CFP

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


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