Estate Planning Flashcards

Question

Trusts

Answer 1

A legal entity that holds property and allows the grantor (creator of the trust) to coordinate the investments, use, and distribution of property, not only during one's lifetime but also after death

Answer 2

Required to distribute all the accounting income to the beneficiaries in the year earned may not have charitable beneficiaries Can not distribution principle during the tax year have a personal exemption of $300

Answer 3

Are not required to make distributions May have charitable beneficiaries May distribute principle during the tax year Have a personal exemption of $100

Answer 4

The grantor has the right to terminate the trust Transfer of asset does not constitute a completed gift Assets in the trust are subject to estate tax at the time of the grantor's death Good for estate planning, avoids probate fee and are fully amendable

Answer 5

May not be revoked once created Transfer of assets is generally considered a completed gift and subject to gift tax Assets in the trust are generally not subject to estate tax at the time of the grantor's death Good for estate planning- asset protection, avoids probate fees, medicare planning, tax deductions and they are amendable with beneficiary's okay

Answer 6

A revocable trust in which all income will be taxed to the grantor Any trust that allows the grantor, grantor;s spouse, or a third party without beneficial interest in the trust, and rights or powers as specified in the grantor trust rules will be taxed as a grantor trust

Answer 7

The Grantor may revoke/modify the trust, retain beneficial enjoyment, or retain administrative powers or controls of beneficial enjoyment. Income is distributed to the grantor for the support of the grantor's children

Answer 8

A person who transfers property and dictates the terms of a trust AKA- settlor, trustmaker, or trustor

Answer 9

A part to whom property is transferred by the grantor and receives legal title to the property placed in the trust Must follow a formal written agreement (terms of the trust) for the benefit of the beneficiaries Serves as a fiduciary

Answer 10

Allows fiduciaries to make distributions within 65 days of the new tax year but still have them count as distributions during the previous tax year

Answer 11

Allows the executor of an estate and the trustee of a revocable trust to elect to treat the estate and the trust as one, for tax purposes

Answer 12

The amount of principal in a trust AKA the res

Answer 13

The document outlining a trust's provisions

Answer 14

A party that will receive the benefits of the use of the trust's property and/or income AKA the remainderman

Answer 15

A fiduciary must file form 1041 for a taxable domestic trust that has - any taxable income for the year - gross income of $600 or more or - a beneficiary who is a non-resident alien

Answer 16

Income = Formula $0-2,900 = income * .10 $2,900-10,550 = 290+ [(income-2,900)*.24] $10,550-14,450 = 2126 + [(income - 10,550)*.35] $14,550 and up = 3,419 + [(income - 14,550)*.37]

Answer 17

Items of income and expenses that are used to determine the amount of income beneficiaries are entitled to receive from the trust each year

Answer 18

Determined by subtracting from income deduction such as distributions, charitable contributions, investment interests investment advisor fees etc. In addition the trust is entitles to the appropriate personal exemptions

Answer 19

Allocates taxable income between beneficiaries and the trust Represents the maximum that can be taxed to the beneficiaries The Beneficiary will be responsible for taxes on the lesser of the DNI allocation or the amount required to be distributed according to the trust documents

Answer 20

An Irrevocable trust into which the grantor places assets and a right to a fixed payment of income, at least annually, for a chosen period of time. If the grantor survives the trust terms, the remaining value pass free of gift or estate tax

Answer 21

Estate tax reduction if grantor outlives trust terms provides income to the grantor offers support for the grantor and beneficiaries

Answer 22

Initial gift is taxable (FMV - Annuity payments) No additional assets permitted beneficiaries receive carry over basis Grantor loses control over the property income generated is subject to creditor claims a fixed annuity must be paid even if the trustee has to use trust corpus or borrow funds

Answer 23

an irrevocable trust into which the grantor places assets and a right to a payment of income for a chosen period of time Payment is a fixed percentage of the value of the trust, determined annually Especially useful as an inflation hedge (watch for this phrase)

Answer 24

Estate tax reduction if grantor outlives terms provided income to the grantor additional assets are permitted offers support for the grantor and the beneficiaries

Answer 25

Initial gift is taxable (FMV - Annuity payments) and income is taxable to the grantor Beneficiaries receive carry over basis The grantor loses control over the property Income generated is subject to creditor claims Payment must be paid even if trustee must use trust corpus or borrow funds

Answer 26

Irrevocable trust that holds a person's residence allowing couples or individuals to live in the house rent free for a specific period. At the end of the term the home passes tax free to the beneficiaries. The people living in the home must either move or start paying rent

Answer 27

Unlimited for citizen spouses $175,000 for non-citizen spouses (annually) Not available for terminal interest property

Answer 28

Provide annual payment of a fixed amount to a qualified charity with the remainder going to a non-charitable beneficiary

Answer 29

Provide payment of a periodic sum (usually a percentage of the trusts assets) revalued annually, to a qualified charity with the remainder going to a non-charity beneficiaries additional assets permitted Income stream serves as an inflation hedge

Answer 30

Payments made to charity Remainderman is non-charitable

Answer 31

Permit payment of a fixed amount annually to a non-charitable beneficiary with the remainder going to charity 5-50% of the trusts value as a payment

Answer 32

Provides payments of a periodic sum, usually expressed as a percentage of the assets of the trust, to a non charitable beneficiary with the remainder going to a charity

