Estate Planning Please provide little explanation with the answers. ............

Question

Estate Planning

Please provide little explanation with the answers. ...............................................................................................

1- John and Mary are interested in passing the maximum amount to their grandchildren upon their deaths. Can they utilize portability for GST purposes to double the amount that can pass transfer tax free?

(A)    Yes, portability applies to all transfer taxes.

(B)    No, portability does not apply to GST tax.

...............................................................................................

2- Which of the following statements concerning complex trusts is (are) correct?

I. The trust must be required to accumulate trust income.

II. The trustee may be given the authority to make gifts of trust property to charity.

(A) I only.

(B) II only.

          (C) Both I and II.

          (D) Neither I nor II.

Explanation / Answer

1. The answer is option "B". Portability does not apply to Generation Skipping Transfer (GST) taxes. Portability allows passing of assets to intended beneficiaries without having to set up a trust. However, portability is anot applicable in the case of GST tax. In case of dynasty type trusts, where intention is to provide for multiple generations without incurring taxes at each level of generation, portability will not be applicable.

2. A complex trust is one which is allowed to accumulate income (it is not mandatory to accumulate trust income). Even if it does not accumulate trust income, a trust can still be complex by distributing corpus or by distributing to charitable organizations. So, the first statement is false.

The trustee, in case of complex trusts, can make gifts of trust property to charity. The property that can be gifted are cash, securities, real estate etc. Complex trusts are allowed to have a charitable beneficiary.

So, the IInd statement is true - The trustee may be given the authority to make gifts of trust property to charity.

Hence the answer is option "B" - II only.

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