Estate Planning Principles & Strategies Flashcards

A grantor creates a Grantor Retained Annuity Trust (GRAT). Which of the following best describes the estate planning benefit?

Answer: If trust assets outperform the IRS Section 7520 rate, the excess passes gift-tax-free to heirs

A GRAT transfers appreciation above the § 7520 hurdle rate to remainder beneficiaries gift-tax-free; if the grantor dies during the GRAT term, assets revert to the estate.

Which type of power of appointment, if held at death, causes the property subject to it to be included in the holder's gross estate?

Answer: General power of appointment

A general power of appointment — exercisable in favor of the holder, their estate, or creditors — causes inclusion in the gross estate under IRC § 2041.

For a Charitable Remainder Unitrust (CRUT), what percentage of the trust's fair market value must be paid to income beneficiaries each year?

Answer: At least 5% but not more than 50%

A CRUT must pay a fixed percentage between 5% and 50% of the trust's annually revalued net assets to the income beneficiaries.

Under the unlimited marital deduction, which of the following transfers would NOT qualify?

Answer: Outright bequest to a non-citizen resident alien spouse

The unlimited marital deduction does not apply to outright transfers to non-citizen spouses; a QDOT is required to defer estate tax for non-citizen surviving spouses.

A decedent's estate consists primarily of a closely held business worth $8 million. Which provision allows the estate to pay federal estate taxes in installments over up to 14 years?

Answer: IRC § 6166 — Installment payment of estate taxes

IRC § 6166 allows estates with qualifying closely held business interests exceeding 35% of the adjusted gross estate to elect installment payments of estate tax over up to 14 years.

A Spousal Lifetime Access Trust (SLAT) is designed to:

Answer: Remove assets from the taxable estate while allowing the donor's spouse indirect access to benefits

A SLAT is an irrevocable trust where one spouse gifts assets to an irrevocable trust for the other spouse's benefit, removing assets from the donor's estate while the beneficiary spouse retains access.

Which estate planning technique is most effective for transferring a life insurance policy outside the insured's estate?

Answer: Transferring the policy to an Irrevocable Life Insurance Trust (ILIT) more than three years before death

Transferring a life insurance policy to an ILIT removes the death benefit from the insured's gross estate, provided the transfer occurs more than three years before death under IRC § 2035.