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CFP - Finley > CFP - 6.1 Estate Planning > Flashcards

CFP - 6.1 Estate Planning Flashcards

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1
Q

What is it called to die without a will?

A

Intestate

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2
Q

What is intestate?

A

Dying without a will

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3
Q

What happens to property if the decendent does not have a will?

A

Property goes through probate and is distributed according to the state’s intestacy laws

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4
Q

What are the 4 qualifications to making a will?

A
  1. Will maker (testator) has to be 18 years old or an emancipated minor
  2. Has to be of sound mind (testamentary capacity)
  3. Absence of undue influence
  4. Absence of fraud
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5
Q

What is a holographic will?

A

A handwritten will

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6
Q

Are holographic wills universally accepted?

A

No, not accepted in all states

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7
Q

What is a nuncupative will?

A

An oral will - dying declaration before sufficient witnesses

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8
Q

Are nuncupative wills universally accepted?

A

No, not accepted in all states. Can only be used for personal property, not real property

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9
Q

What is a statutory will?

A

A formal will drafted by an attorney

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10
Q

Do statutory wills require witnesses?

A

Yes, non-beneficiaries, and usually 2

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11
Q

What is a codicil?

A

An amendment to a will

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12
Q

What is a residuary clause?

A

Clause to address the transfer of the balance of any assets not otherwise provided for in the will. Estate taxes are usually paid for by the residuary estate.

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13
Q

What is a survivorship clause?

A

Clause that requires a beneficiary to survive beyond a specified period to receive the bequest

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14
Q

Can a will require survivorship clause for a spouse and still qualify for the estate tax marital deduction?

A

No, the will cannot require the spouse to survive for more than 6 months to receive the bequest

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15
Q

What does a survivorship clause prevent?

A

Prevents property from being included in two estates in rapid succession

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16
Q

What is an in terrorem clause?

A

No contest clause - discourages heirs from contesting the will by substantially decreasing or eliminating their bequest if they file a will contest

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17
Q

What does per stirpes mean?

A

“by the roots”

Members of a designated class inherit property as members of the class

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18
Q

Steve had 3 kids. Jay, Dee, and Laura. Dee is deceased and survived by two children, Damien and Paul. Laura and Jay are alive and have no children. Steve’s will left $300,000 to his living descendants on a per stirpes basis. Who gets what?

A

Jay: $100,000

Dee: $0
Damien: $50,000
Paul: $50,000

Laura: $100,000

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19
Q

What does per capita mean?

A

“by the head”

Members share in the inheritance as equals.

My children per capita disinherits grandchildren.

My descendants per capita means children and grandchildren get equal share.

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20
Q

Steve had 3 kids. Jay, Dee, and Laura. Dee is deceased and survived by two children, Damien and Paul. Laura and Jay are alive and have no children. Steve’s will left $300,000 to his living descendants on a per capita basis. Who gets what?

A

Jay: $75,000
Damien: $75,000
Paul: $75,000
Laura: $75,000

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21
Q

Steve had 3 kids. Jay, Dee, and Laura. Dee is deceased and survived by two children, Damien and Paul. Laura and Jay are alive and have no children. Steve’s will left $300,000 to his children on a per capita basis. Who gets what?

A

Jay: $150,000
Laura: $150,000

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22
Q

What is a side letter?

A

States the writer’s wishes for tangible possessions of nominal value. Avoids will clutter. Not legally binding.

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23
Q

What establishes the medical situations in which the maker no longer wants life-sustaining treatment?

A

Living will

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24
Q

What is another name for a living will?

A

Advance medical directive

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25
Q

Does a living will appoint a surrogate decision maker?

A

No, it informs physicians of decisions the patient has already made regarding life-sustaining treatments if in a terminal situation

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26
Q

What do the concepts of durable and non-durable apply to?

A

Powers of attorney, NOT LIVING WILLS

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27
Q

What is a durable power of attorney for healthcare?

