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

A GRAT is structured so the grantor retains an annuity equal to the transferred value plus the Section 7520 rate; any growth above that rate passes to remainder beneficiaries as a tax-efficient wealth transfer.

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

A QPRT allows the grantor to transfer a personal residence at a discounted gift tax value, since the taxable gift is the remainder interest only; the grantor's retained right to use the home for the trust term reduces the gift's present value.

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 CRT provides an income stream (annuity or unitrust payment) to non-charitable beneficiaries for life or a term of years, after which the remaining assets pass to charity; the grantor receives an upfront charitable income tax deduction for the present value of the charitable remainder.

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 applicable exclusion amount (basic exclusion amount) is a unified lifetime credit against both gift and estate taxes; taxable gifts made during life reduce the exemption available at death.

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 interests in an FLP typically qualify for a lack of control (minority interest) discount and a lack of marketability discount because the interest holder cannot unilaterally liquidate the entity or easily sell the interest.

(CTC) Chartered Tax Consultant Practice Test

(CTC) Chartered Tax Consultant Practice Test

CTC Estate & Gift Tax Planning 2