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 client wants to reduce estate taxes and provide for grandchildren. Which trust allows the grantor to allocate GST exemption and transfer assets to grandchildren with potentially no estate or GST tax?

    Answer: Dynasty trust

    A dynasty trust, funded with allocated GST exemption, can hold assets for multiple generations without incurring estate or generation-skipping transfer tax at each generational level.

  2. Which financial planning concept describes the risk that a retiree's portfolio will be depleted due to unfavorable investment returns occurring early in retirement?

    Answer: Sequence of returns risk

    Sequence of returns risk refers to the danger that poor investment performance early in retirement, combined with withdrawals, can permanently impair a portfolio even if long-term average returns are adequate.

  3. A trustee receives a request to make an early distribution of principal to a beneficiary for a non-emergency purpose. Under the UPIA, what must the trustee primarily consider?

    Answer: The interests of both current and remainder beneficiaries impartially

    Under the Uniform Prudent Investor Act (UPIA), trustees must impartially balance the interests of current income beneficiaries and remainder beneficiaries when making investment and distribution decisions.

  4. A charitable remainder annuity trust (CRAT) pays a fixed annuity of $50,000 per year to the donor for life. If the trust earns less than $50,000 in a given year, what happens?

    Answer: Principal must be invaded to make the full annuity payment

    A CRAT must pay the stated fixed annuity regardless of earnings, so if income is insufficient the trustee must invade principal to satisfy the payment obligation.

  5. When using the income approach to value a closely held business interest for estate tax purposes, which adjustment is typically made to remove excess compensation paid to the owner-operator?

    Answer: Compensation normalization

    Compensation normalization adjusts the reported earnings to reflect market-rate compensation for the owner's services, revealing the true economic earnings available to any investor.

  6. A CES advisor recommends a spousal lifetime access trust (SLAT) to reduce a married client's taxable estate. What is the primary risk associated with this strategy?

    Answer: If the marriage ends in divorce, the donor spouse loses indirect access to trust assets

    The main risk of a SLAT is that if the couple divorces or the beneficiary spouse dies, the donor spouse permanently loses the indirect access to those assets they relied upon.

  7. A decedent's estate contains farmland valued at $5 million under fair market value but only $2 million using special-use valuation. What is the maximum reduction allowed under IRC Section 2032A in 2024?

    Answer: $1,390,000

    IRC Section 2032A limits the special-use valuation reduction to an inflation-adjusted cap, which is approximately $1,390,000 in 2024, not the full $3 million difference.