CLA/CP Exam Estate Planning and Probate 4 ā Questions and Answers
Question 1: Which generation-skipping transfer tax exemption feature allows unused exemption to be allocated to transfers made during life or at death?
- Portability (Correct answer)
- Annual exclusion
- Step-up in basis
- Applicable exclusion amount
Correct answer: Portability
Portability allows a surviving spouse to elect to use the deceased spouse's unused federal estate and gift tax exemption (DSUE).
Question 2: Which document allows an individual to state preferences for end-of-life medical treatment in advance?
- Durable financial power of attorney
- Living will / advance directive (Correct answer)
- Healthcare proxy
- Revocable trust
Correct answer: Living will / advance directive
A living will or advance directive records a person's specific instructions about life-sustaining treatment if they become unable to communicate.
Question 3: What is the primary tax advantage of gifting appreciated property through a charitable remainder trust (CRT)?
- The grantor avoids all capital gains tax immediately and receives a partial charitable deduction (Correct answer)
- The grantor pays no income tax on CRT distributions
- The property receives a stepped-up basis
- Heirs inherit the property income-tax-free
Correct answer: The grantor avoids all capital gains tax immediately and receives a partial charitable deduction
Transferring appreciated property to a CRT allows the trustee to sell it without immediate capital gains tax, and the grantor receives an upfront charitable income tax deduction.
Question 4: What term describes the process of distributing a deceased person's share equally among their descendants when a beneficiary predeceases the testator?
- Per capita
- Per stirpes (Correct answer)
- Intestate lapse
- Abatement
Correct answer: Per stirpes
Per stirpes distribution means a deceased beneficiary's share passes to their descendants in equal shares by representation.
Question 5: Under the Uniform Trust Code, what duty requires a trustee to treat all beneficiariesācurrent and remainderāimpartially?
- Duty of loyalty
- Duty of prudent investment
- Duty of impartiality (Correct answer)
- Duty to inform
Correct answer: Duty of impartiality
The duty of impartiality requires trustees to balance the competing interests of income beneficiaries and remainder beneficiaries when investing and distributing trust assets.
Question 6: Which type of will is entirely handwritten and signed by the testator without witnesses?
- Nuncupative will
- Holographic will (Correct answer)
- Statutory will
- Notarial will
Correct answer: Holographic will
A holographic will is handwritten and signed by the testator; many states recognize these without the usual witness requirements if the material portions are in the testator's handwriting.
Question 7: What is 'ancillary probate' and when is it required?
- A second probate proceeding in a state where the decedent owned real property outside their domicile state (Correct answer)
- An expedited probate for very small estates
- Probate opened after the primary estate is closed
- A trust-based alternative to probate
Correct answer: A second probate proceeding in a state where the decedent owned real property outside their domicile state
Ancillary probate is a secondary probate proceeding required in each state where a decedent owned real property, in addition to the primary domicile probate.
CLA/CP Exam Estate Planning and Probate 4
Which generation-skipping transfer tax exemption feature allows unused exemption to be allocated to transfers made during life or at death?