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Estate Planning and Administration Flashcards

6 cards from real CTFA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 6 Estate Planning and Administration flashcards as text

  1. What is the primary purpose of a special needs trust (supplemental needs trust) in estate planning?

    Answer: To provide for a disabled beneficiary without disqualifying them from government benefits

    A special needs trust allows a disabled beneficiary to receive supplemental support while preserving eligibility for means-tested government programs like Medicaid and SSI.

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

    Answer: Imbalances between income and remainder beneficiaries caused by the portfolio's total return

    The power to adjust allows trustees to reallocate between income and principal to achieve equitable treatment of current and remainder beneficiaries based on total return.

  3. What is a generation-skipping transfer (GST) tax designed to prevent?

    Answer: Wealthy families from avoiding estate tax by passing assets directly to grandchildren or later generations

    The GST tax is an additional transfer tax imposed when assets skip a generation (e.g., pass to grandchildren), preventing the avoidance of estate tax at the children's level.

  4. Which trust structure is most commonly used to remove life insurance proceeds from the insured's taxable estate?

    Answer: Irrevocable life insurance trust (ILIT)

    An irrevocable life insurance trust (ILIT) owns the life insurance policy so that proceeds are not included in the insured's gross estate at death.

  5. What is the stepped-up basis rule for inherited assets?

    Answer: Inherited assets receive a new cost basis equal to fair market value at the date of the decedent's death

    Under IRC Section 1014, assets included in a decedent's gross estate receive a new basis equal to their fair market value on the date of death, eliminating unrealized gains.

  6. A dynasty trust is best described as which of the following?

    Answer: A long-term trust designed to hold assets for multiple generations by leveraging the GST exemption

    A dynasty trust is structured to last for multiple generations (or in perpetuity in states that have abolished the rule against perpetuities) using the grantor's GST exemption.