Estate Panning - Workbook (Revised)

ESTATE PLANNING (GLOBAL) WORKBOOK



TABLE OF CONTENT (1 - 22) 1 ESTATE PANNING – GLOBAL 10 Chapter – 1 17 Chapter 2 & 3 Chapter 4, 5 & 6 (27 - 50) 29 ESTATE PANNING – INDIA SPECIFIC 37 Section – I: 38 Suggested Solutions 42 Section – II: Additional Practice Questions



Chapter – 1: Estate Planning and Wealth Distribution Terms 1. Estate Planning is-----------part of the financial planning process. a) also important b) an integral c) quite an important d) None of the above 2. Estate Planning is the process of arranging and planning for an individual‘s succession and financial affairs ensuring that the estate of the individual passes to the estate owner‘s intended beneficiaries. a) True b) False c) May be True d) May be False 3. What could be the harmful effects of not doing Estate Planning? a) There could be disputes, b) Conflicting claims, c) legal battles, avoidable taxes and unstructured payoffs that may not be in the best interestof the beneficiaries d) All the above are true CFP Level 3 - Module 2 – Estate Planning – Global - Workbook Page 1

4. An ---------is all rights, titles, and interests a person has in any property. It also includes all debts and liabilities. a) Asset b) Accountability c) Estate d) Outstanding expenses 5. Estate planning is the process of developing strategies to achieve goals relating to managementand distribution of property in such a way as to efficiently accomplish tax and nontax goals. a) True b) False 6. ---------------is the receipt of property from an estate, often as a result of estate planning. It can include taking physical ownership of real and tangible property. It also may involve receiving legal and/or beneficial ownership of intangible property a) Inheritance b) Accumulation c) Estate d) Distribution 7. Present interest refers to legal or beneficial ownership that allows a person to use the property immediately. In addition to situations where a person has outright (current) ownership, beneficiaries of a trust who receive current income from the trust (or can demand payments) are said to have a present interest in the trust assets. a) False b) Partly True c) True d) Partly false CFP Level 3 - Module 2 – Estate Planning – Global - Workbook Page 2

8. Future interest is used when a person will have ownership eventually but cannot use the property immediately. Beneficiaries in a will have a future interest in the property, because they must wait until the testator (i.e., person making a will) dies before they inherit theproperty. a) Partly True b) False c) Partly false d) True 9. What is the Purpose and Need of Estate Planning? a) The primary purpose of estate planning is to protect, preserve and manage the assets. b) The objective of estate planning is to protect the emotional and physical well-being of lovedones by leaving a legacy of stability and security. c) Both the above are true d) a is right b is not 10. Which of the following about Estate planning is not true? a) To preserve the assets that the client has spent a lifetime to build. b) To distribute wealth in a pre-determined manner to the owner‘s intended beneficiary or beneficiaries. Beneficiary can be children, parents, dependents, friends and/or any other individual. c) To ensure the management of your Estate during and beyond your lifetime. d) To keep uncertainties over the administration of a probate and minimize the value of the estate by paying taxes and other expenses. 11. A succession certificate is issued and granted by a --------------- to the legal heirs of a deceased person to realise the debts and securities of the deceased. It establishes the authenticity of the heirs and gives them the authority to have securities and other assets CFP Level 3 - Module 2 – Estate Planning – Global - Workbook Page 3

transferred in their names as well as inherit debts. a) Criminal court b) Social court c) Civil court 12. --------------is the process of settling a decedent’s estate. When an individual dies the estate must go through the --------- process, except for those assets that pass by law or will substitute/contract. a) WILL, Probate b) Probate, POA c) Legal action, Probate d) Probate, Probate 13. A---------- will is one that comes into effect upon the death of the will maker. The person making the will may be known as the --. a) Testamentary, testator b) Living , writer c) Legal, testator d) Testamentary, writer 14. An ---------- will or ---------- is not meant to become applicable at the death of the testator. Instead, the document is a living will, one that is meant to be in force during the life of the maker. a) Inter vivos, advance directives b) Testamentary, writer c) Inter vivos, writer d) None of the above CFP Level 3 - Module 2 – Estate Planning – Global - Workbook Page 4

15. The primary function of this will (and alternatives) is to specify the course of treatment health care providers and caregivers should follow. It becomes especially useful in situations where the maker is incapacitated and therefore unable to give personal guidance regarding what he or she wants to happen. A power of attorney (general, durable/enduring, springing, health care, physician’s directive, etc.) is used to give an authorized representative power to act on behalf ofthe individual. a) Living Will b) Testamentary Will c) Advance information d) None of the above 16. --------- is the result of the individual dying without a valid/legal will. When this happens, the country/territory will distribute the property according to its pre-existing rules. The way in which--------------------------------------------------------------------------- rules work is very similar to rules of succession. a) Intestacy, intestacy, intestacy b) Will, Will, Will c) Intestacy, Will, Legal d) Will, Intestacy, Legal 17. When spouses jointly own property they may do so using a form of joint tenancy with rights ofsurvivorship known as-------------- a) Tenants by partnership b) Tenants by 50% c) Tenants by the entirety d) None of the above CFP Level 3 - Module 2 – Estate Planning – Global - Workbook Page 5

