STEP Financial Analysis & Planning 2

Question 1

A trust holds a portfolio with a 60/40 equity-to-bond allocation. After a strong equity rally, the allocation shifts to 72/28. What action best restores the target allocation?

Accepted Answer

Sell equities and reinvest proceeds into bonds

Answer

Rebalancing requires selling the over-weighted asset class (equities) and purchasing the under-weighted class (bonds) to restore the target allocation.

Question 2

When calculating a beneficiary's required minimum distribution (RMD) from an inherited IRA under the SECURE 2.0 Act, which rule generally applies to non-spouse adult beneficiaries?

Accepted Answer

10-year rule requiring full withdrawal by end of year 10

Answer

Under the SECURE 2.0 Act, most non-spouse adult beneficiaries must fully withdraw inherited IRA assets within 10 years of the original owner's death.

Question 3

A STEP practitioner is evaluating the internal rate of return (IRR) of a real estate investment held in a family trust. The IRR is best described as:

Accepted Answer

The discount rate that makes the net present value of all cash flows equal to zero

Answer

IRR is the discount rate at which the NPV of all cash inflows and outflows equals zero, reflecting the investment's true annualized return.

Question 4

A trustee holds a portfolio with a modified duration of 7. If interest rates rise by 1%, what is the approximate change in the bond portfolio's value?

Accepted Answer

Decreases by 7%

Answer

Modified duration measures price sensitivity: a 1% rise in rates causes a portfolio decline approximately equal to its modified duration percentage, so the value falls by about 7%.

Question 5

A grantor trust's income is taxed to the grantor because:

Accepted Answer

The grantor retains certain powers or benefits that cause the trust to be disregarded for income tax purposes

Answer

A trust is classified as a grantor trust when the grantor retains specific powers enumerated in IRC Sections 671–679, causing income to be attributed to the grantor for tax purposes.

(STEP) Society of Trust and Estate Practitioners Certification Practice Test

(STEP) Society of Trust and Estate Practitioners Certification Practice Test

STEP Financial Analysis & Planning 2