NISM Series X-B Chapter 14: Basics of Estate Planning Practice Questions

Question 1

What is a primary objective of estate planning for individuals and their families?

Accepted Answer

To develop a plan that will enhance and maintain the financial security of individuals and their families.. The text states, 'The overall purpose of estate planning is to develop a plan that will enhance and maintain the financial security of Individuals and their families.' Options A and C are not the primary overall purpose, and option D describes succession planning, which is distinct from personal estate planning

Question 2

For which religious group is the Indian Succession Act, 1925, NOT applicable for either testamentary or intestate succession?

Accepted Answer

Muslims. The text states under 'Succession for Muslims': 'In case of Muslims, the Indian Succession Act, 1925 is not applicable in Testamentary or Intestate Successions. The succession is as per religion.'

Question 3

Mr. Sharma, a Hindu, dies without leaving a valid Will. How will the distribution of his properties be governed?

Accepted Answer

By the Hindu Succession Act, 1956, as amended in 2005.. The text specifies, 'The law of inheritance in case of Hindus... is governed by the Hindu Succession Act, 1956.' It further clarifies under 'Succession for Hindus' that 'For intestate succession, the Hindu Succession Act, 1956, as amended in 2005, is applicable.'

Question 4

Mr. Rakesh passes away, leaving behind his house, a bank account, a life insurance policy where his spouse is the nominee, and some outstanding credit card debt. Which of the following correctly categorizes these items based on the provided estate planning definitions?

Accepted Answer

The house, bank account, and life insurance policy are all components of the Gross Estate, and the outstanding credit card debt is part of the Estate Debt.. According to the text: 'The gross estate comprises items that determine one’s net worth. Real estate properties (house, land etc.), bank accounts, investments, businesses, retirement account such as NPS, life insurance etc.' Thus, the house, bank account, and life insurance policy are all part of the Gross Estate. 'Estate Debt: This includes all debt and obligations owed to others. Housing loan, car loan, credit card payments, business outstanding are part of estate debt.' Therefore, the outstanding credit card debt is part of the Estate Debt

Question 5

What is a strong misconception about estate planning that the text highlights?

Accepted Answer

That estate planning is only for the wealthy.. The text states: 'One very strong misconception that people hold is that estate planning is for wealthy. This is not true.' And later: 'The misconception that people have is that estate planning is only for the rich.'

Question 6

What is the primary objective of estate planning for an individual, as defined in the provided text?

Accepted Answer

To develop a plan that will enhance and maintain the financial security of individuals and their families.. The text states, 'The overall purpose of estate planning is to develop a plan that will enhance and maintain the financial security of Individuals and their families.' Option A describes succession planning, not estate planning. Options C and D are aspects that might be considered but are not the primary, overarching objective

Question 7

Which of the following statements correctly describes the role of 'Nomination and Beneficiary Designations' in estate planning, as per the provided text?

Accepted Answer

The rights of a nominee are limited to holding the assets as a custodian until they are transferred to the right legal heirs.. The text states, 'The rights of nominee are limited to holding the assets as a custodian till it is transferred to the right legal heirs.' It also clarifies that it is 'not really a component of an estate plan but is important for completing the estate plan.' Furthermore, beneficial nominees are specifically mentioned for life insurance and are limited to Parents, Spouse, and Children

Question 8

As per the Indian Succession Act, under what condition is a person deemed to have died intestate?

Accepted Answer

In respect of all property of which he or she has not made a testamentary disposition which is capable of taking effect.. The text explicitly states: 'The Indian Succession Act, under section 30, states that “a person is deemed to die intestate in respect of all property of which he or she has not made a testamentary disposition which is capable of taking effect.”'

Question 9

Which of the following statements correctly identifies the applicable succession laws for different religious groups in India, as per the chapter?

