Asset Management & Wealth Transfer Flashcards
7 cards from real CEA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Asset Management & Wealth Transfer flashcards as text
A family limited partnership (FLP) is commonly used in estate planning primarily to:
Answer: Consolidate family assets and facilitate discounted transfers to heirs
FLPs allow senior family members to transfer limited partnership interests at valuation discounts for lack of control and marketability, reducing the taxable estate.
Which federal tax applies to transfers that skip one or more generations, such as gifts directly to grandchildren?
Answer: Generation-Skipping Transfer (GST) Tax
The GST tax is a flat tax (equal to the top estate tax rate) imposed on transfers to 'skip persons,' typically grandchildren or more remote descendants.
A client with a large IRA wants to benefit a charity and heirs simultaneously. Which strategy accomplishes this most efficiently?
Answer: Leave the IRA directly to the charity and use life insurance to replace the wealth for heirs
Because IRAs carry income-in-respect-of-a-decedent (IRD) tax, leaving the IRA to a tax-exempt charity avoids all income tax, while life insurance replaces that wealth for heirs income-tax-free.
Under the 'prudent investor rule,' a trustee's investment decisions are evaluated based on:
Answer: The overall portfolio and the total risk-return tradeoff in the context of the trust's purposes
The Uniform Prudent Investor Act (UPIA) requires trustees to evaluate investments as part of a diversified portfolio strategy consistent with the trust's goals and risk tolerance.
Which of the following best describes an 'intentionally defective grantor trust' (IDGT)?
Answer: A trust that is outside the grantor's estate for estate tax purposes but treated as the grantor's property for income tax purposes
An IDGT is deliberately structured so that the grantor pays the trust's income taxes, effectively making additional tax-free gifts to beneficiaries while the assets grow outside the estate.
When a closely held business owner dies, which estate planning tool is specifically designed to allow installment payment of estate taxes attributable to that business interest?
Answer: IRC §6166 installment payment election
IRC §6166 allows the estate to defer and then pay in installments the portion of estate tax attributable to a closely held business if it exceeds 35% of the adjusted gross estate.
A trustee managing a trust with both income and remainder beneficiaries faces which fundamental tension?
Answer: Balancing current income distributions to income beneficiaries against capital growth for remainder beneficiaries
Income beneficiaries prefer high-yield assets for current cash flow, while remainder beneficiaries prefer growth assets; the trustee must balance both interests equitably.