CHAPTER 31-ESTATE PLANNING
TRUE/FALSE
1. The Uniform Probate Code has been adopted in all states.
Answer: False
2. Estate planning has two primary goals: to ensure property is distributed as the owner
desires and to minimize estate taxes.
Answer: True
3. Per capita means each heir gets an equal share of an estate.
Answer: True
4. A later will revokes a prior will only if that revocation is clearly stated.
Answer: False
5. Parents may not disinherit their minor children without good reason.
Answer: False
6. Property of a person who dies without a will is distributed according to intestacy laws.
Answer: True
7. Reva prepares and signs a document that she intends to be her will. If she has not followed
the legal technicalities of her state regarding executing a will, the court may not enforce the
will.
Answer: True
8. A spouse is entitled to a forced share of a decedent's estate.
Answer: True
9. The only function of a will is to dispose of a person's property upon death.
Answer: False
10. Jacob has been quite ill. When three of his neighbors come to visit one day, he tells them
that he is dying and that he wants them to witness his oral will. In some states, he can validly
dispose of his personal property by his witnessed, oral statements.
Answer: True
11. An executor who is related to the testator is not entitled to compensation.
Answer: False
12. Probate refers to the process of carrying out the terms of a will.
Answer: True
13. The federal government has established uniform probate laws that apply in all 50 states.
Answer: False
14. A minor (under age 18) can prepare a valid will if it is co-signed by a parent.
Answer: False
15. Under the 2008 amendment to the UPC, a notarized will does not require any witnesses,
but only four states have passed this amendment.
Answer: True
MULTIPLE CHOICE
1. The percentage of people dying without a will is approximately:
a. 5%.
b. 25%.
c. 60%.
d. 90%.
Answer: C
2. Which of the following property is not affected by a will?
a. Life insurance.
b. Joint tenancy property.
c. Retirement benefits.
d. All of the above.
Answer: D
3. Myron had two children, Cheryl and Pete, who predeceased him. Cheryl had three children
and Pete had one child. Myron died testate. Which of the following is true?
a. If Myron's will indicates that the issue are to inherit per stirpes, Pete's child will receive
one half of Myron's estate.
b. If Myron's will indicates that the issue are to inherit per stirpes, Pete's child will receive
one fourth of Myron's estate.
c. If Myron's will indicates that the issue are to inherit per capita, Pete's child will receive one
half of Myron's estate.
d. If Myron's will indicates the issue are to inherit per capita, each of Cheryl's children will
receive one sixth of Myron's estate.
Answer: A
4. A trust created in a will is:
a. an inter vivos trust.
b. a constructive trust.
c. a testamentary trust.
d. a probate trust.
Answer: C
5. Legal requirements for a will depend on state law, but generally include all but which of
the following?
a. A writing.
b. Signatures of at least three witnesses.
c. The testator’s signature.
d. Witnesses who will not inherit under the will.
Answer: B
6. Lying on her hospital bed alone one night, Phyllis grabs a pen and paper. With the last of
her strength, she wrote her last will and testament leaving all her worldly possessions to her
next-door neighbor, Aaron. This type of will is:
a. a nuncupative will.
b. disinherited children's share will.
c. holographic will.
d. None of the above.
Answer: C
7. In order to travel extensively and not worry about handling her affairs, Lee transfers most
of her assets into a trust, with her bank serving as trustee. She has created:
a. a travel trust.
b. a testamentary trust.
c. a constructive trust.
d. an inter vivos trust.
Answer: D
8. Which of the following is not required to create a valid trust:
a. mental capacity of the grantor.
b. witnesses.
c. a beneficiary(ies).
d. property transferred to the trust.
Answer: B
9. Joel is displeased with his son’s lifestyle choices and, instead of dividing his estate, Joel
wants to leave all of his property to his daughter, Marie, when he dies. Joel:
a. may not leave everything to his daughter and nothing to his son. If Joel tries to do this, his
son can take a forced share of his father’s estate.
b. may disinherit his son, but he must indicate in the will his reason for doing so.
c. may disinherit his son for any reason as long as Joel indicates in the will that the son was
omitted on purpose.
d. may disinherit his son only if Joel leaves the son a nominal amount, such as $1.
Answer: C
10. Which of the following does not act as a revocation of a will?
a. Destruction of the will by a house fire.
b. The testator's putting an X through it.
c. Physically destroying the will by intentionally shredding it.
d. Signing a new will that expressly revokes prior wills.
Answer: A
11. Dr. Gavornne advises his very ill patients to prepare a living will. The purpose of a living
will is:
a. to make a disposition of property.
b. to express a desire not to have extreme medical treatment that would prolong their lives.
c. to transfer life insurance.
d. to consent to organ donation.
Answer: B
12. Which of the following is true about wills?
a. A will can be amended to change specific terms by execution of a codicil.
b. The testatrix cannot disinherit her minor children without stating a reason in the will.
c. If the will meets the legal technicalities, the surviving spouse cannot override it.
d. Once a will is written, it cannot be changed.
Answer: A
13. Under the Uniform Anatomical Gift Act:
a. an individual may indicate the desire to be an organ donor by putting a provision in his
will. The provision will take effect after probate of the will.
b. the willingness to be an organ donor may be indicated by signing an organ donation card in
the presence of one disinterested witness.
c. family members of a decedent have no right to make a gift of the decedent’s organs if the
decedent did not make an affirmative indication of the desire to be a donor during her
lifetime.
d. an effective donation may be made by an individual in a will or on a witnessed organdonation card or by family members after the person’s death as long as the person did not
indicate a desire not to be a donor.
