Family Governance & 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 Family Governance & Wealth Transfer flashcards as text
When drafting an incentive trust, a common concern is the 'dead hand' problem, which refers to:
Answer: The grantor controlling beneficiary behavior from the grave through restrictive trust provisions
The 'dead hand' problem occurs when trust provisions so tightly control beneficiary behavior that they may be counterproductive or unenforceable.
A family limited liability company (FLLC) offers estate planning benefits similar to an FLP but is generally preferred because:
Answer: It offers greater flexibility in management structure and fewer formalities than a limited partnership
FLLCs provide comparable valuation discount benefits with fewer formal requirements and more flexible governance structures than FLPs.
In a multi-generational wealth transfer plan, 'human capital' refers to:
Answer: The skills, education, health, and earning potential of family members
Human capital encompasses the productive capacity of individuals — their knowledge, skills, and health — which is a core focus of holistic family governance.
A charitable lead annuity trust (CLAT) differs from a charitable remainder trust (CRT) in that the CLAT:
Answer: Pays a fixed annuity to charity first, with the remainder passing to non-charitable beneficiaries
In a CLAT, the charity receives the lead interest (fixed annuity payments) during the trust term, and non-charitable heirs receive the remainder.
Which principle of the Uniform Trust Code (UTC) allows a court to modify an irrevocable trust when circumstances have changed in ways the settlor did not anticipate?
Answer: Equitable deviation
Equitable deviation permits courts to modify trust administrative or dispositive terms when unanticipated circumstances arise that would frustrate the settlor's intent.
A private foundation differs from a donor-advised fund (DAF) primarily in that a private foundation:
Answer: Requires the donor to maintain operational control and file annual IRS returns (Form 990-PF)
Private foundations require active management, annual IRS filings, and adherence to minimum distribution rules, unlike DAFs which are managed by a sponsoring organization.
A family governance 'values audit' is best described as:
Answer: A structured process to identify and articulate the family's core beliefs and priorities to guide decision-making
A values audit is a facilitated family process to surface shared beliefs and priorities, which then inform governance documents, investment policies, and philanthropic strategies.