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CLU2- Lesson 6- Chapter 8- Definitions
Terms in this set (41)
2503(b) Trust -
A trust for the benefit of a minor designed to qualify the present value of the income interest of the trust for the annual exclusion. A 2503(b) trust must pay its income annually to the minor, but may hold the trust property for the minor's lifetime.
2503(c) Trust -
A trust for the benefit of a minor designed to qualify the contribution to the trust for the annual exclusion. A 2503(c) trust must give the minor the right to receive the trust assets when he reaches age 21, but is not required to pay the income to the minor at any earlier time.
ABLE Accounts -
Accounts for disabled individuals that provide some of the benefits of special needs trusts without the complexities typically associated with those trusts.
The person(s) entitled to receive the death benefit of a life insurance policy at the insured's death. Also, the person(s) who hold(s) the beneficial title to a trust's assets.
Blind Trust -
A revocable trust arrangement whereby an individual transfers property to the trust for management purposes when self-management of the assets might be deemed to be a conflict of interest
Bypass Trust (also known as a Credit Shelter Trust or B Trust) -
A trust created to ensure that an individual makes use of his applicable estate tax credit.
Charitable Lead Trust (CLT) -
A trust in which a charitable organization receives the income interest and a non-charitable beneficiary (usually a family member) receives the remainder interest.
Charitable Remainder Trust (CRT) -
A trust in which a non-charitable beneficiary receives the income interest and a charitable organization receives the remainder interest.
Complex Trust -
A trust that does not meet the definition of a simple trust.
Distributable Net Income (DNI) -
A tax concept that allocates taxable income between the trust and beneficiaries to ensure the trust income is subject to only one level of tax.
Estate Trust -
A trust which grants the surviving spouse a testamentary general power of appointment over the trust assets. Because of the spouse's general power of appointment over the trust's assets, the fair market value of the trust will be eligible for the unlimited marital deduction at the death of the first-to-die spouse.
A person who has a legal duty to act in the best interest of another as a result of holding a position of trust and confidence.
The person who creates and initially funds a trust. The grantor is also known as the settlor or creator.
Grantor Retained Income Trust (GRIT) -
A trust in which the grantor retains an income or use interest in the trust.
Income Beneficiary -
The person or entity who has the current right to income from a trust, or the right to use the trust assets.
Inter Vivos Trust -
A trust that is created during the grantor's lifetime.
Irrevocable Life Insurance Trust (ILIT) -
An irrevocable trust that owns and holds life insurance on its grantor's life. An ILIT is also known as a wealth replacement trust (WRT).
Irrevocable Trust -
A trust created by a grantor that cannot be revoked. The grantor cannot take back the property that was transferred to the trust.
Pooled Trust -
An exception that resulted from the Omnibus Budget and Reconciliation Act of 1993; managed by a nonprofit association. While each beneficiary will have their own account, the assets will generally be pooled and managed together.
Pourover Trust -
A trust that receives assets that "pour" into it from another source, generally the grantor's estate at the grantor's death.
Prudent Man Rule -
A rule which requires a trustee, as a fiduciary, to act in the same manner that a prudent person would act if the prudent person were acting for his own benefit.
QTIP Trust -
A trust that grants the surviving spouse a lifetime right to the income of the trust while transferring the remainder interest to individual(s) of the grantor's choosing, typically created at the death of the first spouse to die
Remainder Beneficiary -
The individual or entity entitled to receive the assets that remain in the trust at the date of the trust's termination.
Revocable Living Trust -
A revocable trust that is managed by the grantor and is for the benefit of the grantor during his lifetime. The property transferred to the trust avoids the individual's probate estate, but is included in the individual's gross estate.
Revocable Trust -
A trust created where the grantor of the trust retains the right to revoke the trust at any time prior to his incapacity or death.
Rule Against Perpetuities (RAP) -
A common law rule which requires that all interests in a trust must vest, if at all, within lives in being plus 21 years.
See-Through Trust -
A trust that is the beneficiary of a custodial IRA. It provides for more control over distribution of IRA assets after the owner's death, as well as providing increased creditor protection for the beneficiaries of the trust.
Self-Settled Trust -
A trust where the beneficiary is also the grantor of the trust.
Simple Trust -
A trust that requires all of the trust income to be distributed on an annual basis to the beneficiaries and does not have a charitable organization as one of its beneficiaries.
Special Needs Trust -
A specific type of trust that is used to provide benefits to persons or beneficiaries with special need
Special Needs Trusts Under 42 U.S.C. Sec. 1396p(d)(4)(A) -
Considered to be self-settled in nature, are typically established by the special needs person's parent, grandparent, legal guardian or by a court and will avoid disqualification of Medicaid and SSI benefits.
Spendthrift Clause -
A clause in a trust document which does not allow the beneficiary to anticipate distributions from the trust, assign, pledge, hypothecate, or otherwise promise to give distributions from the trust to anyone. If such a promise is made, it is void and may not be enforced against the trust.
Standby Trust -
A trust created during the grantor's lifetime that is either unfunded or minimally funded. A standby trust is also known as a contingent trust.
Testamentary Trust -
A trust created after the death of the grantor. The grantor's will generally includes all of the trust provisions.
Third Party SNT -
Sometimes referred to as a family trust because the trust is a receptacle for funds from a parent, guardian or other family member. The assets of these trusts, if properly structured, are not counted or considered for purposes of available benefits for the beneficiary, thus making possible federal, state, and local funds.
Totten Trust -
Not a trust, but rather a bank account with a beneficiary clause
A structure that vests legal title (the legal interest) to assets in one party, the trustee, who manages those assets for the benefit of the beneficiaries (who hold the equitable title) of the trust.
The individual or entity responsible for managing the trust assets and carrying out the directions of the grantor that are formally expressed in the trust instrument.
Trusteed IRAs -
A trust established within the United States that holds IRA assets, which is an alternative to a custodial IRA. It allows for ultimate control over the distribution of the IRA assets by the owner after his or her death and provides creditor protection for the beneficiaries.
Uniform Statutory Rule Against Perpetuities -
A legislatively created alternative to the Common Law RAP that typically sets the perpetuities period at 90 years.
Wealth Replacement Trust (WRT) -
An irrevocable trust that owns and holds life insurance on its grantor's life. A WRT is also known as an Irrevocable Life Insurance Trust (ILIT).
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CLU2- Lesson 2- Chapter 2- Questions
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