Trusts and Life Insurance
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Questions and Answers

Which of the following is NOT a tax characteristic of gifts made to a trust?

  • Gifts made to a trust are treated as gifts made to the trust beneficiaries (correct)
  • The $16,000 annual exclusion from gift tax is available for gifts of present interests in property made to an unlimited number of U.S. citizen donees
  • Gifts to U.S. citizen spouse: Unlimited marital deduction
  • Annual exclusion for gifts to a non-citizen spouse: 2022: $164,000

Which of the following is TRUE regarding the situs of a trust?

  • The situs of a trust is its legal home (correct)
  • The situs of a trust cannot be changed
  • The situs of a trust is determined by the location of the trustee
  • The situs of a trust has no impact on tax liabilities

What are some reasons why trusts are useful and necessary?

  • To exercise control over assets
  • To provide professional management and investment
  • To protect assets from creditors
  • All of the above (correct)

What are some advantages of living trusts?

<p>All of the above (D)</p> Signup and view all the answers

Which of the following is a disadvantage of using a Bypass Trust?

<p>No Basis Adjustment at Second Death (B)</p> Signup and view all the answers

Which of the following is a potential issue when using a Disclaimer Trust?

<p>The surviving spouse may not follow through with the planning (D)</p> Signup and view all the answers

According to the text, how much can a married couple exclude from transfer taxes with proper planning?

<p>$24.12 million (A)</p> Signup and view all the answers

Which of the following is a potential advantage of using a Bypass Trust?

<p>Not Taxed at Second Death (A)</p> Signup and view all the answers

Which of the following is a requirement for a Generation-Skipping Trust to be exempt from the GST tax?

<p>The trust must be created for the benefit of a single skip person (B)</p> Signup and view all the answers

What is the purpose of an irrevocable life insurance trust (ILIT)?

<p>To remove life insurance policies from a client's taxable estate (C)</p> Signup and view all the answers

What is the Crummey power in relation to a trust?

<p>A power to create a present interest in the trust (A)</p> Signup and view all the answers

What is the suggested limit for the annual Crummey withdrawal power?

<p>$5,000 per beneficiary (A)</p> Signup and view all the answers

Which type of policy is designed to provide liquidity to pay estate taxes or other taxes and/or expenses at the second death?

<p>Second to die policy (A)</p> Signup and view all the answers

What is the maximum duration of the non-charitable interest in a Charitable Remainder Trust?

<p>20 years (D)</p> Signup and view all the answers

What is the minimum annual payout required for a Charitable Remainder Trust?

<p>5% (A)</p> Signup and view all the answers

What is the purpose of drafting language in a trust that allows the trustee the discretion to make payments to the non-insured spouse during his or her lifetime?

<p>To protect the non-insured spouse (A)</p> Signup and view all the answers

Which of the following is true about Charitable Remainder Trusts and S Corporation stock?

<p>Charitable Remainder Trusts are not allowed to hold S Corporation stock. (D)</p> Signup and view all the answers

What determines the value of the donor's federal income tax deduction for gifts to a Charitable Remainder Trust?

<p>The type of charitable remainderman and the kind of property contributed to the CRT. (C)</p> Signup and view all the answers

What is the gift tax consequence of transferring to a Charitable Remainder Trust?

<p>A transfer to a CRT qualifies for the unlimited gift tax charitable deduction. (D)</p> Signup and view all the answers

Which of the following is NOT a characteristic of a beneficiary in a trust?

<p>A beneficiary must be related to the grantor of the trust (D)</p> Signup and view all the answers

What is the distinction between 'income' and 'principal' in a trust?

<p>Income is what is earned by the trust, while principal is what is paid out to the beneficiaries (A)</p> Signup and view all the answers

What is the difference between a simple trust and a complex trust?

<p>A simple trust allows for the accumulation of income, while a complex trust requires the distribution of all income (D)</p> Signup and view all the answers

What is a grantor trust?

<p>A trust that allows the grantor to remain in control while alive (C)</p> Signup and view all the answers

Which of the following is a requirement for a 'QTIP' trust?

<p>All of the above (D)</p> Signup and view all the answers

Which of the following is true about a 'QTIP' trust?

<p>All of the above (D)</p> Signup and view all the answers

Which of the following is a requirement for a Marital Deduction Trust for a Non-Citizen Spouse (Qualified Domestic Trust – 'QDOT')?

<p>All of the above (D)</p> Signup and view all the answers

What happens if the parent is the transferor and custodian of a Uniform Gift to Minors Act or Uniform Transfer to Minors Act account, and dies while the account is still open?

<p>The account balance is taxed in the parent's estate (A)</p> Signup and view all the answers

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