STEP Taxation of Trusts and Estates 3

Question 1

A grantor trust is taxed to the grantor under Subchapter J. Which of the following powers would cause a trust to be treated as a grantor trust?

Accepted Answer

The grantor's power to substitute trust assets for assets of equivalent value

Answer

Under IRC Section 675(4), a grantor's power to reacquire trust assets by substituting other property of equivalent value causes grantor trust status.

Question 2

The GST (Generation-Skipping Transfer) tax exemption for 2024 is indexed for inflation. What is the primary purpose of the GST tax?

Accepted Answer

To tax transfers that skip one or more generations, preventing indefinite wealth transfer without transfer tax

Answer

The GST tax prevents wealthy families from avoiding estate and gift taxes by transferring wealth directly to grandchildren or later generations, skipping the intervening taxable transfer.

Question 3

An irrevocable life insurance trust (ILIT) is designed to keep life insurance proceeds out of the insured's taxable estate. For the ILIT to exclude proceeds from the estate, the insured must NOT:

Accepted Answer

Retain any incidents of ownership in the policy

Answer

The insured must not retain any incidents of ownership, and if an existing policy is transferred within three years of death, the proceeds revert to the gross estate under IRC Section 2035.

Question 4

Which type of trust receives a $300 personal exemption for federal income tax purposes rather than the standard $100?

Accepted Answer

Simple trust

Answer

A simple trust—one that is required to distribute all income currently and makes no charitable contributions—receives a $300 personal exemption under IRC Section 642(b).

Question 5

For estate tax valuation, the 'willing buyer/willing seller' standard requires valuation as of the date of death. An alternate valuation date under IRC Section 2032 may be elected if:

Accepted Answer

It reduces the gross estate or the estate tax liability

Answer

The alternate valuation date election under IRC Section 2032 is only available if its use decreases both the value of the gross estate and the estate tax liability.

(STEP) Society of Trust and Estate Practitioners Certification Practice Test

(STEP) Society of Trust and Estate Practitioners Certification Practice Test

STEP Taxation of Trusts and Estates 3