A

A person appointed to make health care decisions for the principal.

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28
Q

What is a springing power of attorney?

A

Becomes effective on incapacity

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29
Q

Can power of attorney be used to end life-sustaining treatment?

A

Only in some states

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30
Q

What does durable mean with a power of attorney?

A

Mean the power remains effective even if the principal becomes incapacitated.

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31
Q

Does durable power of attorney stay in effect after the principal passes away?

A

No

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32
Q

What are the two qualifications for a power of attorney?

A

18 or older and competent

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33
Q

What is a POA?

A

Power of APPOINTMENT, not attorney! Power of attorney is DPOA

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34
Q

What is the difference between a POA and a DPOA?

A

Power of appointment gives the holder the right to name the new owner of property.

Durable power of attorney gives the agent the right to act in the principal’s place.

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35
Q

Is DPOA revocable?

A

Yes, any power is revocable by the principal

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36
Q

Is DPOA more or less expensive to set up and administer than a living trust or conservatorship?

A

Less

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37
Q

Is a stock certificate tangible or intangible property?

A

Intangible

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38
Q

What are the 3 types of present interests?

A
  1. Fee simple
  2. Life estate
  3. Interest for term
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39
Q

What is fee simple interest?

A

Complete ownership with all rights. This property will pass through probate.

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40
Q

What is life estate interest?

A

Holder of the life estate has an exclusive right to the use and enjoyment of the property for the remainder of life or the life of another person.

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41
Q

What is the right to ownership or enjoyment of property at some point in the future or upon occurrence of a specified event?

A

Future interest

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42
Q

What are the two types of future interests?

A

Remainder and reversion

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43
Q

Future interests in the property that go to a person after termination of life estate or interest for term. If the property goes to the grantor it is a…

A

Reversion

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44
Q

Future interests in the property that go to a person after termination of life estate or interest for term. If the property goes to someone other than the grantor it is a…

A

Remainder

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45
Q

What happens to a tenants share (tenancy in common) when they pass?

A

Does not automatically go to surviving tenants. Usually passes through probate.

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46
Q

Do JTWROS tenants need the consent of the other tenant to sever the interest in property?

A

No

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47
Q

Bob and Sally own assets JTWROS. Bob passes away. Do the assets go through probate?

A

No, passes to Sally outside of probate by operation of law

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48
Q

What are the gift tax ramifications of non-spousal JTWROS assets?

A

There are none if each individual contributed the same amount toward the purchase price.

If not, the tenant contributing the greater percentage has made a gift to the tenant, equal to the difference between an equal contribution and the actual amount contributed by the lesser contributor.

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49
Q

Joint tenants must be equal owners. T or F

A

True

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50
Q

Steve and Sandy are siblings. They buy a $100,000 vacation home in Florida, JTWROS. Steve kicks in $80,000 and Sandy kicks in $20,000. What are the gift tax implications?

A

Steve has made a gift of $30,000 - eligible for the annual exclusion of $15,000. The taxable gift is:

$50,000 equal - $20,000 Sandy’s share =
$30,000

-$15,000 annual exclusion = $15,000 taxable gift

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51
Q

JTWROS (non-spouse):

The portion of the property in the decedent’s gross estate equals what?

A

Their contribution toward the purchase price of the property - must be proven or it will be assumed that they contributed the entire purchase price

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52
Q

JTWROS (non-spouse)

Who does the burden of proof rest with for proving contributions?

A

The decedent’s estate

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53
Q

Do tenancy by entirety tenants need the consent of the other tenant to sever the interest in property?

A

YES

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54
Q

Tenancy by entirety can exist between whom?

A

Spouses only

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55
Q

What is community property?

A

Married individuals own an equal, undivided interest in all property accumulated during the marriage

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56
Q

What happens to community property when one spouse dies?

A

No automatic right of survivorship, one half of the value of all community property is included in the gross estate and goes through probate

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57
Q

What is the step up for community property when one spouse dies?

