Estate Planning Flashcards

What is the primary estate planning benefit of a Grantor Retained Annuity Trust (GRAT)?

Answer: Shifting appreciation above the §7520 rate to remainder beneficiaries at little gift tax cost

A GRAT passes growth in excess of the IRS hurdle rate to beneficiaries, often with a near-zero gift value.

What happens if a GRAT grantor dies before the annuity term ends?

Answer: All or part of the trust is included in the grantor's gross estate

Death during the term generally causes inclusion under §2036, which is why short or rolling GRATs are common.

Why is an intentionally defective grantor trust (IDGT) useful in a sale-based estate freeze?

Answer: The grantor pays the trust's income tax and the sale is not a taxable event

Because the grantor and trust are one taxpayer for income tax, sales are ignored and tax payments further reduce the estate.

Which requirement applies to a charitable remainder annuity trust (CRAT)?

Answer: The annual payout must be at least 5% and no more than 50% of initial value

A CRAT pays a fixed annuity of 5%-50% of initial value and its remainder must be at least 10% of the initial value.

A family limited partnership interest is valued at less than its proportionate share of assets. What justifies this?

Answer: Discounts for lack of control and lack of marketability

Minority, non-marketable interests in an FLP may be valued with discounts, though §2036 can disallow them if control is retained.

What must an heir do to make a qualified disclaimer under §2518?

Answer: Refuse the interest in writing within 9 months without accepting benefits

A qualified disclaimer must be written, timely, made before accepting benefits, and the property must pass without the disclaimant's direction.

Closely held business interests can qualify for estate tax deferral under §6166 if they exceed what share of the adjusted gross estate?

Answer: 35%

Section 6166 allows estate tax on a closely held business exceeding 35% of the adjusted gross estate to be paid in installments over up to 14 years.