Dalton Quizzes Flashcards
Joyce's gross estate was $1,000,000. Her funeral costs were $16,000. She left $20,000 to charity and $14,000 to a community hospital. Total amount of home mortgage (owned in JTWROS with her spouse) was $100,000. The home was valued at $200,000. She had personal consumer debt of $15,000. Her spouse was her personal representative and waived his fees. She left $260,000 in cash outright to her spouse. What is her taxable estate? A)$525,000 B)$539,000 C)$575,000 D)$589,000
Rationale
The correct answer is “C.”
AGE: $1,000,000 - $16,000 (admin cost) - $50,000 (1/2 debt from the mortgage) - $15,000 (credit card debt) = $919,000
Taxable Estate: $919,000 - $310,000 (marital deduction) - $34,000 (charitable deduction) = $575,000
The maritable deduction is calculated as follows:
The total amount of the home is $200,000 therefore her portion would be $100,000. If the debt is $100,000 then her portion is $50,000. So she would be leaving $100,000 - $50,000 = $50,000 to the spouse for the home. So total marital deduction is $260,000 + $50,000 = $310,000.
Before her death, Karston Williams, age 74 gave her three grandchildren some money for their private school education. She paid $16,000 directly to the school for Jack's tuition and gave the same amount of cash to Sienna and Nancy. What would be the adjusted taxable gifts calculated in her estate if any assuming she had made no previous taxable gifts and that she died this year? A)$0 B)$2,000 C)$4,000 D)$32,000
Rationale
The correct answer is “B.” The amount of tuition paid directly to the institution is a qualified transfer not subject to the gift tax regime, but the $16,000 given directly to each of her other two grandchildren represents an excess of $1,000 each above the $15,000 (2020) per person annual exclusion allowance ($2,000).
2503(c) trust
2503(c) or minor’s trust allows for transfers of property (and income shifting) to children, while parents maintain control of the property
Which of the following are disadvantages or “costs” of the 2503(c) trust?
I. The 2503(c) trust is irrevocable and the grantor must relinquish control.
II. The 2503(c) trust can have only one beneficiary, meaning that funds cannot be taken away from a child who is not observing the wishes of the grantor.
III. The 2503(c) trust requires mandatory distribution of income on an annual basis.
IV. The 2503(c) trust has expenses involved in filing tax returns and estimated quarterly tax payments.
A)I and II only.
B)I, III and IV only.
C)II, III and IV only.
D)I, II and IV only.
Rationale
The correct answer is “D.” The 2503(c) trust does not require annual distribution of income. It is the 2503(b) trust that has this requirement.
grantor
n. [律]授予者；让与人
ascertainable
adj. 可确定的；可查明的
Keep in mind that the 2503c trust for minors would qualify for what?
Keep in mind that the 2503c trust for minors would qualify for the annual exclusion because any gift to such a trust is deemed to be a gift of a present interest. However, a regular secular trust that does not require any annual income distribution to the beneficiary will not qualify as a gift of a present interest.
postmortem
n. 验尸；事后讨论检查
adj. 死后的；事后的
premature
adj. 提前的；过早的；早产的
n. 早产儿；早熟
A grantor trust provides inclusion of trust assets in grantor’s estate
设保人信托将信托资产包括在设保人的遗产中
successor trustee
继任受托人
Which of the following functional roles may be commonly simultaneously filled by the same person(s) in respect to a grantor trust.
I. Grantor.
II. Trustee.
III. Successor Trustee.
IV. Beneficiary.
A)I, II and IV only.
B)I and IV only.
C)I, II, III, and IV.
D)I and II only.
Rationale
The correct answer is “A.” A grantor trust provides inclusion of trust assets in grantor’s estate; therefore, a trust grantor (Statement “I”) can also be the beneficiary (Statement “IV”) of the trust, as well as the trustee. If the grantor is the trustee, he or she cannot be the successor trustee, a successor trustee only operates after original trustee can no longer serve.
When will A Durable Power of Attorney terminate?
A Durable Power of Attorney will not terminate in the event of disability or incapacity. A Durable Power of Attorney will terminate only in the event of the grantor’s death or upon withdrawal.
Can a joint tenancy with right of survivorship counted in gross estate?
co-tenancies with a right of survivorship are included in the gross estate of the first joint tenant to die. This includes joint tenancies, tenancies by the entirety, joint bank accounts, etc. Excluded are forms of co-ownership without survivorship, i.e. tenancies in common, and community property, etc.
enforceable
adj. 可实施的
Some estate planning can occur after death (post mortem). Some post mortem techniques or tools require an executed document prior to death. Which of the following is effective without a previously executed document that is enforceable after death?
I. QTIP property election to qualify for the marital deduction.
II. Section 303 stock redemption election.
III. Election to waive the personal representative fees.
IV. Election by the personal representative to use a credit shelter trust.
A)I and III only.
B)I, II and III only.
C)II and III only.
D)I, II and IV only.
Rationale
The correct answer is “C.” Statement “II” is based solely on the percentage of business value to total estate and the company E and P account. Statement “III” is accomplished by the representative simply signing a waiver of fees (a disclaimer). All others must be established prior to death to be available to the personal representative on an optional basis. While the QTIP election is made by the executor the decedent must have a properly directed and executed will to leave property in a qualifying way in a QTIP.
revocable intervivos trust
可撤销的生命信任;
There are no estate or income tax savings by using a revocable trust. There will be a savings of probate costs, because the use of a revocable trust avoids probate.
Codicil
n. 遗嘱的附录；附录
Devisee
n. [律]接受遗赠者
Legatee
n. 遗产受赠人
Reversionary interest
归还利息. Reversionary interest would have the home ownership returning to her
Mary’s husband died two years ago. His will included the following three testamentary trusts: A trust for the benefit of Mary’s children, but giving Mary a general power of appointment over the trust assets for the remainder of her life (GPOA Trust), a bypass trust for the benefit of Mary’s children, but giving Mary a power to invade the trust assets for an ascertainable standard for the remainder of her life (Bypass Trust), and a charitable remainder annuity trust for the benefit of Mary’s as the income beneficiary for life with the remainder to her alma mater (Charitable Trust). At Mary’s death, which of the trusts assets will be included in her gross estate?
I. GPOA Trust.
II. Bypass Trust.
III. Charitable Trust.
A)I only.
B)I and II only.
C)II and III only.
D)I and III only.
Rationale
The correct answer is “D.” The GPOA Trust would be included in Mary’s gross estate. Because the withdrawal right of the Bypass trust was limited to an ascertainable standard, its assets are not included in Mary’s gross estate. Mary has an interest in the assets of the Charitable trust so those assets are also included in her gross estate then she gets an unlimited charitable deduction equal to the assets included in the gross estate.
Section 303
- This permits the estate of a decedent shareholder to redeem the decedent’s shares with favorable income tax treatment.
- The transaction will be treated as a disposition of an asset (capital gain) rather than receipt of a dividend (ordinary income). This is especially advantageous because the shares received a stepped-up basis at death, and thus, the capital gain or loss is only measured from the DOD instead of the predeath basis. 3. Conditions to be met:
a. The stock must be included in the decedent’s estate.
b. The value of the stock must be more than 35% of the AGE. c. Redemption proceeds eligible for capital gain treatment cannot exceed federal and state death taxes plus deductible funeral and administrative expenses.
