Practice Test Geeks(AEP) Accredited Estate Planner Practice Test
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Advanced Estate Planning Techniques Flashcards

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Read the first 7 Advanced Estate Planning Techniques flashcards as text

  1. A Charitable Remainder Unitrust (CRUT) differs from a Charitable Remainder Annuity Trust (CRAT) primarily because the CRUT pays:

    Answer: A fixed percentage of the trust's annually revalued assets

    A CRUT pays a fixed percentage (at least 5%) of the trust's fair market value as revalued annually, so distributions fluctuate with asset performance, unlike the fixed dollar payments of a CRAT.

  2. What is the minimum required payout rate for a Charitable Remainder Trust to qualify under IRC Section 664?

    Answer: 5% of net fair market value

    IRC §664 requires that a CRT pay at least 5% of net fair market value annually to qualify as a charitable remainder trust.

  3. A Charitable Lead Annuity Trust (CLAT) is most effective for wealth transfer when the IRS Section 7520 rate is:

    Answer: Low, because the charity's interest is worth more and the remainder is larger

    A low §7520 rate means less is assumed to be earned by the trust, so more value is attributed to the annuity payments to charity, leaving a larger remainder to pass to heirs at a reduced gift tax value.

  4. Which trust structure allows a donor to contribute assets, receive a current charitable deduction, and recommend (but not direct) grants to charities over time?

    Answer: Donor-advised fund

    A donor-advised fund provides an immediate charitable deduction at contribution while allowing the donor to recommend grants to qualifying charities over time, without the administrative burden of a private foundation.

  5. The 'estate inclusion' problem unique to private foundations involves which transfer tax issue?

    Answer: Retained control by the founder can cause estate inclusion under §2036

    If a foundation founder retains significant control over foundation assets, the IRS may argue that §2036 requires inclusion of those assets in the founder's taxable estate.

  6. A Pooled Income Fund differs from a donor-advised fund because contributions to a Pooled Income Fund must be:

    Answer: Commingled with other donors' contributions and invested collectively

    A Pooled Income Fund commingles contributions from multiple donors, similar to a mutual fund, with each donor receiving a pro-rata share of fund income for life before the remainder passes to the charity.

  7. In a 'net income with makeup charitable remainder unitrust' (NIMCRUT), accumulated deficiencies from prior years when income was insufficient may be:

    Answer: Carried forward and paid to the non-charitable beneficiary in a later year when income exceeds the unitrust percentage

    A NIMCRUT includes a 'makeup' provision that allows accumulated shortfalls from years when trust income was below the unitrust amount to be paid out in future years when income exceeds the unitrust percentage.