CTFA Estate Planning and Administration 3

Question 1

What is the primary purpose of a special needs trust (supplemental needs trust) in estate planning?

Accepted Answer

To provide for a disabled beneficiary without disqualifying them from government benefits

Answer

A special needs trust allows a disabled beneficiary to receive supplemental support while preserving eligibility for means-tested government programs like Medicaid and SSI.

Question 2

Under the Uniform Fiduciary Income and Principal Act (UFIPA), what is the trustee's power to adjust primarily designed to address?

Accepted Answer

Imbalances between income and remainder beneficiaries caused by the portfolio's total return

Answer

The power to adjust allows trustees to reallocate between income and principal to achieve equitable treatment of current and remainder beneficiaries based on total return.

Question 3

What is a generation-skipping transfer (GST) tax designed to prevent?

Accepted Answer

Wealthy families from avoiding estate tax by passing assets directly to grandchildren or later generations

Answer

The GST tax is an additional transfer tax imposed when assets skip a generation (e.g., pass to grandchildren), preventing the avoidance of estate tax at the children's level.

Question 4

Which trust structure is most commonly used to remove life insurance proceeds from the insured's taxable estate?

Accepted Answer

Irrevocable life insurance trust (ILIT)

Answer

An irrevocable life insurance trust (ILIT) owns the life insurance policy so that proceeds are not included in the insured's gross estate at death.

Question 5

What is the stepped-up basis rule for inherited assets?

Accepted Answer

Inherited assets receive a new cost basis equal to fair market value at the date of the decedent's death

Answer

Under IRC Section 1014, assets included in a decedent's gross estate receive a new basis equal to their fair market value on the date of death, eliminating unrealized gains.

CTFA - Certified Trust and Fiduciary Advisor Practice Test

CTFA - Certified Trust and Fiduciary Advisor Practice Test

CTFA Estate Planning and Administration 3