CFSP Estate Planning & Wealth Transfer 3

Question 1

What is a Grantor Retained Annuity Trust (GRAT) primarily used for in estate planning?

Accepted Answer

To transfer future asset appreciation to heirs with minimal gift tax cost

Answer

To provide the grantor with charitable income tax deductions

Answer

To shield assets from the grantor's creditors during their lifetime

Answer

To fund education expenses for grandchildren using 529 plan rules

Question 2

What does a spendthrift trust provision protect against?

Accepted Answer

A beneficiary's creditors from attaching or garnishing trust assets before distribution

Answer

Estate taxes on distributions made to beneficiaries

Answer

The grantor from revoking or amending the trust unilaterally

Answer

Income taxes on investment earnings accumulated within the trust

Question 3

Under a 'per stirpes' distribution scheme, how are assets distributed when a named beneficiary predeceases the testator?

Accepted Answer

The deceased beneficiary's share passes down to their own descendants by representation

Answer

The deceased beneficiary's share is divided equally among the surviving named beneficiaries

Answer

The deceased beneficiary's share reverts to the residuary estate

Answer

The deceased beneficiary's share is donated to the named charitable remainder beneficiary

Question 4

What is the primary estate planning advantage of a Family Limited Partnership (FLP)?

Accepted Answer

Transferring business and investment interests to heirs at a valuation discount while retaining management control

Answer

Eliminating capital gains taxes when business assets are transferred to the next generation

Answer

Providing income tax deductions to family members who receive partnership interests

Answer

Allowing all family assets to bypass probate through the partnership structure

Question 5

What is the federal unlimited marital deduction in estate planning?

Accepted Answer

A provision allowing an unlimited amount of assets to pass to a U.S. citizen surviving spouse free of federal estate tax

Answer

A deduction allowing spouses to make unlimited gifts to each other during life only, not at death

Answer

A deduction equal to the surviving spouse's annual gross income at the time of the decedent's death

Answer

An exclusion available only when assets are transferred through a QTIP or bypass trust

Question 6

What is a 'qualified disclaimer' in the context of estate planning?

Accepted Answer

A legal refusal to accept an inheritance that causes the assets to pass to the next beneficiary as if the disclaimant had predeceased

Answer

A clause in a will that formally disinherits a named beneficiary

Answer

A statement by an executor formally denying personal liability for estate debts

Answer

A provision in a trust preventing a trustee from selling illiquid assets

Question 7

What is a testamentary trust, and when does it take effect?

Accepted Answer

A trust established within a will that comes into existence only upon the testator's death

Answer

A trust created during the grantor's lifetime to avoid probate at death

Answer

A trust that provides an immediate charitable tax deduction upon funding

Answer

A trust that protects assets from estate taxes during the grantor's lifetime