Advanced Estate Planning Techniques Flashcards

A 'dynasty trust' is designed primarily to avoid which transfer tax by holding assets in trust for multiple generations?

Answer: Generation-Skipping Transfer (GST) tax

A dynasty trust is structured to utilize the GST tax exemption so that assets pass through multiple generations without triggering the generation-skipping transfer tax at each level.

The generation-skipping transfer (GST) tax exemption amount in 2024 is most closely aligned with:

Answer: The basic exclusion amount for federal estate tax purposes

The GST tax exemption is equal to the basic exclusion amount for federal estate and gift tax purposes, which is $13.61 million in 2024.

Which planning technique allows a grantor to 'swap' low-basis assets held in an irrevocable grantor trust for high-basis assets of equal value, achieving a step-up in basis without estate inclusion?

Answer: Substitution power retained by the grantor under IRC §675(4)

IRC §675(4) allows a grantor to retain the power to substitute assets of equivalent value, which keeps the trust as a grantor trust for income tax but enables basis-swapping before death.

Under the concept of 'portability,' the deceased spousal unused exclusion (DSUE) amount must be elected on a timely filed estate tax return within how many months of the decedent's death?

Answer: 9 months (plus automatic 6-month extension)

Portability must be elected on a timely filed Form 706 due 9 months after the decedent's death, with an automatic 6-month extension available upon request.

A 'trust protector' clause in an irrevocable trust most commonly grants which type of authority to improve long-term flexibility?

Answer: The power to add or remove beneficiaries and amend trust terms to adapt to law changes

A trust protector typically holds powers to modify trust terms, change situs, add or remove beneficiaries, and respond to tax law changes, providing flexibility in an otherwise irrevocable structure.

Which of the following best describes the 'backdoor Roth' strategy's relevance in estate planning?

Answer: Roth IRAs have no required minimum distributions during the owner's lifetime, allowing tax-free compounding to pass to heirs

Roth IRAs have no lifetime RMDs, enabling decades of tax-free growth, and qualified distributions to heirs are income-tax free, making them ideal wealth transfer vehicles.

The 'SECURE Act 2.0' most significantly impacted estate planning for inherited IRAs by:

Answer: Eliminating the stretch IRA for all non-spouse beneficiaries and requiring full distribution within 10 years

The SECURE Act eliminated the stretch IRA for most non-spouse beneficiaries, requiring full distribution of inherited IRA assets within 10 years, dramatically changing income tax planning for inherited retirement accounts.