Trusts Flashcards

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1
Q

Corpus

A

aka principle

property of the trust

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2
Q

Grantor

A

trustor

transfers property into and dictates the terms of a trust

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3
Q

Trustee

A

Party to whom the property of a trust is transferred
receives legal title to the property
manages and distributes income accordingly
HOLDS LEGAL TITLE

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4
Q

Beneficiary

A

party for whom the benefit of the trust is created

will receive direct or indirect benefit

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5
Q

Simple Trust

A

trust is conduit for forwarding income
benes report income
DNI-distribute net income
-provides trust with a deduction for the amount distributed
-limits the portions of income taxable to benes
-ensures the character of the distributions remain the same to benes
-typically no distribution of corpus
-no charitable gifts
-no double taxation (trust receives a deduction)
-deduction is equal to the lesser of the amount distributed to benes or DNI

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6
Q

Trust taxed as separate entity if:

A
  • irrevocable
  • no retained control by grantor
  • income is accumulated (by document or trustee election)
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7
Q

Complex trusts

A
  • Income must stay or be accumulated
  • Income accumulated is taxed to the trust
  • Income distributed is taxed to the bene
  • Corpus can be distributed
  • Can make charitable gifts
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8
Q

Revocable

A

Grantor reserves the power to terminate or change
Grantor is typically trustee
Typically becomes irrevocable at death

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9
Q

Irrevocable

A
  • can’t be altered or terminated without court approval
  • rarely includable in grantors gross estate
  • can’t terminate and reclaim the property
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10
Q

Crummy Trust

A
  • irrevocable with demand rights
  • makes a gift of future interest (most commonly life insurance) gift of present interest for annual exclusion purposes
  • Each time a contribution is made to the trust the benes have a withdrawal right good for 30days
  • amount available to temporarily withdraw is = to annual exclusion or value of gift transferred
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11
Q

Revocable Living Trust

A

Inter vivos trust

  • avoids probate
  • grantor is trustee
  • at death trust becomes irrevocable or terminates
  • typically no income tax consequence at grantors life
  • Not a gift
  • all income taxed to grantor

Provides:

  • organization of property
  • lower cost than probate
  • alternative to guardianship or conservatorship
  • privacy
  • speed of property disposal
  • avoidance of probate

Disadvantages

  • Fees to prepare
  • Funding burden
  • Longer creditor period
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12
Q

Testamentary Trust

A
  • Can protect trust property from successive estate tax levies
  • created in a will - doesn’t take effect until the testator’s death
  • because it is funded after death, the ASSETS ARE subject to probate
  • most transfer tax planning can be accomplished this way
  • may be revoked by the testator anytime before death
  • can provide for the professional management of trust assets
  • for purposes of the CFP, a complex will has a testamentary trust
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13
Q

Totten Trust

A
  • special bank account, not really a trust, that is payable upon death
  • made irrevocable by the grantor’s death
  • trust avoids probate and is similar to a POD
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14
Q

Spendthrift Trust

A
  • prohibits transfer of beneficiaries interest

- states it is not subject to claims of creditors

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15
Q

Bypass Trust

A

B Trust

  • property transferred at time of decedents death (usually equal to exemption)
  • postmortem control over assets
  • nonmarital trust that permits the surviving spouse to have some interest in trust assets but not enough to warrant inclusion in the survivor’s gross estate
  • they bypass the surviving spouse’s estate
  • income to surviving spouse for life and then assets are not included in the surviving spouse’s gross estate
  • spouse can’t have more than 5 or 5 provision or HELMS to avoid inclusion in surviving spouses estate
  • at death of surviving spouse, remaining assets pass estate tax free to bene.
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16
Q

Portability

A

Can transfer any unused exemption to the surviving spouse.

17
Q

Marital Trust

A

A Trust
-A form of marital trust that creates a terminable interest for the spouse but qualifies for the estate tax marital deduction

  • included in gross estate of surviving spouse
  • gives SURVIVING SPOUSE power to name remaindermen -general power of appointment (surviving spouse has postmortum control)
  • all income must be payable to the surviving spouse at least annually for life
  • if surviving spouse gifts the property - the surviving spouse has made a taxable gift
18
Q

Qualified Terminal Interest Property Trust

A

QTIP
-marital trust that creates a terminable interest for the spouse but qualifies for the estate tax marital deduction

  • gives GRANTOR the power to name the remaindermen
  • all income must be payable to the surviving spouse at least annually for life (mandatory and exclusively for spouse)
  • surviving spouse is NOT given the power of appointment
    ex: place assets in QTIP with income to spouse and then the remainder to the children
  • assets qualify for the marital tax deduction in the first decedent’s estate and are included in the surviving spouse’s estate to the extent that they weren’t consumed during the surviving spouse’s lifetime
19
Q

Estate Trust

A

Marital trust that does not provide the surviving spouse with an income stream
Holds NON-Income producing assets
RARELY USED

20
Q

Pour over trust/will

A
  • catch assets the client owns but are not controlled by the revocable trust.
  • trust created during the grantor’s lifetime to hold and –manage assets for the benefit of several beneficiaries

-usually funded at the grantor’s death