RMA Risk Management & Estate Planning 2

Question 1

A retiree wants to protect against the risk of outliving assets. Which strategy BEST addresses longevity risk?

Accepted Answer

Purchasing a single premium immediate annuity (SPIA)

Answer

A SPIA converts a lump sum into guaranteed lifetime income, directly hedging longevity risk regardless of how long the retiree lives.

Question 2

Which type of trust allows a grantor to retain an annuity interest for a specified term while transferring the remainder to heirs at a reduced gift tax value?

Accepted Answer

Grantor Retained Annuity Trust (GRAT)

Answer

A GRAT lets the grantor receive fixed annuity payments for a term, with any appreciation above the IRS hurdle rate passing to heirs gift-tax free.

Question 3

Under the step-up in basis rules, what happens to the cost basis of appreciated assets inherited at death?

Accepted Answer

Basis is stepped up to fair market value at the date of death

Answer

IRC §1014 generally steps up the basis of inherited assets to their fair market value on the decedent's date of death, eliminating embedded capital gains.

Question 4

A sequence-of-returns risk is MOST damaging when it occurs:

Accepted Answer

Early in the distribution phase when withdrawals begin

Answer

Large early losses combined with ongoing withdrawals permanently deplete the portfolio, leaving less capital to benefit from later recoveries.

Question 5

Which federal estate tax provision allows a surviving spouse to use the deceased spouse's unused estate tax exemption?

Accepted Answer

Portability election

Answer

Portability, enacted in 2010, allows the executor to elect to transfer the deceased spouse's unused exemption (DSUE) to the surviving spouse via a timely-filed estate tax return.

RMA Practice Test

RMA Practice Test

RMA Risk Management & Estate Planning 2