Estate, Gift, and Trust Taxation Flashcards

An irrevocable life insurance trust (ILIT) is used primarily to:

Answer: Remove life insurance proceeds from the insured's taxable estate

An ILIT holds a life insurance policy outside the insured's estate, so death benefits pass to beneficiaries free of estate tax.

What is the marital deduction in estate tax law?

Answer: An unlimited deduction for assets passing to a US citizen surviving spouse

The unlimited marital deduction allows estates to transfer an unlimited amount of assets to a surviving US citizen spouse free of estate tax.

A Qualified Personal Residence Trust (QPRT) allows the grantor to:

Answer: Transfer a home out of the estate at a discounted gift tax value while retaining use for a term of years

A QPRT transfers a residence to heirs at a reduced gift tax value by retaining the right to live in the home for a specified term, leveraging the Section 7520 rate.

Which trust structure allows a grantor to transfer assets while retaining an income stream, with the remainder passing to charity?

Answer: Charitable remainder trust (CRT)

A CRT pays an income stream (annuity or unitrust) to the grantor or other beneficiaries for a term, with the remainder going to charity.

Portability of the estate tax exemption allows a surviving spouse to:

Answer: Use the deceased spouse's unused estate tax exemption in addition to their own

Portability allows the surviving spouse to elect to use any unused federal estate tax exemption of the predeceased spouse, effectively doubling the combined exemption.

Income earned by a trust that is not distributed to beneficiaries is taxed:

Answer: At the trust's compressed tax brackets, which reach the top rate at lower income levels

Undistributed trust income is taxed within the trust at highly compressed brackets, reaching the 37% top rate at only $15,200 of taxable income in 2024.