Risk Assessment & Mitigation Flashcards

A trustee receives a demand from a creditor claiming the grantor transferred assets to an irrevocable trust with intent to defraud. Under the Uniform Fraudulent Transfer Act (UFTA), what is the maximum look-back period for constructive fraud?

Answer: 4 years

Under UFTA, the statute of limitations for constructive fraud (transfers made without reasonably equivalent value) is generally four years from the date of transfer.

Which risk does a trustee face by holding an S corporation interest inside an irrevocable non-grantor trust without proper planning?

Answer: Termination of the S corporation election if the trust is an ineligible shareholder

S corporations may only have eligible shareholders; a non-grantor trust must qualify as a QSST or ESBT to hold S corporation stock without terminating the S election.

A trustee seeks to mitigate longevity risk for an income beneficiary who is 35 years old. Which strategy is most aligned with this goal?

Answer: Including inflation-indexed securities and growth assets in the portfolio

Longevity risk requires the portfolio to sustain purchasing power over many decades, making inflation protection and real growth assets essential components.

Which of the following is a key risk mitigation function of a trust protector in a modern irrevocable trust?

Answer: Modifying trust terms to adapt to unforeseen legal or tax law changes

A trust protector can amend trust terms in response to legislative changes, court decisions, or changed circumstances, preserving the grantor's original intent.

When assessing the risk of a trustee co-mingling trust and personal funds, which standard of liability typically applies?

Answer: Strict liability regardless of actual harm

Co-mingling of trust and personal assets is a per se breach of fiduciary duty, and trustees are held strictly liable for any losses resulting from the co-mingling.

A trust owns a 40% interest in a closely held business. What is the primary liquidity risk associated with this holding?

Answer: The interest may be difficult to sell quickly at fair value to meet distribution needs

Closely held business interests lack a ready market, making it difficult to convert the interest to cash quickly without accepting a significant illiquidity discount.

A UK-domiciled settlor establishes a US trust for US beneficiaries. Which primary risk must the estate planner assess at the outset?

Answer: The interaction between US estate tax treaties and UK inheritance tax on the same assets

When a non-US-domiciled settlor creates a trust, the planner must analyze how the US estate tax treaties interact with the UK's inheritance tax regime to avoid double taxation.