Personal Finance Taxes, Estate, and Financial Protection Flashcards

24 sample cards from the Taxes, Estate, and Financial Protection deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. What does it mean to die 'intestate'?

   Dying intestate means dying without a valid will. The state's intestacy statutes then determine who inherits (typically spouse and closest relatives in a fixed order), regardless of the deceased's actual wishes.

2. What is probate?

   Probate is the court-supervised legal process of validating a will, paying debts and taxes, and distributing the remaining assets. It can be time-consuming, public, and costly; many estate strategies aim to avoid it.

3. What is a trust, and how does a revocable living trust help avoid probate?

   A trust is a legal arrangement where a trustee holds and manages assets for beneficiaries. Assets titled in a revocable living trust pass to beneficiaries per the trust terms without probate, and the grantor keeps control and can change it during life.

4. Compare a revocable trust with an irrevocable trust.

   A revocable trust can be changed or revoked by the grantor, who retains control but no asset-protection or estate-tax benefit. An irrevocable trust generally cannot be changed; the grantor gives up control, but it can remove assets from the taxable estate and offer creditor protection.

5. What is a beneficiary designation, and why does it override a will?

   A beneficiary designation names who receives an account (retirement accounts, life insurance, payable-on-death accounts) directly upon death. These assets pass by contract outside probate and take precedence over conflicting instructions in a will.

6. Why is it important to review beneficiary designations after major life events?

   Because designations override the will and don't update automatically, outdated ones can send assets to an ex-spouse or omit new children. Reviewing after marriage, divorce, birth, or death ensures assets go where intended.

7. What is the difference between a primary and a contingent beneficiary?

   A primary beneficiary is first in line to inherit the asset. A contingent (secondary) beneficiary receives it only if all primary beneficiaries have died or decline. Naming contingents prevents the asset from defaulting into probate.

8. What is a durable power of attorney (financial)?

   A legal document authorizing a chosen agent to manage your financial and legal affairs. 'Durable' means it remains in effect if you become incapacitated, which is precisely when it is most needed.

9. What is a healthcare directive (living will) versus a healthcare power of attorney?

   A living will states your wishes for medical treatment (e.g., life support) if you cannot communicate. A healthcare power of attorney (proxy) names a person to make medical decisions on your behalf. Together they cover both instructions and a decision-maker.

10. What is the difference between a 'springing' and an 'immediate' power of attorney?

    A springing POA takes effect only upon a triggering event, usually a formal determination of incapacity. An immediate (non-springing) POA is effective as soon as it is signed. Springing adds a certification step but delays the agent's authority.

11. What is an estate tax versus an inheritance tax?

    An estate tax is levied on the deceased person's total estate before assets are distributed (paid by the estate). An inheritance tax is levied on the recipient based on what they inherit (paid by the heir). Some jurisdictions have one, both, or neither.

12. What is the estate-tax exemption (exclusion amount)?

    The threshold below which an estate owes no estate tax. Only the value of the estate above the exemption is taxed. Most estates fall under the exemption and owe nothing; taxes apply only to the excess.

13. What is the 'stepped-up basis' at death and why does it matter?

    Inherited assets have their cost basis reset to fair market value at the date of death. This 'step-up' erases the previously unrealized capital gain, so heirs who sell soon after owe little or no capital gains tax.

14. What is the unlimited marital deduction in estate taxation?

    Assets left to a surviving spouse (who is a citizen) generally pass free of estate tax regardless of amount, deferring any tax until the second spouse's death. It lets couples postpone estate tax to the second death.

15. What is identity theft, and name two core protective habits.

    Identity theft is the unauthorized use of your personal information (Social Security number, card details) to commit fraud. Core defenses: freeze/monitor your credit reports, and use strong unique passwords with two-factor authentication. Also shred sensitive documents and check statements.

16. What is a credit freeze and how does it protect you?

    A credit freeze restricts access to your credit report so lenders can't open new accounts in your name. Because most creditors won't extend credit without checking a report, a thief can't open accounts while it's frozen; you temporarily lift it when you need credit.

17. What are common red flags of a financial scam?

    Urgency/pressure to act now, requests for untraceable payment (gift cards, wire, crypto), unsolicited contact claiming to be an authority, promises of guaranteed high returns, and requests for passwords or one-time codes. Legitimate institutions don't demand these.

18. What is phishing, and how does it differ from smishing and vishing?

    Phishing is fraudulent messaging (usually email) that impersonates a trusted entity to steal credentials or money. Smishing is the same via SMS text, and vishing is via voice/phone calls. All exploit trust to extract sensitive information.

19. What defines a Ponzi scheme?

    A fraudulent investment that pays existing investors with money from new investors rather than real profits, while promising high, consistent returns. It collapses when new money stops flowing and withdrawals exceed inflows.

20. What makes a password strong, and why use a password manager?

    Strong passwords are long, random, and unique per account, resisting guessing and brute force. A password manager generates and stores these encrypted, so you only remember one master password and never reuse credentials across sites.

21. What is two-factor (multi-factor) authentication and why is it important?

    It requires a second proof of identity beyond a password — something you have (a code/app/key) or are (biometric). Even if a password is stolen, the attacker still lacks the second factor, blocking most account takeovers. App-based or hardware codes beat SMS.

22. What immediate steps should you take upon discovering fraud on an account?

    Contact the financial institution to freeze/close the affected account, change passwords, dispute the fraudulent charges, place a fraud alert or freeze on your credit, document everything, and file an official report with authorities. Fast action limits liability and aids recovery.

23. Why does reporting fraud quickly reduce your financial liability?

    Consumer protection rules often cap your liability for unauthorized charges only if you report within a specified window; delays can raise the amount you're responsible for. Prompt reporting also creates a paper trail supporting chargebacks and disputes.

24. What is a fraud alert on your credit file, and how does it differ from a freeze?

    A fraud alert tells lenders to take extra steps to verify your identity before granting credit, but credit can still be accessed. A freeze fully blocks new-credit access. An alert is lighter and easier to use; a freeze is stronger protection.

What this deck covers

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