Estate Planning and Probate Law
Estate Planning and Probate Law Exam Guide
• 6 hours long (two 3-hour sessions)
• 9 a.m. to 12 p.m. and 2 p.m. to 5 p.m.
• total of 3 multi-part essay questions.
• includes one extensive essay question involving the development of an estate plan for a couple with complex estate planning needs and significant estate assets; includes a number of sub parts which ask you to address various tax and non tax issues related to the development of their plan.
• includes two shorter essay questions which may cover NC estate administration and NC corporate, partnership, and LLC law, including Federal and NC tax issues. All questions are allocated points and require responses that demonstrate accuracy, clarity, sound reasoning, recognition of the problem presented, knowledge of the principle of law involved and correct application of those principles. Full or partial credit for answers may be given. Essay questions should be treated as law school exam essay questions. Mentioning a concept without further explanation will not get full credit. Merely listing bullet points without explanation will not get full credit. The law must be applied to the facts given. In the experience of those grading the exam, exam takers who take the exam on the computer are able to provide more detailed answers. Please take this into consideration when choosing how you will take the exam.
Two-hour lunch break – on your own
• 100-105 multiple choice questions – covering topics listed below
The examination shall cover the applicant's knowledge and application of the law in the following topics:
(A) Federal gift tax;
(B) Federal estate tax;
(C) Federal generation skipping transfer tax;
(D) Federal and North Carolina fiduciary income taxes;
(E) Federal and North Carolina income taxes as they apply to the final returns of the decedent and his or her surviving spouse;
(F) North Carolina law of wills and trusts;
(G) North Carolina probate law, including fiduciary accounting;
(H) Federal and North Carolina income and estate tax laws and Federal gift tax law applicable to revocable and irrevocable inter vivos trusts:
(I) North Carolina law of business organizations, family law, and property law as they may be applicable to estate planning transactions;
(J) Federal and North Carolina tax law applicable to LLC’s, partnerships and corporations (including S corporations) which may be encountered in estate planning and administration; and
(K) Planning with life insurance, retirement accounts, and charitable trusts.
Exam Preparation Tips
Please study the exam topics listed above. Approximately 60% of the exam tests your knowledge of gift, estate, generation skipping and income tax rules as these rules pertain to estate planning and estate administration matters. The balance of the exam (approximately 40%) tests North Carolina state law issues. The exam will test your knowledge of current law as the law exists at the time of the examination.
Most applicants who pass the exam have spent substantial time preparing for the exam. It is important that you identify the areas and topics of which you have the least knowledge and that you concentrate your preparation in these areas. Many applicants obtain the materials for or attend the North Carolina Bar Association Estate Planning and Fiduciary Law Survey CLE Course (normally offered every third year). These materials are offered by the Bar Association in digital copy and/or video replay. See ncbar.org.
A recent law examination contained the following allotment of questions. This year's examination should include a very similar allocation.
Claims against estate
Comprehensive estate plan
Decedent’s final income tax returns
Deferred estate tax payment
Estate planning documents
Estate tax liability
Federal estate tax return
Federal estate tax
Federal gift tax
Fiduciary income tax return preparation
Formalized business agreements
Generation-skipping transfer tax
Gift tax returns
Income in respect of a decedent
Inter vivos trusts
Life Insurance policies and planning
NC laws of wills and trusts
Powers of attorney
Probate administration and accounting
(Please note that sample questions are included only as a reference for types of questions and suggested answers, they are not intended for use as legal authority.)
Grantor creates a trust with three co-trustees named. The terms of the trust confer the authority to invest the trust property on only one of the three co-trustees. Which of the following is/are TRUE under default North Carolina statutes, assuming the terms of the trust do not specifically address these issues?
a. The excluded co-trustees are not liable, individually or as fiduciaries for any loss incurred by the beneficiaries as the result of imprudent action taken by the co-trustee with sole investment authority.
b. The excluded trustees have no duty to monitor the conduct of the co-trustee with sole investment authority.
c. The excluded co-trustees are not required to give notice to any beneficiary of any action take or not taken by the co-trustee with sole investment authority whether or not the excluded co-trustees agree with the action of the co-trustee with investment authority.
d. All of the above.
d. is the correct answer
FEDERAL ESTATE TAX: Decendent’s will provides for a QTIP trust to be funded for the surviving spouse in the amount of $1,000,000. At the date of the decendent’s death, the surviving spouse is 50 years old. The value of a life estate for a life tenant of age 50 is 76.642%. The value of the QTIP trust at the date of the death of the surviving spouse is also $1,000,000.
(a)What is the maximum value of the QTIP trust, which qualifies for the federal estate tax marital deduction at the decendent’s death?
(b) What value of the QTIP trust would be includible in the surviving spouse’s estate for federal estate tax purposes at her death?
