Estate Planning Flashcards
Identify the charitable trust in which the grantor contributes income producing/appreciating property, the trust receives valuations at least annually, and the remainder passes to non-charity beneficiaries.
Charitable Lead Unitrust (CLUT): A (CLUT) provides payment of a periodic sum, usually a percentage of the trust assets (revalued annually) to a qualified charity, with the remainder going to a noncharitable beneficiary.
When using a CLUT, the grantor contributes income producing/appreciating property, the trust receives valuations at least annually, and the remainder passes to non-charity beneficiaries.
Charitable Lead Trust Income is taxed at who’s rate?
Taxed at Grantor’s Individual Tax Rate.
Charitable Lead Trusts are considered ‘non-tax-exempt entities.’ Income earned by the trusts is taxed to the grantor. In Cynthia’s case, the $5,000 in interest income would be included in her gross income for the year.
The method of asset transfer that provides each surviving family member with the same percentage of the decedent’s assets?
Per Capita is used when assets are to be distributed equally amongst all survivors. The term translates to “share and share alike,” or “according to the number of individuals.”
Anne, Gloria, and Hank started a small specialty tech manufacturing firm 5 years ago. Each invested $500,000. The company is growing rapidly, and the owners implemented a cross-purchase buy-sell agreement, based on a valuation of $9,000,000. Within a year, Hank died unexpectedly, and the buy-sell agreement was executed. Following the buy-sell, what is Anne and Gloria’s respective basis in the company?
$2,000,000
Anne and Gloria each owned a $1,500,000 policy on Hank, and each purchased $1,500,000 of Hank’s $3,000,000 in the company. The $1,500,000 interest each purchased is added to their original basis of $500,000, resulting in Anne and Gloria each having a $2,000,000 basis in the company following the execution of the buy-sell.
Q-TIP Trusts must provide the surviving spouse with what?
A Q-TIP trust must provide the surviving spouse income for life, distributed at least annually.
In this case, JoJo will receive $50,000 this year ($1,000,000 (corpus) x 0.05 (trust rate) = $50,000).
In a 2503(c) trust (Minor Trust), income is *(BLANK) *to be distributed currently and the principal *(BLANK) *be distributed no later than upon the beneficiary attaining the age of 21.
In a 2503(c) trust, income is not required to be distributed currently and the principal must be distributed no later than upon the beneficiary attaining the age of 21.
Trust for Minors
Distributable Net Income (DNI) represents the maximum that can be taxed to the ________.
Beneficiaries
Distributable Net Income (DNI)
- Allocates taxable income between beneficiaries and the trust
- DNI represents the maximum that can be taxed to the beneficiaries
- The beneficiary will be responsible for taxes on the lesser of the DNI allocation, or the amount required to be distributed according to the trust document
How is income distributed from a section 2503(c) Minor’s Trust is taxed under “kiddie tax” rules?
Breakdown of $15,000 Distribution Tax Amount
$1,300 (child’s standard deduction) $0
$1,300 x 10% (child’s tax rate) $130.00
$12,400 x 37% (parent’s highest marginal rate) $4,588.00
Total $4,718.00
The income from a 2503(b) trust is required to be distributed (BLANK)?
The income from a 2503(b) trust must be distributed at least annually.
The ascertainable standard is added to trusts to give the trustee guidance as far as when and how they need to make distributions to the beneficiaries. A trustee can make distributions to a beneficiary for the ‘HEMS’ standard.
What does HEMS stand for?
- Health
- Education
- Maintenance
- Support
(aka, the ‘HEMS’ standard).
Income accumulated in a 2503(c) trust is taxed to who, the trust or the beneficiary?
Income accumulated in a 2503(c) trust is taxed to the trust and not to the beneficiary.
The tax due will be calculated using the Trust Tax Tables for 2024 (note: this table is a CFP Board-provided resource available in your exam).