Maria Olmsted Chavez, age 58, is the owner of a closely-held partnership business which makes up 65% of her adjusted gross estate. More than half the assets of the partnership are real estate holdings. Maria wants to undertake a transfer of some sort to her son, Ernesto, to reduce her potential income tax obligations and possible future estate tax liability. Such a transfer would accomplish both of these goals and reduce Maria’s interest in the business by 35%, meaning the business would make up only 30% of her adjusted gross estate. Maria will also be bequething $50,000 to her favorite public charity and the balance to her husband upon her death. In light of these activities and transfers, which of the following elections does Maria lose?
A)Maria can no longer use the special use election.
B)Maria can no longer use the reverse QTIP election.
C)Maria can no longer use the Section 303 election.
D)Maria gives up the right to use the 6166 election.
Rationale
The correct answer is “D.” The amount required to use the Section 6166 is that the ownership asset must make up at a minimum of 35% of the estate. Section 303 is not appropriate because this is a partnership and there is not stock in a partnership. Special use is for valuation of real property used in a trade or business. The reverse QTIP is a generation transfer tax election.
Does the a revocable grantor trust count in the probate process?
No. The assets in trust will be included in the Grantor’s gross estate because the trust is a revocable grantor trust. The trust structure passes assets to heirs outside the will and therefore no probate process is required for retitling. The assets have already been retitled to the trust. The installment notes are IRD assets and will not get stepped to the FMV.
Crummey vs A Bypass trust vs A grantor trust vs A defective grantor trust
Crummey is a provision or power to withdraw from a trust.
A Bypass trust is used in marital estate planning.
A grantor trust is subject to income tax to the grantor.
A defective grantor trust is treated as a grantor trust for income tax purposes but as a completed gift for gift and estate tax purposes.
Which of the following are advantages of allowing property to pass through the probate process?
I. Assets do not need to be retitled if they pass though probate.
II. There are limitations on creditors’ time to make claims against the estate.
III. There is stricter supervision of the disposition and management of assets.
IV. A will cannot be contested under the probate process.
A)I and II only.
B)II and III only.
C)III and IV only.
D)I, II and III only.
Rationale
The correct answer is “B.” Assets should be properly retitled regardless of being in or out of probate. A Will can be contested in the probate process.
Of the following statements, which is false?
A)The unlimited marital deduction merely postpones the potential estate tax due.
B)Property that is not included in the decedent’s gross estate cannot qualify for the unlimited marital deduction.
C)The death benefit of a life insurance policy included in a decedent’s gross estate is not eligible for the unlimited marital deduction.
D)An individual can use the unlimited marital deduction during life to fund the surviving spouse’s applicable estate tax credit. The best property to transfer is the property that is expected to appreciate in value.
Rationale
The correct answer is “C.” Answer “C” is a false statement. If the death benefit of a life insurance policy is included in a decedent’s gross estate, the value of the death benefit will be eligible for the unlimited marital deduction. All of the other answers are true statements.
Charitable Lead Annuity Trust
A charitable lead trust is an irrevocable trust designed to provide financial support to one or more charities for a period of time, with the remaining assets eventually going to family members or other beneficiaries. Charitable lead trusts are often considered to be the inverse of a charitable remainder trust
David would like to fund a charitable trust and name himself as the income beneficiary. He would like for his payout from the trust each year to be equal. Given David’s desires, which type of charitable trust should David establish? A)A Charitable Lead Annuity Trust. B)A Charitable Lead Unitrust. C)A Charitable Remainder Annuity Trust. D)A Charitable Remainder Unitrust.
Rationale
The correct answer is “C.” The Charitable Remainder Annuity Trust would be the best option because the charity is the remainder beneficiary and David would be the income beneficiary. The CRAT is a better option than the CRUT because the payout from the CRAT would be a fixed dollar amount, rather than a fixed percentage. David wants a stable payout each year which would lead us to a fixed dollar amount, and thus the CRAT.
A bequest to which of the following organizations would NOT be included in the gross estate?
A)The United States of America.
B)The University of Phoenix.
C)Mothers Against Drunk Driving.
D)The Society for the Protection of Wild Birds.
E)None of the choices.
Rationale
The correct answer is “E.” All bequests are included in the gross estate. Although not relevant to the question, all of the bequests except for the one to the University of Phoenix qualify for the unlimited charitable deduction. The University of Phoenix is a for-profit institution and is therefore, not a charity.
Yana and Bill are married and are in the process of establishing their estate plan. Currently they only have simple mutual wills in place. Yana’s gross estate is currently worth $14 million and Bill’s is $5 million. Bill has made a cumulative taxable gift to his children from a first marriage of $6 million in the current year. If Bill dies this year before completing their new estate plan, how much of Bill’s unused applicable exclusion amount is available for Yana? A)None B)$4,577,800 C)$5,580,000 D)$11,580,000
Rationale
Answer: C Bill made taxable gifts of $6 million, which he paid no gift tax on due to the applicable exclusion amount. Therefore, he has reduced his exclusion amount from $11.58 million to $5.58 million. His entire estate is then transferred to his wife so none of the remaining $5 million in his gross estate is taxable. So the total unused exclusion is $5.58 million.
bequeath
v. 遗赠；遗留；把传下去
What is an appropriate standard estate planning strategy for married couples to minimize estate taxes over two deaths if a revocable trust is in place during life?
A)Bequeath the entire estate to a trust, giving the surviving spouse a general power of appointment.
B)Bequeath the applicable exclusion amount to a qualified terminable interest property trust (QTIP) and the balance outright to the surviving spouse.
C)Bequeath the applicable exclusion amount to a bypass trust to take advantage of the unified credit at the death of the first spouse.
D)Bequeath the applicable exclusion amount outright to the surviving spouse and the balance to the children.
Rationale
The correct answer is “C.” Answers “A”, “B” and “D” do nothing to reduce estate tax at the second death since these three strategies would cause the decedants unified credit amount to be added into the surviving spouse’s gross estate.
Which of the following is NOT a disadvantage of UGMA/UTMA custodial accounts?
A)The assets are owned by the student for financial aid purposes.
B)The custodian loses control of the assets at time of maturity.
C)The assets are included in the donor’s gross estate until maturity.
D)The assets are non-transferable.
Rationale
Answer: C
One of the advantages of utilizing UTMA and UGMA accounts is the ability to lower the gross estate by contributing to the accounts. The annual gift tax exclusions apply but the assets in the account are in the child’s estate not the donor’s.
Choice A is incorrect because these accounts can severely reduce the child’s ability for financial aid.
Choice B is incorrect because the custodian no longer has any control over the assets upon maturity. The child may or may not choose to use the assets wisely.
Choice D is incorrect because the assets placed in this account may not be transferred or revoked.
The trust document will determine how the assets are distributed, not the will.
The trust document will determine how the assets are distributed, not the will.
Assuming NEITHER person has used any of his/her applicable credit, what is the maximum amount a married couple can give to a single, third-party donee in the current year without paying any federal gift tax? A)$30,000 B)$11,580,000 C)$23,190,000 D)$23,160,000
Rationale
Solution: The correct answer is C.
A $15,000 gift may be made by each spouse each under the annual gift exclusion amount and a $11.58M gift from each spouse may be made to utilize the applicable lifetime exclusion amount of $11.58M each in 2020.
