Estate Planning Exam 3 Study Guide
with verified answers
What is a trust? Why are trusts used in estate planning? - correct answer ✔✔ A fiduciary
arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or
beneficiaries.
Used for asset management and flexibility in the operation of the estate plan
What are advantages of revocable living trusts? What are the most common reasons for using a
revocable trust? - correct answer ✔✔ It avoids probate and
provides for management of the grantor's assets if the grantor is incapacitated.
It is for the benefit of the grantor.
What is a testamentary trust? How is it created? - correct answer ✔✔ It is created at death.
The grantor leaves instructions to the executor of a will.
What is a 2503(b) trust? A 2503(c) trust? What is the main difference between the two? -
correct answer ✔✔ 2503(b): may hold assets for beneficiary's lifetime but must distribute
annually
Annual exclusion available for the PV of the income interest
, 2503(c): assets accumulated with full availability at 21
Annual exclusion available for the contribution
Who are the three common parties to a trust? - correct answer ✔✔ Grantor
Trustee
Beneficiary
Be familiar with a Crummey provision. Why would a trust contain a Crummey provision? -
correct answer ✔✔ Allows for withdraws within a certain period to bring a trust into a present
interest.
What is the purpose of an Irrevocable Life Insurance Trust (ILIT) and why is it created? How are
they used, for planning purposes, in conjunction with Crummey powers? - correct answer ✔✔
The purpose of an ILIT is to prevent an insured party from having ownership of the life insurance
policy on his life.
Only life insurance policies owned by a decedent are included in his gross estate.
What is a Totten trust? What are its benefits? - correct answer ✔✔ A Totten Trust is a bank
account that has a beneficiary clause. A Totten Trust avoids probate but is included in a
decedent's gross estate.
Who is subject to income tax on the income of a grantor trust? - correct answer ✔✔ The
grantor of a grantor trust is subject to the income tax on the income of the grantor trust.
What is a bypass trust? In the ideal estate plan, what amount would be transferred to a
testamentary bypass trust? How is a bypass trust used in estate planning? - correct answer ✔✔
A trust created to receive an amount equal to the decedent's remaining applicable estate tax
credit equivalency at the decedent's date of death.
with verified answers
What is a trust? Why are trusts used in estate planning? - correct answer ✔✔ A fiduciary
arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or
beneficiaries.
Used for asset management and flexibility in the operation of the estate plan
What are advantages of revocable living trusts? What are the most common reasons for using a
revocable trust? - correct answer ✔✔ It avoids probate and
provides for management of the grantor's assets if the grantor is incapacitated.
It is for the benefit of the grantor.
What is a testamentary trust? How is it created? - correct answer ✔✔ It is created at death.
The grantor leaves instructions to the executor of a will.
What is a 2503(b) trust? A 2503(c) trust? What is the main difference between the two? -
correct answer ✔✔ 2503(b): may hold assets for beneficiary's lifetime but must distribute
annually
Annual exclusion available for the PV of the income interest
, 2503(c): assets accumulated with full availability at 21
Annual exclusion available for the contribution
Who are the three common parties to a trust? - correct answer ✔✔ Grantor
Trustee
Beneficiary
Be familiar with a Crummey provision. Why would a trust contain a Crummey provision? -
correct answer ✔✔ Allows for withdraws within a certain period to bring a trust into a present
interest.
What is the purpose of an Irrevocable Life Insurance Trust (ILIT) and why is it created? How are
they used, for planning purposes, in conjunction with Crummey powers? - correct answer ✔✔
The purpose of an ILIT is to prevent an insured party from having ownership of the life insurance
policy on his life.
Only life insurance policies owned by a decedent are included in his gross estate.
What is a Totten trust? What are its benefits? - correct answer ✔✔ A Totten Trust is a bank
account that has a beneficiary clause. A Totten Trust avoids probate but is included in a
decedent's gross estate.
Who is subject to income tax on the income of a grantor trust? - correct answer ✔✔ The
grantor of a grantor trust is subject to the income tax on the income of the grantor trust.
What is a bypass trust? In the ideal estate plan, what amount would be transferred to a
testamentary bypass trust? How is a bypass trust used in estate planning? - correct answer ✔✔
A trust created to receive an amount equal to the decedent's remaining applicable estate tax
credit equivalency at the decedent's date of death.
