NLBM

Question 1

Other names for Disclaimer Trust

Answer 1

Family Trust
Bypass Trust
Credit Shelter Trust

Question 2

Benefits of Disclaimer Trust

Answer 2

Flexibility. SS can make decision about whether to disclaim
Irrevocable
P & I distributed to SS for HEMS
Limited power of appointment
Assets protected from creditors, future spouses, etc
Remaining assets pass to children on death of SS
Assets up to credit shelter amount never subject to estate tax

Question 3

Cons of Disclaimer Trust

Answer 3

MUST disclaim within 9 months or everything goes to survivor trust (unprotected)

No second step-up in value of assets (at SS’s death)

DS has no control over whether SS disclaims and moves assets into protected trust

Question 4

Disclaimer vs Clayton election

Answer 4

Optional vs. Mandatory division of assets in survivor’s trust & an irrevocable trust

Question 5

Characteristics of Survivor Trust

Answer 5

Revocable
SS has complete access to principal and interest
Not protected from creditors, etc
But: Options for control limits on trust
o No limit – even in remarriage
o Prenup required in remarriage
o Require majority of children to approve all distributions if remarriage or cohabitation
o Require appointment of co-trustee if remarriage
o Require registration as Tee if remarriage

Question 6

Tax differences between Bypass and QTIP Trusts

Answer 6

Family Trust (ByPass) – gives asset protection for bene plus FET protection; but no step-up on second death (so fund with nonappreciating assets)

Marital Trust (QTIP) – FET protection on 1st spouse death (due to UMD) but does not provide estate tax protection on 2d spouse death, but is more favorable to cap gains tax

Question 7

Why use a Bypass Trust

Answer 7

Protects against FET

If FET not an issue:
-protects assets for benes (eg remarriage)
-prevents issue of trying to distribute to minor bene

Question 8

QTIP

Answer 8

Qualified Terminable Interest Property

Created through Clayton election

a marital trust that may receive assets using the UMD

Question 9

QTIP characteristics

Answer 9

SS is only bene
All income to SS at least annually

Good place for highly appreciating assets, even if don’t generate income

Access to P may be limited (spendthrift spouse, second spouse, disabled spouse, likelihood of remarriage)
P may be held of bene of others
Useful for blended families and fams where grantor wants to protect assets for SS and descendants
No or limited POA over assets
 Limited POA ex: can give SS the ability to determine how assets will be distributed to issue at a later date

Question 10

QTIP P & I requirements

Answer 10

No one (not even SS) can have the power to distribute and P from the trust to anyone (other than SS)

Trust income cannot be terminated by remarriage or other event

Trust income can be paid for the benefit of the SS (e.g. paying bills directly) but must be paid at least annually and can never be accumulated by Tees, even if spouse becomes disabled or incompetent

SS must have power to require that the trust produce reasonable income, including power to require that investments be sold and reinvested to produce reasonable income