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Estate exam 3

Terms in this set (30)

Trust are used for
- Management of assets
- Flexibility in the operation of the estate plan
- Creditor protection
- Trusts avoid probate
- Trusts avoid taxes
Grantor
The person who creates and initially funds the trust
Trustee
Manages the trust and carries out the provisions in the trust document
- Must act in the best interest of all beneficiaries
- Split interest in property
Spendthrift clause
The beneficiary cannot assign, pledge or promise to give the assets of the trust to anyone, and if a promise is made, it is void
Split interests in property
Valuable asset that grantor does not want to sell or split
Revocable trusts
- Avoids probate
- Provides for management of the grantors assets if grantor is incapacitated
Irrevocable trusts
Used to achieve estate and gift objectives The grantor cannot take back the property that was transferred to the trust.
Inter vivos trust
create during life
Testamentary trust
Created at death
2503 B trust
Trust for minor. Hold assets for beneficiary lifetime but must distribute income annually
2503 C trust
Trust for minor. Allows income to be accumulated but assets must be available to child when they turn 21.
3 parties to a trust
-Grantor
-Trustee
-Beneficiary
Crummy provision
Explicit right of a trust beneficiary to withdraw some or all of any contributions to a trust for a limited period of time after the contribution.
Irrevocable Life Insurance Trust (ILIT)
An irrevocable trust that owns and holds life insurance on its grantors life.
Totten Trust
Not a trust, but a bank account with a beneficiary clause.
Bypass trust
Trust created to ensure that an individual makes use of his applicable estate tax credit
Unlimited marital deduction
Because a married couple is viewed as one single economic unit for estate and gift tax purposes. therefore, transfers to a spouse are not subject to estate or gift tax.
QTIP trust
Used to take advantage of the unlimited marital deduction
- A trust which allows a decedent to qualify a transfer for the marital deduction at his death yet still control the ultimate disposition of the property
General power of Appointment Trust (GPOA)
Irrevocable trust that can be created either during an individuals lifetime or at an individuals death that gives the agent the right to appoint the settlers assets
Qualified domestic trust (QDOT)
Trust for the benefit of a non-citizen spouse which has enough transfer stipulations to allow the U.S. Govt to subject assets remaining at the death of the non-citizen surviving spouse, as well as distributions of principle, to estate taxation.
When might a decedents taxable estate be considered under qualified
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When might a decedents taxable estate be considered over qualified
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3 types of trusts an ABC trust arrangement utilize
A- General power of appointment
B- By pass trust
C- Qtip
Applicable credit amount
$2,141,800 in 2017. credit deducted from tax liability
Applicable exclusion amount
$5,490,000 in 2017. dollar amount of the size of an estate that can avoid estate taxes.
Requirements for unlimited marital deduction
- Spouses must be married at date of death
- U.S. citizens only
- Asset must be included in the decedents gross estate
- Property must be transferred to a surviving spouse
- Terminable interest rule applies
Qualifying as a QTIP trust
- Property Must qualify for marital deduction
- Spouse must be entitled to all trust income for life and the income must be paid to the spouse at least annually
- Spouse must be able to compel the trustee to sell and replace any non-income-producing assets
- During the spouses lifetime no one can appoint property to anyone other than the spouse
- The executor must file an election on form 706
Over qualification
-Too many assets used for marital deduction
- Doesn't utilize estate tax credit
Under qualification
- Not enough used for marital deductions
- Paid estate tax now when could have waited
3 requirements for marital deduction
- property must be included in the decedent's gross estate.
- the property must be transferred to the surviving spouse.
- the interest must not be a terminable interest.
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