Your client has taken the following actions: Established an inter vivos trust in which she reserved the power to revoke the trust if she is not satisfied with its operation Funded the trust with a diversified portfolio Named herself trustee and specified that, upon her death, her husband is to become the trustee Named herself and her husband as the income beneficiaries and her children as remainder beneficiaries after the surviving spouse's death Which one of the following is an income tax implication of this trust arrangement? A) Income earned by the trust is taxed to the children as irrevocable remainder beneficiaries. B) The trust must pay income tax on earned income that is not distributed. C) Your client, the grantor, must pay income tax on all income earned by the trust. D) The trust receives a deduction for the distributable net income paid to the lifetime income beneficiaries.

Your client has taken the following actions: Established an inter vivos trust in which she reserved the power to revoke the trust if she is not satisfied with its operation Funded the trust with a diversified portfolio Named herself trustee and specified that, upon her death, her husband is to become the trustee Named herself and her husband as the income beneficiaries and her children as remainder beneficiaries after the surviving spouse's death Which one of the following is an income tax implication of this trust arrangement? A) Income earned by the trust is taxed to the children as irrevocable remainder beneficiaries. B) The trust must pay income tax on earned income that is not distributed. C) Your client, the grantor, must pay income tax on all income earned by the trust. D) The trust receives a deduction for the distributable net income paid to the lifetime income beneficiaries.