A

The entire value receive a step-up to FMV on the DOD

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58
Q

Is community property subject to probate?

A

Yes

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59
Q

What forms of property interest have rights of survivorship?

A

JTWROS and Tenancy by entirety

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60
Q

What forms of property interest are subject to probate?

A

Fee simple, tenants in common (% ownership), and community property (50%)

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61
Q

What are the 5 exceptions to community property?

A
  1. Property acquired before marriage
  2. Property acquired by gift by one spouse and held separately
  3. Property inherited by one spouse and held separately
  4. Property acquired by court award compensating for physical injury and HS
  5. One spouse donates full interest to the other spouse (partition of community property)
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62
Q

What happens when a couple moves from a community property state to a common law state?

A

The property remains community property, but can be divided upon arrival

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63
Q

Is joint property subject to double taxation?

A

Yes, taxed in both gross estates

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64
Q

Is property in a will passed through probate?

A

Yes

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65
Q

What are the 4 ways of passing property?

A
  1. By will (testate)
  2. By law of intestacy
  3. By contract
  4. By operation of law
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66
Q

What two ways of passing property avoids probate?

A

Contract and operation of law

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67
Q

What is the applicable exclusion for gift tax, estate tax, and generation skipping transfer tax?

A

11,180,000

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68
Q

Is there a portability of applicable exclusion for spouses?

A

Yes, surviving spouse may use any unused portion of the deceased spouse’s exclusion - up to a total of $22,360,000

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69
Q

If a surviving spouse has more than one predeceased spouse, how much applicable exclusion can they use?

A

Only the unused exemption amount of the last predeceased spouse

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70
Q

Are gifts from an individual included in gross income?

A

No

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71
Q

Are gifts from a business to an employee included in gross income?

A

Usually as compensation

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72
Q

What are the four conditions to make a gift complete?

A
  1. Competent donor
  2. Intent to donate
  3. Constructive delivery of property to donee or donee’s representative
  4. Valid acceptance of the gift by donee
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73
Q

Can a person refuse a bequest?

A

Yes

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74
Q

Can a donee refuse a gift?

A

Yes

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75
Q

Are contingent gifts or incomplete gifts subject to gift tax?

A

Not until they are complete

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76
Q

Does federal gift tax apply to nonresident aliens ?

A

Yes, if they are transferring real or tangible personal property in the US

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77
Q

What gifts are eligible for annual exclusion?

A

Only present interest gifts

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78
Q

Are gifts of a future interest eligible for annual exclusion?

A

No

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79
Q

When does property given to a trust become a gift?

A

When the trust becomes irrevocable

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80
Q

Does a spouse need to consent to gift splitting?

A

Yes

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81
Q

What is gift splitting?

A

Doubling the annual exclusion by electing with a spouse

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82
Q

Does a gift of community property require splitting?

A

No

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83
Q

Does gift splitting require filing a gift tax return?

A

Yes

84
Q

Can you gift split with someone besides a spouse?

A

No

85
Q

Can you specify only 1 gift to be split in a year?

A

No, the splitting applies to all gifts made during that year by either spouse

86
Q

Mona buys a condo for $200k and takes the title in her name and the names of her 3 daughters as JTWROS. What is the gift tax consequence?

A

Mona has made $50k gifts to each daughter. Each is eligible for the annual exclusion.

87
Q

When is a gift made with a joint bank account?

A

Only when the donee withdraws funds

88
Q

When is a gift made with a joint savings bond?

A

Only when the donee redeems the bond

89
Q

What are the two types of qualified transfers that are not subject to gift tax

A

Medical and tuition, PAID DIRECTLY TO THE PROVIDER

90
Q

Do qualified transfers for medical and tuition need to be made by relatives?

A

No

91
Q

Is there a limit on qualified transfers for medical and tuition?

A

No

92
Q

Are property settlements between divorcing spouses subject to gift tax?

