Client Advisory & Consultation Flashcards

A client approaching retirement asks whether they should name their revocable living trust or a designated beneficiary as the recipient of their IRA. What should the advisor explain about naming a trust as IRA beneficiary?

Answer: Unless the trust meets specific IRS conduit or accumulation trust requirements, naming a trust as IRA beneficiary may accelerate distributions and increase income tax

Retirement accounts pass outside of probate by beneficiary designation, and naming a trust requires careful drafting to qualify as a 'see-through' trust; otherwise distributions may be compressed into a five-year payout.

A client in their 60s has a large estate and wants to shift future appreciation out of their estate at minimal gift tax cost. Which technique is specifically designed to leverage low IRS interest rates (Section 7520 rates) to transfer appreciation with little or no gift tax?

Answer: Grantor retained annuity trust (GRAT)

A GRAT works best when the trust assets outperform the Section 7520 hurdle rate — any excess appreciation passes to remainder beneficiaries gift-tax-free.

When advising a client whose child has a disability, what is the primary reason for establishing a supplemental (special) needs trust rather than leaving assets outright to the child?

Answer: A direct inheritance may disqualify the child from means-tested government benefits such as Medicaid and SSI

Assets held in a properly drafted SNT are not counted as the beneficiary's resources for Medicaid and SSI eligibility, preserving these critical government benefits.

A client is concerned about a potential incapacity period before death. Which document authorizes a named agent to manage financial affairs if the client becomes incapacitated, without requiring court intervention?

Answer: A durable power of attorney for finances

A durable power of attorney for finances remains effective (or springs into effect) upon incapacity, allowing the named agent to manage financial affairs without a court-appointed guardianship.

During a client review meeting, a CES professional discovers that the client's 10-year-old will no longer reflects their wishes following a divorce and remarriage. Which element should be updated as the highest priority?

Answer: Beneficiary designations on life insurance and retirement accounts, since these pass outside the will

Beneficiary designations on life insurance and retirement accounts supersede the will and must be updated immediately after a life change to prevent unintended transfers to an ex-spouse.

A client asks about the gift tax annual exclusion requirement that a gift be a 'present interest.' Which gift structure is commonly used to convert a future-interest gift into a present-interest gift qualifying for the annual exclusion?

Answer: A Crummey trust with Crummey withdrawal powers granted to beneficiaries

Crummey powers give beneficiaries a temporary right to withdraw contributions to the trust, converting what would otherwise be a future interest into a present interest eligible for the annual exclusion.

A client is concerned that their estate plan may not account for assets held in a foreign country. What should the advisor flag as a key complexity in cross-border estate planning?

Answer: Foreign-sited assets may be subject to both U.S. estate tax and the foreign country's inheritance or estate tax, potentially without a treaty to mitigate double taxation

U.S. citizens are subject to U.S. estate tax on their worldwide assets, and if the foreign country also levies an inheritance tax, double taxation may occur unless a tax treaty or the foreign tax credit provides relief.