($11,580,000 X 2) + ($15,000 X 2) = $23,190,000
A charitable trust which provides an immediate charitable income tax deduction and income to the non-charitable beneficiary from the trust as a sum certain without annual revaluation of assets is known as:
A)A charitable remainder annuity trust (CRAT).
B)A charitable remainder unitrust (CRUT).
C)A grantor retained annuity trust (GRAT).
D)A charitable lead trust (CLAT).
Rationale
The correct answer is “A.” A CRAT provides a sum certain income payout without annual revaluation of underlying trust assets. A GRAT has no charitable beneficiary. A CLAT pays income to a charity and the remainder usually to a non-charitable beneficiary.
Dan Ryan wishes to estimate his probate estate. The following are assets listed on his data form. What is included in the probate estate?
- $5,000 Limited Partnership Interest held as JTWROS with his brother who made no contribution.
- $150,000 home held in tenants by the entirety (TE).
- $20,000 municipal bonds held in a separate account.
- $20,000 child UTMA accounts.
- $25,000 Mutual Fund held in community property with his spouse.
A)$40,000
B)$20,000
C)$45,000
D)$32,500
Rationale
The correct answer is “D.” Joint tenants with rights of survivorship and tenants by the entirety pass outside probate. The municipal bond and one half of the community property are inlcuded in probate, equaling $32,500.
Your client, Mike Goldstein, has made a number of gifts to friends and family as described below. He wants to know which one of the following was not a completed gift:
A)Stock certificates were signed and delivered directly to his nephew, James’ investment account.
B)Mike made an irrevocable transfer of legal title of solely owned property to his niece, Bonnie, and retained a minority interest in that property after the gift.
C)Mike gave his 16 year old grandson Colin a 1969 Convertible Mustang car.
D)Mike funded his granddaughter’s education with a 529 plan. He made himself the owner of the plan so that he could personally use the funds for his own needs if the situation arose.
Rationale
The correct answer is “B”. The retained interest in answer “B” prevents it from being a completed gift. The 529 ownership is deemed a completed gift once made but can be undone by withdrawing. The right to withdraw does not prevent the gift from being complete. The 529 is the only deemed gift which has this bind of capability.
A joint first-to-die life insurance policy
Joint life insurance comes in two flavors: first-to-die, which pays out to the surviving spouse after the first dies; and second-to-die, or survivorship, which pays a death benefit to the heirs after both spouses are gone.
The best life insurance policy for the payment of federal estate taxes for a 50-year-old married couple with illiquid assets is:
A)An individual whole-life policy on each spouse on a cross-ownership basis.
B)A joint first-to-die life insurance policy owned jointly.
C)A joint last-to-die life insurance policy owned by the spouse with the larger estate.
D)A joint and last-to-die life insurance policy owned by an irrevocable life insurance trust.
Rationale
The correct answer is “D.” A second-to-die life policy provides insurance for a lower cost than insuring each spouse individually. Due to the unlimited marital deduction, there is no need for liquidity until the death of the second spouse. The ILIT keeps the insurance proceeds from being included in the gross estate of either spouse as long as neither has any incidence of ownership in the trust or policy.
Elect Portability
Portability of applicable exclusion (exemption) amount between spouses—surviving spouse may also use any portion of the decedent spouse’s exemption that remained unused at spouse’s death (up to a total of $23,160,000 in 2020) a. Decedent spouse must have died after December 31, 2010, and executor must have filed a timely estate tax return making election to allow portability b. If surviving spouse has more than one predeceased spouse, only the unused exemption amount of the last deceased spouse is available c. Surviving spouse may apply deceased spouse’s unused exemption amount to lifetime transfers (gift tax) and to transfers at death (estate tax)
Mrs. Bailey dies in 2020 leaving her entire $17.2 million estate through her Will to her penniless husband, George. His estate goes to their children at his death. He has terminal cancer with a life expectancy of 1 to 2 years. The alternative valuation date value of Mrs. Bailey’s entire estate is equal to $17,000,000. Select the post mortem technique George should utilize to reduce the overall estate tax liability of both estates:
A)Elect Portability.
B)Elect to use the alternative valuation date.
C)Disclaim $7,000,000 and elect to use the alternative valuation date.
D)Do Nothing.
Rationale
The correct answer is “A.” The alternative valuation can only be used if it reduces both the gross estate (yes) and reduces the estate tax due (no, because it was all left to a spouse so no estate tax would be due in either situation). Since the new estate law permits the portability of the estate applicable exclusion between spouses, disclaiming any of the property is not necessary as Mrs. Bailey’s unused credit can be utilized by George in addition to his own (up to $23,160,000 in 2020).
Which of the following rights will not cause an insurance policy to be included in the gross estate of the owner/insured if retained within the three years prior to the death of the owner/insured assuming the policy was in an ILIT?
A)The right to borrow from the cash value in the policy.
B)The right to assign the policy, but only to a qualified charity.
C)The right to surrender the policy, but only in case of terminal illness.
D)The right to change the name of a charitable beneficiary to another charitable beneficiary.
Rationale
The correct answer is “D.” Any incidence of ownership (answers A, B or C) constitute incidence of ownership and would cause the policy to be included in the gross estate. The right to change a charitable beneficiary to another charitable beneficiary is not an incidence of ownership because the first charitable beneficiary may no longer exist.
AB Trust
An A-B trust is a joint trust created by a married couple for the purpose of minimizing estate taxes. Upon the death of the first spouse, an A-B trust divides into two. It is formed with each spouse placing assets in the trust and naming as the final beneficiary any suitable person except the other spouse
The “A Trust” is also commonly referred to as the “Marital Trust,” “QTIP Trust,” or “Marital Deduction Trust.” The “B Trust” is also commonly referred to as the “Bypass Trust,” “Credit Shelter Trust,” or “Family Trust.”
Wolfgang and Anastasia, who are married to each other, have combined assets as follows:
- Wolfgang’s separate property: $15,600,000
- Anastasia’s separate property: $1,800,000
- Community property: $1,400,000
Wolfgang wishes to structure a standard AB Trust for himself, which of the following would be correct for the year 2020?
A)A Trust: $15,600,000 and B Trust: $700,000
B)A Trust: $4,720,000 and B Trust: $11,580,000
C)A Trust: $11,580,000 and B Trust: $4,720,000
D)A Trust: $16,300,000 and B Trust: $0
Rationale
The correct answer is “B.” Wolfgang could put $11,580,000 in the B trust (applicable exemption for 2020) and $4,720,000 in the A Trust. He has a total of $16,300,000 including his half of community property. If $11,580,000 goes to the B Trust, the remainder of $4,720,000 would go to the A trust. He would not include Anastasia’s separate property in his estate.
deed
n. 行为；事迹；[法]契约
vt. 立契转让
Whether a gift can be made?
The grantor must be competent and the deed must be delivered during the grantor’s lifetime. Recording of deed does not affect gifting, but may affect future rights in the property. A gift can be made subject to a mortgage.
Because of his age and his inability to conduct business, Walter gave his son Henry a general power of appointment. Which of the following is/are true regarding such a power?