A

No, transfers up to three years after divorce are not subject to gift tax

93
Q

Interest on gift loans is not subject to gift tax if the loan is below…

A

$10,000

94
Q

Interest on gift loans is not subject to gift tax if the loan is below _______ and the donee’s net investment income is below _______.

A

$100,000

$1,000

95
Q

What is the gift amount on a below-market loan?

A

The difference between the federal rate and the interest charged, capped by the donee’s net investment income

96
Q

What is the gift amount for an employer-employee below-market loan?

A

Not a gift, imputed interest is deemed compensation

97
Q

What is the gift amount for a corporation-shareholder below-market loan?

A

Not a gift, imputed interest is deemed a dividend

98
Q

Are political donations subject to gift tax?

A

No

99
Q

Are obligation of support payments subject to gift tax?

A

No

100
Q

What is a qualified disclaimer?

A

Refusal to accept transferred property, instead passing the property to someone else

101
Q

What are the requirements of a disclaimer?

A
  1. In writing
  2. Irrevocable
  3. Made within 9 months of the interest coming into being (or 9 months after the receiver reached age 21)
  4. Must pass interest without the direction of the disclaimant
102
Q

When are disclaimers usually used?

A

When property is left to a spouse and would like to pass some onto a contingent beneficiary (usually a child)

103
Q

Are gifts to charity subject to gift tax?

A

Gifts to qualified charities are deductible from gross gifts

104
Q

Are gifts to spouses subject to gift tax?

A

No, marital deduction for all gifts and transfers between spouses

105
Q

For gifts to a non-citizen spouse, only the first _______ per year are not subject to gift tax.

A

$152,000

106
Q

What is the value of a gift for gift tax purposes?

A

The FMV on the date of the gift

107
Q

What is the value of gifted securities?

A

The average of the high and low prices on the date of gift or DOD

108
Q

Lisa gifted her sister Michelle one share of XYZ on July 11th (Friday). The stock did not trade on the 11th. It traded on the 14th and 8th. What is the amount of the gift?

7/8 High: $60, Low: $56
7/12 High: $62, Low: $58

A

Average on the 8th: $58
Times TRADING days between gift date and the 12th:
$58 x 1 = $58

Plus, Average on the 12th: $60
Times TRADING days between gift date and the 8th:
$60 x 3 = $180

$58 + $180 = $238 divided by total number of days used (4) = $59.50

109
Q

What is the gift tax value of a remainder?

A

Present value of the future interest on the date of the gift

110
Q

Who is liable for gift tax due?

A

The donor

111
Q

Can the donee become liable for gift tax if the donor fails to pay?

A

Yes

112
Q

What is a net gift?

A

Transaction where donee pays gift tax

113
Q

How are net gifts considered?

A

Part sale part gift

114
Q

What does the donor realize in a net gift?

A

Taxable income to the extent that the gift tax paid exceeds the donor’s adjusted basis

115
Q

What is the taxable gift amount on a net gift?

A

FMV of the gift - annual exclusion

116
Q

What are the 3 instances in which a gift tax return (Form 709) must be filed?

A
  1. Gifts to one donee for the year exceed the annual exclusion amount.
  2. Gift of future interest has been given.
  3. Gift splitting between spouses has been elected.
117
Q

What amount is deductible for a charitable donation?

A

The basis of the property

118
Q

Mike donates a stock with a FMV of $40,000 to the University of Georgia. His basis is $10,000. What is the taxable gift amount?

A

$40,000
-10,000 deduction for basis

= $30,000

119
Q

Gift taxes paid are not included in gross estate, except when gifts are made within ____ years before death.

A

3

120
Q

What is the cap for gifts from non-citizen spouses to citizen spouses?

A

None

121
Q

Can 529 plans be used for qualified K-12 expenses?

A

Yes

122
Q

What are the 2 differences between UGMA and UTMA?