18. The main objective is that the trust should be created for a lawful purpose. As per Section 4, all purposes are said to be lawful unless it: A. Is forbidden by law B. Defeatsthe provisions of law C. Is fraudulent D. Involves injury to another person or his property E. Immoral or against to public policy a) Point b, c and d b) Point a, b and c c) All of the above d) Point c, d and e 19. Can rented properties / tenancy rights be included in a Will? a) No, tenancy rights are not a property or asset hence it cannot be bequeathed in a Will. b) Yes, tenancy rights can be bequeathed in a Will only if it is hand written. c) Yes, tenancy rights can be bequeathed in a Will only if the will is registered. d) Yes, tenancy rights can be bequeathed in a Will. (Mr. A resides in a house taken on rent from Mr. X. Mr. A is the tenant, Mr. X is the owner of the property. The Tenancy agreement allows Mr. A to sell his right to stay in Mr. X’s house to any other person. This privilege available to Mr. A is called tenancy right. He had pad Rs. 1,00.000 to get this right. This Rs. 1,00,000 is known as the tenancy premium.) Here, tenancy right would mean the right to live in/ use this property. The tenant pays some amount to get this right and become a part owner of the house/property alone and not the land. This is also known as ‘Pagdi System’ in some parts of India. 20. Your client Josh is an owner of an apartment that he purchased with his brother Brad together 12 years ago for €200,000 with a joint tenancy agreement. Today the house is valued at €550,000. There is a 50% capital gains tax in the territory. You are helping Josh to determine his estate value at death. If Josh dies today, what amount is most likely included in Brad's gross estate? CFP Level 3 - Module 2 – Estate Planning – Global - Workbook Page 6

a) € 3,50,000 b) € 1,75,000 c) € 1,00,000 d) € 2,75,000 (Joint tenants own property equally, unless the owners hold the property as tenants in common. At the death of one owner, that owner’s share of the property will pass to the other owner(s). This arrangement, along with tenants by the entirety, cannot be superseded by a will.As such, the arrangement may be known as a will substitute. None of the joint tenant owners own an individual share of the property. Each owns all of the property. You may see joint tenants amended by adding with rights of survivorship. This amendment normally is only used to clarify the intent that property pass from one joint owner to the other(s) and is not tenantsin common arrangement.) 50% tax makes it Rs.2,75,000 21. When can a trust get extinguished? A. When its purpose is completely fulfilled, or B. When its purpose becomes unlawful, or C. When the fulfillment of its purpose becomes impossible by destruction of the trust- propertyor otherwise, or D. When the trust being revocable, is expressly revoked. a) Only if Point A happens b) Only If Point A or Point C happen c) Only if Point A or Point B happen d) If any of the above points happen CFP Level 3 - Module 2 – Estate Planning – Global - Workbook Page 7

22. It means the situation where an individual is not able to function normally for his or her own benefit or well-being. The person does not have adequate strength or ability to function; that is, has a lack of capacity. a) Poor health b) Temporary bed ridden c) Incapacity d) None of the above 23. In simple terms, the ----------- estate is everything a person owns, while the ---------estate is any amount subject to taxation on transfer or distribution (which may or may not include everything). a) Gross , Taxable b) Net, Non-taxable c) Gross , Non-Taxable d) None of the above 24. Why to gift during one’s life time? There are many reasons. 1. One of the reasons to gift is to provide some current benefit to a family member,another individual, or organization. 2. If an individual gives something to a child, he or she gets to see that child enjoying thegift. 3. For many people this is reason enough to give. a) Only 1 and 2 are true b) Only 2 is true c) Only 3 is true d) All are true CFP Level 3 - Module 2 – Estate Planning – Global - Workbook Page 8

25. Tenants in common may own property in unequal (proportionate) shares. Further, these owners may distribute their share of the property in any fashion they desire, without agreement by remaining owners. a) True b) False CFP Level 3 - Module 2 – Estate Planning – Global - Workbook Page 9

Chapter - 2 & 3: 1. The primary purpose of estate planning is to protect, preserve and manage the assets. The objective of estate planning is to protect the --------- and---------- well-being of loved ones by leaving a legacy of stability and security. a) Financial, Physical b) Emotional, physical c) Emotional, Perfect d) None of the above 2. -------------process is an important part of estate planning. A key component of a beneficial ---- process is for the financial planner to be curious about his or her client. a) Discussion b) Negotiation c) Discovery d) None of the above 3. Which of the following are not estate planning goals? Page 10 a) Leave a legacy and provide for loved ones b) Maximise taxes to help Government c) Protect assets passing to surviving spouses/heirs d) Make it simple and inexpensive e) Keep things private CFP Level 3 - Module 2 – Estate Planning – Global - Workbook

f) Have control over assets g) Plan for potential incapacity h) Manage assets 4. What is “create an inventory before starting estate planning process”? a) This includes keeping records of account numbers, contact information, medical personnel, online login information (i.e., username, password and URL), as well as all physical property (real and personal) investment assets, and anything else of value. b) This list also should include current debts and related information (amounts owed, to whom, payments, etc.). c) It is also advisable to include contact information for financial and other advisors. The list, and supporting documents, should be kept in a secure location that can easily be accessed by surviving spouse, heirs, and legal representatives. d) All the above are true 5. A contingency estate plan needs to be developed to provide for incapacity sometimes a) True b) False 6. It includes minimizing expenses and keeping taxes to a minimum as much as possible. It also includes keeping assets out of the hands of creditors and others who may not have any real claim to them. Clients also will want to ensure that all assets are included in their plan, and those special assets, such as a business or investment property, are transferred appropriately and with minimal expense. What is the appropriate word for this? a) Identification b) Protection c) Evaluation Page 11 CFP Level 3 - Module 2 – Estate Planning – Global - Workbook

d) Transfer 7. This step involves more than creating a wish list. Estate distribution plans must be legally documented and appropriately filed. Having a current, valid will is the often first step in this process. This step also includes nominating/naming beneficiaries for life insurance policies, annuities, retirement accounts, and other financialinstruments. What is this step described in estate planning process? a) Develop a Contingency Plan b) Protect Assets c) Document wishes d) None of the above 8. children will require a guardian and an administrator until they reach the age of majority a) Any of the b) Minor c) Major d) None of the above 9. Dying intestate opens estate distribution to laws of-------- that normally will not reflect the desires of the decedent. a) Land b) Country c) Intestacy d) None of the above CFP Level 3 - Module 2 – Estate Planning – Global - Workbook Page 12

