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Bob is creating an irrevocable trust for the benefit of his five children. He is thrilled that by

making the trust both defective and irrevocable, the trust will have all but which of the following characteristics?


A - Trust property will not be includable in his estate for estate tax purposes


B - Transfers to the trust will be completed gifts


C - Trust income will be taxed to the trust at compressed income tax rates


D - Appreciating assets can be sold to the trust for an installment note


Question 12  


Which of the following is not a tax consequence associated with a defective trust?


A - The income tax is shared by the trust and the trust beneficiaries


B - The Grantor is subject to income tax


C - For gift tax purposes, a gift into this trust is complete


D - The trust assets are removed from the Grantor's estate


Question 13  


Which of the following is never true about a revocable trust?

  1. The Grantor and the Trustee may be the same.
  2. The Grantor and the Beneficiary may be the same.
  3. The Grantor, Trustee, and Beneficiary may be the same.


A - All are true


B - I and III


C - II and III


D - I, II and III


Question 14  


All of the following are necessary requirements for a valid trust except:

  1. Grantor.
  2. Trust "res"
  3. Corporate Trustee


A - II only


B - II and III


C - III only


D - All are necessary requirements


Question 15  


Which of the following is not an accurate statement about tax basis irrevocable trusts?


A - Separate trusts are not recommended with large estates


B - A joint trust is most commonly used where only one spouse is contributing property


C - Separate trusts are recommended where each spouse has appreciated property to contribute


D - A joint trust is most commonly used for smaller estates where the federal estate tax is not a major factor


Question 16  


Which of the following are not desired tax advantages of a tax basis irrevocable trust?


A - Carryover basis


B - Step-up in basis


C - Marital deduction


D - Income shift


Question 17  


Mr. Smith exchanges one life insurance policy on his life for another policy on his life. The exchange will qualify as an exchange under Internal Revenue Code section 1035. He has paid $80,000 in premiums over the years and the old policy is now worth $85,000 (without regard to any loans). Also, the old policy has an outstanding loan of $10,000. The new policy will be worth $75,000 and the loan from the old policy will be forgiven. How much will Mr. Smith be taxed on this exchange, assuming he holds the new policy until at least after the end of this year?


A - $0


B - $5,000


C - $10,000


D - $100,000


Question 18  


For estate planning purposes, the definition of life insurance does not include which of the following?


A - Whole life contract


B - Tax-deferred annuity contract


C - Term contract


D - Single life contract


Question 19 


Which of the following is true with respect to utilizing life insurance trusts for estate planning purposes?

  1. Provides a method by which death benefit proceeds are removed from the insured's estate.
  2. Transfers into the trust qualify for the annual exclusion.
  3. The number of annual exclusions is determined by the number of trustees.


A - I and II


B - I and III


C - II and III


D - III only


Question 20  


Which of the following is a true statement concerning Crummey powers?

  1. Allows an otherwise future interest to qualify for the annual exclusion.
  2. Beneficiary must be given a reasonable time within which to exercise the withdrawal power.
  3. The beneficiaries must be notified by the Grantor whenever a contribution has been made into the trust.


A - I only


B - I and II


C - I and III


D - III only

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