I. Henry can appoint his father’s money to pay for his father’s needs.
II. Henry can appoint money to Walter’s creditors.
III. Henry must only appoint money using the standards of health, education, maintenance and support.
IV. If Henry dies before Walter, Henry’s gross estate includes Walter’s assets under the power even though those had not previously been appointed by Henry.
A)I and II only.
B)I, III and IV only.
C)I, II and IV only.
D)II, III and IV only.
Rationale
The correct answer is “C.” Statement “III” is incorrect because Henry can appoint to anyone he wishes including himself, his heirs, or his creditors under a general power of appointment. The other statements are correct.
joint tenancy with rights of survivorship vs. tenancy in common
Convert property owned outright into joint tenancy with right of survivorship (JTWROS) or tenancy in common
a. JTWROS property will avoid probate, but the entire date-of-death (DOD) value must be included in the gross estate if the decedent purchased the property initially.
b. Tenancy in common property will not avoid probate, but only the decedent’s share of the property will be included in his estate at death
tenant
n. 房客；佃户；承租人；占用者
vt. 租赁；租借
tenancy
n. 租用；占有；租期；租用权
Rick and Amber (husband and wife), residents of a non-community property state, owned unimproved land that they have titled in joint tenancy with rights of survivorship. Rick purchased the land with his own funds for $100,000 five years ago, and he died in the current year when the land was worth $400,000. What is the amount associated with the land that will be included in Rick’s gross estate?
A)$100,000.
B)$200,000.
C)$300,000.
D)$400,000.
Rationale
The correct answer is “B.” 50% of the fair market value must be included in Rick’s estate because of the deemed contribution rule because his joint tenant Amber is his spouse. If he titled JTWROS with anyone but a spouse we would use the “actual contribution rule” in which case he would have $400,000 included in his gross estate. Note that is he had titled the property tenants in common, he would have had $400,000 inclusion.
What property can be passed to probate?
Property with rights of survivorship (JTWROS) pass outside of probate.
“ municipal bonds held in a sole & separate account.,” and “Mutual Fund which are community property “must pass through probate (only the decedent’s half of the community property in statement V passes through probate) for purposes of retitling .
irrevocable trust
An irrevocable trust is a type of trust where its terms cannot be modified, amended or terminated without the permission of the grantor’s named beneficiary or beneficiaries. The grantor, having effectively transferred all ownership of assets into the trust, legally removes all of their rights of ownership to the assets and the trust.
This is in contrast to a revocable trust, which allows the grantor to modify the trust, but thus loses certain benefits such as creditor protection.
GRANTOR RETAINED ANNUITY TRUSTS (GRATs)
■ For any specific term (usually two to five years)
■ Grantor receives an annual payment from the trust of either a fixed amount or a fixed percentage of the initial FMV of the trust assets
■ Trust is not included in grantor’s gross estate if grantor lives beyond term of trust
■ If grantor dies before expiration of the trust term, the grantor’s gross estate includes the FMV of the trust assets required to produce the annuity (if QPRT, full FMV of residence is included in gross estate)
■ Gift is a future interest (no annual exclusion)
■ Trust cannot be used as a PRT (QPRT is used instead)
■ This transaction does not make use of minority discounts
■ Trust is an irrevocable trust
■ Purchasing power risk to transferor
■ Interest rate risk to transferor
■ Reinvestment risk to transferor
■ This transaction makes use of the applicable exclusion amount
■ This transaction may require sophisticated valuation at the time of initial transaction
GRANTOR RETAINED UNITRUSTS (GRUTs)
a. Makes payments at least annually of a fixed percentage of the net FMV of the trust assets as determined annually
b. All other characteristics are like a GRAT
probate estate vs. gross estate
The term “probate estate” does not refer to all of a decedent’s estate. Rather, the probate estate consists of assets held in the decedent’s name alone that do not have a beneficiary designated. … A decedent’s gross estate includes all of decedent’s real and personal property, regardless of whether it is a probate asset
Before his death in 2020, Sam Kiniston, a widower, age 92, gave his three grandchildren some money for their private school education. He paid $24,000 directly to Harvard for Biff’s tuition and gave $24,000 in cash each to Buffy and Bobbie to use for their tuitions at Vasaar and Radcliffe. What is his adjusted taxable gifts calculated from these transactions?
A)$18,000
B)$26,000
C)$30,000
D)None of the choices are qualified transfers.
Rationale
Solution: The correct answer is A.
Amounts paid directly to a school for tuition are excluded from gift tax. Amounts over $15,000 of the $24,000 per donee are included as “taxable gifts.” So, $9,000 from each of the gifts to Buffy and Bobbie are included as taxable gifts in his estate under “Post 1976 taxable gifts.”
nonetheless
adv. 尽管如此(仍然)
Which statement(s) is/are true for Generation Skipping Transfer Tax (GSTT)?
I. Applies to transfers to persons who are two generations or more lower than the transferor.
II. There are no exceptions.
III. There is an $11.58M lifetime exemption in 2020 for GSTTransfer.
IV. Transfers qualifying for gift tax annual exclusion are excluded from GSTT.
Choose the answer(s) which is/are most correct:
A)I and IV only.
B)II and III only.
C)I, III and IV only.
D)IV only.
Rationale
Solution: The correct answer is C.
There are exceptions to the GSTT including the predeceased parent rule. Gifts qualifying for the annual gift tax exclusion are excluded for GSTT. The lifetime exemption for GSTT is $11.58M (2020).
How to evaluate the gifted stock price?
The value of a gift of securities is the average of the high and the low on the date of the gift assuming the date of the gift is a trade date
qualified terminable interest property (QTIP)
- Allows a terminable interest to be passed to a surviving spouse and the property to still qualify for the marital deduction
- Election is made on Form 706
- Requirements a. Income from the trust must be payable to the surviving spouse at least annually for life. b. The value of the trust assets must be included in the gross estate of the surviving spouse when she dies, valued on the DOD of the second spouse. c. The surviving spouse is not usually given a general POA.
- Usually, first spouse to die has specified the ultimate recipient of the property (the remainderman) in the trust document
- Sometimes called a C trust or a Q trust; often used in second marriages to protect assets for the children of the first marriage
To qualify for the marital deduction, qualified terminable interest property (QTIP) must meet which of the following conditions?
I. The surviving spouse must have a general power to appoint the property.
II. All of the income must be paid out either to the surviving spouse or to the children of the decedent and the surviving spouse at least annually.
III. The executor must make the QTIP election.
IV. The surviving spouse must be entitled to make lifetime gifts to family members directly from the QTIP.
A)I, II and III only.
B)I and III only.
C)II and IV only.
D)III only.
Rationale
The correct answer is “D.” The surviving spouse generally has no dispositive powers in a QTIP trust. The surviving spouse must be the SOLE income beneficiary who must receive ALL income from the trust at least once each year for the rest of his/her life.
Which of the following will not qualify for any charitable income tax deduction for gift tax purposes if used during life? A)A charitable remainder annuity trust. B)A charitable remainder uni-trust. C)A grantor retained annuity trust. D)A pooled income fund.
Rationale
The correct answer is “C.” All of these devices qualify for the charitable deduction except for answer “C.” There is no charitable beneficiary in a GRAT and therefore no charitable tax deduction.
leaseback
n. 反租
Why a person wants to use of sale and leaseback?
