The Basics of Estate Planning: Test Your Knowledge

First Republic Private Wealth Management

November 10, 2015

Although the past few decades have brought changes to estate tax laws, estate planning fundamentals remain the same. How much do you understand about the basics of estate planning? Take the following quiz and test your knowledge:

True or False?

  1. Not having a will is a good way to avoid probate.
  2. A will prolongs the probate process and increases estate costs.
  3. Joint property (with rights of survivorship), life insurance proceeds, IRA accounts and other retirement accounts all pass to the beneficiaries you name in your will or revocable trust.
  4. Probating an estate increases estate taxes.
  5. Probate can be avoided by placing your assets in a revocable living trust.
  6. A living trust is generally inflexible and cannot be changed, and the person who creates a trust gives up control of his assets.
  7. Revocable living trusts can reduce income taxes.
  8. You are doing a friend or family member a favor by naming him to serve as the personal representative (executor) or trustee.
  9. The federal estate tax has been rolled back, so I don’t need to worry.

Answers:

  1. False. If someone dies without a valid will, a probate process is still required to pass that property to the legal heirs as defined by state statute.
  2. False. If probate is required, the presence of a valid will can often reduce costs by eliminating confusion among heirs and establishing who is to serve as executor.
  3. False. Assets owned as joint tenants with rights of survivorship go directly to the surviving joint owner, and any accounts with a designated beneficiary will pass to them directly without going through probate.
  4. False. Estate taxes are based on the value of what the decedent owned at death regardless of whether it was probate property, survivorship property, assets in a revocable trust or property going directly to designated beneficiaries.
  5. True. This is one of the primary benefits of creating a living trust. You can designate beneficiaries to receive the trust assets after your death, avoiding the need for probate.
  6. False. A revocable living trust is extremely flexible and easily amended at any time and can even be revoked entirely as long as the trustor(s) retains that right in the trust agreement.
  7. False. A revocable living trust offers no unique strategies for avoiding income taxes.
  8. False. Executors or trustees must assume huge responsibilities. In many cases, using corporate trustees such as banks or trust companies is a better option because they bring professional expertise and objectivity and can potentially save costs on outside legal expenses.
  9. False. Under present law, most relatively simple estates do not require the filing of an estate tax return. However, the federal estate tax still affects those with combined gross assets and prior taxable gifts exceeding $5.34 million in 2014 and $5.43 million in 2015.

Improve Your Score

Estate planning can be a complex subject, and there is a lot of misinformation surrounding it. First Republic Trust Company offers a full line of fiduciary services and is available to discuss any of your estate planning questions or concerns.

The strategies mentioned in this article will often have tax and legal consequences; therefore, it is important to bear in mind that First Republic does not provide tax or legal advice.  This information is provided to you “AS IS”, does not constitute legal advice, is governed by our Terms and Conditions of Use, and we are not acting as your attorney. We make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the information contained here.  Client’s tax and legal affairs are their own responsibility – Clients should consult their own attorneys or other tax advisors in order to understand the tax and legal consequences of any strategies mentioned in this document.

© First Republic Trust Company 2015