WAB Estate

Question 1

Dynasty Trusts
Are a _______ trust
Is a gift of _______ interest
Must last for _________

Answer 1

1) simple trusts
2) gifts of future interest
3) lasts for the lives being plus 21yrs 9mos or as long as local law allows

Question 2

What is added to the taxable estate to determine tentative tax base?

Answer 2

Taxable gifts above the annual exclusion

Question 3

What is subtracted from the gross estate to arrive at the adjusted gross estate?

Answer 3

Funeral expenses, admin costs, debts, taxes and casualty losses

Question 4

What’s deducted from AGE to get to the taxable estate?

Answer 4

Marital and charitable deductions

Question 5

Tax base to tentative tax?

Answer 5

Less estate tax deduction (12,920,000)

Question 6

Tentative tax to net estate tax

Answer 6

Less gift taxes paid

Question 7

A wealth replacement trust is

Answer 7

An irrevocable life insurance trust

Question 8

Recapitalization….

Answer 8

Freezes the asset in the gross estate

Question 9

Key person discount

Answer 9

Allowed for businesses that lost a key employee who was responsible for its goodwill or admin/mgt skills

Question 10

A reversionary interest is tainted for income tax purposes when

Answer 10

• The grantor/grantors spouses interest exceeds 5% of the trust value at the time of creation
• trust income is or may be used to pay premiums on life insurance on life of grantor or grantor spouse

Question 11

Income in respect to the descendent (IRD) tax treatment

Answer 11

Estate tax is due in full but the estate is allowed an income tax deduction for the estate taxes attributable to the fee collected

Question 12

Gifts of future interest

Answer 12

(Doesn’t qualify for $17k exclusion and must use exemption)

• 2503b trust
• remainder interest
• a trust in which income will be accumulated for a period of years

Question 13

Gifts of present interest

Answer 13

(Qualifies for $17k exclusion and gift splitting)

• 2503c trust
• direct gift
• crummy trusts
• 529 plans
• UGMA/UTMA

Question 14

What is not a completed gift

Answer 14

• Revocable trusts
• disclaimer
• disclaimer trusts

Question 15

A trust is tainted for estate tax purposes when

Answer 15

• if grantor retains a reversionary interest that exceeds 5% measured at time of death
• if grantor has the right to income or use/enjoy the trust property (beneficial enjoyment)

Question 16

When does a trustee become a fiduciary

Answer 16

When the trustee CONTROLS THE ASSETS

Question 17

Examples of simple trusts

Answer 17

2503b, QDT, QTIP, DYNASTY

• income taxed to bene
• income is distributed
• corpus distributed at termination
• no charitable gifts

Question 18

Examples of complex trusts

Answer 18

2503c, irrevocable living trusts

• income must or may be accumulated
• accumulated income is taxed to the trust and distributed income is taxed to bene
• charitable gifts permitted

Question 19

Ascertainable standard (HEMS) distributions are not subject to

Answer 19

Gift or estate tax BUT IS SUBJECT TO INCOME TAX

Question 20

Reverse Q-Tip Election

Answer 20

Estate can treat the trust for GSTT purposes as if still part of decedents estate ( gstt exemption not lost if elected )

Question 21

Are taxable gifts included in the taxable estate?

Answer 21

No, they are added to the taxable estate

Question 22

A lapse of a general power of appt with no 5 or 5 limitation is

Answer 22

Likely to trigger federal gift tax

Question 23

Pour-over will

Answer 23

Passes decedents separately owned assets into a trust (still in gross estate)

Question 24

Which charitable transfers allow for distributions to be paid to a life annuity or for a term certain(20yrs)?

Answer 24

CRAT OR CRUT only

(Pooled income funds and gift annuities only allow life of bene as time frame)

Question 25

What is the required minimum distribution from a CLUT to avoid payment of the excise tax?

Answer 25

The trusts annual income

(CRAT AND CRUT ARE 5%)

Question 26

Calculating a Net Gift Tax

Answer 26

1) Calculate normal gift tax (FMV-17k)x 40%

2) take answer 1) and divide it by 1.40

Question 27

Private annuities don’t work anymore because they create

Answer 27

Phantom income

Question 28

Which planning techniques are considered freezing techniques?

Answer 28

GRAT, QPRT, Preferred stock recap, private annuity, SCIN

(Freeze usually refers to a recapitalization)

Question 29

What is a preferred stock recap

Answer 29

Owner retains preferred shares and gifts the common shares away (freezes value while maintaining control)

Question 30

Community property can only be held by

Answer 30

Married couples!!!

Question 31

If a grandparent is the grantor/trustee of a UTMA or 2503c trust then the assets of the trust will be

Answer 31

Included in the grandparents estate if they predecessor the child

Question 32

The rule against perpetuities allows a trust to last as long as

Answer 32

Loves in being plus 21yrs and 9mos

Question 33

Quasi Community Property

Answer 33

Property that would have been community property but was acquired while couple was living in a non community property state

Question 34

Noncupative Wills

Answer 34

Oral will that must be made in presence of a witness during final illness

Question 35

Valuation from a preferred stock recap

Answer 35

• Preferred share value is based on dividends
• Common stock value (given away) is the difference between FMV of corporation and the value of the preferred shares

Question 36

What is the biggest risk associated with establishing an unfunded ILIT?

Answer 36

The grantor transferred in an existing second to die policy then died within 3 years following the transfer (policy included in estate but payable to trust - if trust purchases the policy the 3 yr rule doesn’t apply)

Question 37

Unfunded vs funded ILIT

Answer 37

Unfunded - premiums paid from gifts by the grantor

Funded - premiums paid from income made by trust investments (premiums taxable to grantor)