10. One of the first steps when doing -------------estate planning is for the client to have the will reviewed by a competent legal representative in the current country of domicile. Commonly, at least some modifications will be required, and it is better to get this done prior to the client’s death. For clients with assets in more than one country, it is advisable to have a will that is valid in each country. Care should be taken to assure there are no conflicts between the different wills that might delay settlement or cause some part of the desired distribution to not happen as originally planned. What are we talking about here? a) Estate planning of individual b) Estate planning- a common goal c) Cross Border estate planning d) None of the above 11. Which of the following about a Trust is true? a) A trust will divide property into two categories: legal ownership and beneficial ownership. b) Legal ownership is vested in the trustee who is required to administer the trust assets (corpus), on behalf of the grantor, for the benefit of the beneficiary, who has beneficial ownership. c) Beneficiaries who must wait to receive the trust corpus are said to have a future interest, while those who can demand and receive current income are said to have a present interest. d) All the above are true 12. Please state which of the following are true? a) Trusts may be testamentary, that is, those that become active under the terms of the will ortestament, or they may be living (inter vivos). b) Technically, a testamentary trust does not exist until the grantor dies. c) Testamentary trusts are funded with proceeds from the estate rather than receiving CFP Level 3 - Module 2 – Estate Planning – Global - Workbook Page 13

assets during the life of the grantor. d) All the above are true 13. Please state which of the following is true? a) A living or inter vivos trust, is created while the grantor is living. b) It can be funded as soon as it is created. c) A living trust may be revocable or irrevocable. d) This means that the trust may be changed or terminated (revocable) or filed in such a waythat it cannot be modified or terminated (irrevocable) e) All the above are true 14. An individual should exercise extreme care before arranging for an ----------- trust, because it literally cannot be changed or terminated without the express written agreement of the beneficiary. a) Revocable b) Testamentary c) Living d) Irrevocable 15. Which of the following is true? a) A grantor trust is one in which the grantor (i.e., the individual creating and supplying trustassets) retains some degree of control over the trust. b) He or she may be a trustee and may also be the beneficiary. c) A non-grantor trust is one in which the trust creator gives up all right, title, and interest inthe trust corpus. d) Therefore, assets are entirely owned by the trust. CFP Level 3 - Module 2 – Estate Planning – Global - Workbook Page 14

e) Grantor and non- grantor trusts normally will be treated differently for tax purposes f) All the above are true 16. The ---------- is everything owned by the decedent. This can include all current assets, bank and investment accounts, at least some portion of jointly held assets, amounts owed to the individual, but not yet paid, on-going royalties, real estate rents, retirement accounts and similar continuing income streams, life insurance payable to the estate and some policy situations where the decedent retained incidents of ownership (even when the proceeds go to a named beneficiary), revocable living trust assets, trust assets where the decedent was the beneficiary, real property, and business interests. Assets jointly owned with a spouse may be assessed at half the current market value. Other jointly held ownership arrangements will be assessed based on the percentage contribution of each owner. So, if the decedent owned 60% of a property, that’s the percentage of the value that will be included in his or her estate. If the decedent owned an asset and controlled it, the asset can be a part of the ------ --. To determine the value of a------------ add the value of all assets in which the decedent held incidents of ownership. a) Probate estate b) Net Estate c) Gross Estate d) Taxable estate 17. The ---------- includes only those assets that pass through probate. This means assets distributed according to a will or by the rules of intestacy. It does not include assets, such as will substitutes, which can include life insurance to a named beneficiary, irrevocable trust assets, certain ownership titles, and other assets that pass according to law. The ------ - will often be smaller, sometimes quite a bit smaller, than the gross estate. CFP Level 3 - Module 2 – Estate Planning – Global - Workbook Page 15

a) Gross Estate b) Probate Estate c) Taxable Estate d) Net Estate 18. The---------------- does not apply to assets that pass apart from a will or intestacy statutes, or by will substitutes (e.g., life insurance to a named beneficiary) or by law (e.g., joint tenancyheld/titled assets) a) Intestacy rules b) Legal transfer c) Probate process d) None of the above 19. -------- is the process of administering estate assets that pass according to a person’s last will and testament. ---------- also reviews a will to determine whether it is valid. a) Probate, Probate b) Legal, Probate c) Probate, intestacy d) None of the above 20. One way to decrease estate taxes and administrative expenses is to remove assets from the estate prior to death. Generally, this is accomplished by making one or more (completed) gifts. a) True b) False CFP Level 3 - Module 2 – Estate Planning – Global - Workbook Page 16

Chapter - 4, 5 & 6 1. Estate-related transfers may be made during life or after death. Lifetime transfers are called -------- and also are known as ---------transfers a) Transfers, gifts b) Gifts, Gifts c) Gifts, inter vivos d) None of the above 2. The recipient of gift during life time may be a family member, friend, partner, charitable organization, alma mater, or other. Often, individuals—especially high net worth individuals— choose to give a gift while living to help the recipient in one way or another. a) True b) False 3. A gift to an ----------- might come in the form of establishing a scholarship for students orperhaps endowing a research chair or having a building erected on campus. a) Friend b) Relative c) Alma mater d) None of the above CFP Level 3 - Module 2 – Estate Planning – Global - Workbook Page 17

4. A gift to a family member might help him or her purchase a home, start a business, pay offdebt, start an investment portfolio, support children or grandchildren, pay medical expenses, orsimply improve their financial well-being. a) True b) False 5. How can small business owners do estate planning? a) When the business is structured as a sole proprietorship (i.e., one owner) or partnership with two partners, selling the business after the owner (or one of the two) has died can result in having to sell at a deep discount to the anticipated business value. b) Having a buy-sell or business continuation agreement funded with life insurance is one way to address this problem, but it most likely will not be possible with a sole owner (i.e., there may be no one willing to enter into the buy side of the agreement). c) Another possible solution is for the owner to sell (e.g., as a going concern) or liquidate the business prior to death. This could be done as a transfer for value (e.g., purchase price = business’s appraised fair market value), or when appropriate, the owner might make a gift of the business. d) All of the above are true 6. 1) Whether the decedent has left a valid will or he has dies intestate, the estate distribution process will require a personal representative (PR—also known as an 2) executor/executrix or administrator). a. A well-constructed will should name the PR, who the court can approve, but when theindividual dies intestate, the court will appoint a PR or administrator. 1) is true, 2) is false b. 1) and 2) are false c. Both are true Page 18 CFP Level 3 - Module 2 – Estate Planning – Global - Workbook

