Trusts Flashcards

1
Q

How do you create a trust?

A

When someone contributes assets and turns over ownerships. They must agree that the proceeds will be paid over time to a beneficiary.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Who is a trust managed by?

A

The trust is managed by someone other than the creator/grantor known as the TRUSTEE.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is the purpose of a trust?

A
  • Protect assets for future generations
  • Reduce the Estate Tax (Death Tax) on assets owned over $11M
  • Reduce income taxes
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

3 parties to create a trust

A

Creator/Grantor

Trustee

Beneficiary

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Once validly created, can a trust be revoked?

A

Generally, NO, a trust is irrevocable.

Exception: Grantor/Revocable trusts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the CON of a Grantor/Revocable trust?

PRO?

A

CON: All income still taxed to Grantor, still receive Estate tax upon death.

PRO: Avoid probate.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Irrevocable trust, who pays income tax?

A

Either the trust or the beneficiary, depending who gets the income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What does “intervivos” mean related to a trust?

A

Created during the lifetime of the grantor

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is a Testamentary Trust?

A

Created upon grantor’s death

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is a “Pourover Trust”?

A

Starts during the grantor’s lifetime but only some of the grantors assets are given to the trustee. Then, upon death, the rest pour over.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

once validly created who has legal title to trust assets?

A

The trustee

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the trust corpus?

A

The assets held in trust.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Is a trustee allowed to profit personally from the trust?

A

No, not other than the compensation called for by the trust.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

When there is no written trust instrument, how is income handled?

A

Defaults to trust beneficiary.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Not enough income in trust, beneficiary granted an allowance. What happens?

A

Trust assets may need to be sold to fund the allowance.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Default: what assets stay with trust?

A
  • Proceeds from the sale of assets
  • Stock dividends and stock splits
  • Extraordinary expenses on Trust Assets
17
Q

Dying without a will is known as what?

A

“In testate”

18
Q

Typical beneficiary priority:

A

1) Spouse
2) Children
3) Parents
4) Siblings
5) State

19
Q

Can a beneficiary be the trustee as well?

A

Yes, as long as the person is not the sole beneficiary.

20
Q

Can a person delegate their duties as a trustee?

A

NO

21
Q

A trust must file FORM ____ by _____ __th if it has any taxable income for the year, gross income of $600 or more for the year.

A

A trust must file FORM 1041 by April 15th if it has any taxable income for the year, gross income of $600 or more for the year.

22
Q

Do trusts have to use a calendar year like individuals? Make estimated payments?

A

YES

23
Q

A simple trust is required by law to do what?

A

Distribute all income to the beneficiaries, no income can stay with the trust. Beneficiary pays all the tax.

24
Q

What tax form is used for trust to report income to beneficiaries?

A

K-1

25
Q

Standard deduction for a trust is what?

A

NO STANDARD DEDUCTION

26
Q

COMPLEX TRUST distribution rules?

A

Allowed to distribute less than their current earnings for the year. (but can distribute all)

Can even distribute more than current earnings (principal).

Can distribute whatever it wants.

27
Q

What kind of trust can make a charitable contribution?

A

Only a COMPLEX trust

28
Q

Trust exemptions:
Simple?
Complex?

A

Simple - $300 exemption

Complex - $100 exemption

No exemption on the FINAL RETURN of any trust.

29
Q

Which trusts must use a calendar year?

A

Both simple and complex

30
Q

If the beneficiary receives income and principal from a complex trust, what do they pay income tax on?

A

Income only, not the principal

31
Q

The DNI sets the limit for:

A

what the trust can deduct AND

what the beneficiary picks up as income

32
Q

What does DNI stand for?

A

Distributable Net Income

33
Q

What kind of trust can distribute to more than one beneficiary?

A

Both Simple & Complex

34
Q

What kind of trust may distribute its corpus?

A

Complex only

35
Q

What type of trust may have a beneficiary that is not an individual?

A

BOTH Simple & Complex can have beneficiaries that are NOT individuals.

36
Q

Which type of trust may have a grantor that is not an individual?

A

BOTH simple & complex