AEP AEP Business Succession Planning

Question 1

A buy-sell agreement funded with life insurance that is triggered upon a business owner's death ensures which primary outcome?

Accepted Answer

The surviving owners can purchase the deceased's interest at a predetermined price

Answer

The deceased owner's family retains control of the business

Answer

The business is liquidated and proceeds are distributed equally

Answer

All outstanding business debts are automatically extinguished

Question 2

In a cross-purchase buy-sell agreement among three business owners, how many life insurance policies are typically required?

Accepted Answer

6

Answer

3

Answer

9

Answer

12

Question 3

Which business succession vehicle allows a parent to transfer a family business to children while retaining an income stream and minimizing gift tax?

Accepted Answer

Both A and B

Answer

Intentionally Defective Grantor Trust (IDGT) with installment sale

Answer

Grantor Retained Annuity Trust (GRAT)

Answer

Charitable Lead Annuity Trust (CLAT)

Question 4

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:

Accepted Answer

A hypothetical buyer would pay less for an illiquid, non-controlling interest

Answer

The IRS mandates discounts for all family businesses

Answer

Minority interests are always valued at book value

Answer

Business assets depreciate faster than public company assets

Question 5

IRC §6166 provides estate tax relief specifically for estates with a significant closely held business interest by allowing:

Accepted Answer

Installment payments of estate tax attributable to the business over up to 14 years

Answer

A full exclusion of the business value from the taxable estate

Answer

A stepped-up basis on all business assets

Answer

A charitable deduction equal to 50% of the business value

Question 6

A family limited partnership (FLP) used in business succession planning primarily achieves which estate planning benefit?

Accepted Answer

Allows valuation discounts on transferred limited partnership interests, reducing gift and estate tax

Answer

Eliminates all capital gains taxes on asset transfers

Answer

Qualifies the family for the §2032A special use valuation

Answer

Avoids the generation-skipping transfer tax entirely