7. The PR (personal representative) may be required to administer estate assets until they are distributed to heirs. This may include maintaining adequate insurance, managing investment portfolios and real estate properties, overseeing business operation or disposition, and protecting estate assets to the degree possible. a) True b) False 8. Estate planning for -------------------- is not fundamentally different from estate planning generally. -------------- most likely will want to ensure that taxes are minimized, probate is avoided, and inheritance rights for their chosen heirs are protected. a) Retail , Retail b) Retail, HNWI (High Net Worth Individuals) c) HNWI (High Net Worth Individuals), HNWI d) None of the above 9. HNWIs’ are more likely to make transfers via one or more trusts (inter vivos and testamentary)and during their lifetime (i.e., gifts). a) True b) False 10. As the name implies, ------------ means a decedent is not free to distribute the estate in whatever manner he or she desires. There are strict rules to be followed identifying who must inherit assets, based on what percentages. ------------ rules are only occasionally found in common law territories, and are often found in territories following civil law, including many Arab (Islamic) states and territories in Europe, Japan, Latin America, and Russia. a) Forced heir ship, Forced Heir ship CFP Level 3 - Module 2 – Estate Planning – Global - Workbook Page 19

b) Intestacy rules, forced Heir ship c) Intestacy rules, Intestacy rules d) None of the above 11. In Forced Heir Ship, spouse may receive a very nominal share of the property a) True b) False 12. A number of forced heir ship systems do provide a significant portion of the marital estate to be distributed to the surviving spouse, but the spousal portion may be reduced to provide for children. Often, the spouse’s share may be 50% of the estate, or at least the community property portion is provided to the spouse. Community property is marital property a) True b) False 13. Probate is the orderly process of estate distribution according to a valid will or applicable statute (e.g., rules of intestacy). It is handled through a probate court (which may or may not hold that title, depending on the territory). Probate has some positives. Which is of the following is least likely a positive regarding probate? a) The probate process is structured according to relevant laws and applicable rules. This helpsto keep things moving forward in the most effective, efficient manner. b) Probate ensures fair distribution of assets according to the valid will and/or applicablestatutes. c) Probate is not expensive. d) Probate is fair and orderly. The probate court oversees the process, which provides boundaries and structure. CFP Level 3 - Module 2 – Estate Planning – Global - Workbook Page 20

14. When an individual suffers from ---------- , he or she has a disability—physical or mental—that impedes the ability to think and act as desired also can make a person legally ineligible to handle their own affairs. This most often is caused by experiencing a lack of mental fitness. The person is unable to process information appropriately or understand the consequences of their actions. What is this called? a) Capacity b) Intelligence c) Incapacity d) None of the above 15. ---------------- causes a slight, but noticeable and measurable decline in cognitive abilities, including memory and thinking skills . While the impairment is noticeable to the individual along with close family and others, it does not interfere with the ability to carry on with daily life. Sometimes, ------- can revert to a more normal state, but other times, it progresses to dementia a) Capacity b) Incapacity c) MCI (Mild cognitive impairment) d) None of the above 16. Unlike a regular power of attorney (POA), which ceases when the principal becomes incapacitated, --------------------------- can function as a health care proxy in the event of incapacity. This will authorize a trusted individual to make health care decisions on the individual’s behalf, based on previously stated desires. A durable power can begin when the individual is at normal capacity and continue through incapacity. a) General Power of attorney b) Specific Power of attorney Page 21 CFP Level 3 - Module 2 – Estate Planning – Global - Workbook

c) Durable (enduring) power of attorney (health care proxy) d) None of the above 17. A---------- provides direction to attending physicians regarding the level and degree of care the individual desires. This usually comes into play when the end of life seems imminent. A person’s --------- might state that, in the event of extreme, life-threatening, incapacity, medical personnel are not allowed to implement extraordinary or heroic measures to extend the person’s life. A is a type of advance directive. a) Testamentary Will b) POA c) Living Will d) None of the above 18. A financial planner should be ready to address estate planning concerns, which of the following is not an estate planning concern? a) Lack of liquidity b) Improper disposition of assets c) Inadequate income or capital d) Asset values destabilized and not maximized e) Excessive taxes and transfer/distribution costs f) Keep final expenses and taxes to a maximum g) Special needs CFP Level 3 - Module 2 – Estate Planning – Global - Workbook Page 22

19. The grandparent can pay tuition and related expenses, knowing the grandchild will be moving forward toward a chosen life or career path. A father or mother can turn over a family business to one or more children and help them manage and grow the business. A parent can give a child financial support to get help care for a new baby. The gifting possibilities are many and the frequent result is great satisfaction. What are these examples called? a) Inter vivos Gifts b) Testamentary gifts c) Wills d) None of the above 20. Sometimes, a situation will present itself that almost requires a lifetime gift to be made. Onesuch situation is when a dependent—child or parent—has or develops a------The nature of - ---------- can be mental, emotional, physical, or a combination. Regardless of the nature or cause, a dependent with ----------- almost always requires specific care and additional funding. a) Special needs b) Generic needs c) Power of Attorney d) None of the above CFP Level 3 - Module 2 – Estate Planning – Global - Workbook Page 23

