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CFP Estate Planning > Trusts > Flashcards

Trusts Flashcards

1
Q

Spendthrift Clause

A

Bene can NOT assign, or promise to give assets of the trust to anyone

and if a promise is made, it is Void

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2
Q

Revocable Living Trust

A

Managed by the grantor and is for benefit of grantor during their life

Becomes Irrevocable at Death

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3
Q

Does a Revocable Living Trust avoid Estate Taxes?

A

NO, it’s not a completed gift

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4
Q

Irrevocable Trust: Does it avoid Estate Taxes?

A

YES (unless retained interests)

It’s Generally a completed gift (unless retained interests)

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5
Q

Grantor Trust: How is Income Taxed?

A

Income is Taxed to Grantor

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6
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A
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7
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8
Q

Inter Vivos Trust

A

Created during life

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9
Q

Testamentary Trust

A

Created at death

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10
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A
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11
Q

Pourover Trust

A

Receives assets from another source

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12
Q

GRAT (Grantor Retained Annuity Trust)

A

Pays Fixed annuity to grantor for defined term

Remainder goes to
Non-Charity Bene at end of term

Gift = PV of remainder interest

If Grantor Dies during term, then value of trust is included in gross estate

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13
Q

GRAT: What happens if Grantor dies during the term?

A

then value of trust is included in gross estate, so no tax saved

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14
Q

GRAT: What’s the Gift Portion of it?

A

Gift = PV of remainder interest

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15
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A
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16
Q

GRAT: What’s the risk?

A

Grantor dies too early

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17
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18
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19
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20
Q

QPRT: What is it ideal to use?

A

If home is appreciating faster than the 7520 rate

and

Family plans to keep home

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21
Q

QPRT: What’s the Gift?

A

Gift= PV of remainder interest

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22
Q

QPRT: What’s the risk?

A

Grantor dies during term, then it’s included in grantor’s gross estate

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23
Q

Irrevocable Life Insurance Trust (ILIT)

A

Trust holds Life Insurance policy

Utilizing Annual Exclusion
- Crummey Provision

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24
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25
ILIT: How can it Provide Liquidity to the Estate without causing inclusion?
Allow trust to buy assets of the Estate Allow trust to loan money to Estate
26
Trusts for Minors?
2503(b) 2503(c)
27
Trust for Minors: 2503(b)
May hold assets for Bene's lifetime BUT Must distributed income Annually Assets are never available to the kid
28
Trust for Minors: 2503(c)
Allows income to be accumulated BUT Assets must be available to child when they turn 21
29
ABC Trusts: "A" Trust
Gives surviving spouse General Power of Appointment over Trust assets Avoids Terminable interest rule Value qualifies for marital deduction
30
ABC Trusts: "B" Trust
Credit Shelter or Bypass Trust Deliberately bypassing surviving spouse to the kids Spouse can still get the income, HEMS, "5&5", but NOT the corpus Uses Unused exemption of first to die spouse
31
32
(Qualified Terminable Interest Property) QTIP: Which estate is it taxed in?
Second spouse to die
33
(Qualified Terminable Interest Property) QTIP: Must the Property qualify for Marital Deduction?
YES
34
(Qualified Terminable Interest Property) QTIP: Is the Spouse entitled to income?
YES, for life and Must be paid annually
35
36
Charitable Remainder Annuity Trust (CRAT)
Donor gets a Fixed Annuity Greater or equal to 5% initial FMV Can be for Life or a Term (can't be more than 20 years) No Contributions after inception Remainder Interest Greater than or equal to 10% of initial FMV Donor can change charitable Bene
37
CRAT: How long can the Term be?
Life or a set term (no longer than 20 years)
38
CRAT: Can Donor change Bene?
YES
39
CRAT: How often must the annuity be paid?
Annually
40
Charitable Remainder Unitrust (CRUT)
More Flexible Fixed % of at least 5% of the annual FMV Annual Valuation Donor CAN contribute after inception Catch up provisions allowed if only distributes income if less than stated % Remainder interest greater than or equal to 10% of initial value
41
CRAT: Can Donor contribute more after inception?
NO
42
CRUT: Can Donor contribute more after inception?
YES
43
CRAT: How to calculate the Gift and Remainder Interest?
Multiply annuity by IRS table to get income interest Deduct Income Interest from FMV to get Remainder
44
Charitable Lead Trusts
Charity receives income, Remainder to Non-Charity Bene
45
Charitable Lead Trusts: Who's it used by?
High Net Worth people who do NOT need current income
46
Charitable Lead Trusts: What type of assets should you use?
Use Appreciating Assets!
47
Charitable Lead Trusts: How does it receive charitable income tax deduction?
Must be a Grantor Trust
48
Testamentary Transfers (after death) to Charity: Is there a Deduction for Income Tax?
NO
49
Testamentary Transfers (after death) to Charity: How do you get the Estate Deduction for it?
Must be Mandatory Amount must be certain and included in gross estate
50
Special Use Valuation Section 2032 A: Requirements to use it?
Decedent muse be US citizen or resident at death Property must be used in farming or trade or business that's actively managed by decedent or family 5 out of 8 years immediately preceding death Value of Real & Personal Property used in qualifying manner MUST equal or exceed 50% of gross estate Value of Real property must equal or exceed 25% of gross estate Property must pass to qualifying heir (family member) who MUST actively participate in the farming, trade, or business Qualifying must continue to use the property for at least 10 years
51
Corporate Stock Redemption Section 303: What is it?
Stock may be redeemed from an Estate up to total amount of: -Estate & Inheritance Taxes -Estate Admin costs -Funeral Expenses Without being treated as a Dividend
52
Corporate Stock Redemption Section 303: How do you Qualify?
Business must be a Corporation and Value of corporation must be more than 35% of Adjusted Gross Estate
53
Generation Skipping Transfer Tax
Tax on transfer to a Donee who is 2 or more generations younger
54
Generation Skipping Transfer Tax: What's the Rate?
Equal to Max Estate Tax rate in effect at time of the GST occurs TIMES Inclusion Ratio (40%=2023)
55
Generation Skipping Transfer Tax: What's a Skip Person?
Lineal Descendant: - 2 or more generations younger Unrelated Transferee: - if 37.5 years younger
56
Generation Skipping Transfer Tax: When would a Trust be a Skip Person?
If All Interests in the Trust are held by a skip person or If Distributions can only be made to skip persons
57
Generation Skipping Transfer Tax: Predeceased Ancestor Rule?
If child of transferor is dead at time of transfer, then dead child's descendents are moved up one generation
58
Generation Skipping Transfer Tax: Is the GSTT associated with a Direct Skip that's paid by Transferor treated as a Taxable Gift by the Transferor?
YES
59
60
Taxable Termination of a Trust: What's the Taxable amount and Who's liable for the GSTT on a Taxable Termination?
Taxable amount equals: - Value of trust property transferred - LESS expenses, indebtedness, & taxes attributed to the termination Trustee is liable for the GSTT
61
Taxable Distribution from a Trust: What is it and an Example?
Any Distribution from a Trust to a Skip Person that is NOT a Taxable Termination or Direct Skip
62
Taxable Distribution from a Trust: How's the Taxable Amount determined and who's liable for the GSTT?
Taxable amount equals: - Amount received by recipient REDUCED by expenses incurred by recipient in connection with the determination, collection, or refund of the GSTT imposed Transferee (recipient) is liable for the GSTT
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CFP Estate Planning (5 decks)

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