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Taxation in Estate Planning 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 Taxation in Estate Planning flashcards as text

  1. Which valuation discount is most commonly applied when transferring minority interests in a family limited partnership (FLP) for estate tax purposes?

    Answer: Minority interest discount

    A minority interest discount reflects the lack of control a minority owner has, and it is the most frequently applied discount in FLP transfers.

  2. A grantor retained annuity trust (GRAT) is most effective when the assets transferred into it are expected to:

    Answer: Appreciate at a rate exceeding the IRS Section 7520 rate

    A GRAT succeeds when trust assets outperform the Section 7520 hurdle rate, passing the excess appreciation to heirs gift-tax-free.

  3. For federal estate tax purposes, the alternate valuation date allows an executor to value estate assets as of:

    Answer: Six months after the date of death

    IRC §2032 permits the executor to elect alternate valuation using asset values six months after death, but only if doing so reduces both the gross estate and the estate tax.

  4. Under IRC §2056A, a Qualified Domestic Trust (QDOT) is used to defer estate taxes when:

    Answer: The surviving spouse is not a U.S. citizen

    A QDOT defers the estate tax marital deduction for a non-citizen surviving spouse, ensuring U.S. tax is collected before assets leave U.S. jurisdiction.

  5. Which IRC section governs the inclusion of assets in a decedent's gross estate when the decedent retained a life interest in transferred property?

    Answer: IRC §2036

    IRC §2036 requires inclusion of transferred property in the gross estate when the decedent retained the right to income or possession for life.

  6. A charitable lead annuity trust (CLAT) provides an income stream to charity first and then passes remaining assets to:

    Answer: Non-charitable beneficiaries such as family members

    In a CLAT, charity receives annuity payments for the trust term, and the remainder passes to non-charitable beneficiaries, potentially with significant estate and gift tax savings.

  7. The generation-skipping transfer (GST) tax exemption in 2024 is indexed for inflation and applies to transfers that skip how many generations?

    Answer: At least one generation below the transferor

    The GST tax applies when assets pass to a 'skip person,' generally a beneficiary at least one generation below the transferor, such as a grandchild.