CEA Asset Management & Wealth Transfer 3

Question 1

A family limited partnership (FLP) is commonly used in estate planning primarily to:

Accepted Answer

Consolidate family assets and facilitate discounted transfers to heirs

Answer

FLPs allow senior family members to transfer limited partnership interests at valuation discounts for lack of control and marketability, reducing the taxable estate.

Question 2

Which federal tax applies to transfers that skip one or more generations, such as gifts directly to grandchildren?

Accepted Answer

Generation-Skipping Transfer (GST) Tax

Answer

The GST tax is a flat tax (equal to the top estate tax rate) imposed on transfers to 'skip persons,' typically grandchildren or more remote descendants.

Question 3

A client with a large IRA wants to benefit a charity and heirs simultaneously. Which strategy accomplishes this most efficiently?

Accepted Answer

Leave the IRA directly to the charity and use life insurance to replace the wealth for heirs

Answer

Because IRAs carry income-in-respect-of-a-decedent (IRD) tax, leaving the IRA to a tax-exempt charity avoids all income tax, while life insurance replaces that wealth for heirs income-tax-free.

Question 4

Under the 'prudent investor rule,' a trustee's investment decisions are evaluated based on:

Accepted Answer

The overall portfolio and the total risk-return tradeoff in the context of the trust's purposes

Answer

The Uniform Prudent Investor Act (UPIA) requires trustees to evaluate investments as part of a diversified portfolio strategy consistent with the trust's goals and risk tolerance.

Question 5

Which of the following best describes an 'intentionally defective grantor trust' (IDGT)?

Accepted Answer

A trust that is outside the grantor's estate for estate tax purposes but treated as the grantor's property for income tax purposes

Answer

An IDGT is deliberately structured so that the grantor pays the trust's income taxes, effectively making additional tax-free gifts to beneficiaries while the assets grow outside the estate.

(CEA) Certified Estate Advisor Practice Test

(CEA) Certified Estate Advisor Practice Test

CEA Asset Management & Wealth Transfer 3