Test Bank Chapter.26 Estates And Trusts

Business Law, 17e (Langvardt)

Chapter 26 Estates and Trusts

1) Property held in joint tenancy or tenancy by the entirety is not controlled by a will.

2) A bequest is a gift of personal property or money provided in a will.

3) The residuary is the remaining property of a person's estate after bequests and devises have been made.

4) A will that is not executed with the formalities required by state law is void.

5) An interested party in a will can be a witness to the will.

6) To be valid, a holographic will must be typed.

7) An estate is all of the property that an individual owns.

8) A testator's children would be called his issue.

9) To interpret a will, the court gives preference to the statements of the beneficiaries rather than the intent of the testator.

10) A will confers no present interest in the testator's property.

11) A testator can revoke a will before his death.

12) A codicil is an amendment to a will.

13) Under the laws of some states, the birth of a child after the execution of a will may operate as a partial revocation of the will.

14) A durable power of attorney terminates when the principal becomes incapacitated.

15) A person can have multiple domiciles at a time.

16) If an individual dies without a will, then they are said to have died intestate.

17) The probate process involves collecting the decedent's property, paying off debts, and distributing the remaining property to others.

18) A personal representative under a will is also known as the executor.

19) Under the doctrine of cy pres, the trust will not fail if the settlor indicated a general intention to devote the property to charitable purposes.

20) A Totten trust creates a revocable living trust.

21) Which of the following is the source of law for regulating the distribution of property upon death?

A) State statutes and common law

B) State statutes only

C) Federal statutes and common law

D) Federal statutes only

22) Which of the following is a comprehensive, uniform law that is intended to update and unify state law concerning the disposition and administration of property at death?

A) Uniform Probate Code

B) Uniform Estate Planning Code

C) Uniform Testate and Intestacy Code

D) Uniform Estate Administration Code

23) Which of the following debts of the decedent must be paid upon his/her death?

A) All of the decedent's debts

B) Only debts secured by the decedent's property

C) Only debts covered by the statute of frauds

D) Only consumer debts

24) When Rita Ryan died, she left a will naming her children, John and Dale, as the sole beneficiaries. In her will, Rita designated John as the executor of her estate and excused John from posting a bond as executor. At the time of Rita's death, she owned a parcel of land with her sister, Ann, as joint tenants with right of survivorship. With respect to Rita's interest in the land, it will pass to:

A) John and Dale outside of Rita's estate by right of survivorship.

B) John and Dale through Rita's estate after the will is probated.

C) Ann through Rita's estate after the will is probated.

D) Ann outside of Rita's estate by right of survivorship.

25) A(n) ________ is a gift of personal property or money.

A) estate

B) bequest

C) will

D) deed

26) What is a gift of real property called?

A) Residuary

B) Estate

C) Bequest

D) Devise

27) Lineal descendants—the children and grandchildren of a person—are known as:

A) devises.

B) issue.

C) residuary.

D) obligees.

28) A gift is given to the testator's issue or descendants, with each surviving descendant dividing the share that his or her parent would have taken if the parent had survived. This is known as division ________.

A) per stirpes

B) per capita

C) inter vivos

D) causa mortis

29) Grandfather Summers had two children, Mary and Bill. Mary, her father's favorite, has one child, Margaret. Bill has two children, Jill and John. Mary and Bill die before Summers (in legal terms, predecease him), but all three grandchildren are living at the time of his death. Summers' estate has to be divided per capita. Who will get what?

A) The spouses of Mary and Bill will inherit the estate.

B) Mary's children will inherit the majority share of the estate.

C) All three grandchildren will receive an equal share.

D) The estate will go to a trust because Mary and Bill are deceased.

30) Which of the following is true of testamentary capacity?

A) A person must be in perfect mental health to have testamentary capacity.

B) A person must be 18 years of age (in most states) in order to have testamentary capacity.

C) A person must have personal property to have testamentary capacity.

