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Estates, Insurance and Taxes, POP QUIZ

  1. True or False: The revocable living trust is an effective tool for reducing estate taxes and protecting against personal liability.
  2. If Mr. and Mrs. Jones have assets totaling $1.25 million, all of which they own jointly, what will their federal estate tax liability be at the death of the last to die? (Assume neither gain nor loss in the estate.)
  3. What are the tax rates for federal gift and estate taxes?
  4. True or False: A power of attorney may be used to direct someone (the agent, or attorney in fact) to distribute property after the death of the principal (the signer).
  5. Name four features of probate which are generally considered negative and encourage many people to take steps to avoid it.
  6. True or False: It is a good idea to name in your will a trusted person to take care of you and your assets should you become incapacitated during your lifetime.
  7. True or False: Corporations are strictly used for business purposes and have no real function in estate and financial planning.
  8. The best state in the union in which to incorporate has no corporate income tax, no franchise tax, very low corporate fees, unprecedented privacy and affords the best liability protection. Which state is it?
  9. What is the key weapon against procrastination?
  10. Relative to life insurance and federal estate taxes, which of the following is true?

a. Insurance is not included in your estate because it is tax-free.

b. Insurance is taxed, but the tax is paid by your beneficiaries.

c. The cash value is included in your estate for estate tax purposes.

d. The face amount of your life insurance is included in your estate for estate tax purposes.


(Questions above)

  1. False. A revocable living trust offers no protection from lawsuit and no savings in regard to estate taxes. It is the trust planning inside the living trust which allows a married couple to preserve their unified credit amount. This procedure really doesn’t “save” any estate taxes, but rather it merely preserves a credit that you and every other U.S. citizen already have. Contrary to much hype and ads for “living trust seminars,” there is nothing special about living trusts relative to estate taxes.
  2. The estate tax bill for the last to die of Mr. and Mrs. Jones would be approximately $235,000. This is because they owned all of their property jointly. Since the property was owned jointly, neither Mr. nor Mrs. Jones could take advantage of techniques to preserve their personal unified credit. If they had owned the property in their own names and had done some very simple tax planning, the tax bill would have been $0.
  3. Federal gift and estate tax rates begin at 37% and ramp up very quickly to 55%.
  4. False. A power of attorney dies with its maker.
  5. Four negative features of probate are: cost, time, hassle and loss of family privacy.
  6. False. A will has no function until the death of the maker.
  7. False. Many corporations are formed each day with a primary motive of estate and financial planning.
  8. The most pro-owner, user-friendly state in which to incorporate is Nevada. This is evidenced by the fact that there are more than 3,000 new corporations filed each month in Nevada. Most of these are filed by other than Nevada residents.
  9. The key weapon to use against procrastination, especially when the issue concerns important financial matters, is action.
  10. D — The face amount of any life insurance owned by an individual is included in his or her estate at death for estate tax purposes. Many individuals confuse this statement with the fact that life insurance proceeds are not taxable to the beneficiary under the income tax rules. Both or the statements are true, but are not related since they deal with two different tax systems.

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