?
A. An account that transfers funds to a designated beneficiary upon the owner’s death
B. An account used for estate taxes
C. A trust created to manage funds after death
D. A joint account with survivorship rights
What does the term “probate assets” refer to?
A. Assets that bypass the probate process
B. Assets held in joint tenancy
C. Assets distributed through the court process
D. Assets subject to income tax
A beneficiary designation:
A. Overrides the terms of a will for specific assets
B. Must be notarized to be valid
C. Is only valid for retirement accounts
D. Cannot be updated after the initial filing
Which of the following is true about joint tenancy with right of survivorship?
A. It avoids probate upon the death of one joint tenant
B. It allows the surviving tenant to transfer the property through a will
C. It is automatically terminated upon incapacity of one tenant
D. It requires probate for property distribution
Topic: Power of Attorney and Healthcare Directives
What is the purpose of a healthcare directive?
A. To name a person to make financial decisions for you
B. To state your medical treatment preferences in case of incapacity
C. To avoid estate taxes on medical expenses
D. To authorize the distribution of medical records
A springing power of attorney becomes effective:
A. Immediately after it is signed
B. Only when a specified event occurs, such as incapacitation
C. When the principal requests it in writing
D. Automatically upon the death of the principal
In most cases, a durable power of attorney:
A. Remains effective even if the principal becomes incapacitated
B. Expires after six months
C. Terminates upon the sale of real estate
D. Can only be used for healthcare decisions
A living will is also known as:
A. An advance healthcare directive
B. A durable power of attorney
C. A probate document
D. A last will and testament
What is the role of a healthcare agent under a healthcare power of attorney?
A. To make healthcare decisions on behalf of the principal
B. To distribute the estate after death
C. To oversee the probate process
D. To transfer real property owned by the principal
General Knowledge
What is the primary goal of estate planning?
A. To minimize taxes and ensure assets are distributed according to your wishes
B. To avoid all legal documentation
C. To ensure creditors are fully paid before beneficiaries
D. To transfer all assets into probate
What is a codicil?
A. A formal amendment to a will
B. A trust established during the grantor’s lifetime
C. A healthcare directive
D. A document used to avoid estate taxes
Which of the following is true about intestacy laws?
A. They determine the distribution of assets when no valid will exists
B. They only apply to estates worth over $1 million
C. They are uniform across all states in the U.S.
D. They eliminate the need for probate
Which type of trust can be used to support charitable organizations?
A. Charitable remainder trust
B. Special needs trust
C. Testamentary trust
D. Revocable trust
A spendthrift clause in a trust is designed to:
A. Protect trust assets from creditors of the beneficiaries
B. Eliminate the need for an executor
C. Provide immediate distribution of trust funds
D. Ensure assets are distributed equally among all heirs