CAP Estate Planning & Wealth Transfer Flashcards

Which of the following best describes 'portability' in the context of federal estate planning?

Answer: A surviving spouse's ability to use the deceased spouse's unused estate tax exemption

Portability allows a surviving spouse to elect to use any unused federal estate tax exemption from the deceased spouse, effectively doubling the shelter available.

A donor transfers appreciated farmland to a Charitable Remainder Trust. What is a key income tax benefit at the time of transfer?

Answer: The donor receives a partial charitable deduction for the present value of the remainder interest

When funding a CRT, the donor receives an income tax deduction equal to the IRS-calculated present value of the remainder interest passing to charity.

In estate planning, what does 'step-up in basis' mean for inherited assets?

Answer: The heir's cost basis is reset to the fair market value at the decedent's date of death

Inherited assets receive a stepped-up basis equal to the fair market value on the date of death, eliminating capital gains tax on pre-death appreciation.

A philanthropic advisor suggests using IRD (Income in Respect of a Decedent) assets for charitable bequests. What is the primary reason for this strategy?

Answer: IRD assets such as traditional IRAs are subject to both estate and income tax, making them most tax-efficient to leave to charity

IRD assets like traditional IRAs are taxable as ordinary income when received by individual heirs but are income-tax-free when paid to a qualifying charity.

Which of the following is NOT a characteristic of a Grantor Retained Unitrust (GRUT)?

Answer: The grantor receives a fixed dollar annuity regardless of trust performance

A GRUT pays a fixed percentage of the trust's annually revalued assets, so payouts vary with performance—unlike a GRAT, which pays a fixed dollar annuity.

What is the annual federal gift tax exclusion amount per recipient for 2024?

Answer: $18,000

For 2024, the annual gift tax exclusion is $18,000 per donor per recipient, allowing tax-free transfers up to that amount without reducing the lifetime exemption.