Estate Planning Principles & Strategies Flashcards

Which of the following correctly describes a disclaimer in estate planning?

Answer: A refusal of an inheritance that causes assets to pass as if the disclaimant predeceased the decedent

A qualified disclaimer allows a beneficiary to refuse an interest in inherited property, causing it to pass to the next beneficiary as if the disclaimant had died before the decedent.

Which business valuation discount is commonly applied when transferring a minority interest in a closely held family business?

Answer: Minority interest discount and lack of marketability discount

Minority interest discounts (for lack of control) and marketability discounts (for illiquidity) are frequently applied together when valuing minority interests in closely held entities.

What is the primary purpose of a family limited partnership (FLP) in estate planning?

Answer: To consolidate family assets, allow for valuation discounts, and facilitate systematic gifting to heirs

FLPs allow families to pool assets, apply valuation discounts on limited partnership interests transferred as gifts, and shift future appreciation out of the senior generation's estate.

A Charitable Remainder Unitrust (CRUT) differs from a Charitable Remainder Annuity Trust (CRAT) in that:

Answer: A CRUT pays a fixed percentage of the trust's annually revalued assets, while a CRAT pays a fixed dollar amount

A CRUT distributes a fixed percentage of trust assets revalued annually, so payments fluctuate with trust performance, whereas a CRAT pays a fixed dollar amount each year.

For Medicaid planning purposes, the 'look-back period' most commonly refers to:

Answer: The five-year period before applying for Medicaid, during which asset transfers are reviewed for disqualifying gifts

Medicaid's five-year look-back period examines transfers made within five years of a long-term care application; disqualifying transfers create a penalty period of ineligibility.

Which of the following describes a 'credit shelter trust' (also called a bypass trust)?

Answer: A trust funded at the first spouse's death with an amount equal to the estate tax exemption, passing estate-tax-free at the survivor's death

A credit shelter (bypass) trust is funded with assets up to the estate tax exemption at the first spouse's death, allowing that amount to pass to heirs free of estate tax at the survivor's death.

Under the concept of 'income in respect of a decedent' (IRD), which of the following is TRUE?

Answer: IRD assets do not receive a step-up in basis; beneficiaries owe income tax when they receive the income

IRD items—such as traditional IRA distributions and unpaid wages—do not receive a step-up in basis and remain taxable as ordinary income when received by the beneficiary.