Section 2503(b) trusts generally have the disadvantage of:

Question 6 options:

The principal must be paid to the income beneficiary

The trust must terminate when the beneficiary reaches age 21

Accumulated income must be paid to the beneficiary at age 21

Annual exclusions are limited to the income interest

The principal advantage of using a GRAT or GRUT is to:

Question 7 options:

Provide for discretionary distributions during the trust term

Make gifts which qualify for the annual exclusion

Remove property from the grantor's estate if the grantor dies during the trust term

Obtain a discounted value for the remainder interest

With regard to a qualified annuity GRAT:

Question 8 options:

The retained interest is valued by taking into account income distributable to the grantor in excess of the annuity amount

Annuity amounts in any year may equal 125% of the annuity in the preceding year

Additional contributions can be made at any time

Withdrawal rights do not qualify

Why does taxing income to the grantor almost always result in substantial tax savings in the case of a defective trust?

Question 9 options:

Trusts are subject to compressed income tax rates

A grantor creating a defective trust avoids triggering certain grantor trust rules which would lead to increased taxable income

A grantor receives a partial deduction for amounts contributed to a trust

A grantor is taxed at the beneficiary's marginal tax rate which is usually lower than that of the grantor

A "defective" trust:

Question 10 options:

Intends to cause the inclusion of the trust corpus in the grantor's estate

Results in higher income tax for both the grantor and the trust

It is a revocable trust subject to the grantor trust rules

Is created by intentionally violating one or more of the grantor trust rules found in IRC Sections 671-677