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31 Cards in this Set
- Front
- Back
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What is the Crummey power?
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Lapsing general powers of apt included in an IRT for the benefit of minors or in an unfunded ILIT. This power is included to afford the grantor of the trust the use of the gift tax annual exclusion by converting an otherwise future property interest to that of a present interest. Usually the withdrawal amt is limited to the amt of gift tax annual exclusion.
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What is the 2503 C (minor trust)?
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Corvette
A gift in trust to a minor in which 1)property and income may be spent by or for the benefit of the minor before the minor reaches 21. 2)If not spent, property passes to minor at age 21; 3) If minor dies b4 21, property will pass to the minor's estate. It is used in education planning and annual distribution is DISCRETIONARY. |
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What are the custodial accounts UGMA and UTMA?
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The uniform gift to minors act (UGMA) and the uniform transfers to minors both accounts once funded is legally the child's. Child can acces the account once of legal age.
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What is the sec 529 plan
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Contributions are made on behalf of minor but ownership REMAINS IN THE NAME OF THE DONOR. and can change beneficiary at any time. Donor can put in 5 years of gift tax exclusion ($70K) at one time. Plan must be used for education.
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What are the advantages and types of ILITs
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Irrevocable life insurance trust has the advantages of 1)avoidance of probate, removal of death benefit from estate;
An unfunded ILIT is a trust where the grantor gifts cash to the trust each year to pay premiums. Includes Crumney power for present interst. A funded ILIT is a trust that holds title to the life insurance policy and also income producing assets that may be used to pay premiums |
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What is the B Bypass trust
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When the couples estate exceed lifetime exemption, fund B trust with an amount equivalent to exemption. The trust may be structured to give the surviving spouse the right to invade corpus for HEMS during lifetime. When the surviving spouse dies the trust property BYPASSES the SS gross estate but passes to the children.
Usually place highly appreciating assets in B trust |
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What is the general power of appointment trust
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This is also called the A trust and is a marital trust. It allows a terminable interest to be left to a surviving spouse and for the property to still qualify for the unlimited marital deduction in the deceased spouse estate. SS is given a general power of appt. The first spouse to die does not have power of control over the trust property. No election must be made by the decedent's executor to qualify the property for the marital deduction. The asset of the A trust must be in the SS gross estate to the extent that they are not consumed during the SS lifetime.
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What is the C/QTIP trust?
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QTIP=qualified terminable interest property trust or C trust is a marital trust that allows a terminable interest to be left to a surviving spouse and also qualify for the marital deduction in the decedent's estate. To qualify, an election has to be made by the decedent's executor on form 706. The SS is not usually given a general power of appointment over the trust property so decedent has control over the disposition of the prop0erty. The SS may be given limited power of invasion of corpus of the QTIP for HEMS. The asset of the C trust must be IN the SS gross estate to the extent that they are not. consumed during the SS lifetime. The C/QTIP Trust like the A trust qualifies for marital deduction. Note the the BYPASS trust does n ot.
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What is a disclaimer trust
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NOT a marital trust. for disclaimed assets
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Provide an example of a wealth replacement trust?
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The purpose of a wealth replacement trust is to enable the donor to give property to a charity without depriving the donor's family of the value of the property. It is generally a funded or unfunded irrevocable life insurance trust.
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What are two other names for a B or bypass trust
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Credit shelter trust or exemption equivalency trust. It is usually funded with the exact amount of the lifetime exemption amount )2013=$ 5.25 million
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What is the 2503 B (minor trust) or mandatory income trust?
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an alternative to the 2503c trust used in education planning. 2503b MUST distribute income annually to the beneficiary but DOES NOT require distribution of the corpus when the beneficiary attains 21.
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Does lapsing of the Crummey power create a federal gift tax problem?
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Yes. in a trust with a Crummey power and multiple beneficiaries, the holder of the power will be considered as having made a gift to the other beneficiaries of the trust. To avoid the gift tax consequences of a lapsed power, the annual right of w/d given to the beneficiary should be limited to the greater of 5% of the value of the property or $5K. Another alternative is to create multiple trusts in which each trust has only one beneficiary.
