AAFM Estate Planning and Trusts 2 — Questions and Answers
Question 1: A durable power of attorney for finances remains effective even if the principal becomes what?
- Bankrupt
- Incapacitated (Correct answer)
- Deceased
- Divorced
Correct answer: Incapacitated
A durable power of attorney continues in full force if the principal becomes incapacitated, allowing the named agent to manage financial affairs without court intervention.
Question 2: The generation-skipping transfer (GST) tax is levied on transfers to beneficiaries who are more than how many generations below the transferor?
- One generation (Correct answer)
- Two or more generations
- Three generations
- No limit
Correct answer: One generation
The GST tax applies to transfers made to skip persons—typically grandchildren or more remote descendants—who are at least one full generation below the transferor.
Question 3: Which estate planning document allows a principal to designate an agent to make healthcare decisions if the principal becomes incapacitated?
- Living will
- Durable power of attorney for finances
- Healthcare proxy (Correct answer)
- POLST form
Correct answer: Healthcare proxy
A healthcare proxy (or healthcare power of attorney) designates a trusted individual to make medical decisions on behalf of the principal when they cannot do so themselves.
Question 4: In a charitable remainder trust (CRT), the grantor or beneficiaries receive income payments for a period, after which the remainder passes to which entity?
- The grantor's estate
- The grantor's heirs
- A qualified charity (Correct answer)
- The trustee personally
Correct answer: A qualified charity
In a CRT, the non-charitable income beneficiary receives payments for a term of years or life, and the remaining trust assets pass irrevocably to a designated charity at the end.
Question 5: The annual gift tax exclusion allows tax-free gifts up to a specified per-recipient limit without filing a gift tax return, indexed for inflation. What is the 2024 exclusion amount?
- $15,000
- $16,000
- $17,000
- $18,000 (Correct answer)
Correct answer: $18,000
The 2024 annual gift tax exclusion is $18,000 per recipient, allowing donors to give this amount to any number of individuals each year without reducing their lifetime exemption.
Question 6: Which trust type is funded with community property and allows a surviving spouse to benefit from trust assets without including them in the survivor's taxable estate?
- QTIP trust (Correct answer)
- AB trust
- Bypass trust
- Spendthrift trust
Correct answer: QTIP trust
A qualified terminable interest property (QTIP) trust provides income to a surviving spouse while allowing the first spouse to designate the ultimate remainder beneficiaries, and qualifies for the marital deduction.
AAFM Estate Planning and Trusts 2
A durable power of attorney for finances remains effective even if the principal becomes what?