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If you can wipe away those tears that are flowing as you contemplate your mortality, then answer these quiz questions.

Assume that you are married and that you die this year at age 57 with a total estate of $800,000. Of that, $500,000 is in a traditional IRA that lists your spouse as the beneficiary.

1. How much of that estate will pass free of federal estate taxes to your spouse?
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2. Will your spouse pay income taxes on your IRA?
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3. Let's say for a minute you're neither neuter nor female. (Hey! That means you're male!) Your spouse already has $300,000 of assets in her name, so inheriting your $800,000 brings her asset total to $1.1 million. If she also dies this year, by how much will her estate exceed the amount she may leave the kids free of federal estate taxes?
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4. Assume that $800,000 of the amount in your spouse's estate is in an IRA of which your children are the beneficiaries. Who pays tax on the IRA, her estate or the children?
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5. Assume that your spouse dies in 2007 with the same $1.1 million in assets. How much of that estate will go to your children free of federal estate tax?
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6. Given the $800,000 in your estate and the $300,000 in your spouse's estate, how can you and your spouse make sure your estates will not be taxed by the federal government when the last of you dies?
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7. Assume you were struck by an automobile, went into a coma, and have been in the hospital for three months. To pay bills, your family needs to take money from your stock account. How can they access your account to do so?
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8. While we're making merry, let's say that you're still in the hospital on life support. There is no hope for your recovery, but machines can keep you alive indefinitely. How can you ensure the machines get turned off in such a situation?
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9. Assume you are approaching age 70½ and must soon decide how you will take your minimum required distributions (MRD). What is your required beginning date (RBD)?
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10. Why is the RBD important in estate planning?
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Answers

1. How much of that estate will pass free of federal estate taxes to your spouse?
   Answer: All of it. There is an unlimited marital deduction for spouses.
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2. Will your spouse pay income taxes on your IRA?
   Answer: Yes, but only when she receives distributions from that IRA. When she will be required to take distributions depends on whether she leaves the IRA in your name or transfers it to an IRA in her name. For details, see IRS Publication 590, Individual Retirement Arrangements.
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3. By how much will her estate exceed the amount she may leave the kids free of federal estate taxes?
   Answer: $425,000 ($1,100,000 - $675,000)
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4. Who pays tax on the IRA, her estate or the children?
   Answer: Actually, both do. Because the IRA is over this year's exclusion amount, there will be a federal estate tax due on the excess. Additionally, because no income taxes have ever been paid on that IRA, the children must pay income taxes on the IRA money when it is distributed. Those income taxes may be lessened somewhat should the kids elect to take IRA distributions over their life expectancies. For details see The New S-t-r-e-t-c-h IRA.
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5. How much of that estate will go to your children free of federal estate tax?
   Answer: $1,000,000, which means they still will see an estate tax on $100,000.
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6. How can you and your spouse ensure your estates will not be taxed by the federal government when the last of you dies?
   Answer: By taking full advantage of the unlimited marital deduction and the $675,000 each of you may bequeath tax-free to someone else. Through coordinated estate planning with a qualified attorney, it's possible to avoid all estate taxes on the death of the last surviving spouse.
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7. How can they access your account to do so?
   Answer: In the absence of a durable power of attorney that authorizes them to act in your name to make trades and withdrawals from that account, they cannot do so. They would first have to get a court order that appoints someone as your guardian or conservator, a process that takes time and money.
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8. How can you ensure the machines get turned off in such a situation?
   Answer: An advance medical directive (commonly called a living will) prepared in advance by you is one way to help ensure the machines stop when further treatment is essentially useless. Perhaps a better way is through the use of a durable power of attorney that specifically authorizes someone you trust to make any and all medical decisions on your behalf.
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9. What is your required beginning date (RBD)?
   Answer: Your RBD is April 1 of the year following that in which you reach age 70½.
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10. Why is the RBD important in estate planning?
    Answer: It's important because a failure to take the first distribution by that date will result in a 50% penalty on the MRD that should have been paid. That's a high penalty to pay for forgetfulness.
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