Legal & Regulatory Compliance Flashcards
7 cards from real CSP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Legal & Regulatory Compliance flashcards as text
Under the Uniform Trust Code (UTC), which duty requires a trustee managing a succession trust to treat beneficiaries with different interests—such as current income beneficiaries and remainder beneficiaries—impartially?
Answer: Duty of impartiality
The UTC's duty of impartiality requires trustees to balance the competing interests of income beneficiaries and remaindermen when making investment and distribution decisions.
When a succession plan transfers business interests using a self-canceling installment note (SCIN), what unique feature eliminates the remaining balance at the seller's death?
Answer: A self-cancellation clause voids the unpaid balance upon the seller's death
A SCIN contains a self-cancellation clause that forgives the remaining note balance if the seller dies before full repayment, removing the note from the seller's estate.
A succession plan for a professional practice (law firm, medical group) must account for which legal restriction that typically prevents a non-professional from owning equity in the practice?
Answer: The Corporate Practice of Medicine or Law doctrine
Many states enforce doctrines prohibiting non-licensed individuals or entities from owning interests in professional practices, which restricts succession sale options to other licensed professionals.
For federal gift tax purposes, what annual per-donee exclusion amount (as of 2024) allows a business owner to transfer interest value to family members without using lifetime exemption?
Answer: $18,000
The annual gift tax exclusion for 2024 is $18,000 per donee, allowing tax-free transfers up to that amount per recipient per year without consuming lifetime exemption.
In an employee stock ownership plan (ESOP) succession transaction, IRC Section 1042 allows the selling owner to defer capital gains tax if proceeds are reinvested in qualified replacement property. Which entity type qualifies the sale for Section 1042 treatment?
Answer: Only C-corporations, not S-corporations
IRC Section 1042 non-recognition treatment is available only when selling stock in a C-corporation to an ESOP; S-corporation sales to an ESOP do not qualify.
Under the Uniform Fiduciary Income and Principal Act (UFIPA), a trustee overseeing a succession trust that holds a closely held business may elect to treat the business as a 'unitrust' asset. What is the primary advantage of this election?
Answer: It converts income-based distributions to a fixed percentage of trust assets, balancing current and remainder beneficiary interests
The unitrust election under UFIPA allows distributions based on a percentage of total trust value, which can balance the competing interests of current income and remainder beneficiaries holding illiquid business assets.
Which anti-abuse rule under IRC Chapter 14 (Sections 2701–2704) specifically addresses valuation of retained interests when a senior family member transfers a business interest but retains certain preferred rights?
Answer: IRC Section 2701
IRC Section 2701 addresses the valuation of retained interests (such as preferred distribution rights) when a senior family member transfers a subordinate interest to a junior family member.