CES Beneficiary Rights & Distribution Planning Flashcards
6 cards from real CES practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 CES Beneficiary Rights & Distribution Planning flashcards as text
Under the Uniform Principal and Income Act, how are stock dividends generally classified?
Answer: As principal
Under the Uniform Principal and Income Act, stock dividends are allocated to principal because they represent growth in the underlying investment, not a yield on the investment.
A trust converts to a unitrust, paying a fixed percentage of assets annually. What primary benefit does this provide to the income beneficiary?
Answer: A payment based on the fair market value of assets, blending income and principal
A unitrust pays a fixed percentage of total trust assets, allowing the income beneficiary to share in asset appreciation and reducing conflict with the remainder beneficiary.
What is the legal effect of a trust's 'no-contest' (in terrorem) clause?
Answer: It disinherits a beneficiary who unsuccessfully challenges the trust
A no-contest clause disinherits any beneficiary who challenges the trust and loses, discouraging frivolous litigation against the trust's terms.
Which type of trust interest is NOT subject to estate tax in the beneficiary's estate?
Answer: A support interest in a discretionary trust with an ascertainable standard held by a third-party trustee
A purely discretionary support interest administered by an independent trustee under an ascertainable standard is generally not includible in the beneficiary's estate because the beneficiary lacks control.
When a trust beneficiary dies with a vested remainder interest, how is that interest treated for estate tax purposes?
Answer: It is included in the gross estate at its actuarial present value
A vested remainder interest is included in the deceased beneficiary's gross estate at its actuarial present value under IRC §2033.
A beneficiary refuses a trust distribution within the required timeframe. Under IRC §2518, this qualified disclaimer causes the assets to pass to whom?
Answer: Pass to the next taker as if the disclaimant predeceased the transfer
A qualified disclaimer treats the disclaimant as having predeceased the transfer, so assets pass to the next beneficiary in line without gift tax to the disclaimant.