Retirement and Estate Planning Flashcards

A client over age 70½ wants to donate to charity directly from their IRA without triggering taxable income. Which strategy accomplishes this?

Answer: Qualified Charitable Distribution (QCD)

A Qualified Charitable Distribution (QCD) allows IRA owners age 70½ or older to transfer up to $105,000 (2024) directly to a qualified charity, satisfying RMD requirements without including the amount in taxable income.

Which type of trust allows a grantor to transfer assets, receive an annuity payment for a fixed term, and pass remaining assets to beneficiaries at reduced gift tax cost?

Answer: Grantor retained annuity trust (GRAT)

A GRAT allows the grantor to receive fixed annuity payments for a set term; if assets outperform the IRS hurdle rate (Section 7520 rate), the excess passes to beneficiaries gift-tax-free.

What distinguishes a 'safe harbor' 401(k) plan from a standard 401(k) plan?

Answer: Safe harbor plans automatically satisfy ADP/ACP nondiscrimination tests in exchange for mandatory employer contributions

Safe harbor 401(k) plans automatically pass ADP/ACP nondiscrimination tests if the employer makes required matching or nonelective contributions, which must be immediately 100% vested.

A client is concerned about Medicaid spend-down rules for nursing home care. What is the Medicaid 'look-back period' for most asset transfers?

Answer: 5 years

Medicaid reviews asset transfers made within the 5-year look-back period prior to application; transfers for less than fair market value can result in a penalty period of ineligibility.

Which Social Security benefit is available to a divorced spouse who was married for at least 10 years, provided they are currently unmarried?

Answer: Spousal benefit up to 50% of the ex-spouse's PIA

A divorced spouse who was married at least 10 years and is currently unmarried may claim up to 50% of the ex-spouse's Primary Insurance Amount (PIA) as a spousal benefit.

What is the purpose of a 'probate avoidance' strategy in estate planning, and which tools most commonly achieve it?

Answer: To transfer assets directly to beneficiaries outside of court supervision, using tools like trusts, beneficiary designations, and joint ownership

Probate avoidance transfers assets directly to beneficiaries without court involvement, saving time and costs; common tools include revocable living trusts, POD/TOD designations, and joint tenancy.

A client age 60 with a traditional pension must choose between a single-life annuity of $3,000/month or a joint-and-survivor annuity of $2,400/month. What is the primary factor in this decision?

Answer: The spouse's age, health, and other retirement income sources

The joint-and-survivor option provides income for a surviving spouse, so the decision hinges on the spouse's life expectancy, health, and whether they have independent retirement income.