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
The 'reciprocal trust doctrine' is an IRS strategy that can cause two trusts to be included back in the grantors' estates when:
Answer: Spouses create trusts for each other in a way that effectively puts each in the same economic position as before the transfers
The reciprocal trust doctrine 'unwinds' crossed trusts when spouses essentially swap benefits, leaving each in the same economic position as if no trust had been created.
An 'ethical will' differs from a traditional last will and testament in that it:
Answer: Conveys personal values, life lessons, and wishes for future generations rather than property
An ethical will is a personal legacy document that passes wisdom, values, and life stories — it has no legal standing but deep emotional and cultural value.
When applying the annual gift tax exclusion in a family limited partnership, the IRS may challenge discounted gifts because:
Answer: The IRS may argue the gifts lack a 'present interest' required for the annual exclusion if transfer restrictions apply
The annual gift tax exclusion requires a gift of a present interest; FLP interests with transfer restrictions may be characterized as future interests, disqualifying them from the exclusion.
A trustee's duty of impartiality in a trust with both income and remainder beneficiaries requires the trustee to:
Answer: Balance the competing interests of current income beneficiaries and future remainder beneficiaries in investment and distribution decisions
The duty of impartiality requires the trustee to neither favor current income beneficiaries nor remainder beneficiaries but to act fairly toward both classes.
In a family governance context, a 'rising generation education program' is designed primarily to:
Answer: Prepare younger family members to responsibly manage, steward, and eventually lead family wealth and governance
Rising generation programs focus on financial literacy, governance skills, and values development to ensure wealth continuity across generations.
Which of the following is a key distinction between a revocable living trust and an irrevocable trust from an estate tax perspective?
Answer: Assets in a revocable trust are included in the taxable estate, while properly structured irrevocable trust assets may not be
A revocable trust is fully included in the grantor's taxable estate because the grantor retains control; an irrevocable trust, if properly structured, removes assets from the taxable estate.
The 'prudent investor rule,' which governs trustee investment decisions, requires trustees to:
Answer: Consider risk and return in the context of the entire portfolio, focusing on overall strategy rather than individual investments in isolation
The prudent investor rule, codified in the Uniform Prudent Investor Act, evaluates investment decisions in the context of the total portfolio strategy and the trust's purposes.