AEP Business Succession Planning Flashcards
6 cards from real AEP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 AEP Business Succession Planning flashcards as text
A buy-sell agreement funded with life insurance that is triggered upon a business owner's death ensures which primary outcome?
Answer: The surviving owners can purchase the deceased's interest at a predetermined price
A life insurance-funded buy-sell agreement provides the surviving owners with tax-free death benefit proceeds to purchase the deceased owner's interest at a pre-agreed valuation.
In a cross-purchase buy-sell agreement among three business owners, how many life insurance policies are typically required?
Answer: 6
In a cross-purchase agreement, each owner insures every other owner, so with three owners the formula is n(n-1) = 3×2 = 6 policies.
Which business succession vehicle allows a parent to transfer a family business to children while retaining an income stream and minimizing gift tax?
Answer: Both A and B
Both an IDGT installment sale and a GRAT can shift business appreciation to the next generation while the grantor retains income, making them complementary succession tools.
For federal estate tax purposes, a closely held business interest may be eligible for a valuation discount due to lack of marketability (DLOM) and lack of control (DLOC) primarily because:
Answer: A hypothetical buyer would pay less for an illiquid, non-controlling interest
Valuation discounts reflect economic reality: a hypothetical buyer would demand a lower price for an interest that cannot be easily sold and provides no ability to control business decisions.
IRC §6166 provides estate tax relief specifically for estates with a significant closely held business interest by allowing:
Answer: Installment payments of estate tax attributable to the business over up to 14 years
IRC §6166 permits estates where the closely held business exceeds 35% of the adjusted gross estate to pay the business-related estate tax in installments over up to 14 years at favorable interest rates.
A family limited partnership (FLP) used in business succession planning primarily achieves which estate planning benefit?
Answer: Allows valuation discounts on transferred limited partnership interests, reducing gift and estate tax
Transferring limited partnership interests in an FLP allows the donor to apply DLOM and DLOC discounts, reducing the taxable value of gifts and estate transfers to family members.