Estate Planning Fundamentals Flashcards
7 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 7 Estate Planning Fundamentals flashcards as text
What is the primary purpose of a spendthrift clause in a trust?
Answer: To prevent beneficiaries from assigning their interest and protect it from creditors
A spendthrift clause restricts a beneficiary's ability to transfer their interest and shields trust assets from the beneficiary's creditors.
Under the Uniform Disposition of Community Property Act, how is community property treated when a couple moves from a community property state to a common law state?
Answer: It retains its community property character
The UDCPA, adopted by some common law states, preserves the community property character of assets acquired in a community property state.
Which federal tax provision allows a surviving spouse to use any unused estate tax exemption of the deceased spouse?
Answer: Portability
Portability, introduced in 2010, allows a surviving spouse to elect to use the deceased spouse's unused estate tax exemption (DSUE).
A grantor creates an irrevocable life insurance trust (ILIT) and transfers a policy into it. What must occur to exclude the death proceeds from the grantor's gross estate?
Answer: The grantor must survive the transfer by 3 years
Under IRC §2035, if the grantor transfers a life insurance policy to an ILIT and dies within 3 years, the proceeds are included in the gross estate.
What distinguishes a per stirpes distribution from a per capita distribution among beneficiaries?
Answer: Per stirpes distributes by bloodline branches; per capita distributes equally among all living descendants at the same generation level
Per stirpes divides an estate by family branches so descendants of a deceased heir step into their parent's share; per capita distributes equally among all living members of a generation.
Which estate planning document specifically designates an individual to make medical decisions for an incapacitated person?
Answer: Healthcare proxy (healthcare power of attorney)
A healthcare proxy or healthcare power of attorney designates an agent to make medical decisions when the principal cannot do so.
What is the generation-skipping transfer (GST) tax designed to prevent?
Answer: Avoiding estate tax by skipping generations and transferring wealth directly to grandchildren or lower
The GST tax imposes a separate tax on transfers to beneficiaries two or more generations below the transferor, preventing families from avoiding estate taxes by skipping a generation.