Estate Planning & Wealth Transfer Flashcards
7 cards from real CFSP 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
What is a Grantor Retained Annuity Trust (GRAT) primarily used for in estate planning?
Answer: To transfer future asset appreciation to heirs with minimal gift tax cost
A GRAT allows a grantor to transfer the future appreciation of contributed assets to beneficiaries while minimizing gift taxes, because the grantor retains annuity payments that reduce the taxable gift amount.
What does a spendthrift trust provision protect against?
Answer: A beneficiary's creditors from attaching or garnishing trust assets before distribution
A spendthrift provision prevents a beneficiary's creditors from reaching trust assets prior to distribution, protecting principal from the beneficiary's financial liabilities.
Under a 'per stirpes' distribution scheme, how are assets distributed when a named beneficiary predeceases the testator?
Answer: The deceased beneficiary's share passes down to their own descendants by representation
Under per stirpes (by the root) distribution, if a beneficiary dies before the testator, that beneficiary's share passes to their own descendants, who step into the deceased beneficiary's position.
What is the primary estate planning advantage of a Family Limited Partnership (FLP)?
Answer: Transferring business and investment interests to heirs at a valuation discount while retaining management control
An FLP allows senior family members to transfer interests at a discount (reflecting lack of marketability and minority interest) while retaining general partner control over the underlying assets.
What is the federal unlimited marital deduction in estate planning?
Answer: A provision allowing an unlimited amount of assets to pass to a U.S. citizen surviving spouse free of federal estate tax
The unlimited marital deduction allows an unlimited amount of assets to pass to a U.S. citizen surviving spouse free of federal estate tax, deferring the tax until the surviving spouse's subsequent death.
What is a 'qualified disclaimer' in the context of estate planning?
Answer: A legal refusal to accept an inheritance that causes the assets to pass to the next beneficiary as if the disclaimant had predeceased
A qualified disclaimer is a legal refusal to accept inherited property, causing it to pass to the contingent beneficiary as if the disclaimant predeceased the decedent—a common post-mortem tax planning tool.
What is a testamentary trust, and when does it take effect?
Answer: A trust established within a will that comes into existence only upon the testator's death
A testamentary trust is created by provisions within a will and only comes into existence upon the testator's death, commonly used to manage assets for minor children or beneficiaries with special needs.