Trusts Flashcards
(27 cards)
What are the three primary parties in a trust?
Grantor (creates/funds), Trustee (manages assets), Beneficiaries (income/remainder).
What is the difference between legal title and beneficial title?
Legal title: Held by the trustee for management. Beneficial title: Held by beneficiaries for ownership benefits.
What is the Rule Against Perpetuities?
Trust interests must vest within “lives in being plus 21 years.” Some states use a 90-year statutory period or allow perpetual trusts.
How are revocable trusts taxed?
Income taxed to the grantor during their lifetime; no estate tax reduction.
How are irrevocable trusts taxed?
File Form 1041; income distributed to beneficiaries is taxed at their rate. Assets removed from the grantor’s estate for estate tax purposes.
What is a key advantage of a revocable trust?
Avoids probate and maintains privacy.
What is a Bypass (Credit Shelter) Trust?
Holds assets up to the estate tax exemption; spouse receives income, remainder passes tax-free to heirs.
What is a QTIP Trust?
Qualifies for the marital deduction while allowing the grantor to control ultimate distribution after the spouse’s death.
What is portability in estate planning?
Allows a surviving spouse to use the deceased spouse’s unused estate tax exemption ($13.61M in 2025).
What triggers the GST tax?
Transfers to beneficiaries two or more generations below the grantor (e.g., grandchildren).
How can a Dynasty Trust avoid GST tax?
Uses the GST exemption ($13.99M in 2025) to shelter assets for multiple generations.
What is a Charitable Remainder Trust (CRT)?
Pays income to non-charitable beneficiaries for a term; remainder goes to charity.
What is a Charitable Lead Trust (CLT)?
Pays income to charity for a term; remainder passes to non-charitable beneficiaries.
What tax benefits do charitable trusts provide?
Income, gift, or estate tax deductions for the charitable portion.
What is an ILIT (Irrevocable Life Insurance Trust)?
Removes life insurance proceeds from the taxable estate; requires Crummey powers for annual exclusion gifts.
What is a GRAT (Grantor Retained Annuity Trust)?
Grantor receives fixed annuity for a term; remaining assets pass to beneficiaries, freezing estate value.
What is a QPRT (Qualified Personal Residence Trust)?
Transfers a home to beneficiaries at a reduced gift tax value; grantor retains use for a term.
What is a 2503(c) Trust?
Income can accumulate; principal must be distributed at age 21.
What is a Crummey Trust?
Allows gifts to qualify for the annual exclusion ($18,000 in 2025) by providing temporary withdrawal rights.
What is the difference between a simple and complex trust?
Simple trust: Must distribute all income annually. Complex trust: Can accumulate income.
How are trust income tax rates structured in 2025?
Trusts reach the 37% tax bracket at $14,451 of taxable income.
What is the “throwback rule”?
Taxes accumulated trust income at the beneficiary’s rate when distributed in later years.
Why is proper trust funding critical?
Unfunded trusts fail to avoid probate or reduce taxes.
What is a Spendthrift Trust?
Protects trust assets from beneficiaries’ creditors; distributions at trustee’s discretion.
