CES Risk Assessment & Mitigation 2

Question 1

A trustee holds concentrated stock representing 80% of a trust portfolio. Which fiduciary duty is most at risk if no action is taken?

Accepted Answer

Duty of prudent diversification

Answer

The Uniform Prudent Investor Act imposes a duty to diversify unless special circumstances justify retention of concentrated positions.

Question 2

Which type of trust provision most directly mitigates the risk of a beneficiary losing assets in a divorce settlement?

Accepted Answer

Spendthrift clause

Answer

A spendthrift clause prevents beneficiaries from assigning their interests and blocks creditors, including divorcing spouses, from reaching trust assets.

Question 3

An estate plan relies heavily on a single life insurance policy to fund an estate tax obligation. What is the primary concentration risk here?

Accepted Answer

Premium lapse risk

Answer

Premium lapse risk is primary because if premiums go unpaid the policy terminates, eliminating the liquidity intended to cover estate taxes.

Question 4

A 90-year-old client has a revocable living trust but no durable power of attorney. Which risk does this create?

Accepted Answer

A guardian may need court appointment to manage non-trust assets

Answer

Assets outside the trust require a durable power of attorney or court-appointed guardian for management during incapacity.

Question 5

Which risk mitigation strategy is most appropriate when a closely held business represents 70% of an estate's value?

Accepted Answer

IRC Section 6166 installment payment election

Answer

IRC §6166 allows estate taxes attributable to a closely held business to be paid in installments over up to 14 years, preventing forced liquidation.

(CES) Certified Estate and Trust Specialist Practice Test

(CES) Certified Estate and Trust Specialist Practice Test

CES Risk Assessment & Mitigation 2