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

By owning the policy through an ILIT, the death benefit is excluded from the insured's gross estate, reducing potential estate taxes.

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

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.

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

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.

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

Portability allows a surviving spouse to elect to use the Deceased Spouse's Unused Exemption (DSUE), effectively doubling the amount sheltered from estate tax.

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

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.

CFP - Certified Financial Planner Practice Test

CFP - Certified Financial Planner Practice Test

CFP Estate Planning & Wealth Transfer 2