Accepted Answer

For Christians, the Indian Succession Act, 1925 is applicable for both testamentary and intestate succession.. The text specifies: (A) For Muslims, the Indian Succession Act, 1925 is NOT applicable. (B) For Hindus, Jains, Sikhs, and Buddhists, the Indian Succession Act, 1925 is for testamentary succession, while the Hindu Succession Act, 1956, is for intestate succession. (C) For Christians, the Indian Succession Act, 1925 is applicable for both testamentary and intestate succession. (D) For Parsis and Jews, the Indian Succession Act, 1925 is applicable, not the Hindu Succession Act, 1956

Question 10

Which of the following elements of estate planning is described as an advance directive written primarily for physicians, stating wishes for end-of-life care when one is unable to communicate decisions?

Accepted Answer

Living Will. The text defines 'Living Will' as: 'A living Will is an advance directive written primarily for physicians. This document states the wishes of the people for these kinds of situations, when one is at the end of life care and unable to communicate their decisions.'

Question 11

Which of the following items is classified under 'Residue Estate' as per the constituents of an estate?

Accepted Answer

Car, jewellery, furniture, and investments not mentioned in the Will.. The text defines 'Residue Estate' as: 'This is an individual’s personal estate property. This includes car, jewellery, furniture, clothes, and any other item found at one’s home. Any investment not mentioned in the will or allocated in the trust form part of the residue estate. Lastly, any outstanding payments at the time of death are also a part of residue estate.'

Question 12

Which of the following statements regarding who needs estate planning is TRUE, according to the provided text?

Accepted Answer

Estate planning is important for anyone who holds property and wishes for its specific transfer upon death.. The text directly addresses this misconception: 'One very strong misconception that people hold is that estate planning is for wealthy. This is not true. Anyone, who holds a property and wishes that on his death the property should be transferred to specific heirs and in a specific manner, needs estate planning.' It also lists 'Individuals with high liabilities' as a reason for effective estate planning

Question 13

Mr. A owns a successful manufacturing business and also has significant personal assets including a house, investments, and life insurance policies. He is considering how to ensure his business continues after he retires and how his personal wealth is managed and distributed after his death. Based on the provided text, which statement correctly distinguishes between the planning requirements for his business and personal assets?

Accepted Answer

Planning for the business's long-term continuity during his lifetime is succession planning, and a personal estate plan is also required for his personal assets, irrespective of the business plan.. The text distinguishes: 'Estate planning is misconceived to be equivalent to succession planning. These two are completely distinct with different objectives. A succession planning is planning for one’s business which takes effect within one’s lifetime... Any estate plan is a personal estate plan, which involves one’s personal assets. Every individual needs to have an estate plan whether there is succession plan for business or not.'

Question 14

According to the text, what is a key distinction between estate planning and succession planning?

Accepted Answer

Estate planning is for personal assets, while succession planning is for one's business.. The text states: 'A succession planning is planning for one’s business which takes effect within one’s lifetime... Any estate plan is a personal estate plan, which involves one’s personal assets.'

Question 15

Which element of estate planning involves a legal arrangement where an individual designates someone to manage their finances if they become incapacitated?

Accepted Answer

Power of Attorney. The text defines 'Power of Attorney' as 'a legal arrangement where an individual designates someone to manage one’s finances in case an individual becomes incapacitated or is not in a position to do so.'

Question 16

Which of the following would be categorized under an individual's 'Gross Estate' as per the provided text?

Accepted Answer

Real estate properties, bank accounts, and life insurance.. The text defines 'Gross Estate' as comprising 'Real estate properties (house, land etc.), bank accounts, investments, businesses, retirement account such as NPS, life insurance etc.' Options A and D fall under 'Estate Debt,' while option B falls under 'Residue Estate.'

Question 17

For Hindus, Buddhists, Jains, and Sikhs, which specific Act is applicable for intestate succession, as per the provided chapter text?

Accepted Answer

The Hindu Succession Act, 1956, as amended in 2005. The text states: 'The law of inheritance in case of Hindus, Buddhists, Jains and Sikhs is governed by the Hindu Succession Act, 1956; in case of Christians, Parsis and the Jews, the law of inheritance is mentioned in the Indian Succession Act, 1925.' It further clarifies under 'Succession for Jains, Sikhs and Buddhists' that 'for intestate succession, the Hindu Succession Act, 1956 as along with amendments in 2005, are applicable.'

