Estate Planning

Question 1

Grantor Trust
(or defective or tainted trusts)

Answer 1

the maker holds too much control over the property for tax purposes.

the grantor rather than the trust itself or a beneficiary will be taxed on the income produced by the trust.

trust income that is:
-distributed or accumulated for distribution to either the grantor or the grantor’s spouse
-used to discharge any legal obligation of the grantor
-used to discharge a legal suport oblligation of the grantor
-the grantor or spouse retains the right to decide who will recieve and or when a beneficiary will recieve income
-used to pay premiums on life insurance on the life of the grantor or spouse.

Question 2

ILIT

Answer 2

Unfunded: a yearly gift made to fund premium

funded: lump sum gift where the income from the investment pays the premium. In this situation, the income of the trust is taxable to the grantor up to the amount of premium paid. the remainder is taxed to teh trust and accumulated.

Question 3

A reversionary interest

Answer 3

When the trust corpus returns to the interst of the grantor.

any power or interest held by the spouse is treted as if that interest was held by the grantor.

Ex: trust pays to grandson for 10 years and then transfers back to grandfather.

Question 4

Simple Trust

Answer 4

the key is that all income must be distributed. used as a conduit for forwarding income to beneficiaries

trust passes its income through to beneficiaries who then report the income with the same character it had for the trust. They pay taxes at their own marginal tax bracket

still must file a tax return
normally no distribution of corpus
no charitable gifts

Question 5

Complex Trust

Answer 5

taxed as a separate entity
-must be irrevocable aka the grantor has not retained “control”
-may accumulate income, or the trustee has the discretion to accumulate income

all complex trusts are irrevocable, but not all irrevocable trusts are complex

corpus can be distributed and may make charitable gifts

Question 6

Revocable Living Trusts
(inter vivos or grantor trusts)

Answer 6

popular alternative to probate

most grantors name themselves the trustee of their living trust for life. at their death, it becomes irrevocable and either terminates with the corpus distributed to the remainderman or continues until a later date.

funding a revocable trust has no gift tax
consequences during grantor’s life

Question 7

Irrevocable Trusts

Answer 7

grantor gives up all rights to the property transferred in the trust