CES Client Advisory & Consultation 3

Question 1

A client with a closely held business wants to transfer ownership to adult children while minimizing gift tax. Which advisory technique involves selling assets to a trust in exchange for a promissory note?

Accepted Answer

Installment sale to an intentionally defective grantor trust (IDGT)

Answer

An installment sale to an IDGT allows the grantor to transfer appreciating assets out of the estate while receiving a note, with no capital gains recognized on the sale because the grantor is deemed owner for income tax purposes.

Question 2

During a consultation, a client reveals that their spouse is not a U.S. citizen. How does this affect the marital deduction planning discussion?

Accepted Answer

Transfers to a non-citizen spouse do not qualify for the unlimited marital deduction; a QDOT may be required

Answer

The unlimited marital deduction does not apply to non-citizen spouses; a Qualified Domestic Trust (QDOT) is required to defer estate taxes on assets left to a non-citizen spouse.

Question 3

A client asks whether annual exclusion gifts count against their lifetime gift tax exemption. What is the correct advisory response?

Accepted Answer

Annual exclusion gifts (up to the annual limit per recipient) do not reduce the lifetime exemption

Answer

Gifts that qualify for the annual exclusion (currently $18,000 per recipient in 2024) are not taxable gifts and do not reduce the donor's lifetime applicable exclusion amount.

Question 4

When advising a client on trust protector provisions, what is the primary purpose of naming a trust protector?

Accepted Answer

To provide flexibility to modify an irrevocable trust in response to changes in law or family circumstances

Answer

A trust protector is granted specific powers (such as modifying terms or changing trustees) to allow an irrevocable trust to adapt to unforeseen legal or family changes without court involvement.

Question 5

A client has minor grandchildren and wants to fund their education. The advisor compares 529 plans to Crummey trusts. What is the key advantage of a 529 plan in this context?

Accepted Answer

529 plans allow tax-free growth and withdrawals for qualified education expenses, with simpler administration than a trust

Answer

529 plans provide tax-free growth and tax-free qualified withdrawals with significantly less administrative complexity than maintaining a Crummey trust.

(CES) Certified Estate and Trust Specialist Practice Test

(CES) Certified Estate and Trust Specialist Practice Test

CES Client Advisory & Consultation 3