21. Technically, when a parent, grandparent, or other close relative makes a gift to a family member, it can be called an -------------. This means that the gift, or transfer, is being made within the family rather than extending to a charitable organization or nonfamily beneficiary a) Gifts b) Living Will c) Intra- family transfer d) None of the above 22. --------------------- is a formal (and legal) rejection of the property. Two of the reasons are associated debt and extreme inconvenience. When a person inherits an asset, often they also inherit any debt associated with that asset. Sometimes the debt can be quite large; large enough that the positive value of the asset is overshadowed by the debt. As a result, the beneficiary may decide not to accept the asset and thereby avoid inheriting the debt. a) Accepting inheritance b) Accepting gifts c) Disclaiming an inheritance d) None of the above 23. The primary emphasis of financial planning is to develop strategies that help clients achieve life goals. Within the area of estate planning, the emphasis is on developing strategies that help the client achieve end-of-life goals. Wanting assets to remain in the family often is a common goal. The same is true for parents wanting to help children, especially in a financial way. Gifts are sometimes used to provide for children or grandchildren. When a gift is made, whether it goes toa family or nonfamily beneficiary, it will be subject to gift and perhaps inheritance rules. Another method of making an intra- CFP Level 3 - Module 2 – Estate Planning – Global - Workbook Page 24

family transfer is through use of a loan. Which of the following statements regarding intra- family loans is most likely true? a) A loan fits into a category that may create a taxable event. b) An intra-family loan cannot become a gift. c) An advantage of an intra-family loan is that the parent cannot simply state that a business actually valued at $1 million will have an intra-family loan value of $100,000. d) To be a loan, a financial transfer must have a legally recognized agreement, a stated rate of interest (which, in some cases in certain territories, may be 0%), and a repayment period with minimum required payment amounts. 24. A Will be revoked if which if the following options are exercised? A. By execution of a subsequent Will B. By writing and declaring an intention to revoke the Will C. By burning, tearing or otherwise destroying the Will a) Point A and C b) Point B and C c) Point A and B d) All the three 25. You are having a meeting with your clients and they want to know more about ways to help their children financially as they develop their estate planning strategies. Your client wants farm and business assets to remain in the family as their goal. You suggest that a method of making an intra -family transfer is through use of a loan as a way to address the specific needs of their family. Which of the following statements regarding an intra-family loan is most likely correct? a) To be a loan, a financial transfer must have a legally recognized agreement, a stated rate of interest, and a repayment period with minimum required payment amounts. Interest rate charged cannot be quite a bit lower than a nonfamily/commercial loan. The repayment period can be extended beyond what normally would be the case, and CFP Level 3 - Module 2 – Estate Planning – Global - Workbook Page 25

minimum required payments may be lower, too. b) To be a loan, a financial transfer must have a legally recognized agreement, a stated rate of interest, and a repayment period with no minimum required payment amounts. Interest rate charged cannot be quite a bit lower than a nonfamily/commercial loan. The repayment period cannot be extended beyond what normally would be the case. c) To be a loan, a financial transfer must have a legally recognized agreement, a stated rate of interest, and a repayment period with minimum required payment amounts. Interest rate charged can be quite a bit lower than a nonfamily/commercial loan. The repayment period cannot be extended beyond what normally would be the case. Minimum required paymentsmay be lower. d) To be a loan, a financial transfer must have a legally recognized agreement, a stated rate of interest, and a repayment period with minimum required payment amounts. Interest rate charged can be quite a bit lower than a nonfamily/commercial loan. The repayment period also can be extended beyond what normally would be the case, and minimum required payments may be lower, too. CFP Level 3 - Module 2 – Estate Planning – Global - Workbook Page 26

ESTATE PLANNING (INDIA SPECIFIC) WORKBOOK CFP Level 3 - Module 2 – Estate Planning – India Specific - Workbook Page 27

CFP Level 3 - Module 2 – Estate Planning – India Specific - Workbook Page 28

Section - I 1. As per the Hindu Succession Act, 1956, the following person is not considered as Class-I heir of the person who dies intestate: a) Mother b) Son of a living son c) Son of pre-deceased son d) Widow of pre-deceased son 2. Which of the following statement is true about a will? a) A will comes into effect as soon as it is written by the testator b) A will cannot be modified once it is written c) A will can be modified as many times as the testator wants d) 1st will is always a valid will 3. When a person dies after making a will, it is known as: a) He died testate b) He died intestate c) He died willfully d) He died peacefully 4. The document issued by the Court containing the name of the legal heirs of the person died without making a will is called: a) Probate b) Trust deed Page 29 CFP Level 3 - Module 2 – Estate Planning – India Specific - Workbook

c) Succession Certificate d) Inheritance deed 5. The parties to a power of attorney is known as: a) Trust or and Trustee b) Settle or and beneficiary c) Executor and beneficiary d) Donor and Done 6. As per Hindu succession Act, when a Hindu person dies intestate leaving behind him only a married son, the property of the person will be treated as: a) The property of the son in individual capacity b) The property of the son’s HUF as joint property c) The property will be joint property of his son and grandson excluding son’s wife d) The property will be joint property of his and grandson, granddaughter excluding son’s wife 7. Mr. Mohan owns a small business worth Rs.5 Crore. How should life insurance be held if wishes his minor grandson to benefit with the insurance policy: a) A revocable life insurance trust should be established for the grand child b) The grand child should be made the nominee c) An irrevocable trust should be set up with the grandchild as beneficiary d) Mr. Mohan’s spouse should be the owner 8. Mr. Pintu’s father has given him general power of attorney. What does that mean? a) He has disinherited Pintu, but Pintu has the right to decide who will inherit his father’s estate CFP Level 3 - Module 2 – Estate Planning – India Specific - Workbook Page 30

b) Pintu has been given the immediate right to make decisions in all matters and take action on his father’s behalf. c) Pintu got the right to appoint himself as the sole beneficiary of his father’s estate d) His father has given Pintu the right to make all decisions on his behalf after he becomes incompetent 9. Which of the following is not essential for a trust deed to claim income tax exemption: a) The property from which income is derived should be held under a trust or other legal obligation b) No part of the income should ensure, directly or indirectly, for the benefit of thesettler or other specified person c) The property should be held wholly for charitable purposes d) The trust should be created for a particular religious community or caste, 10. Which of the following is a valid condition for registration of trust: a) Trust should establish as to how the trust or the institution seeking the registration would apply the income of the trust b) The accounts should be maintained and audited as per the relevant section, c) Trust should show the proof that they will get the donations d) Trust should need to disclose the names and address of all the donors, 11. A trust would be classified as a charitable trust if its objects fall within the definition of the term “charitable purposes”. Which of the following do not fall within the definition of the term charitable purposes: a) Promotion of family planning b) Promotion of sports and games c) Preservation of environment including watershed, forests and wildlife d) Preservation of monuments or places or objects of artistic or historic interest, CFP Level 3 - Module 2 – Estate Planning – India Specific - Workbook Page 31

