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
A grantor retained annuity trust (GRAT) is most effective as an estate planning tool when:
Answer: Interest rates are low and the transferred assets are expected to outperform the IRS §7520 rate
A GRAT works best when the assets appreciate at a rate exceeding the §7520 hurdle rate, because the excess passes to heirs free of gift tax.
Which type of charitable trust provides the donor with an immediate income tax deduction, pays income to a non-charitable beneficiary for a term, and then distributes the remainder to charity?
Answer: Charitable remainder trust (CRT)
A charitable remainder trust pays income to the donor or other beneficiaries for a term or life, with the remainder passing to a qualified charity.
Under the Uniform Trust Code, what is the general standard of care required of a trustee when investing trust assets?
Answer: The prudent investor standard
The Uniform Prudent Investor Act requires trustees to invest as a prudent investor would, considering risk, return, and the overall trust portfolio.
What is the '65-day rule' in trust taxation under IRC §663(b)?
Answer: A trustee may elect to treat distributions made within 65 days after year-end as if made in the prior tax year
IRC §663(b) allows trustees to elect to treat distributions made within 65 days after the close of the tax year as distributions of the prior year, offering flexibility in income planning.
Which estate planning technique uses a dynasty trust designed to last multiple generations and is particularly effective with the generation-skipping transfer (GST) tax exemption?
Answer: Perpetual dynasty trust
A dynasty trust (perpetual trust) is designed to hold assets for multiple generations, and funding it with GST exemption shelters the entire trust from GST tax forever.
A disclaimer in estate planning must generally meet which requirement under IRC §2518 to be considered 'qualified'?
Answer: Must be written, irrevocable, and made within 9 months of the transfer
A qualified disclaimer under IRC §2518 must be in writing, irrevocable, timely (within 9 months), and the disclaimant must not have accepted any benefits from the interest.
What is the primary estate planning risk of naming a minor child as a direct beneficiary of a life insurance policy or retirement account?
Answer: A court-appointed guardian or conservator will be required to manage the assets until the child reaches majority
Minors cannot legally control assets, so a court must appoint a guardian of the property to manage the funds until the child reaches the age of majority, which can be costly and inflexible.