CEA Family Governance & Wealth Transfer 4

Question 1

When drafting an incentive trust, a common concern is the 'dead hand' problem, which refers to:

Accepted Answer

The grantor controlling beneficiary behavior from the grave through restrictive trust provisions

Answer

The 'dead hand' problem occurs when trust provisions so tightly control beneficiary behavior that they may be counterproductive or unenforceable.

Question 2

A family limited liability company (FLLC) offers estate planning benefits similar to an FLP but is generally preferred because:

Accepted Answer

It offers greater flexibility in management structure and fewer formalities than a limited partnership

Answer

FLLCs provide comparable valuation discount benefits with fewer formal requirements and more flexible governance structures than FLPs.

Question 3

In a multi-generational wealth transfer plan, 'human capital' refers to:

Accepted Answer

The skills, education, health, and earning potential of family members

Answer

Human capital encompasses the productive capacity of individuals — their knowledge, skills, and health — which is a core focus of holistic family governance.

Question 4

A charitable lead annuity trust (CLAT) differs from a charitable remainder trust (CRT) in that the CLAT:

Accepted Answer

Pays a fixed annuity to charity first, with the remainder passing to non-charitable beneficiaries

Answer

In a CLAT, the charity receives the lead interest (fixed annuity payments) during the trust term, and non-charitable heirs receive the remainder.

Question 5

Which principle of the Uniform Trust Code (UTC) allows a court to modify an irrevocable trust when circumstances have changed in ways the settlor did not anticipate?

Accepted Answer

Equitable deviation

Answer

Equitable deviation permits courts to modify trust administrative or dispositive terms when unanticipated circumstances arise that would frustrate the settlor's intent.

(CEA) Certified Estate Advisor Practice Test

(CEA) Certified Estate Advisor Practice Test

CEA Family Governance & Wealth Transfer 4