The use of sale and leaseback is indicated where a person wants to retain the use of the asset, has cash flow problems, is in a high income tax bracket and is seeking to divert income. A rental expense will provide a full deduction where a loan payment is part principal; this can be especially useful if the asset has a long depreciable life when compared to the debt obligation’s life. Highly and rapidly appreciating assets are commonly used in this type of arrangement. A sale/leaseback will not reduce the debt because the obligation must still be listed on the balance sheet, however the lease payment may be an expense and provided a greater deduction than depreciation expense.
With regard to the required income distribution of the various types of marital trust, which of the following trusts permit accumulation of income?
A)A QTIP Trust.
B)A TPP Trust.
C)A Power of Appointment Trust (GPOA).
D)An Estate Trust.
Rationale
The correct answer is “D.” Both the GPOA Trust and Q-Tip Trust require distribution of income at least annually to the spouse. A TPP Trust holds tangible personalty. Only the Estate Trust permits income accumulation.
If the grantor survives the trust term
如果设保人活得比信托期限长
GRANTOR RETAINED ANNUITY TRUSTS (GRATs)
There is no charitable beneficiary in a GRAT and therefore no charitable tax deduction.
if the grantor survives the trust term, none of the trust assets are included in his estate.
if the grantor dies during the trust term, all of the trust assets are included in his gross estate.
Interest and dividends earned by assets in a GRAT are taxed to the grantor.
a taxable gift occurs when the GRAT is established, not when the GRAT term ends
There are a number of ways to transfer property upon death. The probate system is one of these methods. There are, however, a number of reasons and methods that can be used to avoid probate. Which of the following is/are non-probate transfer devices?
I. Use of a Totten Trust.
II. A charitable annuity trust.
III. Community Property Titling.
IV. An intervivos trust.
A)II and III only.
B)II, III and IV only.
C)I, II and IV only.
D)I, II, III and IV.
Rationale
The correct answer is “C.” All of these methods work as means of avoiding probate except community property titling. The decedents’ one-half of community property goes into probate.
Totten trust (similar to POD/TOD)
a. This is a trust created by a New York statute.
b. When an individual opens an account in trust for another, it is not a completed transfer. The income is taxed to the grantor until the trust is made irrevocable.
Charitable gift annuity
—A donor makes an irrevocable transfer of assets to a charity, and receives an annuity from the charity in return. a. Donor is eligible for an income tax charitable deduction based on the difference between the value of the donated property and the present value of the annuity payments that will be received
POOLED INCOME FUNDS (PIFs)
PIF—This is an irrevocable transfer of assets to a charity for an income stream from the charity’s commingled asset management. A charitable deduction is available.
a. Created and maintained by the charity
b. Donor transfers property, including irrevocable remainder interest, to charity (must be a public charity and managed by the charitable remainderman)
c. Property commingled with property of other donors d. Grantor retains income interest for one or more beneficiaries for life (no term trusts)
e. Investments cannot include tax-free municipal bonds f. Payment to donor is determined by earnings of trust annually
CHARITABLE REMAINDER TRUSTS (CRTs)
- A CRT is an irrevocable trust in which the remainder beneficiary is a qualified charity.
- A CRT can take the form of a charitable remainder annuity trust (CRAT) or a charitable remainder unitrust (CRUT).
a CRAT vs. a CRUT
Common features of both a CRAT and a CRUT :
a. Trust is irrevocable
b. Remainder interest is paid to charity
c. Trust can last for life of grantor or for a term of up to 20 years
d. Present value of the remainder interest at inception of the trust must be at least 10% of the initial FMV of the property transferred to the trust
e. The charity does not have to know it was named as the remainder beneficiary
f. Annuity/unitrust payout rate must be at least 5%, and less than or equal to 50%
Unique features of a CRAT
a. Grantor receives either a fixed percentage of the initial FMV of the property transferred to the trust or a fixed dollar amount annually
b. Annuity must be paid in spite of necessity to invade principal because of income deficiency
c. No additional contributions are permitted after inception
d. Very inflexible
Unique features of a CRUT
a. Grantor receives a fixed percentage of the trust assets, valued annually
b. Unitrust amount may be limited to income earned
c. Trust may provide for catch-up provisions when income does not meet the percentage requirement and then later exceeds the current percentage payout d. Annual valuation may be expensive if property in trust is not easily valued (e.g., closely held businesses, real estate)
e. Additional contributions to the trust are permitted after inception
f. Very flexible
non-durable Power of Attorney
A nondurable power of attorney cannot act on your behalf if you become disabled or incompetent. You would generally choose a nondurable power of attorney for a specific matter, such as handling your affairs in your physical absence. … This means the power of attorney is effective regardless of your health condition.
Martha and her daughter Lacy recently visited Sharron a CFP® professional to review her estate planning documents. Martha informed Sharron that her friend Betty holds a non-durable Power of Attorney over Martha’s assets. A few weeks later, Martha was involved in an auto accident and was left mentally incapacitated. Sharron needs authorization to make a few transactions in Martha’s portfolio. Who should Sharron contact to get the necessary approval?
A)She should get approval from Martha’s daughter Lacy.
B)She should get approval from Betty who holds a non-durable Power of Attorney over Martha’s assets.
C)A & B.
D)None of the choices.
Rationale
Answer: D
Neither Martha, Lacy nor Betty are capable of providing proper authorization on behalf of Martha. Sharron needs approval from someone who has a durable power of attorney to make decisions in case of mental incapacity.
Choice A is incorrect because Lacy does not have legal authority to make decisions for Martha.
Choice B is incorrect because although Betty does have a power of attorney it becomes ineffective once Martha becomes incapacitated.
Choice C is incorrect because neither A or B are correct.
??? Clarke and Lois Kent, spouses, own equal shares of an S corporation, which operates a growing garden center. They have considered forming a family limited partnership with their son, Jimmy. The S Corporation would be the general partner, and Clarke and Lois would gift limited partner interests to Jimmy over the next decade or so. They want to maintain control of the business until they retire. They also want a fixed income stream from the business. This would be considered an intra-family transfer. Which of the following accurately describes the tax implications of the transfers Clarke and Lois are considering?
I. The family limited partnership interests will be eligible for valuation discounts in spite of the fact that IRC Chapter 14 may apply.
II. Income paid to Clarke and Lois after the limited partnership is formed will be subject to double taxation, both at the partnership level and the individual level.
III. The control maintained by Clarke and Lois will bring the limited partnership interests gifted to Jimmy back into their estates if made within three years of death.
IV. Lois and Clarke’s right to fixed income from the partnership will be a qualified payment right when valuing the limited partnership interest gifted to Jimmy.
A)II only.
B)I and III only.
C)I and IV only.
D)II, III and IV only.
Rationale
The correct answer is “C.” Limited partnerships are conduit entities and do not pay taxes. IRC Chapter 14 affects valuation only by assigning a value of zero to any non-qualified interests retained by the donor. The right to the income retained in this question is considered qualified because it is income that is fixed in time and dollar amount and thus can be valued.
Which items must be included in the gross estate?
Incidence of ownership of life insurance policies assigned within three years of death are includible in the decedent’s estate, as are CRATs and CRUTs.
Any amount subject to the gross up rule is includible in the taxable estate but must be for gifts made within three years of death.
Which type(s) of charitable trust(s) provides an estate tax advantage and immediate income to a charity?
A)A charitable remainder annuity trust (CRAT).
