Generation-Skipping Transfer Tax - Review Questions Flashcards
Which of the following is NOT an example of a generation-skipping transfer?
Choose the best answer.
1) A trust for child’s lifetime, then to grandchildren established by will
2) Gifts to great niece per will
3) A trust created for grandchildren by a will
4) A trust set up for spouse and children by a will
4) A trust set up for spouse and children by a will
The trust for spouse and children is the only example that did not benefit a skip person.
Which of the following is excluded from GST tax? (Check all that are true.)
1) Transfers to trusts that ordinarily qualify for an annual exclusion but are not available for a skip person’s sole
use during his or her life.
2) Transfers to trusts that ordinarily qualify for an annual exclusion but are not included in the skip person’s
estate.
3) Tuition paid to a university for a skip person’s education.
4) Gifts already subjected to GST tax and the new transferee is the previous transferee’s son.
3) Tuition paid to a university for a skip person’s education.
4) Gifts already subjected to GST tax and the new transferee is the previous transferee’s son.
Direct payments made for tuition to colleges or universities are not subject to GST tax. Nor are gifts that have been previously subjected to a GST tax.
Calculate the total GST tax, assuming no growth, if the value of the transfer is $5 million, the federal and state taxes are $750,000, charitable deductions were $150,000 and $3.5 million GST exemption is available. Assume the maximum GST tax rate is 40%.
$5,000,000 - ($750,000 + $150,000) = $4,100,000
The applicable fraction is .8537, ($3.5million / $4.1million)
The inclusion ratio is .1464, (1 − .8536)
The applicable rate is .0585 (.1464 xs .40).
The total GST tax is $292,500 (.0585 xs $5 million).
Which of the following would most likely be allocated GST tax exemption?
Choose the best answer.
1) U.S. Treasury bond
2) CD
3) Stocks
4) Money Market Mutual Fund
3) Stocks
GST is likely to be allocated to assets that will appreciate in value such as stocks.
Tom and Pam Monson have an estate of $2,200,000 and plan to use life insurance and leveraging to maximize the utilization of their GST tax exemptions for the benefit of their five children and their issue. The transferors make annual gifts to the trust to pay the life insurance premiums. Those annual gifts are exempt from gift tax under the annual exclusion. In addition, the transferors allocate GST exemption to the annual gifts. The premiums are $25,000 per year for 16 years, for a total of $400,000 of premium (assume $200,000 given by each spouse). The insurance is the survivorship type, which only pays when the survivor dies.
How much of the $1,000,000 life insurance policy will be exempt from GST taxes?
Since all of the $400,000 premium had GST tax exemption allocated to it, all of the $1,000,000 of insurance proceeds paid at the second spouse’s death will be sheltered from generation-skipping transfer tax.
William creates a trust that benefits only his child, Henry, during Henry’s life. At Henry’s death, the trust continues for the benefit of Henry’s son, Bob, for his lifetime. No GST exemption was allocated to this trust. At Henry’s death, which situation will occur?
1) A taxable termination has occurred and a GST tax must be paid
2) A taxable distribution has occurred and a GST tax must be paid
3) A direct skip has occurred and a GST tax must be paid
4) No tax is due
1) A taxable termination has occurred and a GST tax must be paid
Which of the following is an example of a direct skip?
1) John gives a check for $20,000 to his niece
2) Alan gives a painting worth $18,000 to his grandson
3) Fran pays $30,000 directly to a University for his granddaughter’s tuition
4) Joan gives jewelry worth $35,000 to her granddaughter whose mother is deceased
2) Alan gives a painting worth $18,000 to his grandson
Which of the following statement(s) is correct?
1) A taxable distribution and taxable termination are tax exclusive.
2) A taxable distribution is tax exclusive and taxable termination is tax inclusive.
3) A taxable distribution is tax inclusive and taxable termination is tax exclusive.
4) A taxable distribution and taxable termination are tax inclusive.
4) A taxable distribution and taxable termination are tax inclusive.
Which of the following is/are correct about the GSTT?
1) A non-relative skip person is someone who is 37 years younger than the transferor.
2) A taxable distribution occurs when a non-exempt trust makes a distribution of income to a skip person.
3) A taxable distribution occurs when a child dies and the only remaining beneficiary on the continuing trust is
the grandchild.
4) The transferor should allocate GST exemption on gifts made during their life to non-skip persons on form
706.
2) A taxable distribution occurs when a non-exempt trust makes a distribution of income to a skip person.
Which statement(s) is correct?
1) A reverse Q-TIP election is used if the decedent’s GST exemption is equal to the estate tax applicable credit
2) A transferor can allocate their GST exemption to a Grantor Retained Annuity Trust when the trust is funded.
3) If a beneficiary is given a General Power of Appointment, the trust property will be included in his estate and
his executor can allocate his GST exemption to the trust property that is transferred to skip persons from the
decedent’s will.
4) An inclusion ratio of “one” means that all taxable distributions and taxable terminations will be exempt from
a GST tax.
3) If a beneficiary is given a General Power of Appointment, the trust property will be included in his estate and
his executor can allocate his GST exemption to the trust property that is transferred to skip persons from the
decedent’s will.
Which statement is not correct?
1) Direct skips are tax exclusive.
2) The GST exemption is portable and therefore a decedent’s unused GST exemption can be passed to a
surviving spouse.
3) The GST exemption is allocated on the 709 or 706 to determine the inclusion ratio.
4) Exempt and Nonexempt trusts have an inclusion ratio of zero and one respectively.
2) The GST exemption is portable and therefore a decedent’s unused GST exemption can be passed to a
surviving spouse.
Oscar bought his granddaughter, Chloe, a condo in the town where she is attending medical school. The condo cost $400,000. He also bought Chloe furniture for the condo and a new car to drive to school. These expenses cost an additional $100,000. Finally, Oscar paid Chloe’s $60,000 tuition to Duke this year. Which statement is not correct?
1) Oscar can reduce the value of the taxable gifts he made this year by an annual exclusion of $18,000.
2) Oscar can reduce the GST tax by an annual exclusion of $18,000.
3) The payment of tuition to Duke is an exempt gift that is not subject to gift tax or GST tax.
4) The gift tax and the GST tax for these taxable gifts are offset by Oscar’s unified credit.
4) The gift tax and the GST tax for these taxable gifts are offset by Oscar’s unified credit.
A gift tax is offset by each person’s unified credit, and a GST tax is offset by a GST exemption. The unified credit and the GST exemption can eliminate gift taxes and GST taxes for lifetime gifts that do not exceed $13,610,000 per person.
