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Do You Know Estate Planning Basics?

With the future of the estate tax up in the air, you may be tempted to neglect estate planning. The federal tax on inherited wealth is currently scheduled to be repealed in 2010, only to return in 2011 under less favorable terms. Congress will most assuredly resolve this issue before year-end, perhaps exempting all but the wealthiest families from estate tax liability. Yet whatever the fate of the law, having a thoughtful, effective estate plan will continue to be crucial.

At a minimum, you need a legally enforceable will that lays out how you want your assets to be distributed. An accompanying, non-binding letter of instruction could further spell out your wishes. You may also want to establish one or more trusts designed to minimize taxes, manage assets for minors, provide asset protection for heirs, implement philanthropic plans, or protect assets from creditors. And a living will (or health care proxy) could provide valuable direction on end-of-life health care.

Are you familiar with estate planning basics? Use this quiz to test your knowledge.

1. Which of the following is true?

a) A will is legally valid only if drafted by an attorney.
b) You can transfer jointly owned property through a will.
c) A will may appoint a guardian for minor children.
d) Your property must go through probate if you don’t have a will.

2. When can a will be changed and remain legally enforceable?

a) Only if the changes are recorded by an attorney
b) Only when the heirs named in the will provide their consent
c) Any time before your death or mental incompetence
d) Never

3. In 2009, the federal estate tax exemption was:

a) $1 million
b) $2 million
c) $3.5 million
d) Zero

4. In 2010, the annual gift tax exclusion shelters gifts to individuals of up to:

a) $10,000
b) $13,000
c) $1 million
d) Zero

5. For estate tax purposes, the value of assets is based on:

a) Their fair market value on the date of the owner’s death (or six months from that date)
b) The amount received from the sale of those assets
c) The assets’ original cost
d) The value stated in the owner’s will

6. A “power of attorney” is best described as:

a) A bequest in a legally validated will
b) A document authorizing an agent to act on your behalf
c) A document allowing life support systems to be shut down
d) The use of a lawyer in estate planning matters

7. Which of the following is not true?

a) The value of your principal residence is excluded from your estate.
b) The value of property transferred to your spouse is exempt from estate tax at your death.
c) A testamentary trust takes effect when you die.
d) A will normally determines who will care for minor children.

If you have questions about estate planning or need to refine your plan, please give us a call. We can work with you and your attorney to make sure all of your needs are met.

Answers: 1-c; 2-c; 3-c; 4-b; 5-a; 6-b; 7-a.


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This article was written by a professional financial journalist for Besselman & Associates and is not intended as legal or investment advice.

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