CFP Estate Planning & Wealth Transfer 2

Question 1

An Irrevocable Life Insurance Trust (ILIT) is designed primarily to:

Accepted Answer

Keep life insurance proceeds out of the insured's taxable estate

Answer

Deduct life insurance premiums as a business expense

Answer

Allow the insured to borrow from the policy tax-free

Answer

Provide the insured with control over death benefit investments

Question 2

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

Accepted Answer

Avoidance of estate tax by transferring assets directly to grandchildren or later generations

Answer

Transfers of assets to charities that skip two generations

Answer

Income splitting between parents and minor children

Answer

The use of trusts to defer income taxes indefinitely

Question 3

A Grantor Retained Annuity Trust (GRAT) works by:

Accepted Answer

Transferring appreciation above the IRS hurdle rate to heirs with little or no gift tax

Answer

Donating assets to charity while retaining an annuity for a fixed term

Answer

Allowing heirs to receive income for life before assets pass to charity

Answer

Freezing the value of a closely held business for estate tax purposes

Question 4

Portability in estate planning refers to:

Accepted Answer

A surviving spouse's ability to use a deceased spouse's unused estate tax exemption

Answer

Moving assets between states to minimize state estate taxes

Answer

The ability to transfer a retirement account to any beneficiary without taxes

Answer

Using a revocable trust that can be moved across jurisdictions

Question 5

A Charitable Remainder Trust (CRT) provides what primary tax and financial benefits?

Accepted Answer

A current income tax deduction plus an income stream to the donor, with the remainder passing to charity

Answer

Full exclusion of the transferred asset from the donor's estate plus avoidance of capital gains on sale

Answer

An above-the-line deduction equal to 100% of the asset's fair market value

Answer

Deferral of all capital gains taxes until the trust terminates

Question 6

A Family Limited Partnership (FLP) is often used in estate planning to:

Accepted Answer

Transfer wealth to heirs at a discount by applying valuation discounts for lack of control and marketability

Answer

Qualify assets for the marital deduction

Answer

Avoid all gift and estate taxes on business interests

Answer

Provide a charitable deduction equal to the contributed asset's fair market value

Question 7

Which estate planning technique allows a parent to superfund a 529 plan by front-loading up to five years' worth of annual exclusion gifts?

Accepted Answer

5-year gift averaging (superfunding)

Answer

Qualified tuition plan lump-sum election

Answer

Section 2503(c) minor's trust contribution

Answer

Crummey power election