CEA Asset Management & Wealth Transfer 4 — Questions and Answers
Question 1: Which type of trust allows a surviving spouse to receive income for life while preserving the trust principal for children from a prior marriage?
- Revocable Living Trust
- Qualified Terminable Interest Property (QTIP) Trust (Correct answer)
- Special Needs Trust
- Charitable Lead Trust
Correct answer: Qualified Terminable Interest Property (QTIP) Trust
A QTIP trust provides the surviving spouse with all income for life and qualifies for the marital deduction, while the grantor controls who receives the remainder at the surviving spouse's death.
Question 2: For 2024, the annual gift tax exclusion allows each donor to give how much per recipient without using any lifetime exemption?
- $15,000
- $17,000
- $18,000 (Correct answer)
- $20,000
Correct answer: $18,000
The annual gift tax exclusion for 2024 is $18,000 per recipient, indexed for inflation, and married couples can split gifts to effectively give $36,000 per recipient.
Question 3: Which of the following is a key advantage of transferring assets to an irrevocable life insurance trust (ILIT)?
- The grantor can reclaim the policy at any time
- Death benefit proceeds are excluded from both the insured's gross estate and the beneficiaries' income (Correct answer)
- The trust receives a charitable deduction equal to the premiums paid
- The policy inside the trust gets a stepped-up basis at death
Correct answer: Death benefit proceeds are excluded from both the insured's gross estate and the beneficiaries' income
Properly structured ILITs keep life insurance proceeds out of the taxable estate and pass the death benefit to beneficiaries income-tax-free.
Question 4: A client funds a Charitable Lead Annuity Trust (CLAT). Which party benefits first?
- The client's heirs as remainder beneficiaries
- The designated charity receives annuity payments for the trust term (Correct answer)
- The client retains an income interest for life
- The IRS receives estate taxes before any distributions
Correct answer: The designated charity receives annuity payments for the trust term
In a CLAT, the charity receives fixed annuity payments for a specified term, after which the remaining assets pass to non-charitable beneficiaries (typically family members).
Question 5: What is the purpose of a 'pour-over will' in an estate plan that includes a revocable living trust?
- To pour assets from the trust back into the probate estate
- To direct any assets not already in the trust at death to flow into the trust through probate (Correct answer)
- To transfer trust assets to charity upon the grantor's death
- To name the trust as the executor of the estate
Correct answer: To direct any assets not already in the trust at death to flow into the trust through probate
A pour-over will acts as a safety net, capturing any assets that were not transferred to the trust during the grantor's lifetime and directing them into the trust via probate.
Question 6: Which IRC section governs the special-use valuation election that can reduce the value of qualified real property used in a farm or closely held business for estate tax purposes?
- IRC §2031
- IRC §2032
- IRC §2032A (Correct answer)
- IRC §2035
Correct answer: IRC §2032A
IRC §2032A allows qualifying farms and closely held businesses to value real property at its actual use value rather than highest-and-best-use value, potentially reducing estate taxes significantly.
Question 7: A client's estate plan includes a testamentary trust that will not be funded until the client's death. How does this differ from a revocable living trust?
- A testamentary trust avoids probate entirely; a revocable trust does not
- A testamentary trust is created in the will and goes through probate; a revocable trust is funded during life and avoids probate (Correct answer)
- A testamentary trust cannot name a corporate trustee
- A testamentary trust provides immediate income tax benefits to the grantor
Correct answer: A testamentary trust is created in the will and goes through probate; a revocable trust is funded during life and avoids probate
A testamentary trust is established by the will and only comes into existence after the will is probated, while a revocable living trust is funded during the grantor's lifetime and bypasses probate.
CEA Asset Management & Wealth Transfer 4
Which type of trust allows a surviving spouse to receive income for life while preserving the trust principal for children from a prior marriage?