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
What is a 'wait-and-see' buy-sell agreement?
Answer: An agreement that delays business valuation until after a triggering event, then gives parties options on how to proceed
A wait-and-see buy-sell agreement gives the entity a first option to redeem shares, followed by other owners, before allowing heirs to retain the interest, combining flexibility of both entity and cross-purchase approaches.
In evaluating a closely held business, which income-based valuation approach capitalizes a normalized earnings stream by dividing it by a capitalization rate?
Answer: Capitalization of earnings method
The capitalization of earnings method divides a sustainable earnings level by a capitalization rate derived from risk factors, providing a snapshot value for stable businesses.
A spousal lifetime access trust (SLAT) can be useful in business succession planning because it allows a business owner to do what?
Answer: Transfer business interests out of the estate while retaining indirect access to trust assets through a spouse
A SLAT removes business interests from the owner's taxable estate while allowing a spouse to receive trust distributions, providing indirect access to the transferred assets.
When using life insurance to fund a buy-sell agreement, what is a key advantage of using permanent life insurance over term insurance?
Answer: Cash value accumulates and can fund the buyout if the triggering event occurs after the term period expires
Permanent life insurance builds cash value that can fund a buyout if the owner lives beyond a term policy's expiration, ensuring perpetual coverage for the buy-sell agreement.
What is the primary income tax consequence of a deemed asset sale under IRC Section 338(h)(10) in a business acquisition?
Answer: The buyer obtains a stepped-up basis in all target assets as if newly purchased, while the seller recognizes gain at the corporate level only
A 338(h)(10) election treats the transaction as an asset purchase for tax purposes, giving the buyer a full step-up in asset basis while the seller recognizes gain at the corporate level rather than twice (corporate + shareholder).
In a charitable succession plan, which technique allows a business owner to receive an income stream for life while transferring the remainder interest to charity?
Answer: Charitable remainder trust (CRT)
A charitable remainder trust (CRT) provides the grantor with a fixed annuity or unitrust payment for life or a term, with the remaining assets passing to charity at termination.