Sample Questions
Question 1
Easy
In estate planning, "probate" refers to the legal process of:
Solution
A is correct.
Probate is the court-supervised process of: (1) validating the deceased person's will (confirming it is legally valid and was the decedent's last will); (2) appointing an executor or personal representative to administer the estate; (3) identifying, inventorying, and appraising estate assets; (4) paying debts, taxes, and administrative expenses; and (5) distributing remaining assets to beneficiaries as directed by the will (or by state intestacy laws if there is no will). Probate is typically public, can be time-consuming (months to years), and may involve significant costs.
Probate is the court-supervised process of: (1) validating the deceased person's will (confirming it is legally valid and was the decedent's last will); (2) appointing an executor or personal representative to administer the estate; (3) identifying, inventorying, and appraising estate assets; (4) paying debts, taxes, and administrative expenses; and (5) distributing remaining assets to beneficiaries as directed by the will (or by state intestacy laws if there is no will). Probate is typically public, can be time-consuming (months to years), and may involve significant costs.
Question 2
Medium
A philanthropic client is considering establishing a private foundation versus a supporting organization to conduct their charitable activities. Compared to a private foundation, a supporting organization:
Solution
A is correct.
A supporting organization is classified as a public charity (not a private foundation) because it supports one or more other public charities. This classification provides several regulatory advantages: (1) no excise tax on investment income (private foundations pay 1.39%); (2) less restrictive self-dealing rules; (3) no mandatory 5% annual distribution requirement; and (4) donors receive the higher income tax deduction limits applicable to public charities (60%/30% of AGI) rather than the lower private foundation limits (30%/20% of AGI).
A supporting organization is classified as a public charity (not a private foundation) because it supports one or more other public charities. This classification provides several regulatory advantages: (1) no excise tax on investment income (private foundations pay 1.39%); (2) less restrictive self-dealing rules; (3) no mandatory 5% annual distribution requirement; and (4) donors receive the higher income tax deduction limits applicable to public charities (60%/30% of AGI) rather than the lower private foundation limits (30%/20% of AGI).
Question 3
Hard
Edward asks Raghavan to identify the most important distinction between Strategies 1 and 3 relevant to the Whitfield family's objectives. Raghavan's best response is that:
Solution
B is correct. The substantive distinction Raghavan should emphasize is the presence or absence of a charitable beneficiary, the term length, and who receives the interim annuity stream. A zeroed-out GRAT directs the retained annuity back to the grantor and passes the above-hurdle appreciation to heirs over 10 years with no charitable element. A zeroed-out inter vivos CLAT, by contrast, pays its 20-year annuity stream to charity — only appreciation on the $8M above the payout level reaches the family's heirs, and only after two decades. Because the Whitfield family's objectives combine wealth transfer with (potentially) philanthropic legacy, the correct framing is that Strategy 3 is preferable only if charitable impact is a co-equal goal with transferring wealth to the next generation.
