Legal & Regulatory Compliance Flashcards

Under the Employee Retirement Income Security Act (ERISA), which fiduciary duty requires plan administrators to act solely in the interest of plan participants and beneficiaries?

Answer: Duty of loyalty

ERISA's duty of loyalty requires fiduciaries to act exclusively for the benefit of plan participants and beneficiaries, not for any other party.

Which federal law governs the transfer of retirement plan assets upon an employee's death and requires that a surviving spouse be the primary beneficiary unless a waiver is signed?

Answer: ERISA

ERISA requires that qualified retirement plans designate the surviving spouse as the default primary beneficiary, and the spouse must consent in writing to any alternative designation.

A buy-sell agreement funded by life insurance triggers a tax concern under IRC Section 101(j) if the policy is owned by a corporation on a key employee who has not provided written consent. What is this issue called?

Answer: Corporate-owned life insurance (COLI) notice and consent rule

IRC Section 101(j) requires employers to obtain written consent from insured employees before issuing COLI policies, or death benefits may lose their income-tax-free status.

When a succession plan involves transferring ownership of an S-corporation, which of the following is a critical legal restriction that must be observed?

Answer: S-corporations cannot have more than 100 shareholders or certain ineligible shareholders

S-corporations are limited to 100 shareholders and cannot have ineligible shareholders such as non-resident aliens or certain trusts, which constrains succession transfer options.

Which legal doctrine can cause a family limited partnership (FLP) to be included in a decedent's taxable estate if the IRS finds the arrangement lacked legitimate non-tax business purposes?

Answer: All of the above doctrines may apply

The IRS and courts have applied the step transaction, economic substance, and substance over form doctrines to collapse FLP arrangements that lack genuine business purposes.

For a grantor retained annuity trust (GRAT) to achieve its estate-planning goal, what must happen with the invested assets relative to the IRC Section 7520 hurdle rate?

Answer: Assets must grow faster than the 7520 rate to pass wealth transfer-tax free

A GRAT succeeds when trust assets outperform the Section 7520 hurdle rate; the excess appreciation passes to remainder beneficiaries free of gift tax.

Under state law, what document must typically be recorded with the county recorder or secretary of state when a partner withdraws from a general partnership as part of a succession event?

Answer: Notice of Dissociation

Most states following the Revised Uniform Partnership Act (RUPA) allow a dissociating partner to file a Statement of Dissociation to provide public notice and limit future liability.