Client Advisory & Consultation Flashcards

A CES advisor is helping a high-net-worth client evaluate a spousal lifetime access trust (SLAT). What is the primary estate planning benefit of a SLAT?

Answer: The grantor removes assets from the taxable estate while the beneficiary spouse retains indirect access to the funds

A SLAT lets the grantor use the gift tax exemption to move assets out of the taxable estate while the spouse (as beneficiary) can still access those assets, providing both estate tax savings and family financial security.

A client asks about the difference between per stirpes and per capita distribution in their will. How should the advisor explain per stirpes?

Answer: If a beneficiary predeceases the testator, that beneficiary's share passes to their descendants by representation

Under per stirpes distribution, a predeceased beneficiary's share passes down to their descendants, preserving the family branch's inheritance.

During a consultation about estate liquidity, a client who owns a large illiquid business asks how to fund estate taxes without forced asset sales. Which tool should the advisor primarily recommend?

Answer: An irrevocable life insurance trust (ILIT) funded with a life insurance policy

An ILIT holds a life insurance policy outside the taxable estate, providing liquidity at death to pay estate taxes without forcing a distressed sale of the business.

A client is a beneficiary of a spendthrift trust and asks whether creditors can attach trust distributions. What is the correct advisory response?

Answer: A spendthrift provision prevents creditors from reaching the beneficiary's interest before distribution, though once distributed the funds may be reachable

Spendthrift provisions block creditors from attaching a beneficiary's future interest or directing the trustee to pay them, but once funds are actually distributed to the beneficiary, they generally become reachable by creditors.

A client wants to pass a family vacation home to three adult children equally while avoiding probate and family disputes. Which advisory structure best accomplishes this?

Answer: Place the property in the client's revocable living trust with equal shares to the three children and a co-trustee governance provision

A revocable living trust with co-trustee governance provisions allows seamless transfer at death while establishing rules for shared use, maintenance cost-sharing, and dispute resolution among the children.

A client discloses significant digital assets, including cryptocurrency and online accounts. What should the CES advisor recommend regarding these in the estate plan?

Answer: Include specific provisions in the estate plan identifying digital assets, designating a digital executor, and providing secure access to credentials

Digital assets require explicit planning: naming a digital executor with legal authority under RUFADAA and securely documenting access credentials ensures assets can be located and transferred after death.

A married couple seeks advice on whether to use an AB trust (credit shelter trust) structure given the current portability rules. What is the main advantage of the AB trust over simply relying on portability of the deceased spouse's unused exemption (DSUE)?

Answer: AB trusts lock in the exemption amount and allow appreciation inside the credit shelter trust to grow estate-tax-free, while portability does not shelter future growth

Assets in a credit shelter trust appreciate outside both spouses' taxable estates, whereas the DSUE amount is fixed at the first death and does not capture subsequent asset growth.