D) A person must have real property to have testamentary capacity.

31) If an ambiguity or conflict arises when people read and/or interpret a will, courts will:

A) look for evidence of the intent of the testator within the will.

B) ask the family members or beneficiaries for their preference(s).

C) appoint a probate referee to decide the future of the will.

D) declare the will void or invalidate it due to its ambiguity.

32) Incorporation by reference refers to:

A) the specification of heirs in a will without naming them, e.g., to my children.

B) the necessity that witnesses to a will do not benefit from it in any way.

C) the inclusion of extrinsic documents in a will.

D) the requirement that a will is executed according to state law.

33) A ________ is oral in nature.

A) nuncupative will

B) holographic will

C) notarial will

D) self-proved will

34) Which of the types of wills is written and signed in the testator's handwriting?

A) Nuncupative wills

B) Holographic wills

C) Notarial wills

D) Self-proved wills

35) Anna wants to create a will indicating that her favorite grandchild, Jesse, will inherit her house. Anna takes an ordinary sheet of paper and, in her own handwriting, states that it is her intent to leave her house to Jesse when she dies. She dates and signs the will, but there are no witnesses to it. Anna then tells her entire family about the will. Anna lives in a state where holographic wills are recognized, but nuncupative wills are not. Will Anna's will be recognized and followed?

A) Yes, because Anna's will is entirely in her handwriting.

B) No, because there were no witnesses present when Anna made her will.

C) No, because a will must always be witnessed.

D) Yes, because Anna's will has already been disclosed.

36) A joint will:

A) can only have a single beneficiary.

B) is only valid if the testators are a married couple.

C) is a single instrument that constitutes the will of both or all of the testators.

D) cannot be changed once it is created.

37) What is the term for planning for the transfer of a person's estate in later life and at death?

A) Estate Planning

B) Probate

C) Corporate Giving

D) Intestate

38) What is an amendment of a will called?

A) Bequest

B) Residuary

C) Advance directive

D) Codicil

39) Jim created a valid will in 2003. Three years later, he wanted to make some minor changes to the will. Jim wants to modify the provisions of his will without making an entirely new will. He can amend his will by executing a(n) ________.

A) bequest

B) residuary

C) advance directive

D) codicil

40) Sarah is 75 years old. She has a serious illness, but she does not want to be kept alive by extraordinary medical technology. Specifically, she does not want to be kept alive by a respirator. Which of the following should Sarah use to make sure that her wishes are followed?

A) A living will

B) A codicil

C) A joint will

D) A nuncupative will

41) A document that gives person A the right to act for person B, in the event that person A becomes incapacitated is known as a:

A) durable power of attorney.

B) living trust.

C) right of succession.

D) codicil.

42) A durable power of attorney for healthcare only becomes relevant when:

A) registered with the Secretary of State.

B) filed with the Department of Health.

C) the principal has become incompetent.

D) the hospital has received a $500 fee.

43) If a person dies intestate, his real property will be distributed:

A) to the state in which the property is located.

B) to the state of the person's domicile.

C) according to the law of the state in which the property is located.

D) according to the law of the state of the person's domicile.

44) John died without leaving a will. He left a wife and two children. He lived in Boise, Idaho, and he owned a ski condo in Aspen, Colorado. How will John's ski condo be distributed upon his death?

A) The law of intestate succession of Idaho will be followed, because Idaho is the state where John was domiciled at the time of his death.

B) The law of intestate succession of Colorado will be followed, because Colorado is where John's condo is located.

C) The federal law of intestate succession will be followed, because John's property is located in more than one state.

D) The property will escheat to the State of Idaho.

45) If the deceased had no surviving relatives, the property escheats to ________.

A) the executor

B) a charity picked by an assigned trustee

C) his friends

D) the state

46) In intestate succession what is the term for the individuals that stand to inherit the decedent's assets?

