CES Financial Analysis & Planning 2

Question 1

A decedent's estate includes a closely held business valued at $2.4 million. The executor wants to defer estate tax payments. Which IRC section allows installment payments over up to 14 years?

Accepted Answer

IRC Section 6166

Answer

IRC Section 6166 allows estates with closely held business interests exceeding 35% of the adjusted gross estate to pay estate taxes in installments over up to 14 years.

Question 2

When calculating the present value of a remainder interest in a charitable remainder unitrust (CRUT), which interest rate published by the IRS is used?

Accepted Answer

Section 7520 rate

Answer

The Section 7520 rate, set monthly at 120% of the federal mid-term AFR, is used to value remainder interests in charitable split-interest trusts.

Question 3

A surviving spouse inherits a traditional IRA. Which distribution option is EXCLUSIVELY available to a surviving spouse beneficiary and not to other beneficiaries?

Accepted Answer

Roll the IRA into their own IRA

Answer

Only a surviving spouse can roll an inherited IRA into their own IRA, allowing them to delay RMDs until they reach age 73 and designate new beneficiaries.

Question 4

An estate planner calculates a client's net worth by summing all assets and subtracting liabilities. Which asset is generally EXCLUDED from the taxable gross estate?

Accepted Answer

Life insurance owned by an irrevocable trust

Answer

Life insurance held in an irrevocable life insurance trust (ILIT) for more than three years before death is excluded from the decedent's gross estate.

Question 5

Which financial ratio best measures a closely held business's ability to service its debt obligations from operating income when valuing it for estate purposes?

Accepted Answer

Debt service coverage ratio

Answer

The debt service coverage ratio (DSCR) measures net operating income relative to total debt service, reflecting the business's ability to meet debt obligations from operations.

(CES) Certified Estate and Trust Specialist Practice Test

(CES) Certified Estate and Trust Specialist Practice Test

CES Financial Analysis & Planning 2