A

UGMA is adopted in all states, UTMA in some states

UGMA cannot include gifts of real estate, UTMA can

123
Q

Do UGMA and UTMA accounts require bonding and accounting?

A

No

124
Q

Do guardianships require bonding and accounting?

A

Yes

125
Q

UGMA and guardianship property must be received by the minor at age _____.

A

18

126
Q

What are the 3 types of irrevocable minor trusts?

A
  1. Section 2503(b) - Mandatory income trust
  2. Section 2503(c) - Discretionary complex trust
  3. Crummey Minor’s Trust
127
Q

What happens to income in a mandatory income trust?

A

Must be distributed annually to the minor either directly or to a custodial account for their benefit

128
Q

Do mandatory income trusts (2503b) have to end at age 21?

A

No

129
Q

A gift of $12,000 to a Section 2503(b) plan. The present value of the interest income is $1,123 and the remainder interest is determined to be $10,877. What are the tax consequences?

A

$1,123 present interest qualifies for the annual exclusion

$10,877 future interest component does not qualify for the annual exclusion

130
Q

What is the income distribution for a 2503(c) plan?

A

Discretionary (complex trust)

131
Q

What happens to a 2503(c) plan’s principal?

A

Principal distribution is discretionary until age 21, then is mandatory at 21

132
Q

Are Section 2503(c) gifts considered present or future interest?

A

Present

133
Q

What happens if the donee of a 2503(c) plan dies before 21?

A

The property must go do the donee’s estate or the donee must hold a general POA

134
Q

What is a Crummey Trust?

A

Allows a right (Crummey Power) to withdraw for a brief period (usually 30 days), creating a present interest that qualifies for the annual exclusion.

135
Q

What is the donee’s basis when gifted appreciated property?

A

The donor’s basis

136
Q

What is the donee’s holding period when gifted appreciated property?

A

The donor’s holding period

137
Q

What is the formula for the donee’s basis if the donor paid gift tax at the time the gift was made?

A

Donor’s adjusted basis +

(unrealized appreciation / FMV less annual exclusion) x gift tax paid

138
Q

Edmund gave Seamus a stock with FMV of $60,000 and paid gift tax of $15,000. Edmund acquired the stock two years ago for $20,000. This is the only gift Edmund has made to Seamus this year. What is Seamus’s basis?

A

20,000 + [ 40,000/(60,000 - 15,000) x 15,000 ]

= 33,333

139
Q

What is the donee’s basis when gifted loss property?

A

Cannot be determined until it is disposed of.

140
Q

What is the donee’s basis and holding period when gifted loss property, if sold at a gain?

A

The donor’s basis and holding period.

141
Q

What is the donee’s basis and holding period when gifted loss property, if sold at a loss?

A

The FMV at the time of the gift and the holding period begins on the day of the gift. The gift tax is not allocated to the donee’s basis.

142
Q

What happens if the donee sells gifted property between the donor’s adjusted basis and the FMV at the date of the gift?

A

No loss or gain recognized

143
Q

Are straight life annuities included in gross estate?

A

No, because the annuitant’s interest in the contract terminates at death

144
Q

Are survivorship annuities included in the gross estate?

A

Yes, equal to the value of a comparable policy on the second annuitant. (half if the other annuitant paid half of the premium)

145
Q

Are life insurance proceeds included in the gross estate?

A

Yes, if receivable by the estate, decedent’s executor, or if there where incidents of ownership

146
Q

What proceeds of a split-dollar arrangement are included in the gross estate?

A

Entire amount, even though part of the proceeds are payable to a third party. The right to name a beneficiary is an incident of ownership.

147
Q

What is included in the gross estate if the decedent had a life insurance policy on someone else’s life?

A

The terminal value (cash surrender value)

148
Q

Are assets under a general power of appointment held by the decedent at the time of death included in the gross estate?

A

Yes, even if they are not exercised. ONLY FOR GENERAL, not limited or special!!

