Trusts

Question 1

Corpus

Answer 1

aka principle

property of the trust

Question 2

Grantor

Answer 2

trustor

transfers property into and dictates the terms of a trust

Question 3

Trustee

Answer 3

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

Question 4

Beneficiary

Answer 4

party for whom the benefit of the trust is created

will receive direct or indirect benefit

Question 5

Simple Trust

Answer 5

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

Question 6

Trust taxed as separate entity if:

Answer 6

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

Question 7

Complex trusts

Answer 7

• 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

Question 8

Revocable

Answer 8

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

Question 9

Irrevocable

Answer 9

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

Question 10

Crummy Trust

Answer 10

• 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

Question 11

Revocable Living Trust

Answer 11

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

Question 12

Testamentary Trust

Answer 12

• 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

Question 13

Totten Trust

Answer 13

• 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

Question 14

Spendthrift Trust

Answer 14

• prohibits transfer of beneficiaries interest

- states it is not subject to claims of creditors

Question 15

Bypass Trust

Answer 15

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.

Question 16

Portability

Answer 16

Can transfer any unused exemption to the surviving spouse.

Question 17

Marital Trust

Answer 17

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

Question 18

Qualified Terminal Interest Property Trust

Answer 18

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

Question 19

Estate Trust

Answer 19

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

Question 20

Pour over trust/will

Answer 20

• 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