Financial Advisor Certified Trust and Financial Advisor 5 — Questions and Answers
Question 1: A Qualified Domestic Relations Order (QDRO) is used in trust and estate planning to:
- Establish a trust for minor children post-divorce
- Divide retirement plan benefits between divorcing spouses (Correct answer)
- Protect a surviving spouse's elective share
- Transfer IRA assets to a special needs trust
Correct answer: Divide retirement plan benefits between divorcing spouses
A QDRO is a court order that assigns a portion of a retirement plan participant's benefits to an alternate payee, typically a former spouse.
Question 2: The 'no-contest' (in terrorem) clause in a trust is intended to discourage beneficiaries from:
- Requesting trustee accountings
- Challenging the validity of the trust instrument (Correct answer)
- Changing their own beneficiary designations
- Claiming the elective share under state law
Correct answer: Challenging the validity of the trust instrument
An in terrorem clause forfeits a beneficiary's interest if they contest the trust, discouraging frivolous legal challenges.
Question 3: A trust protector's role in a modern trust most commonly includes the power to:
- Distribute trust assets without trustee approval
- Modify trust terms to adapt to changed laws or circumstances (Correct answer)
- Override court orders affecting the trust
- Serve as a co-trustee automatically
Correct answer: Modify trust terms to adapt to changed laws or circumstances
Trust protectors are granted specific powers such as amending trust terms to respond to tax law changes or changed family circumstances.
Question 4: When total return unitrust (TRU) distributions are used instead of traditional income distributions, the trustee distributes:
- Only dividends and interest earned
- A fixed percentage of the trust's total fair market value annually (Correct answer)
- The greater of income or 5% of principal
- An amount determined solely by the income beneficiary's needs
Correct answer: A fixed percentage of the trust's total fair market value annually
A total return unitrust pays out a set percentage (typically 3–5%) of the trust's total fair market value each year, regardless of whether returns are income or appreciation.
Question 5: A trustee's duty to keep accurate records and provide accountings to beneficiaries falls under which fiduciary obligation?
- Duty of loyalty
- Duty of prudence
- Duty to inform and report (Correct answer)
- Duty of impartiality
Correct answer: Duty to inform and report
The duty to inform and report requires trustees to keep beneficiaries reasonably informed about trust administration and to provide periodic accountings.
Question 6: Which estate planning technique uses the annual gift tax exclusion to remove assets from an estate by making direct gifts each year?
- Family Limited Partnership (FLP)
- Annual gifting program using the annual exclusion (Correct answer)
- Charitable Lead Unitrust (CLUT)
- Intentionally Defective Grantor Trust (IDGT)
Correct answer: Annual gifting program using the annual exclusion
An annual gifting program takes advantage of the per-recipient annual exclusion ($18,000 in 2024) to transfer assets out of the taxable estate over time.
Question 7: A Medicaid Asset Protection Trust (MAPT) must be irrevocable and funded at least how many years before the grantor applies for Medicaid long-term care benefits (federal look-back period)?
- 1 year
- 3 years
- 5 years (Correct answer)
- 10 years
Correct answer: 5 years
Federal Medicaid rules impose a 5-year look-back period; assets transferred to a MAPT within 5 years of application can trigger a penalty period.
Financial Advisor Certified Trust and Financial Advisor 5
A Qualified Domestic Relations Order (QDRO) is used in trust and estate planning to: