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CFP Estate Planning > Trusts > Flashcards

Trusts Flashcards

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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
Q
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
Q
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
Q
A
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25
Q

ILIT: How can it Provide Liquidity to the Estate without causing inclusion?

A

Allow trust to buy assets of the Estate

Allow trust to loan money to Estate

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26
Q

Trusts for Minors?

A

2503(b)

2503(c)

27
Q

Trust for Minors: 2503(b)

A

May hold assets for Bene’s lifetime

BUT

Must distributed income Annually

Assets are never available to the kid

28
Q

Trust for Minors: 2503(c)

A

Allows income to be accumulated

BUT

Assets must be available to child when they turn 21

29
Q

ABC Trusts: “A” Trust

A

Gives surviving spouse General Power of Appointment over Trust assets

Avoids Terminable interest rule

Value qualifies for marital deduction

30
Q

ABC Trusts: “B” Trust

A

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
Q
A
32
Q

(Qualified Terminable Interest Property) QTIP: Which estate is it taxed in?

A

Second spouse to die

33
Q

(Qualified Terminable Interest Property) QTIP: Must the Property qualify for Marital Deduction?

A

YES

34
Q

(Qualified Terminable Interest Property) QTIP: Is the Spouse entitled to income?

A

YES, for life
and
Must be paid annually

35
Q
A
36
Q

Charitable Remainder Annuity Trust (CRAT)

A

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
Q

CRAT: How long can the Term be?

A

Life or a set term

(no longer than 20 years)

38
Q

CRAT: Can Donor change Bene?

A

YES

39
Q

CRAT: How often must the annuity be paid?

A

Annually

40
Q

Charitable Remainder Unitrust (CRUT)

A

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
Q

CRAT: Can Donor contribute more after inception?

A

NO

42
Q

CRUT: Can Donor contribute more after inception?

A

YES

43
Q

CRAT: How to calculate the Gift and Remainder Interest?

A

Multiply annuity by IRS table to get income interest

Deduct Income Interest from FMV to get Remainder

44
Q

Charitable Lead Trusts

A

Charity receives income,

Remainder to Non-Charity Bene

45
Q

Charitable Lead Trusts: Who’s it used by?

A

High Net Worth people who do NOT need current income

46
Q

Charitable Lead Trusts: What type of assets should you use?

A

Use Appreciating Assets!

47
Q

Charitable Lead Trusts: How does it receive charitable income tax deduction?

A

Must be a Grantor Trust

48
Q

Testamentary Transfers (after death) to Charity: Is there a Deduction for Income Tax?

A

NO

49
Q

Testamentary Transfers (after death) to Charity: How do you get the Estate Deduction for it?

A

Must be Mandatory

Amount must be certain and included in gross estate

50
Q

Special Use Valuation Section 2032 A: Requirements to use it?

A

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
Q

Corporate Stock Redemption Section 303: What is it?

A

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
Q

Corporate Stock Redemption Section 303: How do you Qualify?

A

Business must be a Corporation

and

Value of corporation must be more than 35% of Adjusted Gross Estate

53
Q

Generation Skipping Transfer Tax

A

Tax on transfer to a Donee who is 2 or more generations younger

54
Q

Generation Skipping Transfer Tax: What’s the Rate?

A

Equal to Max Estate Tax rate in effect at time of the GST occurs TIMES Inclusion Ratio (40%=2023)

55
Q

Generation Skipping Transfer Tax: What’s a Skip Person?

A

Lineal Descendant:
- 2 or more generations younger

Unrelated Transferee:
- if 37.5 years younger

56
Q

Generation Skipping Transfer Tax: When would a Trust be a Skip Person?

A

If All Interests in the Trust are held by a skip person

or

If Distributions can only be made to skip persons

57
Q

Generation Skipping Transfer Tax: Predeceased Ancestor Rule?

A

If child of transferor is dead at time of transfer, then dead child’s descendents are moved up one generation

58
Q

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?

A

YES

59
Q
A
60
Q

Taxable Termination of a Trust: What’s the Taxable amount and Who’s liable for the GSTT on a Taxable Termination?

A

Taxable amount equals:

  • Value of trust property transferred
  • LESS expenses, indebtedness, & taxes attributed to the termination

Trustee is liable for the GSTT

61
Q

Taxable Distribution from a Trust: What is it and an Example?

A

Any Distribution from a Trust to a Skip Person that is NOT a Taxable Termination or Direct Skip

62
Q

Taxable Distribution from a Trust: How’s the Taxable Amount determined and who’s liable for the GSTT?

A

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

63
Q
A

CFP Estate Planning (5 decks)

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