B)A charitable remainder unitrust (CRUT).
C)Both “A” and “B.”
D)Neither “A” nor “B.”
Rationale
The correct answer is “D.” Remainder trusts distribute the remainder of the property to the charity while generally distributing income to a non-charitable beneficiary. To provide immediate income to the trust, a charitable lead trust (CLT) would be required. The estate tax advantage is that there is an unlimited charitable deduction at the estate level. The estate tax advantage of the CLT is that the gross estate is less than it would have been if the income had not been distributed to the charity.
trust corpus
n. 资料；文集
Your client, the grantor of a trust, has come to you with the following question. Which of the following trust provisions would make the corpus of the trust includable in the gross estate of the holder of the power?
A)Your client has a general power of appointment over trust assets.
B)Your client has 5 & 5 powers.
C)Your client has limited powers to invade for “HEMS” (health, education, maintenance and schooling) of someone other than client.
D)Your client has provided a qualified disclaimer.
Rationale
The correct answer is “A.” Answers “B” through “D” do not bring the trust corpus in the grantor’s estate.
Your client, George Carlisle, is 58-years old. He is interested in establishing a trust with a value of $6,000,000 for his family. He is aware of the Generation Skipping Transfer Tax, and he has asked you for your advice as to which person would be considered a skip person. Which of the following is a skip person?
A)George’s son Fred, who is age 17.
B)George’s grandson Bill, age 14, whose mother (George’s daughter) died in an auto accident this year.
C)George’s mother Thelma.
D)A trust that George had established 3 years ago for George’s favorite employee, Sam, who has just turned 20.
Rationale
The correct answer is “D.” Due to the age difference of more than 37 1/2 years and the non-related party status, the trust for Sam is a skip person. The reason Fred is not a skip person is because he is a first generation descendent. Billy is not a skip person because his mother’s death moves him up a generation (predeceased parent rule).
In what condition, death benefit proceeds from a life insurance policy are included in a decedent’s gross estate?
the death benefit is included in decedent’s gross estate IF the decedent retained an ownership right.
Under Section 2035 - ILIT
Under Section 2035, the proceeds of a life insurance policy on the life of the decedent will be includable in the decedent’s gross estate if, within three years of death, the decedent made a completed transfer of all incidents of ownership in the policy. In other words, if someone owns a life insurance policy on her own life and gives the policy ownership away, the death benefits remain in the former owner’s gross estate for three years from the date of the gift. This rule is especially important for an irrevocable life insurance trust (ILIT).
Which of the following best describes survivorship life insurance?
I. It is generally not includible in any insured’s gross estate, if owned in an ILIT.
II. It can provide liquidity to pay estate taxes at the death of the second insured.
III. It pays a partial benefit at the death of the first to die (administrative and estate taxes) with the remainder paid in full at the second death.
IV. Premiums are usually less expensive than for individual policies on each of the two insureds for the same face amount.
A)I and II only.
B)III and iV only.
C)I, II and IV only.
D)I, II, III and IV.
Rationale
The correct answer is “C.” Survivorship life pays the entire death benefit at the second death and is generally not included in the insured’s gross estate if owned in an ILIT.
All of the following are features of tenancy by entirety except:
A)There can be two or more tenants.
B)Each tenant has equal shares.
C)Each tenant has a right of survivorship.
D)No tenant can sell his or her share without the consent of all of the other joint tenants.
Rationale
The correct answer is “A.” Tenancy by the entirety is always between spouses and can only exist between two people. One spouse cannot partition the property without the consent of the other spouse.
Davey C. Rocket, a 72-year-old client, has a portfolio of marketable securities valued at $850,000 and which is rapidly appreciating. Davey wants to do the following: - Shift future appreciation of the portfolio to other family members. - Spread income from the portfolio among family members without any preferential rights to income. - Maintain control over the entire portfolio during his lifetime. - Reduce his gross estate. Which of the following techniques currently being considered by Davey will meet all of his requirements?
I. An installment sale.
II. A partnership capital freeze.
III. A family limited partnership (FLP).
IV. A 20-year CRUT (charitable remainder unitrust.)
A)I only.
B)III only.
C)I and IV only.
D)II and III only.
Rationale
The correct answer is “B.” Installment sales cannot be used to transfer marketable securities. A partnership freeze would have preferential income rights. The CRUT could result in a loss of control of the portfolio with the remainder passing to a charity, not the children. The only problem using the FLP is that he will not get a discount for minority ownership and illiquidity of a highly marketable investment portfolio.
Charles Bronson placed blue-chip stocks valued at $200,000 into an irrevocable trust. The trust must pay 7% of the trust value to Charles each year for 10 years. After the 10-year period, the remainder is to be paid to his daughter, Lucy. Which of the following statements are correct:
I. The trust will pay the income tax on earnings each year.
II. If Charles dies before the trust term ends, the value in the trust less what he has already received will be included in his gross estate.
A)I is correct only.
B)II is correct only.
C)Both are correct.
D)Both are incorrect.
Rationale
The correct answer is “D.” The grantor will pay the income tax on all distributions and the full value of the trust will be included in Charles’ gross estate if he were to die before the end of the trust term.
bequest
n. 遗产；遗赠物
Which of the following is NOT a requirement for a testamentary charitable bequest to qualify for the unlimited charitable deduction?
A)The bequest must be contingent upon some other event occurring.
B)The amount of the bequest must be determinable at the decedent’s date of death.
C)The fair market value of the assets must be included in the decedent’s gross estate.
D)The bequest must be payable to a qualifying charitable organization.
Rationale
The correct answer is “A.” The bequest CANNOT be contingent upon some other event occurring. The bequest must be mandatory. All of the other statements are requirements for a testamentary charitable bequest to qualify for the unlimited charitable deduction.
Which one of the following trusts might be funded with $11,580,000 but usually not in excess of such an amount in the year 2020? A)A Standby Trust. B)A Pour-over Trust. C)An Asset Protection Trust. D)A Generation Skipping Trust.
Rationale
The correct answer is “D.” The GSTT offers a maximum $11,580,000 (2020) exemption and may be funded for the full exemption amount for skip persons.
corpus
n. 资料；文集
Which one of the following statements is NOT true for a Grantor Retained Unitrust (GRUT)?
A)The grantor creates an irrevocable trust with a retained income interest.
B)Income must be paid out at least annually.
C)Once established, the GRUT corpus will not be part of the grantor’s estate.
D)The amount of income to be paid to the income beneficiary is recalculated annually based on the GRUT valuation.
Rationale
The correct answer is “C.” The corpus value may be included in the grantor’s gross estate if grantor dies before the end of the term of the GRUT. GRUTs are irrevocable and income needs to be paid out annually with the amount recalculated annually. Due to grantor status, the GRUT will be part of the gross estate if the grantor dies before the end of the trust term.
Does the gift count to the bequests?
The $15,000 annual exclusion is not available for bequests. So if someone made bequests with no arrangement, then the payment of estate tax is applied
Which one of the following statements concerning grantor trust rules is not correct?
A)They allow the grantor to retain interests in the trust assets.
B)There is no gift tax if the grantor is also the trustee and beneficiary.
C)They apply only to irrevocable trusts.
D)They prevent income tax shifting if the grantor retains certain interests.
