Chapter 8: Trusts

Question 0

2503(c) Trust

Answer 0

A trust for the benefit of a minor designed to qualify the contribution to the trust for the annual exclusion. A 2503 (c) trust must give the minor the right to receive the trust assets when he reaches age 21, but it not required to pay the income to the minor at any earlier time.

Question 1

2503(b) Trust

Answer 1

A trust for the benefit of a minor designed to qualify the PV of the income interest of the trust for the annual exclusion. A 2503(b) trust must pay its income annually to the minor, but may hold the trust property for the minors lifetime.

Question 2

Beneficiary

Answer 2

The person(s) entitled to receive the death benefit of a life insurance policy at the insureds death. Also, the person(s) who hold(s) the beneficial title to a trusts assets.

Question 3

Blind Trust

Answer 3

A revocable trust arrangement whereby an individual transfers property to the trust for management purposes when self-management of the assets might be deemed to be a conflict of interest.

Question 4

Bypass Trust (Credit Shelter Trust/ B trust)

Answer 4

A trust created to ensure that an individual makes use of his applicable estate tax credit.

Question 5

Charitable Lead Trust (CLT)

Answer 5

A trust in which a charitable organization receives the income interest and a noncharitable beneficiary (usually a family member) receives the remainder interest.

Question 6

Charitable Remainder Trust (CRT)

Answer 6

A trust in which a noncharitable beneficiary receives the income interest and a charitable organization receives the remainder interest.

Question 7

Complex Trust

Answer 7

A trust that does not met the definition of a simple trust.

Question 8

Distributable Net Income (DNI)

Answer 8

A tax concept that allocates taxable income between the trust and beneficiaries to ensure that the trust income is subject to only one level of tax.

Question 9

Estate Trust

Answer 9

A trust which grants the surviving spouse a testamentary general power of appointment over the trust assets. Because of the spouses general power of appointment over the trusts assets, the FMV of the trust will be eligible for the unlimited marital deduction at the death of the first-to-die spouse.

Question 10

Fiduciary

Answer 10

A person who has a legal duty to act in the best interest of another as a result of holding a position of trust and confidence.

Question 11

Grantor

Answer 11

The person who creates and initially funds a trust. The grantor is also known as the settlor or creator.

Question 12

Grantor Retained Income Trust (GRIT)

Answer 12

A trust in which the grantor retains an income or use interest in the trust.

Question 13

Income Beneficiary

Answer 13

The person or entity who has the current right to income from a trust, or the right to use the trust assets.

Question 14

Inter Vivos Trust

Answer 14

A trust that is created during the grantors lifetime.

Question 15

Irrevocable Life Insurance Trust (ILIT)

Answer 15

An irrevocable trust that owns and holds life insurance on its grantors life. An ILIT is also known as a wealth replacement thrust (WRT).

Question 16

Irrevocable Trust

Answer 16

A trust created by a grantor that cannot be revoked. The grantor cannot take back the property that was transferred to the trust.

Question 17

Pourover Trust

Answer 17

A trust that receives assets that “pour” into it from another source, generally the grantors estate at the grantors death.

Question 18

Prudent Man Rule

Answer 18

A rule which requires a trustee, as a fiduciary, to act in the same manner that a prudent person would act if the prudent person were acting for his own benefit.

Question 19

QTIP Trust

Answer 19

A trust that grants the surviving spouse a lifetime right to the income of the trust while transferring the remainder interest to individuals of the grantors choosing, typically created at the death of the first spouse to die.

Question 20

Remainder Beneficiary

Answer 20

The individual or entity entitled to receive the assets that remain in the trust at the date of the trusts termination.

Question 21

Revocable Living Trust

Answer 21

A revocable trust that is managed by the grantor and is for the benefit of the grantor during his lifetime. The property transferred to the trust avoids the individuals probate estate, but is included in the individuals gross estate.

Question 22

Revocable trust

Answer 22

A trust created where the grantor of the trust retains the right to revoke the trust at any time prior to his incapacity or death.

Question 23

Rule Against Perpetuities (RAP)

Answer 23

A common law rule which requires that all interests in a trust must vest, if at all, within lives in being plus 21 years

Question 24

Self-settled Trust

Answer 24

A trust where the beneficiary is also the grantor of the trust

Question 25

Simple Trust

Answer 25

A trust that requires all of the trust income to be distributed on an annual basis to the beneficiaries and does not have a charitable organization as one of its beneficiaries.

Question 26

Spendthrift Clause

Answer 26

A clause in a trust document which does not allow the beneficiary to anticipate distributions from the trust, assign, pledge, hypothecate, or otherwise promise to give distributions from the trust to anyone. If such promise is made, it is void and may not be enforced against the trust.

Question 27

Standby trust

Answer 27

A trust created during the grantors lifetime that is either unfunded or minimally funded. A standby trust is also known as a contingent trust

Question 28

Testamentary Trust

Answer 28

A trust created after the death of the grantor. The grantors will generally includes all of the trust provisions.

Question 29

Totten Trust

Answer 29

Not a trust, but rather a bank account with a beneficiary clause.

Question 30

Trust

Answer 30

A structure that vests legal title (the legal interest) to assets in one party, the trustee, who manages those assets for the benefit of the beneficiaries (who hold the equitable title) of the trust.

Question 31

Trustee

Answer 31

The individual or entity responsible for managing the trust assets and carrying out the directions of the grantor that are formally expressed in the trust instrument.

Question 32

Uniform Statutory Rule Against Perpetuities

Answer 32

A legislatively created alternative to the Common Law RAP that typically sets the perpetuities period at 90 years.

Question 33

Wealth Replacement Trust (WRT)

Answer 33

An irrevocable trust that owns and holds life insurance on its grantors live. A WRT is also known as an Irrevocable Life Insurance Trust (ILIT).