Practice Test Geeks(CES) Certified Estate and Trust Specialist Practice Test
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Financial Analysis & Planning 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 Financial Analysis & Planning flashcards as text

  1. A trust holds a rental property generating $40,000 of net income annually. The trustee distributes $25,000 to the income beneficiary. How is the trust's distributable net income (DNI) relevant here?

    Answer: DNI caps the deduction the trust can claim for distributions

    DNI limits the distribution deduction a trust can claim; the trust deducts the lesser of actual distributions or DNI, and beneficiaries are taxed on the character of income up to DNI.

  2. A CES practitioner is comparing a taxable investment account to a tax-deferred annuity for a 65-year-old client. Which factor most favors the annuity for estate planning purposes?

    Answer: Annuities avoid probate through beneficiary designation

    Annuities with named beneficiaries pass outside probate, providing privacy and potentially faster transfer, though gains are subject to ordinary income tax by beneficiaries.

  3. Which valuation method for a closely held business applies a market-derived multiple to normalized earnings before interest, taxes, depreciation, and amortization?

    Answer: EBITDA multiple method (market approach)

    The EBITDA multiple method, a form of the market approach, values a business by multiplying normalized EBITDA by a multiple derived from comparable transactions or public companies.

  4. A client is concerned about the 3.8% Net Investment Income Tax (NIIT). Which income type is generally subject to this surtax for a trust?

    Answer: Passive rental income retained in the trust

    Passive rental income retained within a trust is subject to the 3.8% NIIT once the trust's AGI exceeds the threshold (approximately $15,200 in 2024).

  5. When structuring an installment sale to a grantor trust for estate planning, what is the primary income tax advantage?

    Answer: Interest payments from the trust to the grantor are not taxable income

    Because the grantor is treated as owning the trust for income tax purposes, interest paid by the trust to the grantor on the installment note is ignored — it's a transaction with oneself.

  6. A fiduciary accountant is preparing a trust's Schedule K-1. Which type of income retains its character when distributed to a beneficiary?

    Answer: Tax-exempt municipal bond interest

    Tax-exempt interest retains its tax-exempt character when passed through to beneficiaries on Schedule K-1, preserving the federal income tax exclusion.

  7. Under the prudent investor rule, a trustee invests a trust portfolio entirely in U.S. Treasury bonds 'because they are safe.' What is the most likely fiduciary concern?

    Answer: Failure to consider the trust's overall investment strategy and risk/return tradeoff

    The prudent investor rule requires trustees to consider the risk/return tradeoff in the context of the entire portfolio; concentrating in Treasuries may fail to meet the return needs of beneficiaries.