FREE Chartered Life Underwriter (CLU) Fundamentals of Estate Planning Questions and Answers

Question 1

Which of the following is a primary reason for establishing a revocable living trust as part of an estate plan?

Accepted Answer

To allow assets to pass to beneficiaries while avoiding the probate process.

Answer

To permanently shield assets from all creditors during the grantor's lifetime.

Answer

To eliminate the need for a last will and testament entirely.

Answer

To reduce the grantor's income tax liability during their lifetime.

Question 2

A client grants her spouse a power of appointment over assets in a trust, allowing the spouse to appoint the assets to anyone, including himself, his estate, or his creditors. How is this power of appointment classified for estate tax purposes?

Accepted Answer

A general power of appointment

Answer

A special power of appointment

Answer

A limited power of appointment

Answer

A contingent power of appointment

Question 3

An individual wants to make a substantial gift to his grandchild. To prevent this transfer from being subject to the Generation-Skipping Transfer Tax (GSTT), which of the following is the MOST important factor to consider?

Accepted Answer

The availability and application of the donor's lifetime GSTT exemption.

Answer

The grandchild's current income level.

Answer

Whether the gift is made outright or to a trust.

Answer

The state in which the grandchild resides.

Question 4

A primary purpose of the unlimited marital deduction in U.S. estate and gift tax law is to:

Accepted Answer

Allow for the tax-free transfer of assets to a U.S. citizen spouse, deferring any potential estate tax until the surviving spouse's death.

Answer

Permanently exclude all assets transferred to a spouse from any future estate taxation.

Answer

Ensure that life insurance proceeds payable to a spouse are always free of income tax.

Answer

Permit spouses to make unlimited tax-deductible charitable contributions from the estate.

Question 5

A wealthy client is concerned that the death benefit from their large life insurance policy will increase the size of their gross estate, potentially creating a significant estate tax liability. Which estate planning tool is specifically designed to own a life insurance policy and exclude the proceeds from the insured's taxable estate?

Accepted Answer

An Irrevocable Life Insurance Trust (ILIT)

Answer

A Revocable Living Trust

Answer

A Testamentary Trust

Answer

A Charitable Remainder Trust

Question 6

Which of the following property ownership arrangements ensures that the property will automatically pass to the surviving owner(s) upon the death of one owner, thereby avoiding probate?

Accepted Answer

Joint Tenancy with Right of Survivorship (JTWROS)

Answer

Tenancy in Common

Answer

Ownership as a sole proprietor

Answer

Community Property without right of survivorship