CPB CPB Estate Planning & Trust Services 1 — Questions and Answers
Question 1: What is the primary purpose of a revocable living trust in a private banker's estate planning toolkit?
- Reduce estate taxes by removing assets from the taxable estate
- Avoid probate and provide seamless asset management continuity at incapacity or death (Correct answer)
- Protect assets from creditor claims and lawsuits
- Generate tax-free income for beneficiaries during the grantor's lifetime
Correct answer: Avoid probate and provide seamless asset management continuity at incapacity or death
A revocable living trust allows assets to pass to beneficiaries without going through probate, while also enabling a successor trustee to manage assets during the grantor's incapacity.
Question 2: When a client dies without a valid will, which legal framework determines how their assets are distributed?
- A power of attorney designated during lifetime
- A living will or advance directive
- Intestate succession laws of the state where the decedent resided (Correct answer)
- Beneficiary designations on all accounts
Correct answer: Intestate succession laws of the state where the decedent resided
Intestate succession laws dictate asset distribution when someone dies without a will, typically prioritizing spouses, children, and then more distant relatives.
Question 3: Which trust vehicle is most commonly used to hold life insurance policies outside of the insured's taxable estate?
- Revocable living trust
- Irrevocable Life Insurance Trust (ILIT) (Correct answer)
- Blind trust
- Charitable lead annuity trust
Correct answer: Irrevocable Life Insurance Trust (ILIT)
An ILIT owns a life insurance policy so that the death benefit is excluded from the insured's estate, preserving the full proceeds for beneficiaries free of estate tax.
Question 4: What is a pour-over will in estate planning?
- A will that automatically transfers any probate assets into an existing trust at the testator's death (Correct answer)
- A will that directs assets to charitable organizations
- A will designating multiple co-equal beneficiaries
- A revocable will that contains no trust provisions
Correct answer: A will that automatically transfers any probate assets into an existing trust at the testator's death
A pour-over will acts as a safety net by directing any assets not already in a trust to 'pour over' into the decedent's revocable living trust upon death.
Question 5: In a trust arrangement, what is the primary legal duty of a trustee?
- To ultimately inherit any remaining trust assets after the trust terminates
- To manage and administer trust assets prudently for the benefit of the named beneficiaries (Correct answer)
- To draft the trust document and its amendments
- To contest the trust if terms seem unfavorable
Correct answer: To manage and administer trust assets prudently for the benefit of the named beneficiaries
A trustee holds fiduciary duties including loyalty, prudent management, impartiality, and accounting, all in the best interests of the trust beneficiaries.
Question 6: Which estate planning trust is specifically designed to protect a beneficiary's inheritance from being seized by their creditors or in a divorce?
- Simple testamentary will
- Revocable living trust
- Spendthrift trust (Correct answer)
- Power of attorney
Correct answer: Spendthrift trust
A spendthrift trust restricts the beneficiary's ability to assign their interest and prevents creditors from attaching trust assets before they are distributed.
CPB CPB Estate Planning & Trust Services 1
What is the primary purpose of a revocable living trust in a private banker's estate planning toolkit?