Trusts: Dynasty Trusts

Description: This quiz will test your knowledge on Dynasty Trusts.
Number of Questions: 15
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What is the primary purpose of a dynasty trust?

  1. To provide for the financial security of the grantor's descendants over multiple generations.

  2. To minimize estate taxes.

  3. To protect assets from creditors.

  4. To provide for the education of the grantor's children.


Correct Option: A
Explanation:

A dynasty trust is a type of irrevocable trust that is designed to provide for the financial security of the grantor's descendants over multiple generations. It is typically funded with assets that are expected to appreciate in value over time, such as real estate or stocks.

What is the maximum duration of a dynasty trust?

  1. 100 years

  2. 50 years

  3. 21 years

  4. Perpetuity


Correct Option: D
Explanation:

Dynasty trusts are designed to last for multiple generations, and as such, they can have a duration of perpetuity. This means that the trust can continue to exist indefinitely, as long as there are beneficiaries who are eligible to receive distributions from the trust.

Who can be a beneficiary of a dynasty trust?

  1. The grantor's descendants

  2. The grantor's spouse

  3. The grantor's friends

  4. Charitable organizations


Correct Option: A
Explanation:

The primary beneficiaries of a dynasty trust are typically the grantor's descendants, such as their children, grandchildren, and great-grandchildren. However, it is also possible to include the grantor's spouse or other family members as beneficiaries.

What is the role of the trustee in a dynasty trust?

  1. To manage the trust assets

  2. To distribute income and principal to the beneficiaries

  3. To make investment decisions

  4. All of the above


Correct Option: D
Explanation:

The trustee of a dynasty trust is responsible for managing the trust assets, distributing income and principal to the beneficiaries, and making investment decisions. The trustee must act in the best interests of the beneficiaries and must follow the terms of the trust document.

What are the tax implications of a dynasty trust?

  1. The trust is subject to income tax on its earnings.

  2. The trust is subject to estate tax when the grantor dies.

  3. The trust is subject to generation-skipping transfer tax when distributions are made to beneficiaries.

  4. All of the above


Correct Option: D
Explanation:

Dynasty trusts are subject to income tax on their earnings, estate tax when the grantor dies, and generation-skipping transfer tax when distributions are made to beneficiaries. However, there are certain strategies that can be used to minimize the tax burden on dynasty trusts.

What are some of the advantages of a dynasty trust?

  1. It can provide for the financial security of the grantor's descendants over multiple generations.

  2. It can minimize estate taxes.

  3. It can protect assets from creditors.

  4. All of the above


Correct Option: D
Explanation:

Dynasty trusts offer a number of advantages, including the ability to provide for the financial security of the grantor's descendants over multiple generations, minimize estate taxes, and protect assets from creditors.

What are some of the disadvantages of a dynasty trust?

  1. It can be expensive to establish and maintain.

  2. It can be difficult to change the terms of the trust once it has been established.

  3. It can be difficult to terminate the trust.

  4. All of the above


Correct Option: D
Explanation:

Dynasty trusts can have a number of disadvantages, including the fact that they can be expensive to establish and maintain, it can be difficult to change the terms of the trust once it has been established, and it can be difficult to terminate the trust.

Is it possible to create a dynasty trust in all states?

  1. Yes

  2. No


Correct Option: B
Explanation:

Not all states allow the creation of dynasty trusts. Some states have laws that limit the duration of trusts, which can make it difficult to create a dynasty trust that will last for multiple generations.

What is the generation-skipping transfer tax (GSTT)?

  1. A tax on transfers of property from one generation to the next.

  2. A tax on transfers of property from a living person to a trust.

  3. A tax on transfers of property from a trust to a beneficiary.

  4. A tax on transfers of property from a non-resident alien to a U.S. citizen.


Correct Option: A
Explanation:

The generation-skipping transfer tax (GSTT) is a tax on transfers of property from one generation to the next. It is imposed on transfers of property to grandchildren or other descendants who are more than one generation below the transferor.

What is the GSTT exemption amount?

  1. $12.06 million

  2. $11.7 million

  3. $11.4 million

  4. $11.1 million


Correct Option: A
Explanation:

The GSTT exemption amount is $12.06 million for 2023. This means that transfers of property up to this amount are not subject to the GSTT.

How can the GSTT be avoided?

  1. By making direct transfers to grandchildren or other descendants.

  2. By using a dynasty trust.

  3. By using a generation-skipping trust.

  4. By using a charitable trust.


Correct Option: B
Explanation:

One way to avoid the GSTT is to use a dynasty trust. Dynasty trusts are designed to last for multiple generations, and as such, they can be used to transfer property to grandchildren or other descendants without triggering the GSTT.

What is the difference between a dynasty trust and a generation-skipping trust?

  1. Dynasty trusts are designed to last for multiple generations, while generation-skipping trusts are designed to last for only one generation.

  2. Dynasty trusts can be used to transfer property to grandchildren or other descendants, while generation-skipping trusts can only be used to transfer property to children.

  3. Dynasty trusts are subject to the GSTT, while generation-skipping trusts are not.

  4. None of the above


Correct Option: A
Explanation:

The main difference between a dynasty trust and a generation-skipping trust is that dynasty trusts are designed to last for multiple generations, while generation-skipping trusts are designed to last for only one generation.

What is the Crummey power?

  1. A power that allows a beneficiary of a trust to withdraw a certain amount of money from the trust each year.

  2. A power that allows a trustee to distribute income or principal to a beneficiary.

  3. A power that allows a grantor to change the terms of a trust.

  4. A power that allows a beneficiary to terminate a trust.


Correct Option: A
Explanation:

The Crummey power is a power that allows a beneficiary of a trust to withdraw a certain amount of money from the trust each year. This power is often used in conjunction with dynasty trusts to help minimize the GSTT.

What is the annual exclusion amount for gifts?

  1. $16,000

  2. $15,000

  3. $14,000

  4. $13,000


Correct Option: A
Explanation:

The annual exclusion amount for gifts is $16,000 for 2023. This means that you can give up to $16,000 to any individual each year without having to pay gift tax.

What is the lifetime gift tax exemption amount?

  1. $12.06 million

  2. $11.7 million

  3. $11.4 million

  4. $11.1 million


Correct Option: A
Explanation:

The lifetime gift tax exemption amount is $12.06 million for 2023. This means that you can give up to $12.06 million in gifts during your lifetime without having to pay gift tax.

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