CEA Business Succession Planning 5

Question 1

A business owner wants to transfer controlling interest but retain decision-making power during a transition period. Which structure BEST accomplishes this?

Accepted Answer

Transfer of non-voting stock while retaining voting stock

Answer

By transferring non-voting shares while retaining voting shares, the owner passes economic value and future appreciation to heirs while maintaining operational control.

Question 2

Which of the following triggering events is LEAST commonly included in a standard buy-sell agreement?

Accepted Answer

Temporary illness of an owner lasting fewer than 30 days

Answer

Buy-sell agreements are triggered by permanent or long-term events like death, disability, retirement, or voluntary sale — not brief, temporary illnesses.

Question 3

When calculating the gift tax value of a transferred LLC interest, which two discounts are MOST frequently combined to reduce the reported value?

Accepted Answer

Minority interest discount and lack-of-marketability discount

Answer

A minority interest discount (lack of control) combined with a lack-of-marketability discount (difficulty selling) are the two most commonly stacked discounts in closely held entity transfers.

Question 4

A Certified Estate Advisor assisting with business succession should advise that a buy-sell agreement funded with life insurance be reviewed at minimum:

Accepted Answer

Every 2-3 years and upon significant changes in business value or ownership

Answer

Regular reviews every 2-3 years and after any material change ensure the agreement price and insurance coverage remain aligned with the current business value.

Question 5

In a family business succession plan, the 'equal vs. equitable' challenge refers to:

Accepted Answer

Balancing the desire to treat all children fairly while ensuring business-active children receive operational control

Answer

Equal treatment divides everything identically, while equitable treatment considers each child's role, contribution, and need — often requiring life insurance or other assets to compensate non-active heirs.

(CEA) Certified Estate Advisor Practice Test

(CEA) Certified Estate Advisor Practice Test

CEA Business Succession Planning 5