Question 18

Mr. Sharma owns a house, has a bank account, a life insurance policy, and an outstanding car loan. Which of these would be categorized under 'Residue Estate' as per the chapter?

Accepted Answer

None of the above, as these are all explicitly mentioned under Gross Estate or Estate Debt.. The text defines: Gross Estate as including "Real estate properties (house, land etc.), bank accounts, investments, businesses, retirement account such as NPS, life insurance etc.", thus covering the house, bank account, and life insurance policy. Estate Debt includes "Housing loan, car loan, credit card payments, business outstanding are part of estate debt," which covers the outstanding car loan. Residue Estate, on the other hand, includes "personal estate property...car, jewellery, furniture, clothes, and any other item found at one’s home. Any investment not mentioned in the will or allocated in the trust form part of the residue estate. Lastly, any outstanding payments at the time of death are also a part of residue estate." Therefore, none of the items listed in the question fall under Residue Estate

Question 19

What is the primary purpose of estate planning as defined in the provided text?

Accepted Answer

To develop a plan that will enhance and maintain the financial security of individuals and their families.. The text states: 'The overall purpose of estate planning is to develop a plan that will enhance and maintain the financial security of Individuals and their families.' Option A is incorrect as the text clarifies estate planning is not just for the wealthy. Option C describes succession planning, not estate planning. Option D is not the primary purpose

Question 20

According to the text, which two components are considered the bare minimum for an estate plan?

Accepted Answer

A Last Will and Testament and a Living Will.. Under '14.3 Elements of Estate Planning', the text states: 'At a bare minimum, there should be two main components in an estate plan: (i) a last will and testament and (ii) a living will.'

Question 21

Under the new Insurance Act, what special provision applies when Parents, Spouse, or Children are nominated in a life insurance policy?

Accepted Answer

They are automatically considered Beneficial Nominees and can consume the monies.. The text explicitly states: 'Under the new Insurance act, Parents, Spouse and Children, if any one of them is the nominee in the policy, they will automatically become the Beneficial Nominee and hence can consume the monies too.'

Question 22

According to the provided text, what is the limited right of a nominee for financial assets, as distinct from a beneficial nominee?

Accepted Answer

A nominee's rights are limited to holding the assets as a custodian until they are transferred to the right legal heirs.. The text explicitly states: 'The rights of nominee are limited to holding the assets as a custodian till it is transferred to the right legal heirs.' It also clarifies that beneficial nominees are distinct and automatically apply only to specific cases like life insurance under the new Insurance Act for Parents, Spouse, and Children

Question 23

What is the primary overall purpose of estate planning as defined in the context of financial security?

Accepted Answer

To develop a plan that enhances and maintains the financial security of individuals and their families.. The text states: 'The overall purpose of estate planning is to develop a plan that will enhance and maintain the financial security of Individuals and their families.'

Question 24

What is the overall purpose of estate planning, as defined in the provided text?

Accepted Answer

To develop a plan that will enhance and maintain the financial security of individuals and their families.. The text states: 'The overall purpose of estate planning is to develop a plan that will enhance and maintain the financial security of Individuals and their families.'

Question 25

According to the provided text, for which religious group(s) is the Indian Succession Act, 1925, *not* applicable for either testamentary or intestate succession?

Accepted Answer

Muslims. The text explicitly states under 'Succession for Muslims': 'In case of Muslims, the Indian Succession Act, 1925 is not applicable in Testamentary or Intestate Successions. The succession is as per religion.' For Hindus, Jains, Sikhs, and Buddhists, it is applicable for testamentary succession, and for Christians, it applies to both

Question 26

Which element of estate planning specifically addresses an individual's wishes regarding end-of-life care decisions when they are unable to communicate them?