A) Probate

B) Heirs

C) Incorporation

D) Executors

47) A person who is appointed under a will to look after the property of the decedent is known as a(n):

A) obligee.

B) estate agent.

C) legal heir.

D) executor.

48) If the decedent died intestate, the personal representative is called a(n) ________.

A) trustee

B) executor

C) administrator

D) beneficiary

49) A(n) ________ is a legal relationship in which a person who has legal title to property has the duty to hold it for the use or benefit of another person.

A) accession

B) lien

C) trust

D) codicil

50) The property held in trust is called the ________.

A) attachment

B) lien

C) corpus

D) accession

51) A trust that is established in a person's will and that takes effect only upon that person's death is called a(n):

A) inter vivos trust.

B) spendthrift trust.

C) Totten trust.

D) testamentary trust.

52) A trust that is established and effective during the settlor's lifetime is known as a(n) ________ trust.

A) causa mortis

B) per capita

C) per stirpes

D) inter vivos

53) Krieg's will created a trust to take effect upon his death. The will named Krieg's spouse as both the trustee and personal representative (executor) of the estate. The will provided that all of Krieg's securities were to be transferred to the trust and named Krieg's child as the beneficiary of the trust. Which of the following is true under the circumstances?

A) Krieg has created a testamentary trust.

B) Krieg's spouse may not serve as both the trustee and personal representative.

C) Krieg has created a spendthrift trust.

D) The trust is invalid because securities cannot be transferred to a trust.

54) Thomas wants to create an inter vivos trust for the benefit of his adult children. To create a valid inter vivos trust, he must have a level of mental capacity that is the same as that required to:

A) make a valid contract.

B) make a valid will.

C) stand trial in a criminal case.

D) testify under oath in a criminal case.

55) The rule against perpetuities does not apply to a:

A) testamentary trust.

B) spendthrift trust.

C) charitable trust.

D) Totten trust.

56) Which of the following is not a requirement for the formation of a valid trust?

A) Conveyance of specific property

B) Proper purpose

C) Legal capacity

D) Appointment of trustee

57) A particular trust has income-producing real property as its sole asset. Which of the following trust proceeds or expenditures should be allocated to the principal?

A) Annual payments on a fire insurance policy to protect the trust property.

B) The cost of a long-term permanent improvement to the trust property.

C) Rental income from the trust property.

D) Real estate taxes paid on the trust property.

58) A Totten trust is created when a person:

A) deposits money in a bank for the benefit of another.

B) directs in his will that a trust be created upon that person's death.

C) executes a trust using a holographic will.

D) opens a trust only for the benefit of the indigent.

59) Which of the following is most likely to breach one of the trustee's fiduciary duties?

A) Selling stock owned by the trust to realize capital gains.

B) Selling stock owned by the trust because it has declined in value over the last three years.

C) Delegating the selection of trust investments to an investment advisor.

D) Delegating the preparation of statements of account to an accountant.

60) A personal representative of an estate would breach his/her fiduciary duty if the personal representative:

A) combined personal funds with funds of the estate so that both could purchase treasury bills.

B) represented the estate in a lawsuit brought against it by a disgruntled relative of the decedent.

C) distributed property in satisfaction of the decedent's debts.

D) engaged a non-CPA to prepare the records for the estate's final accounting.

61) Which of the following is true of a spendthrift trust?

A) The settlor can make himself the beneficiary.

B) It restricts the voluntary transfer of a beneficiary's interest.

C) Assignees can claim rights to it.

D) Creditors can claim rights to it.

62) A distinguishing feature between the making of an inter vivos gift and the creation of a trust is that:

A) a gift may be made orally whereas a trust must be in a signed writing.

B) a gift is irrevocable whereas a trust may be revoked in certain cases.

C) to create a valid trust, the creator must receive some form of consideration.

D) the beneficiary of a trust must be notified of the trust's creation.

63) Under exceptional circumstances in which the creation of a trust is necessary to effectuate a settlor's intent or avoid unjust enrichment, the law imposes a trust even though no express trust exists. This is known as a(n) ________ trust.

