1. Trusts can be treated as separate tax entities or as conduits through which income is passed to the beneficiaries. Income generally will be taxed in each of the following ways EXCEPT:
A. Income is taxable to the trust if it is accumulated by the trust.
B. Income is taxable to the beneficiaries to the extent the trust distributes or makes it available to them.
C. Income can be distributed in part to the beneficiaries with the balance accumulated, and the distributed portion is taxable to the beneficiaries and the accumulated portion is taxable to the trust.
D. Income is taxable to the trust or to the beneficiaries in accordance with the trustee’s direction.
2. An irrevocable trust has certain advantages not provided by a revocable trust. Which of the following is (are) advantages of the irrevocable trust over the revocable trust?
I. Avoidance of probate
II. Potential income and estate tax savings
A. I only
B. II only
C. Both I and II
D. Neither I nor II
3. All the following statements concerning the generation-skipping transfer tax rules are correct EXCEPT:
A. No generation-skipping transfer tax (GSTT) is levied unless either the life-income beneficiary or the remainder man are two or more generations younger than the grantor.
B. The purpose of the GSTT is to exact a tax essentially equivalent to the estate tax that would have been levied if the property had been passed outright to the beneficiary, rather than just a life interest.
C. When a grantor’s child dies after possessing a life interest, the estate of the next generation beneficiary is liable for the GSTT.
D. Upon the death of the grantor, the GSTT rules still apply where the trust bypasses the grantor’s living son or daughter and names the son’s or daughter’s child as the beneficiary.
4. Assets transferred to which of the following trusts will be included at the time of the grantor’s death in the grantor’s gross estate for federal estate tax purposes?
I Revocable living trust
II Testamentary trust
III Irrevocable inter vivos trust
IV Funded revocable trust
A. I and II only
B. III and IV only
C. I, II and IV only
D. I, III and IV only
5. Which of the following statements concerning the valuation of life insurance policies for federal gift tax purposes is (are) correct?
I. If the gift is a paid-up policy, the value of the gift is the replacement cost for a comparable policy with the same company.
II. If the gift is a new policy purchased for another person, the value of the gift is the gross premium paid.
III. If the gift is an existing policy for which future premiums are payable, the value of the gift is the policy’s interpolated terminal reserve plus the unearned portion of the paid premium.
A. I and II only
B. II and III only
C. I only
D. I, II and III