Liquidity, Powers of Appointment, and Trusts - Sample Questions 9 - 14

9. Tom and Lisa Johnson have been married for 20 years and they have two children together. Tom was divorced before meeting Lisa and he had three children with his first wife. Tom and Lisa have a sizeable estate valued at over $5 million, mostly created from the sale of Tom's business before he met Lisa. Tom would like for his three children (from his previous marriage) to get $1 million from their estate after both of their deaths. Which trust would be the most suitable to accomplish this?

A) Crummy Trust
B)
Bypass Trust
C)
QTIP Trust
D)
CRUT

10. Which of the following are characteristics of the Section 2503(c) Trust?

I. The income must always be paid out to the beneficiary.
II. The principal payout is discretionary until age 21.
III. The trust pays income tax for undistributed income.
IV. If the minor dies before the age of 21, the property goes to the child's estate.

A) I and III only
B)
II, III and IV only
C)
III and IV only
D) I, II, III and IV

11. All of the following would be considered complex trusts, EXCEPT:

A) QTIP trust
B)
Marital trust
C)
Sprinkle trust
D)
Section 2503(c) trust

12. Which of the following would be considered advantages of setting up a revocable living trust?

I. Probate avoidance
II. Privacy of assets
III. Speedy disposal of property
IV. Creditor protection

A) I and II only
B)
I, II and III only
C)
II, III and IV only
D) I, II, III and IV

13. All of the following are effective ways to avoid the probate process EXCEPT:

A) Use of payable-on-death (POD) accounts
B)
Revocable Trusts
C)
Rollover pension funds to individual brokerage accounts
D) Naming primary beneficiaries on your IRA accounts

14. Jim Jones, an unmarried taxpayer, died unexpectedly in 2011 at the age of 59 in his apartment that he rented. As his full estate, he left $2 million in a revocable trust, $500,000 in a savings account, $1 million in life insurance proceeds (policy owned by Jim, payable to Matt) and a $100,000 certificate of deposit. Jim updated his will eight months before his death leaving everything to his younger brother (Matt). Jim died before he was able to amend his revocable trust to remove his older brother (Dave) as a 50% beneficiary of the trust income and corpus. Which of the following are TRUE statements?

I. At least $1.6 million of the estate needs to be probated.
II. Jim's heirs will have to pay estate tax at 35% on everything above $1 million.
III. Dave is entitled to his share of the revocable trust.
IV. The insurance proceeds will pass federal income tax-free to Matt.
V. Matt gets everything in accordance with the updated will.

A) I and II only
B)
I and IV only
C)
II and III only
D) III and IV only
E) III, IV and V only

Introduction
Related Articles
  1. Career Education & Resources

    The Top RIA Deals of 2015

    It was a big year for change within the RIA industry. Here are 2015's biggest mergers, acquisitions and buyouts.
  2. Options & Futures

    Five Advantages of Futures Over Options

    Futures have a number of advantages over options such as fixed upfront trading costs, lack of time decay and liquidity.
  3. Products and Investments

    How to Create a New Financial Product in 10 Steps

    The 10 steps outlined here are essential to the creation of a new financial product.
  4. Professionals

    A Day In The Life Of A Public Accountant

    Here's an inside look at the workdays of two experienced CPAs, to give you an idea of what it might be like to pursue a career as a public accountant.
  5. Professionals

    A Day in the Life of a Public Accountant

    There’s no typical day in the life of a public accountant, but one accountant’s experience may shed some light on what the career entails.
  6. Saving and Spending

    A Key Tip for Making Your Nest Egg Last Longer

    Retirees who don't want to deplete their nest eggs during a bear market should make sure to do the following.
  7. Mutual Funds & ETFs

    Fidelity Target Risk Funds Overview

    Get a brief overview of Fidelity's seven target risk funds, with a description of each fund's asset allocation and expense ratio.
  8. Investing News

    Is it the Right Time to Raise Interest Rates?

    Warning signs have started to emerge that point to a potentially dismal 2016 for the U.S. economy.
  9. Markets

    Four Big Risks of Algorithmic High-Frequency Trading

    Algorithmic HFT has a number of risks, and it also can amplify systemic risk because of its propensity to intensify market volatility.
  10. Mutual Funds & ETFs

    The Top 3 Invesco Funds for Retirement Diversification in 2016

    Explore analyses of the top three Invesco mutual funds for retirement diversification in 2016, and learn about the characteristics of these target-date funds.
RELATED TERMS
  1. Sortino Ratio

    A modification of the Sharpe ratio that differentiates harmful ...
  2. Equity Risk Premium

    The excess return that investing in the stock market provides ...
  3. Net Line

    The amount of risk that an insurance company retains after subtracting ...
  4. Political Risk Insurance

    Coverage that provides financial protection to investors, financial ...
  5. Maximum Drawdown (MDD)

    The maximum loss from a peak to a trough of a portfolio, before ...
  6. Gross Exposure

    The absolute level of a fund's investments.
RELATED FAQS
  1. What's the difference between a stop and a limit order?

    Different types of orders allow you to be more specific about how you'd like your broker to fulfill your trades. When you ... Read Full Answer >>
  2. Are secured personal loans better than unsecured loans?

    Secured loans are better for the borrower than unsecured loans because the loan terms are more agreeable. Often, the interest ... Read Full Answer >>
  3. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  4. Why are mutual funds subject to market risk?

    Like all securities, mutual funds are subject to market, or systematic, risk. This is because there is no way to predict ... Read Full Answer >>
  5. Why have mutual funds become so popular?

    Mutual funds have become an incredibly popular option for a wide variety of investors. This is primarily due to the automatic ... Read Full Answer >>
  6. Can your car insurance company check your driving record?

    While your auto insurance company cannot pull your full motor vehicle report, or MVR, it does pull a record summary that ... Read Full Answer >>
Hot Definitions
  1. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  2. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  3. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  4. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  5. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
Trading Center