A) implied

B) spendthrift

C) Totten

D) blind

64) Which of the following arises when there has been an incomplete disposition of trust property and the creation of a trust is necessary to effectuate a settlor's intent or avoid unjust enrichment?

A) Express trust

B) Spendthrift trust

C) Totten trust

D) Resulting trust

65) When a person procures the transfer of property by means of fraud or duress, he becomes a(n) ________ and is under an obligation to return the property to its original owner.

A) constructive trustee

B) implied trustee

C) executor

D) administrator

66) As part of creating an estate plan, an attorney will likely do all of the following, except:

A) distribute property to beneficiaries.

B) take an inventory of the client's assets.

C) learn the client's objectives.

D) draft the instruments necessary to carry out the plan.

67) Which of the following statements about the English feudal system and disposition of property is false?

A) The lords and knights essentially had a life estate.

B) The lords and knights had only the right to use the land.

C) A landowner's rights in land terminated upon his death.

D) The king owned his castle and each lord and knight owned their own land.

68) A(n) ________ is a document executed with specific legal formalities by a testator that contains her instructions about the way her property will be disposed of at her death.

A) trust

B) will

C) advance directive

D) res

69) A person making a will is called the ________.

A) settlor

B) heir

C) testator

D) bequest

70) Because joint tenancy and life insurance are ways of directing the disposition of property, they are sometimes referred to as ________.

A) will replacements

B) will substitutes

C) equity wills

D) contract wills

71) A bequest is also called a(n):

A) devise.

B) legacy.

C) issue.

D) deed.

72) Which of the following statements about testamentary capacity to make a valid will is false?

A) To be of "sound mind" a person need only realize that she is making a will.

B) In most states, a person needs to be 18 years old.

C) A person that moves in and out of periods of lucidity can still have testamentary capacity if she executed her will during a lucid period.

D) The standard for mental capacity to make a will is fairly low.

73) Which of the following follows after the testator's signature and states the formalities that have been followed in the execution of the will?

A) Attestation clause

B) Codicil

C) Survival clause

D) A notary's statement of execution

74) In her will, Beth devised her house to her friend, Janet. When Beth died, Janet took possession over the house and Beth's estate contained $300,000 of ungifted cash. A few days later, Janet learned the house Beth gifted to her was subject to a $120,000 mortgage. Which of the following statements is true?

A) Janet is entitled to $120,000 from the estate to make her gift whole.

B) Janet is entitled to $120,000 from the estate because Beth's will devised the house without mention that it was subject to a mortgage.

C) Janet is entitled to $120,000 plus any reasonable attorney fees from the estate because it was Beth's intent for her to receive the property without any outstanding claims.

D) Janet is not entitled to $120,000 from the estate and if she keeps the house, she will be liable for any outstanding claims against it.

75) Which of the following terms is used for an heir born after the execution of the testator's will?

A) dower

B) curtsey

C) pretermitted

D) bequest

76) Which of the following statements about revocation of wills is false?

A) Physical destruction of a will with the intent to revoke it constitutes revocation.

B) A will can be revoked by operation of law without any act on the part of the testator signifying revocation.

C) A will is revocable until the moment of the testator's death, and as a result, confers no present interest in the testator's property.

D) A later will, even if it does not expressly revoke the prior will, will operate to revoke the prior will in its entirety.

77) A(n) ________ is a written document that directs others how future health care decisions should be made in the event that the individual becomes incapacitated.

A) advance directive

B) trust

C) residuary

D) bequest

78) Which of the following is an agent who is given express, written authorization by his or her principal to do a particular act or series of acts on behalf of the principal?

A) Executor

B) Trustee

C) Devisee

D) Attorney-in-fact

79) Which of the following statements about The Patient Self-Determination Act (Act) is false?

