CEA Business Succession Planning 4

Question 1

Which IRS revenue ruling established the framework for valuing minority interests in closely held businesses for gift and estate tax purposes?

Accepted Answer

Rev. Rul. 93-12

Answer

Rev. Rul. 93-12 established that minority discounts apply even when a family collectively controls a business, rejecting family attribution for valuation purposes.

Question 2

A business owner age 72 wishes to pass the business to her children with minimal estate tax. Which strategy is generally LEAST suitable given her age?

Accepted Answer

GRAT with a 10-year term

Answer

A GRAT fails if the grantor dies during the term; at age 72 a long-term GRAT carries significant mortality risk, reducing its effectiveness.

Question 3

When a buy-sell agreement sets the price using a fixed value that has not been updated for several years, what is the GREATEST risk?

Accepted Answer

The fixed price may no longer reflect fair market value, leading to a loss for one party

Answer

A stale fixed price can dramatically undervalue or overvalue the business, creating an economic windfall or loss for the buyer or seller at the triggering event.

Question 4

Which of the following is a key advantage of a stock redemption (entity purchase) buy-sell agreement compared to a cross-purchase agreement for a corporation with many shareholders?

Accepted Answer

Administrative simplicity because the entity — not each individual — holds the insurance policies

Answer

In an entity purchase plan, the business owns one policy per owner, avoiding the n×(n-1) policy proliferation required in a cross-purchase arrangement.

Question 5

A private annuity used in business succession requires that payments to the seller:

Accepted Answer

Cease at the seller's death, with no remaining obligation to the estate

Answer

A private annuity is an unsecured promise to pay for the seller's lifetime; payments stop at death, and nothing passes to the seller's estate from the annuity obligation.

(CEA) Certified Estate Advisor Practice Test

(CEA) Certified Estate Advisor Practice Test

CEA Business Succession Planning 4