Accepted Answer

Living Will. The text defines a 'Living Will' as 'an advance directive written primarily for physicians... This document states the wishes of the people for these kinds of situations, when one is at the end of life care and unable to communicate their decisions.' Power of Attorney manages finances, a Will distributes assets after death, and a Testamentary Trust is created via a Will

Question 27

Which of the following items would typically be classified under an individual's 'Gross Estate' for estate planning purposes?

Accepted Answer

Real estate properties, bank accounts, and life insurance.. According to the text, 'The gross estate comprises items that determine one’s net worth. Real estate properties (house, land etc.), bank accounts, investments, businesses, retirement account such as NPS, life insurance etc.' Options A are 'Estate Debt', and options B and D are 'Residue Estate'

Question 28

According to the provided text, what is the overall purpose of estate planning?

Accepted Answer

To develop a plan that will enhance and maintain the financial security of individuals and their families.. The text states: 'The overall purpose of estate planning is to develop a plan that will enhance and maintain the financial security of Individuals and their families.' It also clarifies that estate planning is not just for the wealthy

Question 29

In the context of intestate succession in India, which of the following statements is accurate regarding the applicable laws for different religious groups?

Accepted Answer

For Hindus, Buddhists, Jains, and Sikhs, intestate succession is governed by the Hindu Succession Act, 1956.. The text states: 'The law of inheritance in case of Hindus, Buddhists, Jains and Sikhs is governed by the Hindu Succession Act, 1956'. Option A is incorrect because for Muslims, the Indian Succession Act, 1925, is not applicable. Option C is incorrect as for Christians, the Indian Succession Act, 1925, applies to intestate succession. Option D is incorrect as for Parsis and Jews, the Indian Succession Act, 1925, applies to intestate succession

Question 30

For which of the following religious groups is the Indian Succession Act, 1925, *not* applicable for either testamentary or intestate succession, according to the provided text?

Accepted Answer

Muslims. The text states: 'In case of Muslims, the Indian Succession Act, 1925 is not applicable in Testamentary or Intestate Successions. The succession is as per religion.' For Hindus, Christians, and Jains (as well as Sikhs and Buddhists), the Indian Succession Act, 1925 is applicable for testamentary succession, and for Christians, it's applicable for both

Question 31

What is the primary misconception people often hold regarding estate planning?

Accepted Answer

Estate planning is only for the wealthy.. The text states, 'One very strong misconception that people hold is that estate planning is for wealthy. This is not true. Anyone, who holds a property and wishes that on his death the property should be transferred to specific heirs and in a specific manner, needs estate planning.'

Question 32

Regarding 'Nomination and Beneficiary Designations' in estate planning, which statement is TRUE according to the text?

Accepted Answer

The rights of a nominee are limited to holding assets as a custodian, but under the new Insurance Act, Parents, Spouse, and Children nominated in a life insurance policy automatically become Beneficial Nominees.. The text states: 'The rights of nominee are limited to holding the assets as a custodian till it is transferred to the right legal heirs.' It further clarifies: 'In some assets, such as life insurance policy, beneficial nominees can be appointed who will also be the legal recipient of the life insurance proceeds at death of the policyholder. Under the new Insurance act, Parents, Spouse and Children, if any one of them is the nominee in the policy, they will automatically become the Beneficial Nominee and hence can consume the monies too.' Option A is incorrect as nomination is 'not really a component' of estate plan and nominees are not always legal heirs. Option C is incorrect as beneficial nominees are specifically mentioned for life insurance. Option D is incorrect as the text advises to 'periodically review nominations and beneficiary designations'

Question 33

Regarding nomination and beneficiary designations in estate planning, which statement is TRUE according to the provided text?

Accepted Answer

If Parents, Spouse, or Children are nominated in a life insurance policy, they automatically become beneficial nominees and can consume the monies.. The text states, 'Under the new Insurance act, Parents, Spouse and Children, if any one of them is the nominee in the policy, they will automatically become the Beneficial Nominee and hence can consume the monies too.' Option A is incorrect as nominees are generally custodians. Option B is generally true but fails to capture the specific exception mentioned in the text for life insurance. Option C is incorrect as only Parents, Spouse, and Children are specified as beneficial nominees in this context

Question 34

What happens to a person's property if they die intestate?