A) The Act requires health care providers such as hospitals, nursing homes, hospices, and home health agencies, to provide written information to adults receiving medical care about their rights concerning the ability to accept or refuse medical or surgical treatment.

B) The Act requires the provider to document in the patient's medical record whether the patient has executed an advance directive.

C) The Act is federal and does not speak to the provider's compliance with state law concerning advance directives.

D) The Act forbids discrimination against the patient based on the individual's choice regarding an advance directive.

80) Which of the following is the legal term for a person's permanent home?

A) Escheat

B) Domicile

C) Res

D) Residency

81) Which of the following provides that where two persons who would inherit from each other (such as husband and wife) die under circumstances that make it difficult or impossible to determine who died first, each person's property is to be distributed as though he or she survived?

A) Uniform Probate Act

B) Patient Self-Determination Act

C) Uniform Estate Planning Act

D) Uniform Simultaneous Death Act

82) In the states that have enacted the Uniform Simultaneous Death Act, many define simultaneous as deaths that are within ________ of one another.

A) one day

B) three days

C) seven days

D) five days

83) Most states require that the personal representative of an estate post a bond:

A) in the amount of $5,000.

B) in the amount of $10,000.

C) in accordance with the amount provided by the will.

D) in an amount in excess of the estimated value of the estate.

84) Which of the following spendthrift clauses is enforceable?

A) A settlor uses a spendthrift clause in a trust that lists him as the beneficiary.

B) A settlor uses a spendthrift clause to prevent his grandson from foolishly spending his assets.

C) A spendthrift clause that protects the beneficiary from creditors who have furnished necessaries.

D) A spendthrift clause that protects the beneficiary from being subject to paying child support payments.

85) A third party who has a claim against a trust must file his claim against the:

A) settlor.

B) trustee.

C) executor.

D) beneficiaries.

86) Before he died, Aaron created a charitable trust for the plantation of Analytica Beni trees, nominating David as the trustee. Some years later, planting Analytica Beni trees is declared illegal by the state. What remedies does David have available to him?

87) Donald is the trustee of a trust created by Simpson, with Adams as the beneficiary. The trust property consists almost entirely of income-producing real property—office buildings, apartment complexes, etc. By placing a "P" or an "I" in the appropriate space, indicate whether the following fund transactions should be allocated to principal (P) or to interest (I).

________ 1. Rental income received from tenants on trust property.

________ 2. Capital gains realized from the sale of trust real estate.

________ 3. Property tax payments on trust property.

________ 4. Building management fees for trust property.

________ 5. Costs of ordinary repairs to trust property.

________ 6. Property insurance premiums on trust property.

________ 7. The cost of long-term permanent improvements to trust property.

88) Joe Smith has just died. Three months ago, when he knew that his death was impending, Joe established a spendthrift trust for the protection of his 16-year old son Bobby. The trust property consists mainly of $500,000 in investment securities. The trustee is Jack Purdy, a CPA. The trust agreement does not discuss the trust's termination. Can Jack invest trust assets differently than Joe invested them? For example, can he sell trust securities and buy others? Why or why not? Must Jack hire an investment professional to make trust investments?

89) Lyle and Susie had three children: Seed, Sierra, and Shasta. All three children are adults. Although Sierra and Shasta each attend college, Seed has not quite found himself. Seed tours with various music bands. He plays guitar, spends most of the year hiking the Cascade Mountains, and plans to live on a commune in Big Sur, California. Lyle and Susie visited their attorney to plan their estates. They wish to leave equal shares of their estates to their children, but they are concerned that Seed will not be able to handle an inheritance. What should they do with respect to Seed's share?

90) Steve and Bob own real property as joint tenants with right of survivorship. Steve decided that he wanted to own the entire property himself, so he killed Bob. Due to a technicality, Steve was acquitted of any criminal charges. Nevertheless, Bob's heirs brought a civil suit against Steve. What would be the result, if the court accepts that Steve obtained the property illegally? Explain.