149
Q

Are assets under a limited power of appointment held by the decedent at the time of death included in the gross estate?

A

No! Only general

150
Q

Are assets under a special power of appointment held by the decedent at the time of death included in the gross estate?

A

No! Only general

151
Q

At death, how are assets valued if the alternate valuation date (AVD) is used?

A

The FMV as of six months after the DOD

152
Q

If AVD is selected, what assets are valued as of the AVD?

A

ALL except:

  1. Assets disposed between DOD and ADV are valued at net proceeds
  2. Wasting assets (depreciating assets) are valued at DOD (annuitized annuities, copyrights, installment notes…etc.)
153
Q

Can funeral expenses be deducted from the gross estate?

A

Yes

154
Q

What admin expenses can be deducted from the gross estate?

A 
Executor commissions
Attorney fees
Accountant fees
Court costs
Selling expenses for asset dispositions
Appraisal fees
155
Q

Can an unpaid mortgage be deducted from the gross estate?

A

yes, all claims, debts, and unpaid taxes can be deducted

156
Q

What two unlimited deductions exist for the gross estate?

A

Marital and charitable

157
Q

What is the holding period for property acquired from a decedent?

A

Long term

158
Q

What is the basis for a deathbed gift?

A

Decedent’s basis with no step-up

159
Q

Ted and Alice (married) own a property with a $200k basis and a FMV of $1mm. Ted dies. What is Alice’s basis if they are in a community property state, and what is her basis if they are in a common law state?

A

Community property: $1mm

Common law: $600k

160
Q

What is the benefit of using an Irrevocable Life Insurance Trust (ILIT) ?

A

The proceeds are not included in the gross estate if the ILIT originally purchased the policy or the policy was transferred in more than 3 years before death.

The ILIT can loan death benefits to the estate without inclusion of benefits in gross estate.

161
Q

What are the three parties in a POA?

A
  1. Donor - grants power
  2. Holder - receives power
  3. Appointee - appointed by the holder to own or enjoy the property
162
Q

What is a POA?

A

Power of Appointment - the power to name who will enjoy or own property

163
Q

What is the difference between a general power of appointment and a limited/special power?

A

General - the holder can appoint anyone

Limited is any power that is not a general power

164
Q

What are the 4 restricted parties for a POA?

A

Holder
Holder’s estate
Holder’s creditors
Holder’s estate’s creditors

165
Q

Can a holder with a general power appoint the 4 restricted parties?

A

Yes

166
Q

What is the 5/5 lapse rule?

A

If two beneficiaries have Crummey powers, and their allowable withdrawal is greater than $5,000 or 5%, AND they let their powers lapse, they have gifted the amount of the withdrawal to each other as a future interest that is not eligible for the annual exclusion.

167
Q

Mary Sue is the beneficiary of a trust established by her deceased spouse. The trust includes a 5-and-5 power. Before exercising the power, Mary Sue passed away. The trust balance at the DOD is $500,000. What is included in her gross estate?

A

5% of $500,000 = $25,000 because it had not lapsed and she did not exercise

168
Q

The lapse of a power that exceeds the 5-and-5 power will be included in the decedent’s gross estate for _____ years.

A

3

169
Q

Are assets in a limited or special POA included in gross estate?

A

No

170
Q

What is the marital deduction?

A

Allows the decedent’s estate to deduct an unlimited amount for qualifying bequests or transfers of property to a surviving spouse.

171
Q

Can terminable interest property qualify for the marital deduction?

A

No

172
Q

What is a straight bequest?

A

Everything left to spouse, the decedent’s estate gets a 100% marital deduction.

173
Q

What is the disadvantage of a straight bequest?

A

Overqualified estate, and total estate tax between 2 spouses may be higher if all property goes to one spouse

174
Q

What is a QTIP?

A

Qualified Terminable Interest Property Trust

175
Q

What is the point of a QTIP?

