Practice Test GeeksCTFA - Certified Trust and Fiduciary Advisor Practice Test
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Trust and Financial Advisor Certification Flashcards

7 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 7 Trust and Financial Advisor Certification flashcards as text

  1. A grantor establishes an irrevocable life insurance trust (ILIT) and transfers a policy to it. To avoid estate inclusion under IRC §2042, what transfer rule must be satisfied?

    Answer: The grantor must survive the transfer by more than 3 years under IRC §2035

    Under IRC §2035, a life insurance policy transferred within three years of death is pulled back into the taxable estate; the grantor must survive more than three years for the transfer to be effective.

  2. Which type of trust allows the grantor to retain a fixed annuity payment for a specified term, with the remainder passing to heirs at reduced gift tax value?

    Answer: Grantor Retained Annuity Trust (GRAT)

    A GRAT allows the grantor to retain fixed annuity payments for a term, transferring any appreciation above the IRS §7520 hurdle rate to beneficiaries gift-tax efficiently.

  3. A trust document grants the trustee discretionary authority to distribute principal for a beneficiary's 'health, education, maintenance, and support' (HEMS). This standard is significant because it:

    Answer: Keeps trust assets outside the beneficiary's taxable estate if the beneficiary is also the trustee

    The HEMS standard is an ascertainable standard under IRC §2041, which prevents trust assets from being included in a beneficiary-trustee's gross estate.

  4. When a fiduciary files IRS Form 1041 for a complex trust, which of the following income items is NOT eligible for the distribution deduction?

    Answer: Capital gains allocated to corpus and not distributed

    Capital gains allocated to trust corpus are generally not included in distributable net income (DNI) and therefore cannot be deducted on Form 1041 via the distribution deduction.

  5. A client wants to minimize estate taxes while maintaining some access to trust assets. Which trust structure best achieves this goal?

    Answer: Spousal Lifetime Access Trust (SLAT) naming the spouse as beneficiary

    A SLAT removes assets from the grantor's estate while allowing indirect access through the beneficiary spouse, balancing estate tax reduction with some retained family access.

  6. Under the Uniform Trust Code, what is the primary purpose of a 'no-contest' (in terrorem) clause in a trust?

    Answer: To disinherit beneficiaries who challenge the validity of the trust without probable cause

    An in terrorem clause forfeits a beneficiary's interest if they contest the trust, discouraging frivolous challenges to the grantor's intent.

  7. A charitable remainder unitrust (CRUT) pays the income beneficiary a fixed percentage of the trust's fair market value as revalued annually. How does this differ from a charitable remainder annuity trust (CRAT)?

    Answer: A CRUT pays a fixed percentage of annually revalued assets while a CRAT pays a fixed dollar amount

    CRUTs recalculate the payout each year based on the current fair market value, while CRATs pay a fixed dollar amount determined at inception regardless of asset performance.