CTA Estate, Gift, and Trust Taxation 2

Question 1

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

Accepted Answer

Remove life insurance proceeds from the insured's taxable estate

Answer

Provide income tax deductions for premium payments

Answer

Avoid paying income tax on investment earnings

Answer

Ensure equal distribution of assets to all heirs

Question 2

What is the marital deduction in estate tax law?

Accepted Answer

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

Answer

A credit equal to 50% of the estate value

Answer

A deduction for assets left to children

Answer

A flat $5 million exemption for married couples

Question 3

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

Accepted Answer

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

Answer

Deduct mortgage interest at an enhanced rate

Answer

Avoid property taxes on a primary residence

Answer

Convert the home's equity into tax-free income

Question 4

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

Accepted Answer

Charitable remainder trust (CRT)

Answer

Charitable lead trust (CLT)

Answer

Irrevocable life insurance trust

Answer

Dynasty trust

Question 5

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

Accepted Answer

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

Answer

Transfer unused exemption to children tax-free

Answer

Elect to be taxed at the deceased spouse's marginal rate

Answer

Avoid estate taxes entirely

Question 6

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

Accepted Answer

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

Answer

At the grantor's individual tax rate

Answer

At a flat 21% corporate rate

Answer

Tax-free until distributed