AAFM Estate Planning and Trusts 2

Question 1

A durable power of attorney for finances remains effective even if the principal becomes what?

Accepted Answer

Incapacitated

Answer

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?

Accepted Answer

One generation

Answer

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?

Accepted Answer

Healthcare proxy

Answer

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?

Accepted Answer

A qualified charity

Answer

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?

Accepted Answer

$18,000

Answer

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.

American Academy of Financial Management (AAFM) Practice Test

American Academy of Financial Management (AAFM) Practice Test

AAFM Estate Planning and Trusts 2