A

Allows a terminable interest to be passed to a surviving spouse and the property will still qualify for the marital deduction.

176
Q

What are the income requirements for a QTIP?

A

Income from the trust must be payable to the surviving spouse at least annually for life

177
Q

Jeff dies and his wife Suzy has a QTIP. What happens when she dies from a gross estate perspective?

A

All assets in the QTIP are included in her gross estate valued on her DOD

178
Q

How are QTIPs used for people in second marriages?

A

The second spouse gets the income to live off of. When the second spouse dies, the children from the first marriage receive the principal.

179
Q

How much in assets should you have before contemplating a QTIP?

A

More than the lifetime estate tax exemption amount ($11,800,000)

180
Q

Which requires an election to be made on form 706?

QTIP
POA Trust

A

Only QTIP

181
Q

What is the difference between a POA trust and a QTIP?

A

QTIP, first to die picks ultimate beneficiary.

POA trust, surviving spouse gets general POA to determine what happens to the property. Still receives life income.

182
Q

Does a bypass trust qualify for the marital deduction?

A

No

183
Q

What gross estates are bypass trusts included in?

A

The first spouse’s. Not included in the second spouse to die’s.

184
Q

What is over qualifying the estate?

A

Using too much marital deduction and not using any applicable exclusion amount.

185
Q

What is under qualifying the estate?

A

Not using enough marital deduction and using up too much of the applicable exclusion amount.

186
Q

What are the 3 parties of a trust?

A

Grantor
Trustee
Beneficiary

187
Q

What is a grantor trust?

A

When the grantor is also trustee and beneficiary

188
Q

What are the 3 types of trust interest?

A
  1. Income Interest
  2. Remainder Interest
  3. Reversion Interest
189
Q

What is income interest in a trust?

A

The beneficiary receives the income earned from trust assets

190
Q

What is remainder interest in a trust?

A

The beneficiary receives the trust principal upon termination of the trust

191
Q

What is a vested remainder?

A

One that is nonforfeitable

192
Q

What is a contingent remainder?

A

The interest depends on whether or not a certain future event happens

193
Q

What is a reversion interest in a trust?

A

The grantor retains the right to receive the principal upon termination of the trust

194
Q

What is the rule against perpetuities?

A

Some states have this -

Prevents trusts from having an infinite life

195
Q

What is the general max duration for trusts?

A

21 years after the death of the youngest person named in the instrument creating the interest, alive on the date the interest was created.

196
Q

What trust is exempt from the rule against perpetuities?

A

Charitable trusts

197
Q

When is the interest created for a trust?

A

When the trust is created if irrevocable, or when a revocable trust becomes irrevocable

198
Q

What are the 5 main reasons to create a trust?

A
  1. Avoid probate
  2. Reduce taxes
  3. Asset management in case of incapacitation of grantor
  4. Asset management for beneficiaries
  5. For charitable contributions while retaining some interest in the gifted property
199
Q

What is a testamentary trust?

A

Created by will, becomes effective at death

200
Q

When to testamentary trusts become irrevocable?

A

At testator’s death

201
Q

Are testamentary trusts subject to gift tax?

A

No

202
Q

Are inter vivos trust assets subject to gift tax?

A

Yes, if they are irrevocable and transferred during the grantor’s life

203
Q

Are testamentary trust assets subject to probate?

A

Yes, pass through probate then into trust

204
Q

What are the 3 aspects of a simple trust?

A
  1. Income must be paid to beneficiaries annually
  2. No amounts can go to charitable beneficiaries
  3. Corpus may not be distributed
205
Q

When does a simple trust become a complex trust?

A

In the final year because the corpus is distributed

206
Q

What is a dynasty trust?

A

Passes life insurance policy to grandchildren and avoids GSTT

207
Q

What are the exemption amounts for distributions from simple and complex trusts?

A

$300 simple

$100 complex

CFP - Finley (11 decks)

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