Answer 33

a non-charity beneficiary receives regular payments Charity acts as the remainderman

Answer 34

Income stream based on a percentage of annual valuation Additional assets allowed Inflation Hedge Moderate to aggressive risk tolerance seeking tax deduction and income stream

Answer 35

Income is a percentage of initial evaluation Only valued at inception no additional assets allowed not an inflation hedge risk adverse desires tax deduction wants a predictable fixed payment

Answer 36

Receives property not put into an A-Trust, estate trust, or QTIP trust Maximum equals lifetime exemption amount (12.92 MM) Trust assets not included in surviving spouses estate at their death Funded with property owned solely by the decedent decedent assigns general power of appointment

Answer 37

Property that qualifies for the unlimited marital deduction which is then included in the surviving spouses estate at death Surviving spouse had general power of appointment

Answer 38

B Trust is funded with amount equal to the lifetime exemption amount and at death of surviving spouse assets (and appreciation) pass to beneficiaries tax free A-trust is then funded with everything that exceeds the lifetime exemption amount. At death of surviving spouse trust assets are taxed

Answer 39

Used when there are concerns about surviving spouse's assets in future years The possibility that the surviving spouse might change the plans who get the remaining assets

Answer 40

An Estate planning technique under which as estate is divided into two parts and taxed at a lower rate rather than remaining as a whole and taxed at a higher rate

Answer 41

An estate planning technique where an irrevocable trust is funded only if the surviving spouse chooses to declaim the property from the decedent spouse's estate

Answer 42

This is added to a trust to help the trustee as far as how and when they need to make distributions to the beneficiaries. Typically use the HEMS standard (health, education maintenance and support)

Answer 43

Qualifies property for a marital deduction in the decedent's estate. Used if the beneficiary spouse has substantial wealth and does not need the trust income or corpus

Answer 44

Allows a transfer to a non-citizen spouse with the use of the unlimited marital deduction

Answer 45

2503(b) trust - Requires income distribution at least annually (Bring Beneficiaries Bucks) 2503(c) trust - No distributions required (Cease Current Cash)

Answer 46

2503(b) - May be withheld from the beneficiary until his or her death 2503(c) - Must be distributed no later than upon the beneficiary attaining age 21

Answer 47

2503 (b) actuarial value of the income interest 2503(c) Entire gift to the trust

Answer 48

Preserve eligibility for government benefits and pay for extra services that are not covered by public assistance programs

Answer 49

Medical Expenses not covered by medicaid Supplemental attendant and custodial care Additional therapies Respite care for family care giver Telephones Computers Cable TV Basic household furnishings Travel and a companion

Answer 50

Pooled- Managed by a non-profit organization instead of a single trustee first party- help individual with disability caused by an injury; Funded by the person with the need Third Party- Set up by donor's estate to aid special needs individual while the donor is still alive and after he/she passes on

Answer 51

Provides decedent estate with liquidity for payments of all death taxes with existing life insurance or with insurance the trust intends to purchase, without subjecting the proceeds to estate taxes

Answer 52

No Proceeds will be included in decedents estate as long as the 3-year rule is met 3-year rule- If insurance policy was transferred within 3 years of the owners death it will be brought back into their estate

Answer 53

Includes only the insurance policy. owner must gift money each year to allow trust to pay for policy beneficiaries have "crummey powers" to make deposits a present interest gift Crummy withdrawal provision must be the lesser of 1) the annual exclusion 2) the annual contribution made to the trust or 3) the greater of $5,000 or 5% of gift made to the trust

Answer 54

Life insurance and income producing property placed into the ILIT Trust income will pay for the policy Premiums Beneficiaries are NOT given crummy powers The grantor is taxed on trust income due to grantor trust rules

Answer 55

Partnership made up entirely of family members Allows senior family members to pass assets to junior family members at significantly reduced transfer costs, lowering the value of the estate wile keeping the property in the family

Answer 56

Retain Control Income tax reduction Protection from creditors Valuation Discount Gifting

Answer 57

Income shifted to younger generation could be subject to kiddie tax additional filing fees and tax documents needed to set up and do accounting for FLPs Gifts do not receive step up in basis Retained interest will appreciate in senior family members estate

Answer 58

Business owner sells property to adult child then leases it back from them Owner receives lump sum payment (or installments) and continues to use the property business owner deducts lease payments as business expenses Lease payments are taxed at the child's lower tax bracket

Answer 59

Owner gifts the property into an irrevocable trust then leases the property back Owner receives business deduction for lease payments made to trust Trustee distributes lease payment to family beneficiaries Family beneficiaries are taxed at a lower tax bracket

Answer 60

Used to see business to a family member or third party and provide seller with secure income Promissory note is secured no down payment needed The PV f outstanding installment payments included in sellers estate at death

Answer 61

Partially or fully canceled before the note matures, seller can cancel note in the will Canceled note is subject to gift and capital gains taxes seller can cancel note in installments equal to the annual gift exclusion and not have to pay any gift taxes

Answer 62

Seller receives fixed annuity income stream for life Payments are unsecured can be single/joint and survivor annuities If buyer dies first, buyer estate must continue to make payments to seller for seller life; if seller outlives life expectancy buyer must continue to pay seller

Estate Planning Flashcards

(86 cards)