ACP Trust Administration & Probate Filing 3 — Questions and Answers
Question 1: A Crummey power in an irrevocable life insurance trust (ILIT) allows beneficiaries to:
- Remove the trustee for mismanagement
- Withdraw contributions within a defined window to qualify for the annual gift tax exclusion (Correct answer)
- Demand early distribution of insurance proceeds
- Convert the trust from irrevocable to revocable
Correct answer: Withdraw contributions within a defined window to qualify for the annual gift tax exclusion
Crummey powers give beneficiaries a temporary right of withdrawal, converting contributions into present interests eligible for the annual gift tax exclusion.
Question 2: Which type of trust is specifically designed to hold a residence and transfer it to beneficiaries at a reduced gift tax value after a term of years?
- Supplemental Needs Trust
- Qualified Personal Residence Trust (QPRT) (Correct answer)
- Charitable Remainder Unitrust (CRUT)
- Grantor Retained Annuity Trust (GRAT)
Correct answer: Qualified Personal Residence Trust (QPRT)
A QPRT allows the grantor to transfer a personal residence at a discounted gift tax value by retaining the right to live there for a fixed term.
Question 3: The probate court's jurisdiction over a decedent's estate is typically established by the decedent's:
- Citizenship at time of death
- Domicile at time of death (Correct answer)
- Location of largest bank account
- State where the will was executed
Correct answer: Domicile at time of death
Domicile at death determines which state's court has primary jurisdiction over the decedent's estate and the administration of personal property.
Question 4: Under the Prudent Investor Rule, a trustee's investment decisions are evaluated:
- Security by security in isolation
- Based on the overall portfolio performance in light of the trust's purposes (Correct answer)
- Solely by comparing returns to the S&P 500 index
- Only at the end of each calendar year
Correct answer: Based on the overall portfolio performance in light of the trust's purposes
The Prudent Investor Rule adopts a total portfolio approach, judging each investment decision in the context of the overall portfolio and trust objectives.
Question 5: A Notice to Creditors published in a local newspaper during probate serves to:
- Transfer title of real property to the beneficiaries
- Start the claims period after which late claims are barred (Correct answer)
- Establish the date of death for tax purposes
- Notify co-trustees of their appointment
Correct answer: Start the claims period after which late claims are barred
Publication of a Notice to Creditors triggers the statutory claim period, after which creditors who failed to file timely claims are generally barred.
Question 6: In a Charitable Remainder Unitrust (CRUT), the annual payment to the non-charitable beneficiary is calculated as:
- A fixed dollar amount set at inception
- A fixed percentage of the trust's fair market value revalued annually (Correct answer)
- The trust's net income only
- 5% of the original contribution each year
Correct answer: A fixed percentage of the trust's fair market value revalued annually
A CRUT pays a fixed percentage of the trust's annually revalued assets, so the dollar amount fluctuates with investment performance.
Question 7: When a trustee makes an improper distribution to an income beneficiary at the expense of remainder beneficiaries, this most likely violates:
- The duty to diversify investments
- The duty of impartiality among beneficiaries (Correct answer)
- The duty to account annually
- The duty to keep trust property separate
Correct answer: The duty of impartiality among beneficiaries
The duty of impartiality requires trustees to administer the trust equitably among all beneficiaries, balancing current income interests against remainder interests.
ACP Trust Administration & Probate Filing 3
A Crummey power in an irrevocable life insurance trust (ILIT) allows beneficiaries to: