Estate Planning & Wealth Transfer Flashcards
7 cards from real CFP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Estate Planning & Wealth Transfer flashcards as text
An Irrevocable Life Insurance Trust (ILIT) is designed primarily to:
Answer: Keep life insurance proceeds out of the insured's taxable estate
By owning the policy through an ILIT, the death benefit is excluded from the insured's gross estate, reducing potential estate taxes.
What is the generation-skipping transfer (GST) tax designed to prevent?
Answer: Avoidance of estate tax by transferring assets directly to grandchildren or later generations
The GST tax imposes an additional tax on transfers to 'skip persons' (grandchildren or lower) to prevent families from avoiding a generation of estate taxation.
A Grantor Retained Annuity Trust (GRAT) works by:
Answer: Transferring appreciation above the IRS hurdle rate to heirs with little or no gift tax
In a GRAT, the grantor retains annuity payments for a fixed term; any growth above the Section 7520 rate passes to beneficiaries gift-tax-free.
Portability in estate planning refers to:
Answer: A surviving spouse's ability to use a deceased spouse's unused estate tax exemption
Portability allows a surviving spouse to elect to use the Deceased Spouse's Unused Exemption (DSUE), effectively doubling the amount sheltered from estate tax.
A Charitable Remainder Trust (CRT) provides what primary tax and financial benefits?
Answer: A current income tax deduction plus an income stream to the donor, with the remainder passing to charity
A CRT gives the donor a partial charitable income tax deduction upfront and an income stream for life or a term, with the remainder passing to the named charity.
A Family Limited Partnership (FLP) is often used in estate planning to:
Answer: Transfer wealth to heirs at a discount by applying valuation discounts for lack of control and marketability
By contributing assets to an FLP and gifting limited partnership interests, valuation discounts (lack of control and marketability) reduce the taxable transfer value.
Which estate planning technique allows a parent to superfund a 529 plan by front-loading up to five years' worth of annual exclusion gifts?
Answer: 5-year gift averaging (superfunding)
The 5-year gift averaging election allows a lump-sum contribution to a 529 plan using five years of annual exclusions ($90,000 in 2024) without gift tax, removing the funds from the donor's estate.