CTC Estate & Gift Tax Planning 2

Question 1

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

Accepted Answer

Asset appreciation above the IRS Section 7520 hurdle rate passes to beneficiaries free of additional gift tax

Answer

Assets transferred to a GRAT are immediately and permanently removed from the grantor's taxable estate

Answer

The grantor receives a charitable income tax deduction equal to the present value of the annuity stream

Answer

Transfers to a GRAT are excluded from the gift tax annual reporting requirements

Question 2

A Qualified Personal Residence Trust (QPRT) is primarily designed to:

Accepted Answer

Transfer a personal residence to beneficiaries at a reduced gift tax value while the grantor retains the right to reside there for a specified term

Answer

Allow rental income from a personal residence to accumulate tax-free for the benefit of trust beneficiaries

Answer

Convert a personal residence into a charitable remainder trust to eliminate estate taxes on the property

Answer

Provide an automatic stepped-up basis for a residence transferred to an irrevocable trust during the owner's lifetime

Question 3

Which statement best describes the structure of a Charitable Remainder Trust (CRT)?

Accepted Answer

The grantor transfers assets to the trust, receives an income stream for life or a specified term, and the remainder passes to a qualified charity

Answer

A charity receives the current income stream from trust assets while the remainder is distributed to the grantor's heirs at death

Answer

All trust income is distributed annually to designated charities, with the principal returning to the grantor at the trust's termination

Answer

The grantor retains legal title to assets but directs periodic charitable contributions from the trust's income

Question 4

The 'applicable exclusion amount' for federal estate and gift tax purposes refers to:

Accepted Answer

The cumulative lifetime amount a taxpayer may transfer free of estate and gift tax, shared across both lifetime gifts and the taxable estate

Answer

The annual per-donee amount that may be given without incurring gift tax liability

Answer

The maximum value of assets that may be held in a revocable living trust without triggering estate tax

Answer

The charitable deduction allowed for bequests made to qualifying organizations in a decedent's estate

Question 5

Which valuation discounts are most commonly applied to transferred minority interests in a Family Limited Partnership (FLP)?

Accepted Answer

Lack of control discount and lack of marketability discount

Answer

Minority interest premium and geographic illiquidity discount

Answer

Blockage discount and accrued but unpaid income discount

Answer

Cost basis discount and embedded tax liability discount

Question 6

Under IRC Section 2032, an executor may elect the alternate valuation date when:

Accepted Answer

Valuing the estate six months after death would reduce both the gross estate value and the total estate tax liability

Answer

Estate assets have declined in value at any point within 12 months of the decedent's death

Answer

The election reduces estate administration expenses regardless of its effect on the gross estate value

Answer

The estate tax liability is less than $1 million and assets are primarily illiquid

Question 7

The '529 plan superfunding' strategy in estate planning allows a donor to:

Accepted Answer

Front-load up to five years of annual gift exclusions into a 529 plan in a single year, removing the lump sum from the taxable estate immediately

Answer

Make annual 529 contributions for all grandchildren simultaneously without using any gift tax exclusion

Answer

Convert an existing 529 plan into an irrevocable trust to maximize estate tax savings upon the donor's death

Answer

Use 529 plan assets to fund charitable contributions instead of qualified education expenses