12. Exemption status of an income of a registered charitable trust established after 1st April 1962 gets forfeited in the event of the following: a) When 15% of the income is set aside for future application b) When income set apart is invested in approved instruments c) When income is used for private religious purposes d) When income is fully utilized for the charitable purposes 13. You have advised Gita, a sole guardian for two minor daughters pursuant to her recent divorce, to do Estate Planning. According to you, what should be the most preferred way for her Estate Planning? a) She should prepare a will naming her children as the sole beneficiaries as well as designate one or more guardians with their prior consent, b) She should devolve all of her personal properties to her personal HUF, c) She should prepare a will naming her children as the sole beneficiaries in the same, d) She should transfer all of her existing properties in the names of her childrenand nominate both children equally in all her legal documents, 14. Bimal’s father has made a will deed for distribution of his Assets. Bimal discusses with you regarding probate process, as per you, which is not a feature of Probate process? a) The assets are gathered, applied to pay debts, taxes and expenses of administration and distribute to those designated as beneficiaries in the will b) Executor or personal representative named in the will is in charge of this process, c) All legal heirs will receive notices from the Court to file objections, d) The Court will give orders to distribute the assets to the heirs as per intestate succession Act CFP Level 3 - Module 2 – Estate Planning – India Specific - Workbook Page 32

15. Why is estate planning an important component of financial planning? a) It focuses on how a client’s assets after death are distributed? b) It ensures that clients have a large accumulation of wealth when they die c) It requires the advisor to introduce other professionals into the financial planning process d) It is the part of a client’s plan that can be addressed once a client is deceased 16. Piyush has made a will in which he has given only one instruction that his cherist collection goes to his favoured nephew. The will is correctly signed and witnessed by thetestator. Hundreds of thousands of Rupees of other assets of Piyush are not mentioned. What legal status of the will can be? a) The Will may be challenged claiming testamentary capacity did not exist, given the assets that were not mentioned b) The will may be challenged as there is no residuary clause that would dispose of the assets mentioned, c) Both A and B d) The Will is valid, as the testator knew he was making a will and it was properly witnessed 17. Ms Sonali, aged 42, having twins Rishi and Ritu of age 12 years, is an Executive Director in a Private Bank. She has been recently divorced by his Industrialist husband Mr.Ronald. Ms. Sonali wants to create a private trust in the name of her children to pass on all the property which includes immovable property to them. According to you, which of the followings are true for the type of trust she wishes to set up: (I) A trustee shall be any known person (II) A trust has to be declared by a deed in writing and must be registered. (III) Income of the trust would be taxed in the hands of trustee as representative assesse, CFP Level 3 - Module 2 – Estate Planning – India Specific - Workbook Page 33

(IV) The author of the trust can be the trustee himself, a) (III) and (IV) b) (II) and (III) c) (II), (III) and (IV) d) (I), (II) and (IV) 18. A trust is created by a son, the Settlor, for the survival expenses of his retired parents each having equal beneficial interest. Both his Mother and Father have separate fixed pension income of Rs.35,000 per month and Rs.30,000 per month respectively. The trustproperty has generated a net annual income of Rs.5,12,000 in the previous year 2017- 18. The trustee as well as the Settlor is in the 30% tax bracket. Find the tax payable by the trustee as representative assesse. a) Rs.71,480 b) Rs.82,810 c) Rs.1,05,470 d) Rs.15,350 19. After the amendment of Hindu Succession Act 2005, the position of daughter’s share in joint family property is as follows: a) Daughters have equal right in the father’s share in the joint family property along with mother and brothers as successor of her father, b) Daughters have equal right in the joint family property as coparceners along with her mother and brothers c) Daughters have full right in the mother’s share received by her upon death of her husband as her successor to the exclusion of brothers, d) Only unmarried daughters’ have equal right in the joint family property as coparceners along with that of brothers CFP Level 3 - Module 2 – Estate Planning – India Specific - Workbook Page 34

20. Your client, a businessman has house worth Rs.2.5 Crore and a farm house worth Rs.90 Lakh. His business is worth Rs.12 Crore as per last balance sheet. His brother and wife (who is qualified and working lady) are also partners in the said business, each having 25% stakes. In his personal account he has purchased a car at Rs.10 Lakhs last year whose depreciated value this year is Rs.8.5 lakh. He has two Demat accounts. The shares in the account where he is the1st holder are worth Rs.80 lakhs and where his wife is the 1st holder is Rs.1.70 crore. The business has taken a key man’s insurance on his life for a value of Rs.2 Crore. You evaluate his life’s estate in case of any exigency with his life as: a) Rs.12.99 Crore b) Rs.10.29 Crore c) Rs.11.29 Crore d) Rs.4.29 Crore 21. Your client has come to you to know the benefits of creation of trust for his minor children. He is in business and earns around Rs.50 lakh per year. He has heard that if he transfers a part of this income to trust where his minor children are beneficiaries then he will save tax on that part of the income which is transferred to trust. Moreover in the hands of the trust also the income will be taxable at much lower rate. He has two children; a son aged 3 years and a daughter aged 5 years. If he transfers Rs.10 Lakh of such income every year to a trust where his minor children are beneficiary then he can achieve twin objective of tax savings on his business income as well as securing the financial future of his children. He wants to know from you about the truthiness of this. You advise him: a) Yes, it is true and you can do it immediately because trust is the best way of estate planning with tax efficiency b) No because although a trust is best way of estate planning but when it includes business income it is taxed at full rate of 30% plus education cess CFP Level 3 - Module 2 – Estate Planning – India Specific - Workbook Page 35

