Practice Test Geeks(CES) Certified Estate and Trust Specialist Practice Test
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Risk Assessment & Mitigation 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 Risk Assessment & Mitigation flashcards as text

  1. Which technique most directly mitigates valuation risk when transferring a closely held business interest to the next generation?

    Answer: Filing a gift tax return and disclosing the transfer

    Filing a gift tax return starts the three-year statute of limitations on IRS valuation challenges, reducing the risk of later adjustments.

  2. A trustee of a special needs trust makes a distribution for the beneficiary's housing expenses. What is the primary risk of this distribution?

    Answer: It may reduce SSI benefits or disqualify the beneficiary from Medicaid

    In-kind support and maintenance, such as housing paid by a trust, is counted as income for SSI purposes and can reduce or eliminate government benefits.

  3. Which estate planning risk is most effectively addressed by a Qualified Domestic Trust (QDOT)?

    Answer: Loss of the marital deduction when the surviving spouse is a non-US citizen

    A QDOT preserves the estate tax marital deduction for assets passing to a non-US citizen surviving spouse by ensuring US tax jurisdiction over distributions.

  4. A family limited partnership (FLP) created primarily for estate planning is challenged by the IRS. Which risk factor most commonly leads to inclusion of FLP assets in the gross estate under IRC §2036?

    Answer: The grantor retaining de facto control and commingling personal and partnership assets

    Courts consistently apply §2036 when grantors retain actual control of FLP assets or commingle personal funds, indicating no real transfer of ownership occurred.

  5. An executor discovers the decedent had unresolved IRS audit issues at death. Which risk management step should be taken before making distributions to heirs?

    Answer: Request a closing letter or estate tax closing certificate from the IRS

    Obtaining an IRS closing certificate protects the executor from personal liability by confirming all federal tax obligations have been satisfied before distribution.

  6. What is the primary risk of using a formula clause in a will or trust to allocate assets between a marital share and a credit shelter trust?

    Answer: Drafting errors may produce unintended tax results if the applicable exclusion amount changes

    If the formula is keyed to an outdated exclusion amount or uses imprecise language, changes in tax law can produce unexpected over- or under-funding of each share.

  7. Which risk does a directed trust structure most effectively mitigate compared to a traditional trustee arrangement?

    Answer: Trustee liability for following investment directions given by a specialized advisor

    Directed trust statutes shield the trustee from liability for investment decisions made by a court-designated investment advisor, reducing fiduciary risk from specialized asset classes.