Family Business Succession Flashcards
7 cards from real CSP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Family Business Succession flashcards as text
A Grantor Retained Annuity Trust (GRAT) is most effective for transferring family business interests when:
Answer: The business is expected to appreciate rapidly after the transfer
A GRAT works best when the asset transferred outperforms the IRS hurdle rate (Section 7520 rate), passing excess appreciation to heirs estate-tax free.
What role does a 'family constitution' play in business succession planning?
Answer: It documents shared values, governance structures, and family-business relationship policies
A family constitution is a guiding document that codifies family values, governance principles, and protocols for managing the intersection of family and business.
Which type of trust allows a business owner to transfer wealth to grandchildren while minimizing generation-skipping transfer (GST) tax exposure?
Answer: Dynasty trust
A dynasty trust is specifically designed to hold assets across multiple generations, using GST tax exemptions to minimize transfer taxes.
When planning for a non-family CEO to lead during a successor's development period, which governance mechanism best protects family interests?
Answer: Establishing a strong, independent board with family representation
A strong board with family representation provides oversight, accountability, and strategic guidance while allowing professional management to operate.
In succession planning, what does 'equalization' typically refer to?
Answer: Using life insurance or other assets to balance inheritances between active and inactive heirs
Equalization uses assets like life insurance to provide inactive heirs with equivalent value without diluting the business ownership held by the active successor.
Which of the following best describes a 'management buyout' in the context of family business succession?
Answer: Key non-family managers purchase the business from the owner
A management buyout (MBO) occurs when the existing management team, often non-family, acquires ownership of the business from the current owner.
A business owner wants to transfer ownership to a child over time while retaining some income. Which structure best accomplishes this?
Answer: Installment sale with a self-canceling installment note (SCIN)
A SCIN allows the owner to receive installment payments that cancel upon death, providing income while transferring ownership gradually and potentially reducing estate taxes.