SWFT Corp Partner Estates Trusts

42nd Edition

ISBN:9780357161548

Author:Raabe

Publisher:Raabe

Chapter20: Income Taxation Of Trusts And Estates

Section: Chapter Questions

Problem 32P

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Which of the following are nontax characteristics of a qualified terminable interest property (QTIP) trust? The income may go to multiple beneficiaries. The donor or decedent's executor qualifies the trust assets for the marital deduction by making a timely election The principal of the trust is paid to the surviving spouse's estate if the election to qualify the assets for the marital deduction was not made upon creation of the trust. The grantor of the trust determines who receives the remainder interest in the trust assets. A)II, III, and IV B)I and III C)IV only D)II and IV
Henry has established a revocable living trust, which he has only partially funded. Which of the following statements regarding this trust is CORRECT? Any assets that have been transferred to the trust before Henry's death will be subject to probate. Any income from the trust assets is taxable to the trust at trust income tax rates. Any assets that are not transferred to the trust before Henry's death will be subject to probate. A)II only B)III only C)I only D)II and III
A married couple have written a will that leaves part of their money to a trust fund. The income from this trust will benefit the surviving spouse until death, with the principal then going to their children. Why was the trust fund created? Choose the correct.a. To reduce the estate of the surviving spouse and, thus, decrease the total amount of estate taxes to be paid by the couple.b. To ensure that the surviving spouse is protected from lawsuits filed by the couple’s children.c. To give the surviving spouse discretion over the ultimate use of these funds.d. To maximize the earning potential of the money because trust funds generate more income than other investments.
Question #23 of 85 Your client has taken the following actions: Established an inter vivos trust in which she reserved the power to revoke the trust if she is not satisfied with its operation Funded the trust with a diversified portfolio Named herself trustee and specified that, upon her death, her husband is to become the trustee Named herself and her husband as the income beneficiaries and her children as remainder beneficiaries after the surviving spouse's death Which one of the following is an income tax implication of this trust arrangement? A) Your client, the grantor, must pay income tax on all income earned by the trust. B) The trust must pay income tax on earned income that is not distributed. C) The trust receives a deduction for the distributable net income paid to the lifetime income beneficiaries. D) Income earned by the trust is taxed to the children as irrevocable remainder beneficiaries.
One premortem liquidity planning technique is to reduce the client's potential gross estate. Which of the following actions may reduce the client's gross estate? Placing assets in a grantor-retained annuity trust (GRAT) with a 10-year term that names the client's child as remainderman Placing assets in a revocable living trust that disperses its assets to the client's child at the client's death Placing assets in an irrevocable trust in which the client is neither a beneficiary or trustee Placing assets in an irrevocable trust in which the client as sole trustee has discretion to distribute income A) I, III, and IV B) II, III, and IV C) I and III D) II and IV
A married couple have written a will that leaves part of their money to a trust fund. The income from this trust will benefit the surviving spouse until death, with the principal then going to their children. Why was the trust fund created? To reduce the estate of the surviving spouse and, thus, decrease the total amount of estate taxes to be paid by the couple. To ensure that the surviving spouse is protected from lawsuits filed by the couple’s children. To give the surviving spouse discretion over the ultimate use of these funds. To maximize the earning potential of the money because trust funds generate more income than other investments.
Which one of the following statements best describes the most important feature of a support trust? A) Trust assets must revert to the grantor. B) It is created by the terms of a will and therefore does not become effective until death. C) It provides for the trustee to take over management of the grantor's assets only upon the occurrence or nonoccurrence of certain specified events. D) It provides that the trustee shall distribute only so much of the income or principal as the trustee deems necessary for the support of a named beneficiary.
A covered member creates a blind trust and transfers assets into the blind trust. The covered member will not supervise or participate in the trust’s investment decisions during the term of the trust. if the covered member retains the right to amend or revoke the trust, Will the trust and the underlying assets be considered the covered member’s direct financial interests? Yes or No
Which one of the following statements regarding the qualified domestic trust (QDOT) election is correct? A)The election allows the estate to take a charitable deduction for assets given to a foreign charity. B)The election allows the estate to take a marital deduction for the value of assets given to a spouse who is not a U.S. citizen. C)The QDOT election can be made for terminable interest property. D)The property protected by the QDOT election is not subject to estate tax upon the death of the income beneficiary of the estate.
Assuming that a decedent left no valid last will and testament, which one of the following assets will pass by the laws of intestate succession? A) A money market account at his bank that was held in the decedent’s name that was payable on death (POD) in favor of his spouse B) A life insurance policy on the decedent/grantor’s life placed into an irrevocable life insurance trust (ILIT) for the benefit of the decedent’s children two years prior to the decedent’s death C) Assets placed in an inter vivos irrevocable trust in which the decedent/grantor was the sole income beneficiary and the decedent’s children were the remainder beneficiaries D) Assets held by the decedent and his or her spouse as community property in a community property state that were designated community property by a nuptial agreement
If included in a married client's will, which of the following testamentary trusts can qualify for the marital deduction? One where the income produced by the trust is to go equally to the surviving spouse and children for the spouse's life. Upon the surviving spouse's death, the corpus passes to the children in equal shares. One where the income produced by the trust is to go to the surviving spouse for his life. Upon the surviving spouse's death, the corpus passes to the children in equal shares. The executor of the estate can elect to treat the property as qualified terminable interest property (QTIP). One where the income produced by the trust is to go to the surviving spouse for his life. The surviving spouse can invade the corpus at any time and can consume the entire corpus at his discretion. One where the income produced by the trust is to be accumulated. In the discretion of the trustee, a part of the income may be distributed to the surviving spouse. The surviving spouse has…
Husband and Wife have two children and decide to divorce. Husband later remarries. He is concerned about his new wife inheriting his estate without sufficient assets being distributed to his two children. Which of the following trusts would be most appropriate to ensure the children receive sufficient assets from Husband's estate? A) A power of appointment trust that names the new wife as the sole income beneficiary and qualifies for the marital deduction, and the children as the remainder beneficiaries B) A revocable living trust that names the new wife as the income beneficiary with a general power of appointment, and the children as the remainder beneficiaries C) A testamentary trust that names the new wife as the sole beneficiary and states that it is Husband's wish for the new wife to distribute 10% of the assets to each child upon their 25th birthdays D) A qualified terminable interest property trust (QTIP) that names the new wife as the income…