EXAM #1 – Definitions (CH. 1-7)

Question 1

Applicable Federal Rate

Answer 1

rates published monthly by the IRS for federal income and transfer tax purposes, and accordance with section 12 714 of the IRC. Interest rate rates on loans should not be less than the AFR for the loan to avoid being treated as a gift by the IRS.

Question 2

Arm’s Length Transaction

Answer 2

a transfer generally between Yuen relayed parties in the form of sale, and installment sale, or an exchange.

Question 3

Exchange

Answer 3

a mutual transfer of assets with equal fair market values between individuals

Question 4

Family Limited partnership

Answer 4

a limited partnership created under Tate law with the primary purpose of transferring assets to younger generations, using minority and marketability discounts to create reduced gift tax valuations.

Question 5

Grantor retained annuity trust (GRAT)

Answer 5

an irrevocable trust that pays a fixed annuity to the grantor for some defined term, and pays the remainder interest of the trust to a non-charitable beneficiary

Question 6

Grantor Retained Income Trust (GRIT)

Answer 6

an irrevocable trust in which the grant retains an income interest in the trust for the term of the trust. Thus, the grantor will give proper to the trust. Any income from the asset will be distributed to the grant during the term of the trust. At the end of the trust term, the remaining properties is distributed to the beneficiary (remainderman).

Question 7

Grantor Retained Unitrust (GRUT)

Answer 7

in a reputable trust that annually pays a fixed percentage of the value of assets as rate value on an annual basis to the grantor for some defined term, and pays the remainder interest in the trust to a non-charitable beneficiary

Question 8

Installment sale

Answer 8

a sale of property that includes a note from the buyer to the seller. The buyer pays the seller the full value of the property over a specified term.

Question 9

Medicaid

Answer 9

a state and federal assistance program that pays for medical care and most long-term care expenses for eligible persons with low income and limited assets.

Question 10

Medicare

Answer 10

a federal program that pays for healthcare for persons age 65 and older and for people under age 65 with disabilities.

Question 11

Self-canceling Installment Note

Answer 11

an installment sale that terminates at the earlier of the death of the seller or the terms set forth in the installment note.