CEA Estate Planning Principles & Strategies 4

Question 1

When using the annual gift tax exclusion, which type of gift does NOT qualify for the present interest requirement?

Accepted Answer

Gift of a future interest in a trust

Answer

The annual exclusion applies only to gifts of present interests; future interests — such as a remainder interest in a trust — do not qualify for the annual exclusion.

Question 2

What is the primary purpose of a pour-over will in an estate plan that includes a revocable living trust?

Accepted Answer

To transfer any assets not titled in the trust at death into the trust through probate

Answer

A pour-over will directs assets not previously titled in the revocable trust to 'pour over' into the trust at death, though those assets still pass through probate.

Question 3

A family limited partnership (FLP) is commonly used in estate planning primarily to:

Accepted Answer

Transfer business interests at a discounted value while retaining management control

Answer

FLPs allow senior family members to transfer limited partnership interests at valuation discounts (lack of control, lack of marketability) while retaining management control as general partners.

Question 4

Which of the following is an advantage of holding assets as community property rather than joint tenancy in states that allow both?

Accepted Answer

Both halves of community property receive a step-up in basis at the first spouse's death

Answer

Under IRC § 1014(b)(6), both halves of community property receive a step-up in basis to FMV at the first spouse's death, reducing capital gains on a subsequent sale.

Question 5

A client with a large IRA wants to reduce the income tax burden on heirs. Which strategy allows a charity to receive the IRA (avoiding income tax) while heirs receive other assets?

Accepted Answer

Designating the charity as IRA beneficiary and using life insurance to replace wealth for heirs

Answer

Naming a charity as the IRA beneficiary avoids income tax on distributions (charities are tax-exempt), while a life insurance policy funded with premium savings replaces the wealth for heirs income-tax-free.

(CEA) Certified Estate Advisor Practice Test

(CEA) Certified Estate Advisor Practice Test

CEA Estate Planning Principles & Strategies 4