Good point...but what's the difference? Even if Michael is testing Fredo, he has orders in place, and probably several means of protection/retaliation just in case his brother does turn 'fink'.

If you think about it in terms of 'real life', the entire discussion between Michael & Fredo does NOT make sense. Again however, real life is not always interesting or entertaining. I think that intimate scene between the brothers was necessary to the film, as it is shortly after that we first discover (along with Michael) that Fredo IS the traitor. It is also the final conversation that they have prior to the fateful lakehouse scene, and it simply needed to be in there. Sure, a different discussion could've taken place that made 'more sense', but there is such a thing as providing an audience information in order to set up scenes to follow.