Client Advisory & Consultation Flashcards
7 cards from real CES practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Client Advisory & Consultation flashcards as text
A client with a closely held business wants to transfer ownership to adult children while minimizing gift tax. Which advisory technique involves selling assets to a trust in exchange for a promissory note?
Answer: Installment sale to an intentionally defective grantor trust (IDGT)
An installment sale to an IDGT allows the grantor to transfer appreciating assets out of the estate while receiving a note, with no capital gains recognized on the sale because the grantor is deemed owner for income tax purposes.
During a consultation, a client reveals that their spouse is not a U.S. citizen. How does this affect the marital deduction planning discussion?
Answer: Transfers to a non-citizen spouse do not qualify for the unlimited marital deduction; a QDOT may be required
The unlimited marital deduction does not apply to non-citizen spouses; a Qualified Domestic Trust (QDOT) is required to defer estate taxes on assets left to a non-citizen spouse.
A client asks whether annual exclusion gifts count against their lifetime gift tax exemption. What is the correct advisory response?
Answer: Annual exclusion gifts (up to the annual limit per recipient) do not reduce the lifetime exemption
Gifts that qualify for the annual exclusion (currently $18,000 per recipient in 2024) are not taxable gifts and do not reduce the donor's lifetime applicable exclusion amount.
When advising a client on trust protector provisions, what is the primary purpose of naming a trust protector?
Answer: To provide flexibility to modify an irrevocable trust in response to changes in law or family circumstances
A trust protector is granted specific powers (such as modifying terms or changing trustees) to allow an irrevocable trust to adapt to unforeseen legal or family changes without court involvement.
A client has minor grandchildren and wants to fund their education. The advisor compares 529 plans to Crummey trusts. What is the key advantage of a 529 plan in this context?
Answer: 529 plans allow tax-free growth and withdrawals for qualified education expenses, with simpler administration than a trust
529 plans provide tax-free growth and tax-free qualified withdrawals with significantly less administrative complexity than maintaining a Crummey trust.
A client's estate plan includes a pour-over will. During consultation, the advisor should explain that a pour-over will accomplishes which primary function?
Answer: It directs any assets not already in the revocable trust at death into the trust through probate
A pour-over will captures any assets outside the revocable living trust at death and funnels them into the trust through the probate process, ensuring consolidated distribution per trust terms.
A client is concerned about potential estate recovery by their state's Medicaid program after death. Which advisory strategy helps protect the primary residence from Medicaid estate recovery?
Answer: Transferring the home to an irrevocable Medicaid asset protection trust well before the look-back period
An irrevocable Medicaid asset protection trust, funded outside the 5-year look-back period, can shelter the home from Medicaid estate recovery in many states.