FREE Chartered Life Underwriter (CLU) Estate Planning Strategies Questions and Answers

Question 1

A CLU is advising a client with a significant estate who is concerned about minimizing estate taxes and ensuring a smooth transfer of assets to heirs.
The client wishes to maintain some control over the assets during their lifetime.
Which of the following estate planning strategies would be most appropriate for this client?

Accepted Answer

Establishing an Irrevocable Life Insurance Trust (ILIT).

Answer

Gifting all assets directly to heirs immediately.

Answer

Creating a simple will without any trust provisions.

Answer

Titling all assets in joint tenancy with right of survivorship.

Question 2

Which of the following statements best describes the primary benefit of a 'Crummey power' provision in an Irrevocable Life Insurance Trust (ILIT)?

Accepted Answer

It ensures that gifts to the trust qualify for the annual gift tax exclusion.

Answer

It allows the grantor to revoke the trust at any time.

Answer

It dictates the specific investments the trustee must make.

Answer

It permits the trustee to distribute principal to beneficiaries without restriction.

Question 3

A client owns a successful closely-held business and is concerned about the impact of estate taxes and potential forced liquidation of the business upon their death. They want to ensure the business can continue operating smoothly and provide liquidity for estate expenses. Which strategy is most relevant to address these concerns?

Accepted Answer

Implementing a buy-sell agreement funded with life insurance.

Answer

Establishing a Qualified Personal Residence Trust (QPRT).

Answer

Creating a Charitable Remainder Trust (CRT).

Answer

Gifting business interests directly to employees during their lifetime.

Question 4

Mr. and Mrs. Chen, both in their late 70s, want to ensure that their assets pass to their children efficiently and avoid the probate process. They also want to include provisions for managing their assets if they become incapacitated. Which estate planning tool would best address these objectives?

Accepted Answer

A revocable living trust.

Answer

A simple will.

Answer

A durable power of attorney for healthcare.

Answer

Joint tenancy with right of survivorship for all assets.

Question 5

Which of the following is a key characteristic and benefit of a 'Dynasty Trust' in estate planning?

Accepted Answer

It is designed to hold assets for multiple generations, potentially avoiding estate taxes for a very long period.

Answer

It must terminate upon the death of the grantor.

Answer

Its primary purpose is to provide immediate income to the grantor.

Answer

It requires all assets to be distributed to beneficiaries within 10 years of its creation.

Question 6

A client is considering making substantial gifts to their children but is concerned about exceeding the annual gift tax exclusion and incurring gift taxes. They have significant illiquid assets. Which strategy could help them make large gifts while minimizing immediate gift tax consequences and maintaining some control?

Accepted Answer

Establishing a Grantor Retained Annuity Trust (GRAT).

Answer

Making direct cash gifts exceeding the annual exclusion limit.

Answer

Funding an Irrevocable Life Insurance Trust (ILIT) with cash gifts.

Answer

Selling assets to their children at fair market value.