Trusts Flashcards
Which type of trust is required to distribute all accounting income to beneficiaries in the year they are earned?
simple
Which type of trust can accumulate income?
complex
Which type of trust may have a charitable beneficiary?
complex
Which type of trust can distribute principal?
complex
Which type of trust cannot distribute principal?
simple
Personal exemption for simple vs complex trusts
$300 simple vs $100 complex
Identify the category of trusts that allows the grantor the right to terminate the trust
revocable
Identify the category of trusts that does not allow the grantor the right to terminate the trust
irrevocable
Gift and tax treatment of gift transfer into trusts
Revocable: not a completed gift
Irrevocable: completed gift subject to gift taxes
Estate tax on assets in trusts
Revocable: subject to estate tax at the time of the grantor’s death
Irrevocable: generally not subject to estate tax when the grantor dies
Identify the characteristics of an Irrevocable Trust
- Asset Protection
- Must be funded to legally exist
- Asset transfer is complete to the owner, the trust
- Grantor gives up control
- Medical Planning
- Tax Deductions
Identify the characteristics of a Grantor Trust
- Revocable (amendable)
- Income is taxed to the grantor
- Allows rights or powers as specified in the trust rules
Identify the characteristics of a living trust
AKA Inter-Vivos
1. Established and funded during the grantor’s lifetime and takes effect immediately.
2. Funds pass outside the will and the probate process, saving costs & time.
3. Title to property inside is held in the name of the trust.
Identify the characteristics of a testamentary trust
Created through a will, funded with assets after death.
Possible reasons:
-reduce taxes
-providing professional investment management
-ensuring estate ends up in the right hands
Identify the characteristics of a Revocable Trust.
- Flexibility
- Grantor retains the right to amend trust /property
- May be funded or unfunded
- Becomes irrevocable when grantor chooses or dies
- Incomplete gifts and therefore tax owed in the future