CEA Estate Planning Principles & Strategies 2 — Questions and Answers
Question 1: A testator wants to leave property to a grandchild but fears the parents may mismanage funds. Which trust structure is most appropriate?
- Revocable living trust
- Spendthrift trust (Correct answer)
- Charitable remainder trust
- Totten trust
Correct answer: Spendthrift trust
A spendthrift trust restricts the beneficiary's ability to assign or alienate the trust interest, protecting assets from both the beneficiary and their creditors.
Question 2: Under IRC Section 2036, assets transferred to an irrevocable trust are included back in the gross estate if the grantor retained:
- The right to amend the trust
- The right to vote corporate stock
- Possession or enjoyment of the transferred property (Correct answer)
- The ability to name a successor trustee
Correct answer: Possession or enjoyment of the transferred property
IRC § 2036 pulls assets back into the gross estate when the decedent retained the right to possession, enjoyment, or income from the transferred property.
Question 3: Which estate planning document designates who may make medical decisions for an incapacitated individual?
- Pour-over will
- Durable financial power of attorney
- Healthcare proxy (medical power of attorney) (Correct answer)
- Living will (advance directive)
Correct answer: Healthcare proxy (medical power of attorney)
A healthcare proxy or medical power of attorney appoints an agent to make healthcare decisions when the principal is incapacitated.
Question 4: A couple owns a home as joint tenants with right of survivorship. At the first spouse's death, what happens to the deceased spouse's basis in the property?
- The entire property receives a step-up in basis
- Only the deceased spouse's half receives a step-up in basis (Correct answer)
- There is no step-up; carryover basis applies
- The basis is stepped down to fair market value
Correct answer: Only the deceased spouse's half receives a step-up in basis
For joint tenancy property in non-community property states, only the deceased joint tenant's half-interest receives a step-up in basis to date-of-death FMV.
Question 5: A QTIP trust qualifies for the marital deduction because it requires:
- The surviving spouse to receive all trust income annually or more frequently (Correct answer)
- The surviving spouse to have a general power of appointment over the corpus
- The trust assets to pass to the surviving spouse's estate at death
- The executor to elect QTIP treatment on Form 709
Correct answer: The surviving spouse to receive all trust income annually or more frequently
A Qualified Terminable Interest Property trust qualifies for the marital deduction only if the surviving spouse receives all net income at least annually.
Question 6: Which generation-skipping transfer tax (GSTT) exemption amount applies in 2024?
- $5,490,000
- $10,000,000
- $13,610,000 (Correct answer)
- $12,920,000
Correct answer: $13,610,000
For 2024, the GST tax exemption is $13,610,000 per person, matching the unified federal estate and gift tax exemption.
Question 7: What is the primary disadvantage of a revocable living trust compared to a will?
- Assets in a revocable trust are subject to estate taxes
- A revocable trust does not avoid probate
- A revocable trust requires an attorney to administer
- Funding the trust during the grantor's lifetime requires transferring assets into it (Correct answer)
Correct answer: Funding the trust during the grantor's lifetime requires transferring assets into it
The main drawback of a revocable living trust is the effort and cost of re-titling assets into the trust during the grantor's lifetime — unfunded trusts do not avoid probate.
CEA Estate Planning Principles & Strategies 2
A testator wants to leave property to a grandchild but fears the parents may mismanage funds.
Which trust structure is most appropriate?