ESTATE PLANNING DOCUMENTS AND PROCEDURES: Mudd Family: Ronald Mudd, age 60, is married to Jane Mudd, age 55 and they have three children: Roaul Mudd, age 35, is a practicing surgeon, is married, and has two children, ages 12 and 6; Stephaie M. Mudd, age 32, is married – her husband is a computer programmer- and has one child, age 8; and Melanie Mudd, age 30, is unmarried, but has a child, age 4. She is employed by the Communist Workers Party and corresponds infrequently with her parents, visiting them only on rare occasions. All of the children and grandchildren are North Carolina residents except for Melanie and her child who live in California.
Estate Facts: Following his making of an appointment with you to get advice on appropriate estate planning documents, Ronald Mudd has presented to you detailed information with regard to his assets at the present time which are:
Cash and Money Market Accounts $1,000,000
Marketable Securities 10,000,000
Life Insurance (Face Amount) 2,000,000
Rental Real Estate 300,000
Personal Property and Personal Effects 10,000
Current Gross Estate $13,585,000
The income currently being produced by his assets amounts to $435,000 as follows:
Cash and Money Market Accounts $5,000
Marketable Securities 400,000
Rental Real Estate 30,000
Total Income from Assets $435,000
At your initial conference Ronald Mudd indicates that the primary intentions with regard to disposition of his estate are that his wife be amply provided for during her remaining lifetime and that death taxes be minimized so as to provide a maximum amount to be left to his family. He also indicates to you that, following the death of his wife, he would prefer that funds be provided on a preferential basis to care for his daughters and their children rather than for his son, whose education and medical training have been financed by Ronald and who is commencing to build an independent estate. In addition, he inquires with regard to a procedure whereby only limited funds be made available to his daughter Melanie, whom he considers unreliable and imprudent.
(a) Discuss in the space provided below and on the following page the estate plan (lifetime and at death) that you would recommend for Ronald and his family, including (if appropriate) testamentary and inter vivos trusts.
(b) Discuss the dispositive provisions you would recommend for Ronald’s will and trusts to carry out his primary testamentary intentions and planning objectives [Do not discuss the selection of fiduciaries (See question (c), below)].
(c) Discuss in the space provided below the factors to be considered in the selection of fiduciaries under Ronald’s will and any testamentary or inter vivos trusts included in the estate plan recommended in question (a), above. State also your recommendations as to the specific fiduciaries to be selected by Ronald.
(a) Because of the size of Ronald’s estate, an estate plan would be recommended which would take full advantage of the unlimited marital deduction under the federal estate tax law. In addition, it would be appropriate to make use of the federal unified credit shelter share, so that this amount would be excluded from the taxable estate of Ronald’s wife, Jane, at her death. Due regard would be reserved to provide an inheritance for the Mudd daughters, Stephanie and Melanie, providing supervision for the investment of Stephanie’s trust for a limited period of time and permanent provisions for the administration and preservation of an estate or funds for Melanie, including possibly a provision for Melanie by an inter vivos trust.
Provisions for generation-skipping bequests to the children of Roaul Mudd would be recommended within the amount of the GST exemption.
(b) Exemption equivalent bequests (subject to payment of death taxes) to Ronald’s daughters, Stephanie and Melanie, in trust with the trust income payable to his wife and/or daughters and his residuary estate to a qualified marital trust for Jane with remainder, or contingent bequests of the residue if Jane predeceases, trusts for his daughters with a $1,000,000 bequest to the children of Roaul in minority trusts; Stephanie’s trust would terminate when she attained age 45, the remainder interest passing to Stephanie; Melanie’s trust would terminate upon the death of the survivor of Jane or Melanie and would pass to Melanie’s child, subject to being held in trust until she attained at least age 25.
In the event that funds were needed by Melanie prior to Ronald’s death, a recommendation might be that an irrevocable inter vivos trust be established in California to provide for Melanie’s welfare, and the bequest passing to Melanie’s trust under Ronald’s will would be adjusted for equalization with the same amount to be passed to Stephanie or to Stephanie’s trust following the administration of Ronald’s estate.
(c) In selecting an executor for the administration of Ronald’s will, I would recommend his wife, Jane Mudd, or his wife Jane and his daughter, Stephanie, with consideration as successor executors of Ronald’s will, his son Roaul Mudd, and/or a North Carolina bank.
In the selection of a trustee for the qualified marital trust, my recommendations would be Stephanie and/or a North Carolina bank as either a co-trustee or a successor-trustee of the QTIP Trust.
With regard to the naming of a trustee for Melanie’s trust, I would certainly consider recommending a California bank if the trust were to be established prior to the death of Ronald Mudd and possibly a California bank (if such bank qualifies to serve as a trustee of a testamentary trust under North Carolina law) and Dr. Roaul Mudd as co-trustees of any testamentary trust established for the benefit of Melanie Mudd and her daughter.