Answer: D
14. If Walter becomes incompetent to manage his affairs:
a. his chosen attorney-in-fact can make decisions for him if he appointed the person in a
durable power of attorney with a springing power to become effective upon Walter’s
incompetence.
b. a court will appoint a guardian if Walter had no power of attorney.
c. his will becomes effective, and his executor or executrix will manage his business and
personal decisions.
d. Both a and b are correct.
Answer: D
15. The major disadvantage of a trust is:
a. expense.
b. lack of privacy.
c. it may have to go through an often lengthy probate process.
d. lack of control.
Answer: A
16. A handwritten will is called a:
a. holographic will.
b. living will.
c. probated will.
d. nuncupative will.
Answer: A
17. When a married person dies intestate, the surviving spouse is entitled to:
a. nothing
b. the entire estate
c. a forced share of the estate, which is calculated differently in different states
d. the same portion as each of the couple’s children
Answer: C
18. A pretermitted child is:
a. the child named as the executor of the will
b. the oldest child
c. the youngest child
d. a child not named in the will
Answer: D
19. In legal terms, the word “issue” means:
a. the children of the testator
b. the process of making a will valid
c. all descendents of the testator
d. the process of inheritance
Answer: C
20. When a testator wants to change or amend a limited portion of a will, he may use:
a. the process of probate
b. a codicil
c. power of attorney
d. nuncupative will
Answer: B
21. A power of attorney may expire under all the following conditions EXCEPT:
a. the attorney in fact losing the license to practice law
b. being revoked by the principal
c. the incapacity of the principal
d. the death of the principal
Answer: A
22. The Uniform Anatomical Gift Act (UAGA) allows an individual to indicate her desire to
be a donor:
a. by signing an organ donor card in the presence of two witnesses
b. by including this wish in a will
c. by using an iPhone app called “DonateLives.”
d. all of the above are ways to indicate a desire to be an organ donor.
Answer: D
23. Which statement is not true of trusts?
a. Legal and beneficial ownership reside in the same entity
b. There are four parties involved: the grantor, the settlor, the donor and the beneficiary
c. A grantor can create a trust after her own death.
d. Trust documents are filed with the county court and are public documents.
Answer: C
24. A major advantage of an Asset Protection Trust is:
a. It is shielded from creditors that arise after the trust is established
b. Its proceeds are tax-free.
c. Its value cannot decline due to stock market fluctuations.
d. It has a guaranteed rate of return.
Answer: A
25. A trust that goes into effect during the grantor’s lifetime is called:
a. a testamentary trust
b. an anos durente trust
c. an irrevocable trust
d. an inter vivos trust
Answer: D
ESSAY
1. Discuss the differences between a will and a trust.
Answer: A will is an instrument which helps a person direct her assets to the desired
beneficiaries after death. It generally can be revoked or altered at any time prior to death.
Without a will, the decedent's property will be distributed according to the intestacy statute of
the state where the decedent resided at the time of death. The reasons to have a will include:
to distribute assets according to your wishes; to select a personal representative to oversee the
estate; to avoid legal issues and expenses that are more likely to arise if there is no will; and
to name a guardian for minor children.
A trust is an entity that separates legal and beneficial ownership. The trustee becomes the
legal owner of the trust assets, but must use them for the benefit of the beneficiary, who has
equitable title. There are three entities involved in a trust: the settlor, the trustee, and the
beneficiary. Trusts may be created while the settlor is alive or through a will. The advantages
of a trust include: the settlor can leave instructions for the control of the trust assets after
death; a trust can be set up to manage property that will ultimately go to individuals who are
currently minors; a trust can save taxes; and the assets of a trust are not probated.
2. Singleton, an eighty-year-old widower, remarried. The next day, he made a will leaving
everything to his son, Joey. A week after his marriage, Singleton died. How will his estate be
handled?
Answer: In a community property state, a spouse is entitled to claim one half of all marital
property acquired during the marriage. Obviously this is not a big problem here in that
Singleton was only married a week. However, in noncommunity property states, a spouse can
claim some percentage of the decedent's probate estate. One of the complaints about a forced
share is that it may be unfair in a marriage of short duration. Singleton's bride may get an
entire one third to one half of the estate after only being married a week.
3. Identify four ways a trust can be terminated.
Answer: A trust ends: (a) on the date indicated by the grantor; (b) if the trust is revocable,
when the grantor revokes it, or if the trust is irrevocable and the grantor and all the
beneficiaries agree to revoke it; (c) when the purpose of the trust has been fulfilled; or (d) the
Rule Against Perpetuities comes into effect. The Rule Against Perpetuities provides that a
trust must end within 21 years of the death of some named person who is alive when the trust
is created. However, nearly half of the states now permit dynasty or perpetual trusts that last
forever.
4. Mountain Ridge Bank has been named trustee for a $100,000 trust Fred and Martha Betts
established for “the living children of the grantors.” List the requirements for establishing a
trust. Identify the primary obligation of the trustee and discuss the fiduciary duty of the
trustee.
Answer: There are four requirements for establishing a trust: legal capacity of the grantor;
appointment of at least one trustee; specific beneficiaries, although they may be listed as a
class rather than by name; and specific assets to be the trust property. The primary obligation
of Mountain Ridge Bank as the trustee is to carry out the terms of the trust. In carrying out
the terms, the trustee has a fiduciary duty to the beneficiaries. The fiduciary duty includes a
duty of loyalty (in managing the trust, Mountain Ridge must put the interest of the
beneficiaries first, disclose any relevant information to them, not commingle its own assets
with those of the trust, not do business with the trust, and not favor one beneficiary over
another). The trustee also has a duty of care, acting as a reasonable person would when
managing the assets of another. The trustee must make careful investments, keep accurate
records, and collect debts owed to the trust.
Test Bank For Introduction to Business Law
Jeffrey F. Beatty, Susan S. Samuelson
9781133188155
