CIM Estate Planning 3

Question 1

What is the federal estate tax effect of placing assets in a revocable living trust?

Accepted Answer

Assets remain included in the grantor's gross estate

Answer

Because the grantor retains the power to revoke, the assets stay in the gross estate under IRC Section 2038.

Question 2

An insured transfers an existing life insurance policy to an ILIT and dies two years later. What is the estate tax result?

Accepted Answer

The death benefit is included in the insured's gross estate

Answer

Under IRC Section 2035, a life insurance policy transferred within three years of death is pulled back into the gross estate.

Question 3

Why are Crummey withdrawal powers commonly included in an irrevocable life insurance trust?

Accepted Answer

To make gifts to the trust qualify as present-interest gifts for the annual exclusion

Answer

A temporary right of beneficiaries to withdraw contributions converts future-interest gifts into present-interest gifts eligible for the annual exclusion.

Question 4

A spendthrift clause in a trust primarily serves to:

Accepted Answer

Prevent beneficiaries' creditors from reaching trust assets before distribution

Answer

Spendthrift provisions bar beneficiaries from assigning their interests and generally shield undistributed trust assets from their creditors.

Question 5

Which statement best describes an intentionally defective grantor trust (IDGT)?

Accepted Answer

Assets are excluded from the grantor's estate, but the grantor pays income tax on trust income

Answer

An IDGT is drafted to be a completed gift for transfer-tax purposes while remaining a grantor trust for income tax, so the grantor's tax payments further shrink the estate.

CIM - Chartered Investment Manager Practice Test

CIM - Chartered Investment Manager Practice Test

CIM Estate Planning 3