c) No, because you cannot save tax on your business income because a trust is created when a property is transferred and income from the trust property will be taxed in the hands of trust, d) Yes it is true because trust income is not business income hence will be taxed at lower rate, and you will save tax in your business income too. 22. Is it possible to be a Settlor as well as Beneficiary? a) A settlor can be a beneficiary of a trust but cannot be the single Beneficiary; otherwise, there would be no hope of having the trust in the first spot. b) Remember: the primary reason for possessing a trust is to hold the property for the interest of another party, so if there is no separate party, there’s simply no reason in having trust. c) Both are true CFP Level 3 - Module 2 – Estate Planning – India Specific - Workbook Page 36

Suggested Solutions Long Questions 23. For a determinate trust, income of the trust is taxable in the hands of the trustee as representative assessee but at the rate applicable to it after adding the individual share of the beneficiaries. MOTHER: Total other income for 12 months @ Rs.35,000 = Rs.420,000 + 50% share of income from trust Rs.2,56,000 = Total Income Rs.676,000. Therefore Rs.176,000 of trust income is taxable @ 20% and balance Rs.80,000 at the rate of 5%, tax on which comes to Rs.39,200 (a) FATHER: Total other income for 12 months @ Rs.30,000 = Rs.360,,000 + 50% share of trust income Rs.2,56,000 = Rs.616,000. Here Rs.116,000 will be taxable @ 20% and balance Rs.140,000 @ 5%, tax on which comes to Rs.30,200 (b) Total tax payable by trustee is a + b = Rs.39,200 + Rs.30,200 = Rs.69,400 + 3% EC Rs.2,082 =Rs.71,482; R/O to Rs.71,480. 24. House Rs.2.5 Cr + Farm HouseRs.0.9 Cr + 50% of business (Rs.12 Cr + Rs.2 Cr) Rs.7 Cr +depreciated value of car Rs.0.085 Cr + Demat holding where he is primary holder Rs.0.8Cr =Rs.11.285 Cr. R/O to Rs.11.29 Cr. CFP Level 3 - Module 2 – Estate Planning – India Specific - Workbook Page 37

Section – II 1. What is meant by settled property as regards to trusts? Page 38 a) The property which is transferred by the Settlor to the trust, b) A property which is settled by a settlement, c) The income left over after spending on the objects of the trust d) Income of the trust generated from the property held under trust 2. Whether mutation is equivalent to transfer of property? a) Yes it is same a) No it is not same b) Yes there is no difference between mutation and transfer c) Not known 3. Which of the following is not an essential element of a trust: a) Trustee b) Personal obligation c) Beneficiary d) Administrator 4. A person who creates the trust is known as: a) Executor b) Testator c) Grantor CFP Level 3 - Module 2 – Estate Planning – India Specific - Workbook

d) Trustee 5. The person/or persons who accepts the property on trust is/are known as: a) Testators b) Trustees c) Settlors d) Administrators 6. When can a trust created by a will be revoked? a) A trust once created cannot be revoked b) It can be revoked at the pleasure of the testator during his lifetime c) It can be revoked only after its purpose is fulfilled d) It can be revoked only with the permission of Court, 7. Which of the followings are the forms of co-ownership? i) Joint tenancy ii) Tenancy-in-common iii) Coparcenary iv) Hindu Undivided Family c) (i) and (ii) d) (iii) and (iv) e) (i), (iii) and (iv) f) (i), (ii), (iii) and (iv) 8. In the case of a rented property a covenant (a contract, a mutual agreement) can be imposed by (i) tenant (ii) Landlord CFP Level 3 - Module 2 – Estate Planning – India Specific - Workbook Page 39

a) By tenant b) By Landlord c) Both by tenant and landlord d) Neither by tenant or nor by landlord 9. Which of the following form of co-ownership must be created by an instrument of deed or will? a) Joint Tenancy b) Tenancy in common c) Coparcenary d) HUF 10. Which regulatory authority has power to approve transfer of assets created abroad in case of an off-shore trust: a) Ministry of Finance b) Ministry of external affairs c) Reserve Bank of India d) Income tax authority 11. In the case of co-ownership, what is meant by “survivorship” a) It means, on death of a co-owner, his interest/share shall be transferred to his successor by a will or succession certificate b) It means, on death of a co-owner, his interest/share passes on to surviving joint owner c) It means the interest of co-owner in a joint property remains only as long as he survives d) It means during the survivorship, any co-owner can transfer/sell entire property CFP Level 3 - Module 2 – Estate Planning – India Specific - Workbook Page 40

without the consent of other 12. “Tenancy-in-common” and “Joint tenancy” are both the forms of co-ownership. What is the main difference between the two, as regards to survivorship right? a) Both forms of co-ownership have the right of survivorship and there is no difference b) Tenancy in common and Joint tenancy both are not the forms of co ownership but the forms of tenancy c) Tenancy in common has the right of survivorship whereas joint tenancy does not have d) Joint tenancy has the right of survivorship whereas tenancy in common does not 13. As per section 44 of transfer of property Act, when one of the coparcener of a HUF, transfers his/her interest/share in a dwelling house belonging to HUF to a person who is not a member of HUF, then which one of the following is a right of the transferee(incoming person who has bought that share): a) Right of common possession b) Right of common or part enjoyment of the house c) Right to enforce partition d) Right to become a member of HUF 14. Which of the following with regard to trust would be taxed at maximum marginal rate? a) A determinate trust where individual shares of beneficiary is known b) An indeterminate trust where income of none of the beneficiary is in excess of basic limit chargeable to tax c) A private determinate trust that includes business income d) A private determinate trust that is set up by a will for support and maintenance ofa dependent relative and includes business income CFP Level 3 - Module 2 – Estate Planning – India Specific - Workbook Page 41

