Estate Planning and Probate Law

Sample Questions/Answers

(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.)

1) 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?

Answer #1: D

2) FEDERAL ESTATE TAX: Decedent’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 descendant’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 decedent’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?

Answer #2: (a) $1,000,000 (b) $1,000,000

3) ESTATE PLANNING DOCUMENTS AND PROCEDURES: Mudd Family: Ronald Mudd, age 60, is married to Jane Mudd, age 55 and they have three children: Raoul Mudd, age 35, is a practicing surgeon, is married, and has two children, ages 12 and 6; Stephanie 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  20,000,000

Life Insurance (Face Amount)  2,000,000

Residence  275,000

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 $835,000 as follows:

Cash and Money Market Accounts  $5,000

Marketable Securities  800,000

Rental Real Estate  30,000

Total Income from Assets  $835,000

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.

Answer #3

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 Raoul 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 Raoul 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 30.

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 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, Raoul Mudd, and/or a North Carolina bank or trust company.

In the selection of a trustee for the QTIP marital trust, my recommendations would be Stephanie and/or Raoul with a North Carolina bank or trust company 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) as trustee of any testamentary trust established for the benefit of Melanie Mudd and her daughter.