Retirement Income & Estate Planning Flashcards

A 78-year-old client's estate is valued at $15 million. Her estate plan uses a bypass (credit shelter) trust created at her husband's death years ago. What is the primary purpose of that trust?

Answer: To shelter the deceased spouse's estate tax exemption from the survivor's taxable estate

A bypass (credit shelter) trust captures the deceased spouse's federal estate tax exemption so it is not lost, reducing the surviving spouse's taxable estate.

Which type of power of attorney remains effective even if the principal becomes incapacitated?

Answer: Durable power of attorney

A durable power of attorney remains in effect if the principal becomes mentally incapacitated, making it essential for elder planning.

A client wants to convert a portion of her traditional IRA to a Roth IRA at age 68. Which factor most strongly supports this Roth conversion strategy?

Answer: She anticipates higher future tax rates and has funds outside the IRA to pay the conversion tax

Roth conversions are most beneficial when the client can pay taxes with non-IRA funds and expects higher future tax rates, as future Roth distributions are tax-free.

Which Medicare supplement plan type standardizes coverage across insurers, meaning Plan G from Company A offers identical core benefits as Plan G from Company B?

Answer: Medigap

Medigap (Medicare Supplement) plans are standardized by letter designation, so the same plan letter provides the same benefits regardless of the insurer.

A retired client receives a pension, Social Security, and IRA distributions. At what provisional income level do 85% of Social Security benefits become taxable?

Answer: Above $34,000 for a single filer

For single filers, up to 85% of Social Security benefits are taxable when provisional income exceeds $34,000; the threshold for married filing jointly is $44,000.

What is the 'step-up in basis' benefit that heirs receive on appreciated assets inherited at death?

Answer: The heir's cost basis is stepped up to fair market value at the date of death, eliminating unrealized capital gains

Inherited assets receive a stepped-up basis equal to fair market value at the date of death, so heirs owe no capital gains tax on appreciation that occurred during the decedent's lifetime.

A CFG advisor is reviewing a client's estate plan that includes an irrevocable life insurance trust (ILIT). What is the primary estate planning advantage of holding life insurance in an ILIT?

Answer: Policy death benefits are excluded from the insured's taxable estate

When life insurance is owned by an ILIT rather than the insured, the death benefit is not included in the insured's gross estate, reducing potential estate taxes.