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What is a GRAT (grantor retained annuity trust)
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Grantor xfers an asset to the trust and retains the right to be paid a fixed annuity (using IRS rates). Gift created at beginning and considered future interest. If assets grow faster than assumed rate, the remainder beneficiary is benefited WITHOUT any taxable gift consequences. If the assets decline in value, the grantor gets the value of the assets back in the form of annuity payments. Used where a single appreciating asset is xferred to trust and term is relatively SHORT, xfers to family members of appreciating assets where grantor will outlive the term of the trust..
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What Is a GRUT (grantor retained unitrust)
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xfers appreciated property to a family member remainder. Grantor income is a fixed percentage of the FMV of trust. As with GRAT, taxable gift, if any, will occur when trust is establish. However, not removed completely from estate until term expires.
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What is common in all grantor retained trusts?
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They are defective grantor trusts for income tax purposes as long as grantor is receiving income. The grantor reports the trust annual income on 1040.If grantor dies during income period, retained interest rule 2036 requires inclusion of date of death value in grantor's gross estate.
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What is a GRIT (grantor retained income trust)
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grantor xfers property into a trust for a term and retains right to all of the income. If grantor survives income period, all income ceases, and the FMV of the asset is removed from the grantor's estate. Chapter 14, section 2702 severely limits advs of GRIT
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What is a QPRT (qualified personal resident trust)
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a type of GRIT that includes a personal residence. uniquely exempt from section 17, 2702. Can only be used for one resident. Residence must be occupied by grantor's family. There is no limit on the trust term. The trust must be irrevocable. Residence may be rented by grantor after term expires. Used when residence is expected to appreciate rapidly.
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What is an IDGT (intentionally defective grantor trust)?
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an irrevocable trust in which grantor is treated as owner for income tax purposes but not for gift tax purposes. Grantor is taxed on income from the trust and receives all deductions attributable to trust. Grantor pays income tax (considered a gift to the trust). Grantor CANNOT also be the trustee.
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What is the rule against perpetuities
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limits life of trust to 21 years after the death of the youngest person who was named in the instruyment creating the interest and who was alive on the date the interest was created
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What is an inter vivos trust
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living trust, created during grantors life. Avoids probate. Gift tax applies if assets are xferred to irrevocable living trust during grantor's life. Revocable during life and becomes irrevocable at grantor's death. There is also an irrevocable living trust that a grantor cannot rescind
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What is an testamentary trust
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A trust that becomes effective at death. Created within a will. Irrevocable at death. Subject to probate when testator dies. If you want SS to be bene on insurance policy but after her death, the balance goes to children, the testamentary trust if a good place to make that bequest
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What is a grantor trust
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Grantor retains a reversionary interest , power to control enjoymeht, certain admn powers, power to revoke and income.
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What is a dynasty trust
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nothing goes to a specific beneficiary. does not qualify for gift. passes from generation to generation without payment of transfer taxes, including estate, gift and GSTT. Irrevocable. Term=rule against perpetuities measured by a ife at creation plus 21 years. Usually limits distributions to HEMS
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What is a totten trust
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similar to POD/TOD works like JTWROS
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What is a blind trust
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Hides ownership of assets--used by government
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What is distributable net income
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All income earned by trust for distribution--excludes cg, stock splits and items related to corpos, depreciation of assets
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What happens if grantor in grantor trust dies during trust term
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A portion of trust assets is included in grantor;s estate.
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What is the difference between UGMA and UTMA
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UGMA is less flexible--does not alow real property and distribution is at 21
UTMA is more flexible--includes real estate and distribution can be deferred to age 25 |
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What is the adv of an A trust
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Allows a terminable ibterest to be passed to SS and theporperty to still quzlify for the marital deduction. Unlike the B trust the A trust qualifies for a marital deduction.
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Does the property xferred to the B BYPASS trust qualify for the marital deduction for the decedent
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No. And it is not included in the SS estate at the death of SS
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