Mixed Deck — All CEA Topics Flashcards

What is a 'backdoor Roth IRA' contribution strategy used by high-income earners?

Answer: Making a non-deductible traditional IRA contribution and then converting it to a Roth IRA

The backdoor Roth strategy allows high-income earners who exceed direct Roth IRA income limits to make non-deductible traditional IRA contributions and immediately convert them to a Roth IRA, subject to the pro-rata rule.

Under the SECURE Act 2.0 (effective 2023), at what age must required minimum distributions (RMDs) begin for individuals born between 1951 and 1959?

Answer: 73

SECURE Act 2.0 increased the RMD starting age to 73 for individuals born between 1951 and 1959, and to 75 for those born in 1960 or later.

How should CEA professionals handle confidential information related to family governance & wealth transfer?

Answer: Follow established protocols for data protection, access control, and disclosure in accordance with applicable regulations

Confidential information must be handled according to established protocols, regulatory requirements, and professional ethics standards, including proper access control and disclosure procedures.

A conservator is appointed for an elder. What is the conservator's primary legal obligation regarding the ward's assets?

Answer: Manage assets for the ward's benefit under a fiduciary duty

A conservator owes a fiduciary duty to manage the ward's assets solely in the ward's best interest, not for the benefit of others.

Which of the following business succession strategies is MOST appropriate when the owner wants to transfer the business to family members who lack the capital to purchase it outright?

Answer: Gifting interests using the annual exclusion and lifetime exemption over time

Systematic gifting of business interests using the annual gift exclusion and lifetime exemption allows intra-family transfers without requiring the recipients to have purchase capital.

What is 'surcharge' in the context of trustee liability?

Answer: A monetary remedy requiring a trustee to compensate the trust for losses caused by a breach of fiduciary duty

Surcharge is the primary remedy for trustee misconduct, requiring the breaching trustee to make the trust whole for any losses resulting from the breach of fiduciary duty.

What is the purpose of probate administration?

Answer: Estate management and distribution

The purpose of probate administration is to legally manage and distribute a deceased person's estate under court supervision. This comprehensive process involves identifying and inventorying all assets, paying off any outstanding debts and taxes, and ultimately distributing the remaining assets to the rightful heirs or beneficiaries. It ensures that the deceased's wishes, as expressed in a will, are carried out, or that state law is followed if no will exists.

For a closely held business owner with an illiquid estate, life insurance most directly solves the problem of:

Answer: Providing cash to pay estate taxes without selling the business at a loss

Life insurance creates immediate cash at death, allowing heirs to pay estate taxes and expenses without a forced or discounted sale of the business.

What is the primary advantage of using an Employee Stock Ownership Plan (ESOP) in business succession?

Answer: The selling owner may defer capital gains by reinvesting in qualified replacement property under IRC Section 1042

Under IRC Section 1042, a business owner selling to an ESOP can defer capital gains tax by reinvesting proceeds in qualified replacement property (QRP).

Which document allows a trustee to prove their authority to act on behalf of a trust without revealing the full trust document?

Answer: Certificate of Trust

A Certificate of Trust is a summary document that confirms the trust's existence and the trustee's powers without disclosing confidential terms.

A grantor retained annuity trust (GRAT) is most effective when:

Answer: Interest rates are low and the transferred assets are expected to outperform the IRS hurdle rate (7520 rate)

GRATs work best when assets appreciate beyond the IRS Section 7520 rate, transferring the excess appreciation to heirs gift-tax free.

What is the most effective way to measure success in life insurance & estate liquidity within CEA professional practice?

Answer: Use a combination of quantitative metrics, qualitative assessments, and stakeholder feedback aligned with defined objectives

Effective measurement combines multiple data sources — quantitative metrics, qualitative assessments, and stakeholder feedback — all aligned with clearly defined objectives for a comprehensive evaluation.

Under the step-up in basis rule, an heir who inherits stock originally purchased for $10,000 but worth $90,000 at the decedent's death will have a cost basis of:

Answer: $90,000 (fair market value at death)

IRC § 1014 steps up the heir's basis to the asset's fair market value on the date of death, eliminating any built-in gain.

Which of the following gifts to a Donor-Advised Fund does NOT qualify as a deductible contribution?

Answer: A pledge to make a future cash contribution

A pledge to make a future contribution is not deductible until the cash or property is actually transferred to the DAF; pledges do not constitute completed gifts.

Which strategy allows a donor to contribute to charity via a bequest that is fully revocable during the donor's lifetime and does not qualify for a current income tax deduction?

Answer: Charitable bequest in a will

A charitable bequest in a will is revocable during the donor's lifetime, qualifies for an estate tax deduction, but provides no current income tax deduction.

In probate, what is a 'creditor's claim period'?

Answer: The statutory deadline by which creditors must file claims against the estate

State law sets a creditor's claim period — typically 3 to 6 months after notice — after which untimely claims are generally barred.

Which of the following correctly describes a 'dynasty trust'?

Answer: A long-term trust designed to hold assets for multiple generations, often using the GSTT exemption

A dynasty trust is structured to last for multiple generations (often in states that have abolished the rule against perpetuities), using the grantor's GSTT exemption to avoid transfer taxes at each generation.

Which valuation discount is most commonly applied when gifting a minority interest in a family limited partnership (FLP)?

Answer: Minority interest and lack of marketability discounts

Minority interest discounts (for lack of control) and lack-of-marketability discounts are routinely applied to FLP interests, reducing the taxable gift value.

A client holds shares in a foreign corporation that owns US real property. What US tax rule may cause the client to be treated as directly owning the underlying US real property?

Answer: The Foreign Investment in Real Property Tax Act (FIRPTA) look-through rules

FIRPTA look-through rules can treat interests in foreign corporations that own US real property as direct US-situs assets for estate tax purposes.

A donor who contributes long-term capital gain property to a public charity generally may deduct up to what percentage of AGI?

Answer: 30%

Contributions of long-term capital gain property (such as appreciated stock held over one year) to public charities are limited to 30% of AGI, with a 5-year carryforward.