Rationale
The correct answer is “C.” They apply both to revocable and irrevocable trusts.
Which of the following statements is incorrect?
A)When a decedent’s taxable estate is less than the applicable estate tax credit equivalency because of the overuse of the marital deduction, the estate is said to be overqualified.
B)When too few assets pass to a decedent’s surviving spouse, and as such the decedent’s taxable estate is greater than the applicable estate tax credit equivalency, the decedent’s estate is said to be underqualified.
C)An ABC Trust arrangement utilizes a General Power of Appointment Trust, a QTIP Trust. and a Bypass Trust to maximize the use of a decedent’s applicable estate tax credit.
D)The ultimate beneficiary of a QTIP Trust is selected by the surviving spouse.
Rationale
The correct answer is “D.” Answer “D” is incorrect because the ultimate beneficiary of a QTIP Trust is chosen by the grantor of the QTIP Trust. All of the other statements are correct.
Which of the following is not a prerequisite for gift splitting?
A)Both spouses must be U.S. citizens or resident aliens when the gift is made.
B)Donors must be married at the time the gift is completed.
C)Two gift tax returns must be filed if gifts are split.
D)Each spouse must signify their consent in writing on the gift tax form (709).
Rationale
The correct answer is “C.” All are prerequisites of gift-splitting, but only one gift tax return is required either where neither party or only one party exceeds the annual exclusion as determined after the gift splitting.
Eric and Tawny gift $120,000 to an Irrevocable Life Insurance Trust with Crummey provisions. The trust has, as beneficiaries, their three children. A few weeks later, Eric dies in an auto accident. Tawny, with the assistance of her attorney and Financial Planner, is calculating Eric's gross estate. How much of the gift will be brought back into Eric's gross estate? The annual exclusion is $15,000. Split gifts are available. The 5/5 lapse rule is in effect. A)$0 B)$21,000 C)$42,000 D)$102,000
Rationale
The correct answer is “A.” This was a cash gift, not a gift of life insurance. Therefore, none of the gift will be included in Eric’s gross estate as the trust is irrevocable.
litigious
adj. 好诉讼的；好争论的
debriefing
n. 任务报告；任务报告中提出的情报
动词debrief的现在分词形式.
George Beatty wants to establish a single trust with the following characteristics and provisions: - The income will be distributed to his grandchild at the discretion of the trustee until the grandchild reaches age 21. - The remaining trust assets will then be distributed equally between his children and the grandchild. - George would be entitled to the maximum possible annual exclusion for any assets placed in trust. Which one of the following trusts can have all these characteristics or provisions?
A)A Crummey Trust.
B)A Section 2503(b).
C)A Section 2503(c).
D)An Unfunded irrevocable life insurance trust (ILIT).
Rationale
The correct answer is “A.” The Crummey trust meets all of the client’s objectives. B is wrong because it requires annual income distributions. C is wrong because it permits accumulation of income and then distribution of assets to the beneficiary (1) at age of majority 21. D is wrong as it does not produce income until George dies which could be later than granchild age 21.
Qualified Personal Residence Trust
the Qualified Personal Residence Trust would afford her the reduction in gross estate tax presuming she lives through the trust term. There is no such thing as a residential residence GRIT, RIT or SPLIT.
As the personal representative for the Kazinski estate, your client must or may do the following:
I. Defend the estate against creditor claims.
II. Hold all income from the estate until all claims have been resolved.
III. Favor a certain beneficiary over others.
IV. Enhance the value of the estate properties, if possible.
A)IV only.
B)I and IV only.
C)II and III only.
D)I, II and III only.
Rationale
The correct answer is “B.” Statement “I” is accurate if a creditor’s claims should not be paid because it is illegitimate. The personal representative cannot withhold income from the estate, so statement “II” is incorrect. The personal representative cannot favor any beneficiary over another beneficiary, so statement “III” is incorrect.
Which of the following applies to the marital deduction:
A)In 2020 it is limited to $11,580,000 or 1/2 of the gross estate, whichever is lesser.
B)The spouse may be of any citizenship.
C)The property may be in the form of an incomplete transfer.
D)The marital deduction may be applied to terminable interest property.
Rationale
The correct answer is “D.” Answer “A” is incorrect because in 2020, it is the applicable exclusion amount not the marital deduction that is $11,580,000. The spouse must be a U.S. citizen unless a QDOT is utilized and property must be a complete transfer to qualify for the marital deduction. The terminal interest property that will qualify are those items which are the exception to the terminal interest rule such as (1) GPOA trusts (2) QTIP trust and (3) charitable trusts where the surviving spouse is the only non-charitable beneficiary.
Which of the following is not necessary to carry out a Section 303 stock redemption?
A)The value of the stock must be greater than 35% of the decedent’s adjusted gross estate, including gifts made in the last 3 years.
B)The 303 redemption can only be used if the corporation has the cash to redeem the shares.
C)The 303 redemption can be made even without a positive earnings and profits account.
D)The Section 303 redemption is limited to an amount that cannot exceed the death taxes of the estate, plus funeral and administrative expenses for which the decedent is liable.
Rationale
The correct answer is “C.” The closely-held stock must make up 35% of the decedent’s adjusted gross estate value and must be the stock of a closely-held firm. The E and P account must be positive or there is no need for a 303 redemption.
QUALIFIED TERMINABLE INTEREST PROPERTY
合格的有期利率资产
A bypass trust
A bypass trust, or AB trust, is a legal arrangement that allows married couples to avoid estate tax on certain assets when one spouse passes away. When one spouse dies, the estate’s assets are split into two separate trusts. The first part is the marital trust, or “A” trust
Which of the various types of trusts permits income sharing?
A)QTIP Trusts
B)By-pass Trusts
C)General Power of Appointment Trusts
D)Estate Trusts
Rationale
The correct answer is “B.” The A Trust, the Q-Tip Trust and the Estate Trust do not allow for splitting or sharing of income streams. Only the By-pass Trust allows for this income splitting or sharing. The bypass trust is the only non-marital trust of the list given.
Dr. Ben Allen has two primary assets in addition to his home and personal property. He is an osteopathic physician. He owns an S corporation that is producing substantial income. He has an X-ray machine and support equipment which is fully depreciated. His son, 18, has decided to go to chiropractic school after graduating from college. He would like to pay for the college and chiropractic school with pre-tax dollars. Based on this information, which of the following intra-family planning techniques would be appropriate?
A)Gift stock in the S corporation to his son and use the education deduction.
B)Sell X-ray equipment on an installment sale basis.
C)Gift and leaseback the equipment and X-ray machine.
D)Transfer the S corporation into a Family Limited Partnership.
Rationale
The correct answer is “C.” Gift and leaseback addresses the means to accomplish the desired objective of using pre-tax dollars to pay his son’s tuition because the lease payments are a deductible business expense to the physician.
disclaimer
n. 放弃；弃权；免责声明
A qualified disclaimer
A qualified disclaimer must be written, irrevocable and received by the executor of the estate within 9 months. It must not direct the asset and can be for any interest partial or full.
discretionary
adj. 自由裁量的；任意的， 自由决定的，酌情行事的， 便宜行事的
Which one of the following statements is NOT correct about trusts?
A)A sprinkling provision allows the trustee to make payments of income or corpus to beneficiaries based upon specific needs.
