AEP Estate Planning Fundamentals 2 — Questions and Answers
Question 1: Which document allows an agent to make financial decisions on behalf of a principal even after the principal becomes incapacitated?
- Revocable living trust
- Durable power of attorney (Correct answer)
- Healthcare proxy
- Testamentary trust
Correct answer: Durable power of attorney
A durable power of attorney remains effective upon the principal's incapacity, unlike a standard power of attorney which terminates at incapacity.
Question 2: What is the primary advantage of a revocable living trust over a will in estate planning?
- Lower income tax liability
- Avoidance of probate (Correct answer)
- Elimination of estate taxes
- Protection from creditors during life
Correct answer: Avoidance of probate
Assets held in a revocable living trust pass directly to beneficiaries without going through the probate process.
Question 3: Under the 2017 Tax Cuts and Jobs Act, what happens to the increased federal estate tax exemption after December 31, 2025?
- It becomes permanent
- It is eliminated entirely
- It sunsets and reverts to pre-2018 levels adjusted for inflation (Correct answer)
- It doubles again
Correct answer: It sunsets and reverts to pre-2018 levels adjusted for inflation
The TCJA's doubled exemption sunsets after 2025, reverting to approximately $5 million (inflation-adjusted) per person.
Question 4: A testator dies with a will that leaves property to a beneficiary who predeceased the testator. Which doctrine may cause the gift to pass to the deceased beneficiary's descendants instead?
- Cy-pres doctrine
- Anti-lapse statute (Correct answer)
- Per stirpes rule
- Spendthrift provision
Correct answer: Anti-lapse statute
Anti-lapse statutes in many states save a bequest from lapsing by redirecting it to the deceased beneficiary's descendants.
Question 5: Which type of property ownership includes a right of survivorship that automatically transfers the deceased owner's interest to surviving owners?
- Tenancy in common
- Community property
- Joint tenancy (Correct answer)
- Tenancy by the entirety
Correct answer: Joint tenancy
Joint tenancy includes the right of survivorship, meaning the deceased joint tenant's share passes automatically to surviving joint tenants.
Question 6: What is the federal gift tax annual exclusion amount per recipient for 2024?
- $15,000
- $16,000
- $17,000
- $18,000 (Correct answer)
Correct answer: $18,000
The annual gift tax exclusion increased to $18,000 per recipient in 2024, up from $17,000 in 2023.
Question 7: Which planning technique involves an elderly parent transferring a home to children while retaining the right to live there for a fixed term?
- Grantor retained annuity trust (GRAT)
- Qualified personal residence trust (QPRT) (Correct answer)
- Intentionally defective grantor trust (IDGT)
- Charitable remainder trust (CRT)
Correct answer: Qualified personal residence trust (QPRT)
A QPRT allows the grantor to transfer a residence to heirs at a reduced gift tax value while retaining the right to occupy it for a specified term.
AEP Estate Planning Fundamentals 2
Which document allows an agent to make financial decisions on behalf of a principal even after the principal becomes incapacitated?