STEP Risk Assessment & Mitigation 4

Question 1

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?

Accepted Answer

4 years

Answer

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

Question 2

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

Accepted Answer

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

Answer

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.

Question 3

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

Accepted Answer

Including inflation-indexed securities and growth assets in the portfolio

Answer

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

Question 4

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

Accepted Answer

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

Answer

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

Question 5

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

Accepted Answer

Strict liability regardless of actual harm

Answer

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.

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

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

STEP Risk Assessment & Mitigation 4