PFS Estate Planning 3

Question 1

Which type of trust is irrevocable and allows the grantor to transfer life insurance proceeds outside of the taxable estate?

Accepted Answer

Irrevocable Life Insurance Trust (ILIT)

Answer

An ILIT owns a life insurance policy so that the death benefit is excluded from the grantor's taxable estate, preserving more wealth for heirs.

Question 2

What is a Crummey power in the context of trust planning?

Accepted Answer

A beneficiary's temporary right to withdraw contributions, qualifying gifts for the annual exclusion

Answer

Crummey powers give trust beneficiaries a short window to withdraw contributions, converting otherwise future-interest gifts into present-interest gifts eligible for the annual gift tax exclusion.

Question 3

A 529 plan superfunding election allows a contributor to:

Accepted Answer

Front-load five years of annual exclusion gifts into a 529 plan at once

Answer

Superfunding allows a lump-sum contribution of up to five times the annual gift tax exclusion to a 529 plan, spread over five years for gift tax purposes.

Question 4

Which document directs how medical decisions should be made if a person is unable to communicate their wishes?

Accepted Answer

Healthcare proxy (healthcare power of attorney)

Answer

A healthcare proxy (or healthcare power of attorney) appoints a specific individual to make medical decisions on behalf of the incapacitated person.

Question 5

How does a charitable remainder trust (CRT) benefit the grantor during their lifetime?

Accepted Answer

It provides the grantor with income payments for life or a term, with the remainder passing to charity

Answer

A CRT pays the grantor (or named beneficiaries) an income stream for a specified period, after which the remaining assets pass to the designated charity.

(PFS) Personal Financial Specialist Practice Test

(PFS) Personal Financial Specialist Practice Test

PFS Estate Planning 3