CLA/CP Exam Estate Planning and Probate 5

Question 1

What is the 'stepped-up basis' rule for inherited property under current U.S. federal tax law?

Accepted Answer

The heir's cost basis is reset to the fair market value of the property at the date of death

Answer

Under IRC §1014, inherited property receives a basis equal to its fair market value on the decedent's date of death, eliminating capital gains on pre-death appreciation.

Question 2

Which trust arrangement is irrevocable, removes assets from the taxable estate, and is commonly used to hold life insurance policies?

Accepted Answer

Irrevocable Life Insurance Trust (ILIT)

Answer

An ILIT owns a life insurance policy so the death benefit is excluded from the insured's taxable estate, provided the insured does not retain any incidents of ownership.

Question 3

What is the role of a guardian ad litem in a probate proceeding?

Accepted Answer

To represent the interests of a minor or incapacitated person in the proceeding

Answer

A guardian ad litem is appointed by the court to protect the legal interests of a minor or incompetent beneficiary who cannot represent themselves.

Question 4

When creditors' claims exceed estate assets in an insolvent estate, which class of debts is typically paid last?

Accepted Answer

Specific bequests to family

Answer

In an insolvent estate, specific bequests to beneficiaries are paid last after all creditor claims, following a statutory priority order that places administration expenses and secured claims first.

Question 5

What is a 'no-contest clause' (in terrorem clause) in a will, and what is its general effect?

Accepted Answer

It disinherits a beneficiary who challenges the will in court

Answer

An in terrorem clause provides that any beneficiary who contests the will forfeits their inheritance, discouraging frivolous challenges.

CLA/CP Exam Practice Test

CLA/CP Exam Practice Test

CLA/CP Exam Estate Planning and Probate 5