AEP Estate Planning Fundamentals 5

Question 1

A grantor retained annuity trust (GRAT) is most effective as an estate planning tool when:

Accepted Answer

Interest rates are low and the transferred assets are expected to outperform the IRS §7520 rate

Answer

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.

Question 2

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?

Accepted Answer

Charitable remainder trust (CRT)

Answer

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.

Question 3

Under the Uniform Trust Code, what is the general standard of care required of a trustee when investing trust assets?

Accepted Answer

The prudent investor standard

Answer

The Uniform Prudent Investor Act requires trustees to invest as a prudent investor would, considering risk, return, and the overall trust portfolio.

Question 4

What is the '65-day rule' in trust taxation under IRC §663(b)?

Accepted Answer

A trustee may elect to treat distributions made within 65 days after year-end as if made in the prior tax year

Answer

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.

Question 5

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?

Accepted Answer

Perpetual dynasty trust

Answer

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.

(AEP) Accredited Estate Planner Practice Test

(AEP) Accredited Estate Planner Practice Test

AEP Estate Planning Fundamentals 5