A gift to a minor through a Section 2503(c) trust will be considered a gift of a (BLANK) (so the gift will qualify for the annual gift tax exclusion) if the income and principal are available for distribution to or on behalf of the beneficiary at any time before the time the beneficiary reaches age 21.
A gift to a minor through a Section 2503(c) trust will be considered a gift of a present interest (so the gift will qualify for the annual gift tax exclusion) if the income and principal are available for distribution to or on behalf of the beneficiary at any time before the time the beneficiary reaches age 21.
To be considered qualified, a disclaimer must be received by the transferor, his legal representative, or the holder of the legal title to the property no later than _________ after the later of the date on which the transfer creating the interest is made, or the date the person disclaiming reaches age 21.
To treat a disclaimer as qualified:
- The refusal or rejection of the benefits must be in writing.
- The writing must be received by the transferor, his legal representative, or the holder of the legal title to the property no later than nine months after the later of:
- The date on which the transfer creating the interest is made, or
- The date the person disclaiming reaches age 21.
Identify the Charitable Remainder Trust(s) in which the grantor receives a tax deduction equal to the present value of the remainder interest that passes to a qualified charity.
Both a CRAT and a CRUT provide the grantor with a tax deduction during the year in which assets are transferred irrevocably into the trust.
The amount of the tax deductions that the grantor receives are equal to the present value of the remainder interest that passed to the charity, determined by the following equation: FMV – PV of income stream to grantor.
The trust term for charitable remainder trusts must not exceed how long?
The income payments generated from the trust can vary between how much of the corpus?
The trust term for charitable remainder trusts must not exceed 20 years or life.
The income payments generated from the trust can vary between 5% and 50% of the corpus.
An unlimited marital deduction can NOT be used for gifts made to a non-citizen spouse, the annual exclusion for a gift to a non-citizen spouse is how much?
An unlimited marital deduction can NOT be used for gifts made to a non-citizen spouse, the annual exclusion for a gift to a non-citizen spouse is $185,000 in 2024.
An unlimited marital deduction is NOT available for?
An unlimited marital deduction can NOT be used for gifts made to a:
-
non-citizen spouse.
The annual exclusion for a gift to a non-citizen spouse is $185,000 in 2024. - Not available for Terminable Interest Property (TIP).
The fiduciary must file what tax form when a taxable domestic trust has any taxable income for the tax year.
The fiduciary (or one of the joint fiduciaries) must file Form 1041 for a taxable domestic trust that has:
- any taxable income for the tax year,
- gross income of $600 or more (regardless of taxable income), or
- a beneficiary who is a non-resident alien.
When gifting TIP, the donor spouse can take which tax break, the marital deduction or the annual exclusion?
When gifting TIP, the donor spouse can take an annual exclusion for the present interest gift.
However, the marital deduction is not available.
A charity that manages pooled income fund may invest without any limitations. True or False?
False
The charity manages the fund which cannot invest in tax-exempt securities and receives the remainder when the donor’s income interest ends.
Separately-owned assets to be distributed at death are recorded on which type of will?
The last will directs distribution of separately-owned assets/property at death. In addition, the testator (creator of the will) can appoint guardians and name an executor to administer the estate on the will.
Remember ‘Will.I.AM’ … Will = Individually-owned Asset Movement!
A Standby Trust is used to manage a person’s assets if?
A Standby Trust is used to manage a person’s assets if they become incapacitated.
There are 3 parties to the trust:
Grantor: creates a trust by transferring the legal title of the property to the Trustee
Trustee: manages the trust property for the beneficiary
Beneficiary: has equitable title to trust property
In a Standby Trust, the Grantor is the Trustee and Beneficiary. A Successor Trustee steps into the Trustee role when the Grantor is incapacitated.
A power of attorney is a written agreement that allows one individual, known as the (BLANK) to act on behalf of another.
A power of attorney is a written agreement that allows one individual, known as the agent, to act on behalf of another, known as the principal.
