Risk Assessment & Mitigation Flashcards
7 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 7 Risk Assessment & Mitigation flashcards as text
A client names her estate as beneficiary of her IRA. What is the primary distribution risk this creates for heirs?
Answer: Heirs cannot use the 10-year rule and must take distributions within 5 years if the client died before RBD
When an estate is the beneficiary, heirs cannot qualify as designated beneficiaries and are forced into accelerated distributions, losing the potential 10-year stretch.
Which risk does a co-trustee arrangement most directly address in trust administration?
Answer: Self-dealing and unilateral decision-making by a sole trustee
Requiring co-trustee consensus reduces the risk that a single trustee will act unilaterally in a self-interested or imprudent manner.
A decedent's estate owns a rental property with deferred maintenance and environmental contamination. What is the executor's primary risk mitigation priority?
Answer: Conduct environmental due diligence and consider disclaiming or abandoning the asset if cleanup costs exceed value
Executors may be personally liable for environmental cleanup under CERCLA, making due diligence essential before accepting or distributing contaminated property.
When a trust document is silent on trustee compensation, which risk does this create?
Answer: Disputes about reasonable compensation that may require court resolution, increasing estate administration costs
Without a compensation provision, the trustee and beneficiaries may dispute what is 'reasonable,' potentially requiring costly court proceedings to resolve.
A client transfers her home to an irrevocable trust retaining the right to live there. Which estate planning risk does this transaction create?
Answer: The retained right to occupy causes inclusion in the gross estate under IRC §2036(a)(1)
Retaining the right to occupy a transferred residence constitutes retained enjoyment under §2036(a)(1), pulling the property back into the gross estate at death.
Which strategy most effectively mitigates the risk of estate plan obsolescence caused by changes in state of domicile?
Answer: Including a governing law clause and reviewing documents upon relocation
A governing law clause preserves the intended state's rules and a post-move review ensures documents comply with the new state's execution and substantive requirements.
A client with a taxable estate gifts $5 million of appreciated stock to an irrevocable trust during life. What carryover basis risk does this create for beneficiaries?
Answer: Beneficiaries inherit the donor's low carryover basis and owe capital gains tax when they sell
Gifts carry over the donor's basis, so beneficiaries who later sell will recognize the built-in gain that existed at the time of the gift.