CES Estate Planning Principles & Strategies 3

Question 1

A dynasty trust is primarily designed to:

Accepted Answer

Preserve wealth across multiple generations by avoiding repeated transfer taxes

Answer

Dynasty trusts are long-term trusts structured to hold assets for multiple generations, minimizing estate and GST taxes at each generational transfer.

Question 2

What is the generation-skipping transfer (GST) tax exemption designed to prevent?

Accepted Answer

Bypassing one or more generations of estate taxes by transferring directly to grandchildren or lower

Answer

The GST tax is imposed on transfers that skip a generation, ensuring these transfers are taxed similarly to transfers that pass through each generation.

Question 3

An Irrevocable Life Insurance Trust (ILIT) keeps life insurance proceeds out of the taxable estate primarily because:

Accepted Answer

The trust, not the insured, owns the policy, so the proceeds are not included in the insured's estate

Answer

When an ILIT owns the life insurance policy, the death benefit is excluded from the insured's taxable estate because the insured holds no incidents of ownership.

Question 4

Which of the following transfers would trigger the three-year inclusion rule under IRC §2035?

Accepted Answer

Gifting a life insurance policy owned by the decedent within three years of death

Answer

Under IRC §2035, life insurance policies transferred within three years of death are pulled back into the decedent's gross estate.

Question 5

A pour-over will is most commonly used in conjunction with:

Accepted Answer

A revocable living trust

Answer

A pour-over will directs that any assets not already transferred to a revocable living trust at death are poured into the trust, ensuring unified administration.

(CES) Certified Estate and Trust Specialist Practice Test

(CES) Certified Estate and Trust Specialist Practice Test

CES Estate Planning Principles & Strategies 3