CEA Asset Management & Wealth Transfer 5 — Questions and Answers
Question 1: Under the SECURE Act 2.0, most non-spouse beneficiaries who inherit an IRA must deplete the account within how many years?
- 5 years
- 10 years (Correct answer)
- 15 years
- 20 years
Correct answer: 10 years
The SECURE Act eliminated the stretch IRA for most non-spouse beneficiaries, requiring full distribution within 10 years of the account owner's death.
Question 2: A client in a high tax bracket wants to make a large charitable gift of appreciated stock. What is the primary tax advantage of donating the stock directly rather than selling it first?
- The client receives a deduction equal to the stock's original cost basis
- The client avoids capital gains tax on the appreciation and receives a deduction for the full fair market value (Correct answer)
- The client can deduct more than the fair market value due to a charitable multiplier
- The stock receives a stepped-up basis inside the charity
Correct answer: The client avoids capital gains tax on the appreciation and receives a deduction for the full fair market value
Donating appreciated stock directly to a charity allows the donor to avoid capital gains tax entirely while deducting the full fair market value, subject to AGI limitations.
Question 3: Which document authorizes an agent to make financial and legal decisions on behalf of a principal if the principal becomes incapacitated?
- Healthcare proxy
- Durable power of attorney for finances (Correct answer)
- Living will (advance directive)
- Revocable trust amendment
Correct answer: Durable power of attorney for finances
A durable power of attorney for finances remains effective (or springs into effect) upon incapacity, allowing the named agent to manage assets and legal matters without court intervention.
Question 4: In the context of wealth transfer, what is the 'reciprocal trust doctrine'?
- A rule allowing spouses to swap trust roles freely
- An IRS doctrine that collapses interrelated trusts when grantors essentially create trusts for each other, resulting in estate inclusion (Correct answer)
- A method for distributing trust assets reciprocally between income and remainder beneficiaries
- A state law rule requiring equal treatment of all trust beneficiaries
Correct answer: An IRS doctrine that collapses interrelated trusts when grantors essentially create trusts for each other, resulting in estate inclusion
The reciprocal trust doctrine treats two crossed trusts (e.g., spouses each creating trusts for the other) as if each grantor had created the trust for themselves, causing estate inclusion.
Question 5: A Charitable Remainder Unitrust (CRUT) differs from a Charitable Remainder Annuity Trust (CRAT) in that the CRUT pays:
- A fixed dollar annuity each year
- A fixed percentage of the trust's annually revalued assets (Correct answer)
- Income only when trust earnings are sufficient
- Distributions only to the charity during the trust term
Correct answer: A fixed percentage of the trust's annually revalued assets
A CRUT pays a fixed percentage of trust assets as revalued each year, so distributions fluctuate with asset values, while a CRAT pays a fixed dollar amount regardless of performance.
Question 6: Which strategy uses the sale of assets to an IDGT in exchange for a promissory note as a way to transfer wealth?
- Self-canceling installment note (SCIN)
- Installment sale to an intentionally defective grantor trust (Correct answer)
- Qualified opportunity zone investment
- Charitable bargain sale
Correct answer: Installment sale to an intentionally defective grantor trust
Selling appreciating assets to an IDGT in exchange for an installment note removes future appreciation from the estate while the grantor's income tax payments on trust earnings provide an additional indirect gift.
Question 7: Which of the following is the most accurate statement about portability of the estate tax exemption between spouses?
- Portability is automatic and never requires any filing
- The executor of the deceased spouse's estate must file a timely estate tax return to elect portability of the unused exemption (Correct answer)
- Portability allows the surviving spouse to inherit an unlimited exemption
- Portability applies to the GST tax exemption as well as the estate tax exemption
Correct answer: The executor of the deceased spouse's estate must file a timely estate tax return to elect portability of the unused exemption
Portability is not automatic; the executor must file a federal estate tax return (Form 706) to elect the Deceased Spousal Unused Exclusion (DSUE) amount, even if no tax is owed.
CEA Asset Management & Wealth Transfer 5
Under the SECURE Act 2.0, most non-spouse beneficiaries who inherit an IRA must deplete the account within how many years?