Accepted Answer

The property devolves upon the heirs as per the laws of inheritance applicable to the deceased.. The text states: 'When a person dies without a Will, then the property devolves upon the heirs as per the laws of inheritance applicable to him/her.'

Question 35

For most financial assets, what is the limited right of a nominee as per the provided text?

Accepted Answer

The nominee holds the assets as a custodian until they are transferred to the right legal heirs.. The text states: 'The rights of nominee are limited to holding the assets as a custodian till it is transferred to the right legal heirs.'

Question 36

Regarding nominations and beneficiary designations, which of the following statements is most accurate as per the chapter?

Accepted Answer

In a life insurance policy, if the nominee is the spouse, they will automatically become the Beneficial Nominee and can consume the monies.. The text states, "The rights of nominee are limited to holding the assets as a custodian till it is transferred to the right legal heirs." However, it provides an exception: "Under the new Insurance act, Parents, Spouse and Children, if any one of them is the nominee in the policy, they will automatically become the Beneficial Nominee and hence can consume the monies too." This makes option C accurate. Option A is generally true but incomplete due to the insurance exception. Option B is incorrect as nominees are generally custodians. Option D is incorrect because while nominations are not a 'component' of an estate plan, the text explicitly states they are 'important for completing the estate plan' and 'it is important to periodically review nominations'

Question 37

Which of the following would be categorized as part of an individual's 'Residue Estate' according to the text?

Accepted Answer

Car, jewellery, and any investment not mentioned in the Will.. The text defines 'Residue Estate' as: 'This is an individual’s personal estate property. This includes car, jewellery, furniture, clothes, and any other item found at one’s home. Any investment not mentioned in the will or allocated in the trust form part of the residue estate. Lastly, any outstanding payments at the time of death are also a part of residue estate.'

Question 38

Which of the following statements about estate planning is TRUE?

Accepted Answer

Estate planning is a process that determines how an individual wants to distribute his/her estate when he/she dies and is relevant for anyone who holds property.. The text states, "One very strong misconception that people hold is that estate planning is for wealthy. This is not true. Anyone, who holds a property and wishes that on his death the property should be transferred to specific heirs and in a specific manner, needs estate planning." It also defines estate planning as determining how an individual wants to distribute his/her estate when he/she dies. Options A and B reflect misconceptions or incomplete definitions. Option D is incorrect as the text clearly distinguishes estate planning from succession planning

Question 39

What is the key difference between estate planning and succession planning as described in the chapter?

Accepted Answer

Succession planning takes effect within one's lifetime for business, whereas estate planning involves personal assets and takes effect after death.. The text states, "A succession planning is planning for one’s business which takes effect within one’s lifetime. For long term continuity and success of one’s business, it has to be transferred to the next generation when one decides to quit." It further clarifies, "Any estate plan is a personal estate plan, which involves one’s personal assets." Option A reverses the definitions. Option C incorrectly states both take effect after death. Option D incorrectly applies the 'wealthy' misconception to succession planning

Question 40

Mr. A wishes to ensure his assets are distributed according to his specific wishes after his death, and also wants to appoint someone to manage his finances if he becomes physically incapacitated during his lifetime. Which combination of estate planning elements would best address both these concerns, as described in the text?

Accepted Answer

A Last Will and Testament for asset distribution and a Power of Attorney for financial management.. The text states that a 'Will: This is the document which specifies who will inherit one’s assets and in what manner' (addressing distribution after death). It also states that 'Power of Attorney: It is a legal arrangement where an individual designates someone to manage one’s finances in case an individual becomes incapacitated or is not in a position to do so' (addressing financial management during incapacity). This combination directly addresses both stated needs

Ch.14: Basics of Estate Planning

What You Will Learn in This Chapter

Multiple Choice Questions (40)

Case-Based Questions (1 sets)

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