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ATT Exam Questions with Correct Answers
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ATT Exam Questions with Correct Answers
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ATT Exam #1 Questions with 100% Correct AnswersCrummey Trust - Answer-Gift tax planning. Beneficiary is given a Crummy withdrawal power, a limited non-cumulative power to withdraw principal or income. This power enable the transfer to be eligible for the annual gift tax exclusion.
The beneficiary is considered the owner of the amount he has the right to withdraw and is taxed on a pro-rata share.
If the beneficiary leaves the assets in the trust, it will accumulate for future distribution for him. The benny will be taxed on a prorata share of income in future years.
Grantor Retained Annuity Trust (GRAT) - Answer-Gift and estate tax planning. Inter vivos trust in which grantor transfers property retaining a fixed dollar annuity payable for
a term of years. Remainder normally passes to family members.
Grantor typically pays income tax on all ordinary income (and capital gains if contingent or reversionary power relating to corpus also is retained)
Grantor Retained Uni-trust (GRUT) - Answer-Gift and estate tax planning. Inter vivos trust when grantor transfers property retaining a right to receive distributions equal to a fixed percentage of the annual FMV of the trust's assets for a fixed term of years. Remainder normally passes to family members
Grantor typically pays income tax on all ordinary income (and capital gains if contingent or reversionary power relating to corpus also is retained)
Charitable Lead Trust - Answer-Similar to GRAT or GRUT, except the term interest is given to charity. Remainder usually passes to family members. This trust can be either an inter vivos or testamentary trust.
Inter vivos - charitable lead interest (in the form of an annuity or unitrust interest) qualifies for an upfront income tax charitable deduction to the individual donor only if the
trust is a grantor trust whose income is taxable to its grantor
Testamentary - charitable lead trust qualifies for a charitable deduction with respect to income paid to or for charity. The trust is treated in all ways as a regular trust subject to Form 1041 filing requirements with income tax deductions to the trust for payments made to the charity as required by the provisions of the trust instrument. Taxable income not paid to the charity under the trust instrument is taxable to the trust.
Charitable Remainder Trust - Answer-Similar to GRAT or GRUT, except the remainder passes to charity. This type of trust is usually an inter vivos trust. Distributions to a beneficiary are taxable under a four-tier system (ordinary income, capital gain, tax-exempt income, and corpus). Distributions are ordinary income until all current and accumulated income has been distributed. Once ordinary income is distributed, distributions are considered capital gain, then tax-exempt income, and finally corpus.
Grantor Retained Income Trust (GRIT)** - Answer-Gift tax and estate tax planning. Inter
vivos trust in which grantor retains the income interest for term of years. Remainder passes to non-family members (except for personal residence trusts)
Ordinary income is taxed to the grantor. Grantor also may be taxed on capital gains if contingent powers or reversion relating to corpus is retained.
Personal Residence Grantor Retained Interest Trust - Answer-Gift and estate planning. Inter vivos trust when grantor retains the right to occupy trust property as a personal residence for a term of years. Remainder goes to family members. The grantor cannot be the holder of an interest in more than two such trusts at the same time.
Tax consequences to grantor include the normal deductions relative to ownership of a personal residence such as property taxes and interest. Trust is typically drafted with a retained contingent power or reversion that also will cause corpus gains and losses to be attributed to grantor.
Grantor Retained Interest in Tangible Property Trusts - Answer-Gift and estate tax planning. Inter vivos trust in which grantor retains the right to use and enjoy certain tangible property for a term of years. Remainder passes to family members.
No income is typically generated, no tax consequences exist.
Income Sprinkling Trust - Answer-The trustee is given the power to either "sprinkle" or accumulate income as he thinks best. Typically the beneficiaries are the children of the settlor.
Distributed income is taxed to beneficiary. Accumulated income is taxed to fiduciary.
Income Trust or Section 2503(b) Trust** - Answer-Gift and estate tax planning. All income must be distributed to the beneficiary at least annually.
Income required to be distributed is taxed to beneficiary. Capital gains generally are taxed to fiduciary.
Irrevocable Life Insurance Trust** - Answer-Inter vivos trust corpus consists of insurance policies. Grantor is the insured, but retains no interest as beneficiary or trustee. On grantor's death, income and corpus benefits pass to family members as provided in trust instrument.
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