Additional Questions 1. Which of the following is not Class 1 heir in case of Hindu male? a) Son; b) daughter; c) widow; d) mother; e) son of a pre-deceased son; daughter of a pre-deceased son; f) son of a predeceased daughter; daughter of a pre-deceased daughter; g) widow of a pre-deceased son; son of a predeceased son of a pre-deceased son; daughter of a pre-deceased son of a pre-deceased son; widow of a pre-deceased son of a pre-deceased son h) Brother and sister 2. Class 1 heir will get their shares simultaneously (equal shares) and to the exclusion of all other heirs a) True b) False 3. Those in the first entry in class II (Father) shall be preferred to those in the second entry; those in the second entry shall be preferred to those in the third entry; and so on in succession. a) True b) False CFP Level 3 - Module 2 – Estate Planning – India Specific - Workbook Page 42

4. What is “ESCHEAT” a) If an interstate has left no heir qualified to succeed to his or her property in accordance with the provisions of this Act, such property shall devolve on the government; and the government shall take the property subject to all the obligations and liabilities to which an heir would have been subjected. b) Failure of Heirs to be qualified as heir c) Only 1 is true d) Both are true 5. Consanguinity or kindred relationship means “the connection or relation of persons descended from the same or common ancestor”. It is applicable to Indian Christians. a) True b) False 6. Which of the following is wrong in connection with determining succession in case of Indian Christians? a) There is no distinction between those related to the deceased through their father or mother i.e. relatives on paternal and maternal sides (of the same degree). b) No distinction is made between half blood and full blood relatives (of the same degree). c) An unborn child subsequently born alive, if conceived at the time of the death of the deceased, is treated as alive / there is no distinction between a child who was conceived (but subsequently born alive) at the time of death of the deceased and a child who was born during the lifetime of the deceased. d) None of these is wrong CFP Level 3 - Module 2 – Estate Planning – India Specific - Workbook Page 43

7. What out of following is true about Coparceners and Members in HUF? a) A coparcener is a person who acquires interest in the joint family property by birth. The essential difference between a 'coparcener' and a 'member' of an HUF is that a coparcener can enforce partition of the HUF, while a member cannot b) Daughters, just as sons, become coparceners of their father's HUFs on birth, with the result that they have equal rights as sons in the properties of the HUF. c) The Hindu Undivided Family (HUF) grants a daughter-in-law the status of a member of the family from the date of her marriage, but this does not make her a coparcener. d) All are true 8. The doctrine of pious obligation existed in uncodified Hindu law and imposed an obligation on the son, grandson or great grandson of a deceased to pay off all (the legal or moral and illegal or immoral) debts incurred by the deceased. Such obligation has been abolished. a) True b) False 9. Which of the following is true about distribution of property of a Muslim? a) Under Muslim Law, only one-third of a person’s net estate may be bequeathed by will, subject to certain conditions and exceptions prescribed under Shia and Sunni law. b) Under Shia law, a testator can only dispose of one-third of his estate by will, either to an heir or a complete stranger (non-heir), without the consent of heirs. c) Bequests in excess of one-third, either to an heir or a complete stranger, will not take effect or will be invalid, unless the other heirs consent to it. Such consent may be given before or after the testator’s death. d) All are true CFP Level 3 - Module 2 – Estate Planning – India Specific - Workbook Page 44

10. Which of the following is true about distribution of property of a Sunni Muslim? a) Under Sunni law, a testator may dispose up to one-third of his estate only to a stranger, without the consent of the other heirs. b) However, bequest of up to one-third to an heir will not be effective without the consent of other heirs, which consent is required to be given after the testator's death. Consent, once given cannot be rescinded. Consent need not be expressly given; it may also be implied by conduct. c) If all heirs do not consent, the shares of those consenting will be bound, and the legacy in excess will be payable out of their shares. d) If consent is not given by the heirs to a bequest of up to one-third of the estate, the bequest will lapse and will form the part of the remaining estate of the testator. In case the bequest exceeds one-third of the entire estate of the testator, the bequest will abate and the shares will be distributed to the heirs mentioned in the will. e) All are true 11. These are governing rules for estate planning of --------------------dying intestate? I. If the intestate has left a widow and lineal descendants, then one-third goes to the widow and balance two-thirds to the lineal descendants. II. If the intestate is survived by the widow and kindred, but no lineal descendants, then one-half goes to the widow and the balance one-half to the kindred. III. If there are no lineal descendants or kindred then, that the property goes entirely to the surviving husband or wife. a) Hindus, Jains, Sikhs and Buddhists b) Indian Parsis c) Indian Christians CFP Level 3 - Module 2 – Estate Planning – India Specific - Workbook Page 45

12. These are governing rules for estate planning of --------------------dying intestate? i. No distinction between a living child and a child in the womb who is subsequently born alive; ii. Lineal descendants of an intestate who have died in the lifetime of the intestate without leaving a widow or widower or any lineal descendant shall not be considered for intestate succession; iii. A widow or widower of any relative of an intestate who has remarried during the lifetime of an intestate shall not be considered and shall be deemed to not exist at the time of the intestate’s death a) Hindus, Jains, Sikhs and Buddhists b) Indian Parsis c) Indian Christians 13. How can a person Amend Will? a) Overwrite the original will along with obtaining new signatures of the attesting witnesses, b) Preparing a codicil, or c) Preparing and executing a new will d) Any of the above 14. A ----------- is an instrument specifically made in relation to an executed will that explains, alters or adds to its dispositions, and is deemed to form part of the will. A ----------- may be endorsed upon the original will itself, or be a separate document. It is considered an extension or addendum of a will and the procedure for execution is similar to the execution of a will. Executing a --------- does not bar a testator from further amending his will. a) Codicil b) New Will c) Old Will CFP Level 3 - Module 2 – Estate Planning – India Specific - Workbook Page 46