CEA Trusts & Probate Administration 5

Question 1

What is a 'dynasty trust' and what is its primary estate planning benefit?

Accepted Answer

A long-term or perpetual trust designed to pass wealth across multiple generations while avoiding estate and GST taxes

Answer

A dynasty trust is structured to last many generations, using the generation-skipping transfer (GST) tax exemption to transfer wealth while minimizing estate taxes at each generational level.

Question 2

In probate administration, what is the role of a 'guardian ad litem'?

Accepted Answer

A court-appointed representative who protects the interests of minor or incapacitated beneficiaries in proceedings

Answer

A guardian ad litem is appointed by the court to represent and advocate for the interests of beneficiaries who cannot represent themselves, such as minors or incapacitated adults.

Question 3

What is the generation-skipping transfer (GST) tax designed to prevent?

Accepted Answer

Estates from avoiding estate tax by skipping a generation and transferring assets directly to grandchildren

Answer

The GST tax imposes an additional transfer tax when assets pass to beneficiaries two or more generations below the transferor, preventing avoidance of estate tax at each generation.

Question 4

What is 'lapse' in the context of testamentary gifts, and how do anti-lapse statutes address it?

Accepted Answer

Lapse occurs when a beneficiary predeceases the testator; anti-lapse statutes redirect the gift to the deceased beneficiary's descendants

Answer

At common law, a lapsed gift fails; anti-lapse statutes in most states save the gift by passing it to the predeceased beneficiary's descendants, if they are related to the testator.

Question 5

Under the Uniform Fiduciary Income and Principal Act (UFIPA), what is the trustee's power to 'adjust'?

Accepted Answer

To transfer amounts between income and principal to achieve a fair and reasonable return for all beneficiaries

Answer

The power to adjust allows trustees to reallocate between income and principal accounts when following the prudent investor rule would otherwise unfairly benefit one class of beneficiaries over another.

(CEA) Certified Estate Advisor Practice Test

(CEA) Certified Estate Advisor Practice Test

CEA Trusts & Probate Administration 5