B)A discretionary provision allows trustees to distribute corpus or income, or not, as they determine is most prudent.
C)A spendthrift provision prohibits a trust beneficiary from assigning interests in the trust corpus.
D)The CRUT is subject to a test for remainder interest of 10% and the probability test.
Rationale
The correct answer is “D.” The CRAT but not the CRUT is subject to the probability test.
marital trust
In a marital trust, Maryanne must be the ONLY income beneficiary, and QTIP trusts are a marital trust.
What is the appropriate estate planning strategy for married couples to minimize taxes over the death of both spouses?
A)Bequeath the entire estate to a trust, giving the surviving spouse a general power of appointment over the assets at her death.
B)Bequeath the applicable exemption equivalent amount to a qualified terminable interest property trust (QTIP) and the balance outright to the surviving spouse.
C)Bequeath the applicable exemption equivalent amount to a bypass trust and the balance to the surviving spouse in a qualifying way.
D)Bequeath the applicable exemption equivalent amount to the surviving spouse and the balance to the children.
Rationale
The best correct answer is “C.” Answer “A” - This creates a situation where the entire value of the estate will be includible in the estate of the second to die although with portability this could possibly result in the same outcome as “C” but is not as good a choice. Answer “B” - This still leaves the entire amount in the estate of the second to die. Answer “D” - This statement is opposite of the correct order strategy.
complex trust
The Section 2503(b) is a simple trust. A complex trust is a non-grantor trust which in a given year accumulates fiduciary income or distributes trust corpus, whereas a simple trust distributes no corpus. A 2503(c) trust allows for accumulation.
reversionary interest
[经] 可归回权益
The term reversionary interest includes a possibility that property transferred by the decedent during life may:
1.) return to the decedent or the decedent’s estate; or 2.) be subject to a power of disposition by the decedent
Which of the following best describes a completed present interest in a gift that would not return to be includable in one’s gross estate upon death?
A)The transfer of an owned life insurance policy assigned to a spouse 18 months earlier.
B)A small stock portfolio worth $15,000 given to a nephew 18 months earlier.
C)A house which one has deeded full ownership to one’s child with the stipulation of being allowed to reside there in that house until one’s death when the transferor never availed himself of the house post the transfer.
D)A grantor trust with the right of revocation of benefits to the beneficiary.
Rationale
The correct answer is “B.” Answers A, C and D are all examples of either retained interest or reversionary interest. Only answer B is a completed gift.
fiduciary relationship
信托关系
equitable
公平
Which of the following elements are required in a valid trust?
I. Grantor (a.k.a. Settlor or Trustor) having an intent to create a trust.
II. Trustee who holds legal title to all assets in the trust.
III. Beneficiary (or beneficiaries) who hold(s) equitable title to the assets.
IV. Property in the Trust (called corpus, res, or principal)
V. A fiduciary relationship between the trustee and the beneficiary(ies).
A)I, II and IV only.
B)I, III and IV only.
C)I, II, III and IV only.
D)I, II, III, IV and V.
Rationale
The correct answer is “D.” All are requirements for a valid trust.
Charitable remainder unitrust (CRUT)
- The trustee must make annual payments to your client of 5% of the fair market value of the account.
- Additional assets may be added to the trust in a year subsequent to its creation.
- The trust may not pay more than it earns. Upon the death of the later of the client or spouse the trustee is directed to pay all assets to the SPCA (Society for the Prevention of Cruelty to Animals an establish charity). —The value of the trust assets is included in the gross estate of the settlor if he dies first
settlor
n. [律]财产增与者；托管财产者
unified
adj. 统一的
Which of the following goals can be accomplished using a “pour over” provision in a will?
A)Provide for the transfer of assets from an estate into a trust created prior to the “pour over” provision.
B)Minimize estate taxes resulting from assets owned prior to the existence of the testamentary trust created under the will.
C)Provide for the transfer of assets from an estate, to the estate of another unrelated person, who died within the past three years.
D)Reduction of probate expenses during administration.
Rationale
The correct answer is “A.” The “pour over” provision sweeps assets outside of a trust into the trust. Answer “B” is incorrect because a testamentary trust may not always preserve the unified credit. Answers “C” and “D” are incorrect because the “pour-over” provision does not operate to transfer assets to another person’s estate or reduce probate expenses.
Prairie Dog Corporation (PDC), an oil drilling company, has a “key-person” variable universal life policy on Digger Phelps, its vice-president of drilling operations. The owner and beneficiary of the policy are the corporation. Which of the following is correct?
A)Premiums paid by PDC are taxable income to Digger.
B)Premiums paid by PDC are considered gifts to Digger.
C)Premiums paid by PDC are tax deductible as a business expenses.
D)Any death benefit paid will be nontaxable to PDC.
Rationale
The correct answer is “D.” PDC is the owner and beneficiary of the policy. For the same reason, premiums are NOT considered a gift or taxable to Digger, nor will they appear in his gross estate. “Key person” life premiums are not deductible as a business expense. Any death benefit pad will be nontaxable to PDC.
state’s Uniform Simultaneous Death Act (USDA)
The presumption under USDA applies only when the order of death is not known.
Completed gift are not pulled back into the estate.
The power to revoke, amend, or alter the gift, or retention of any rights will cause gifted property to be included in a donor’s gross estate.
ILIT that have insurance policies transferred into them will be added to the gross estate, if the ILIT was created and insurance purchased, it will be excluded from the gross estate.
As the gift must be completed one year prior to the donor’s death.
Use of an Irrevocable Life Insurance Trust can accomplish which of the following?
I. Create a vehicle to avoid Generation Skipping Transfer Tax.
II. Make proceeds available to the surviving spouse.
III. Ensure that proceeds will be excluded from the probate of both spouses.
IV. Shelters cash contributed for premiums from gift taxation up to the annual exclusion amount.
A)I and II only.
B)II, III and IV only.
C)I, II and III only.
D)I, II, III and IV.
Rationale
The correct answer is “D.” An ILIT will accomplish all of the items listed in this question.
Self-Canceling Installment Note (SCIN)
The “self-cancelling” feature means that if you die during the term of the note (which cannot be longer than your actuarial life expectancy at the time of the sale), then the “buyers” (your children, or other loved ones) are relieved of any future payment obligations, and receive the entire asset free of any transfer
IRD and DOD
Income in respect of a decedent (IRD) is income at death that the decedent had earned and was entitled to, but had not been received as of the date of death (DOD). 1.) IRD will be considered an asset for estate tax purposes (Form 706) and income for federal income tax purposes (Form 1040 or 1041
Which of the following statements regarding SCINs is correct?
A)If the seller outlives the SCIN term, the buyer has paid no more than the FMV.
B)The payments received by the seller under a SCIN are treated as interest income.
C)A SCIN can give the seller a collateral interest in the property sold.
D)If the seller dies before the end of the SCIN term, the seller is deemed to have made a taxable gift to the buyer equal to the difference between the payments made and the total principal payments due on the SCIN.
Rationale
The correct answer is “C.” Answer “A” is incorrect because the buyer of a SCIN (Self-Canceling Installment Note) pays the FMV plus the SCIN premium. Answer “B” is incorrect because each payments received by the seller consists of (1) interest income, (2) capital gain, and (3) return of adjusted basis. Answer “D” is incorrect because the transferee bought the right to cancel thus no gift.
