CAP CAP Estate Planning & Wealth Transfer 1 — Questions and Answers
Question 1: Which estate planning tool allows a donor to transfer assets to a trust, receive an annuity payment for a fixed term, and pass remaining assets to heirs with reduced gift tax?
- Grantor Retained Annuity Trust (GRAT) (Correct answer)
- Charitable Remainder Annuity Trust (CRAT)
- Donor Advised Fund (DAF)
- Qualified Personal Residence Trust (QPRT)
Correct answer: Grantor Retained Annuity Trust (GRAT)
A GRAT allows the grantor to receive fixed annuity payments for a term, with any remaining assets passing to heirs potentially free of gift tax if the IRS hurdle rate is exceeded.
Question 2: Under current U.S. law, what is the federal estate tax exemption amount per individual for 2024?
- $5.49 million
- $10.92 million
- $12.92 million
- $13.61 million (Correct answer)
Correct answer: $13.61 million
For 2024, the federal estate and gift tax exemption is $13.61 million per individual, indexed for inflation annually.
Question 3: A philanthropic advisor recommends a testamentary charitable bequest. Which document is used to make this gift?
- Revocable living trust
- Last will and testament (Correct answer)
- Beneficiary designation form
- Charitable gift annuity agreement
Correct answer: Last will and testament
A testamentary charitable bequest is made through a last will and testament and takes effect at the donor's death.
Question 4: Which strategy allows a high-net-worth donor to remove life insurance proceeds from their taxable estate while still funding a charity at death?
- Split-dollar life insurance arrangement
- Irrevocable Life Insurance Trust (ILIT) with charity as beneficiary (Correct answer)
- Whole life policy held personally with charity as beneficiary
- Group term life insurance through employer
Correct answer: Irrevocable Life Insurance Trust (ILIT) with charity as beneficiary
An ILIT removes the policy from the insured's taxable estate, and naming the charity as beneficiary directs proceeds to philanthropy at death.
Question 5: What is the primary purpose of a 'pour-over will' in an estate plan that includes a revocable living trust?
- To distribute assets to heirs outside the trust
- To transfer probate assets into the revocable trust at death (Correct answer)
- To establish a new charitable fund at death
- To replace the need for beneficiary designations
Correct answer: To transfer probate assets into the revocable trust at death
A pour-over will directs any assets not already in the revocable trust at death to 'pour over' into that trust, ensuring a unified distribution plan.
Question 6: A couple wishes to reduce estate taxes while benefiting a charity. Which technique involves transferring a home to a trust, retaining the right to live there, and donating the remainder interest to charity?
- Qualified Personal Residence Trust (QPRT)
- Charitable Remainder Unitrust (CRUT)
- Retained Life Estate (Correct answer)
- Grantor Lead Trust
Correct answer: Retained Life Estate
A retained life estate allows the donor to deed a personal residence to a charity while retaining the right to use it for life, generating a current charitable deduction.
CAP CAP Estate Planning & Wealth Transfer 1
Which estate planning tool allows a donor to transfer assets to a trust, receive an annuity payment for a fixed term, and pass remaining assets to heirs with reduced gift tax?