6.1 - Trusts & Gifts

Question 1

Separate legal entities called fiduciaries

Answer 1

Trusts

Question 2

Separate income tax paying entities and distributions made by these entities are deductible by the entity yet taxable to the recipient:

Answer 2

Trusts

Question 3

All trust receipts and disbursements are classified as either:

Answer 3

Principal (corpus)
Or
Income

Question 4

Only makes distributions out of current income and cannot make distributions from principal (corpus):

Answer 4

Simple trusts

Question 5

Required to distribute all of its income currently
Cannot take a deduction for a charitable contribution
And is entitled to a $300 exemption

Answer 5

Simple trusts

Question 6

May accumulate current income
May distribute principal (corpus)
May deduct charitable contributions
And is permitted a $100 exemption

Answer 6

Complex trusts

Question 7

What is the excludable amount of gifts? What is the lifetime combined gift and estate tax exclusion?

Answer 7

16,000 per donee per year
12,060,000 lifetime

Question 8

If gift splitting, what is the exclusion amount?

Answer 8

32,000

Question 9

What 4 instances of gift giving are completely excludable?

Answer 9

Payments made directly to an educational institution
Payments made directly to a health care provider or medical care
Charitable gifts
Marital deductions

Question 10

Fo the present vs future interest, which qualifies for annual exclusion and which does not?

Answer 10

Present interest qualifies for exclusion
Future interest does not qualify for exclusion

Question 11

Examples of future interest gifts (and therefore do not qualify gift tax exclusion) include:

Answer 11

Reversions (gifting assets and later getting the property back)
Remainders (distributed at some future time)
Trust income in test where accumulation of income by a trustee is mandatory
Present interests without ascertainable value

Question 12

Examples of present interest gifts (and therefore qualify for the gift tax exclusion) include:

Answer 12

Gifts of cash or property
Trust income interests where annual or more frequent distribution is mandatory
Life estates
Estates for a term certain
Bonds or notes
Unrestricted transfers of life insurance policies

Question 13

Between complete vs incomplete gifts, which is subject to gift tax and which is not?

Answer 13

Complete is subject to gift tax
Incomplete is not subject to gift tax

Question 14

A gift is considered complete and not subject to gift tax when:

Answer 14

Even if the donee is not yet born
Despite the possibility that the property may revert to the donor at some future time

Question 15

A gift is considered incomplete and therefore not subject to gift tax when:

Answer 15

It is conditional or revocable

Question 16

A gift is conditional if it:

Answer 16

Is subject to conditions precedent and will not be provided until the conditions have been met

Question 17

A gift is revocable if:

Answer 17

The donor reserves the right to revoke the gift or change the beneficiaries

Question 18

In order to apply the annual exclusion to a git, the gift must be all of the following:

Answer 18

Present interest
Complete
Under 16,000/32,000 per donee

Question 19

To calculate the cumulative lifetime gifts, use this formula:

Answer 19

Gross gifts (FMV)
- exclusions per donee
- unlimited marital deduction
- charitable gifts
+ taxable gifts of prior years
= cumulative lifetime gifts

Question 20

To calculate tax due on current gifts, use this formula:

Answer 20

Tax on cumulative lifetime gifts
- gift tax paid on prior gifts
- applicable credit based on lifetime exclusion
= tax due on current gifts