CSS Estate Planning & Wealth Transfer 1 — Questions and Answers
Question 1: Which document allows a person to designate someone to manage their financial affairs if they become incapacitated?
- Living will
- Durable power of attorney (Correct answer)
- Revocable trust
- Beneficiary designation
Correct answer: Durable power of attorney
A durable power of attorney remains valid even if the principal becomes incapacitated, allowing the agent to manage financial affairs.
Question 2: What is the primary advantage of a revocable living trust over a will?
- It reduces estate taxes
- It avoids probate (Correct answer)
- It provides more asset protection
- It is legally binding immediately
Correct answer: It avoids probate
A revocable living trust transfers assets directly to beneficiaries without going through the probate process, saving time and costs.
Question 3: Under current US law, what is the annual gift tax exclusion per recipient (2024)?
- $10,000
- $15,000
- $18,000 (Correct answer)
- $20,000
Correct answer: $18,000
The annual gift tax exclusion for 2024 is $18,000 per recipient, allowing tax-free gifts up to that amount each year.
Question 4: Which type of trust is commonly used to remove life insurance proceeds from a taxable estate?
- Charitable remainder trust
- Irrevocable life insurance trust (ILIT) (Correct answer)
- Qualified personal residence trust
- Special needs trust
Correct answer: Irrevocable life insurance trust (ILIT)
An ILIT owns the life insurance policy so that proceeds are paid to the trust rather than the estate, keeping them out of the taxable estate.
Question 5: What does 'stepped-up basis' mean for inherited assets?
- The asset is revalued at the decedent's original purchase price
- The asset's cost basis is reset to its fair market value at the date of death (Correct answer)
- The heir must pay capital gains on all appreciation
- The IRS steps up the estate tax rate
Correct answer: The asset's cost basis is reset to its fair market value at the date of death
A stepped-up basis resets the asset's cost basis to its fair market value at the date of death, eliminating capital gains tax on pre-death appreciation.
Question 6: Which estate planning tool allows seniors to donate assets to charity while retaining an income stream during their lifetime?
- Donor-advised fund
- Charitable remainder trust (CRT) (Correct answer)
- Qualified opportunity zone fund
- Dynasty trust
Correct answer: Charitable remainder trust (CRT)
A charitable remainder trust provides the donor with income for life or a term of years, with the remainder passing to charity upon termination.
CSS Estate Planning & Wealth Transfer 1
Which document allows a person to designate someone to manage their financial affairs if they become incapacitated?