CWS Business Succession Planning Flashcards
6 cards from real CWS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 CWS Business Succession Planning flashcards as text
A grantor retained annuity trust (GRAT) is most effective as a succession planning tool when which condition is met?
Answer: The business appreciates significantly above the IRS Section 7520 hurdle rate
A GRAT transfers to heirs only the value by which the trust's assets appreciate above the IRS 7520 rate, so strong appreciation results in a large tax-free transfer.
What is the primary purpose of a business valuation in succession planning?
Answer: To establish a defensible fair market value for gifting, estate, and buyout purposes
A business valuation establishes a supportable fair market value used to structure gifts, fund buy-sell agreements, and support estate tax returns.
Which business succession tool allows a business owner to sell the company to employees while receiving tax-advantaged proceeds?
Answer: Employee stock ownership plan (ESOP)
An ESOP allows owners of C corporations to sell their stock and, under IRC Section 1042, defer capital gains by reinvesting proceeds in qualified replacement property.
Under the IRC Section 303 redemption rules, what tax benefit is available to a closely held business owner's estate?
Answer: A stock redemption treated as a sale (capital gain) rather than a dividend, to cover death taxes and expenses
Section 303 allows a corporation to redeem a deceased shareholder's stock as a capital gain (not a dividend) to provide liquidity for estate taxes and administration expenses.
What is the 'installment sale' method in business succession planning?
Answer: Spreading business sale proceeds over multiple tax years to defer and potentially reduce capital gains taxes
An installment sale spreads recognition of gain over the payment period, deferring capital gains taxes and potentially keeping the seller in a lower tax bracket each year.
Which legal document governs the terms under which business ownership is transferred among partners or shareholders during life events?
Answer: Operating agreement or shareholder agreement with buy-sell provisions
A shareholder or operating agreement with embedded buy-sell provisions establishes binding transfer terms triggered by death, disability, retirement, or voluntary sale.