AAFM Estate Planning and Trusts

Question 1

Which document directs how a deceased person's assets are to be distributed and names an executor to administer the estate?

Accepted Answer

Last will and testament

Answer

A last will and testament is a legal document specifying how a decedent's probate assets will be distributed and naming an executor responsible for administering the estate through probate.

Question 2

Which type of trust allows the grantor to retain control and revoke the trust during their lifetime while avoiding probate at death?

Accepted Answer

Revocable living trust

Answer

A revocable living trust holds assets during the grantor's lifetime and distributes them at death without going through probate, providing privacy and continuity of management.

Question 3

An irrevocable life insurance trust (ILIT) is primarily used to exclude life insurance proceeds from which tax?

Accepted Answer

Federal estate tax

Answer

An ILIT owns the life insurance policy outside the insured's estate, so death benefit proceeds are excluded from the gross estate and avoid federal estate tax.

Question 4

The federal estate tax exemption in 2024 allows an individual to transfer up to approximately how much without incurring federal estate tax?

Accepted Answer

$13.61 million

Answer

The federal estate and gift tax exemption for 2024 is $13.61 million per individual (indexed for inflation), scheduled to sunset to approximately $7 million at end of 2025 without legislative action.

Question 5

Which trust strategy transfers appreciating assets out of an estate by requiring the trust to pay the grantor a fixed annuity for a set term?

Accepted Answer

GRAT

Answer

A grantor retained annuity trust (GRAT) transfers the appreciation of assets in excess of the IRS hurdle rate (Section 7520 rate) to beneficiaries gift-tax free at the end of the trust term.

American Academy of Financial Management (AAFM) Practice Test

American Academy of Financial Management (AAFM) Practice Test

AAFM Estate Planning and Trusts