Asset Management & Wealth Transfer Flashcards

Under the SECURE Act 2.0, most non-spouse beneficiaries who inherit an IRA must deplete the account within how many years?

Answer: 10 years

The SECURE Act eliminated the stretch IRA for most non-spouse beneficiaries, requiring full distribution within 10 years of the account owner's death.

A client in a high tax bracket wants to make a large charitable gift of appreciated stock. What is the primary tax advantage of donating the stock directly rather than selling it first?

Answer: The client avoids capital gains tax on the appreciation and receives a deduction for the full fair market value

Donating appreciated stock directly to a charity allows the donor to avoid capital gains tax entirely while deducting the full fair market value, subject to AGI limitations.

Which document authorizes an agent to make financial and legal decisions on behalf of a principal if the principal becomes incapacitated?

Answer: Durable power of attorney for finances

A durable power of attorney for finances remains effective (or springs into effect) upon incapacity, allowing the named agent to manage assets and legal matters without court intervention.

In the context of wealth transfer, what is the 'reciprocal trust doctrine'?

Answer: An IRS doctrine that collapses interrelated trusts when grantors essentially create trusts for each other, resulting in estate inclusion

The reciprocal trust doctrine treats two crossed trusts (e.g., spouses each creating trusts for the other) as if each grantor had created the trust for themselves, causing estate inclusion.

A Charitable Remainder Unitrust (CRUT) differs from a Charitable Remainder Annuity Trust (CRAT) in that the CRUT pays:

Answer: A fixed percentage of the trust's annually revalued assets

A CRUT pays a fixed percentage of trust assets as revalued each year, so distributions fluctuate with asset values, while a CRAT pays a fixed dollar amount regardless of performance.

Which strategy uses the sale of assets to an IDGT in exchange for a promissory note as a way to transfer wealth?

Answer: Installment sale to an intentionally defective grantor trust

Selling appreciating assets to an IDGT in exchange for an installment note removes future appreciation from the estate while the grantor's income tax payments on trust earnings provide an additional indirect gift.

Which of the following is the most accurate statement about portability of the estate tax exemption between spouses?

Answer: The executor of the deceased spouse's estate must file a timely estate tax return to elect portability of the unused exemption

Portability is not automatic; the executor must file a federal estate tax return (Form 706) to elect the Deceased Spousal Unused Exclusion (DSUE) amount, even if no tax is owed.