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Pop Quiz: How Much Do You Know About Trusts?

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How much do you know about types of trusts? Test your knowledge by taking the quiz below! Answers are displayed at the bottom.

 

Which type of trust matches the following description?

Question #1

This trust allows a person to transfer assets tax-free to beneficiaries at least two generations their junior, typically, their grandchildren.

a. Generation-Skipping Trust
b. Credit Shelter Trust
c. Special Needs Trust
d. Spendthrift Trust

 

Question #2

This trust lets a parent establish a trust with different features for each beneficiary (i.e., child).

a. Generation-Skipping Trust
b. Totten Trust
c. Separate Share Trust
d. Charitable Trust

 

Question #3

Sometimes called a bypass trust or family trust, this trust allows a person to bequeath an amount up to (but not over) the estate-tax exemption. The rest of the estate passes to a spouse, tax-free. Funds placed in a credit shelter trust are forever free of estate taxes, even if they grow.

a. Insurance Trust
b. Credit Shelter Trust
c. Spendthrift Trust
d. Blind Trust

 

Question #4

Also known as a payable-on-death account, this trust is created during the lifetime of the trustor, who also acts as the trustee. It’s generally used for bank accounts (physical property cannot be put into it). The big advantage is that assets in the trust avoid probate upon the trustor’s death. Often called a “poor man’s trust,” this variety does not require a written document and often costs nothing to set up. It can be established simply by having the title on the account include identifying language such as “In Trust For,” “Payable on Death To” or “As Trustee For.”

a. Totten Trust
b. Charitable Trust
c. Credit Shelter Trust
d. Blind Trust

 

Question #5

This trust allows a person to direct assets to specific beneficiaries (their survivors) at different times. In the typical scenario, a spouse will receive lifelong income from the trust and children will get what’s left after the spouse dies.

a. Totten Trust
b. Generation-Skipping Trust
c. Separate Share Trust
d. Qualified Terminable Interest Property Trust

 

Question #6

This trust removes a person’s home (or vacation home) from their estate. This could be helpful if the properties are likely to appreciate greatly.

a. Qualified Personal Residence Trust
b. Qualified Terminable Interest Property Trust
c. Insurance Trust
d. Separate Share Trust

 

Question #7

This irrevocable trust shelters a life insurance policy within a trust, thus removing it from a taxable estate. While a person may no longer borrow against the policy or change beneficiaries, proceeds can be used to pay estate costs after a person dies.

a. Credit Shelter Trust
b. Insurance Trust
c. Special Needs Trust
d. Totten Trust

 

Question #8

This trust provides for the trustees to handle the assets of the trust without the knowledge of the beneficiaries. This could be useful if the beneficiary needs to avoid conflicts of interest.

a. Spendthrift Trust
b. Blind Trust
c. Generation-Skipping Trust
d. Qualified Personal Residence Trust

 

Question #9

This trust is meant for a dependent who receives government benefits, such as Social Security disability benefits. Setting up the trust enables the disabled person to receive income without affecting or forfeiting the government payments.

a. Credit Shelter Trust
b. Separate Share Trust
c. Special Needs Trust
d. Insurance Trust

 

Question #10

This trust protects the assets a person places in the trust from being claimed by creditors. It also allows for the management of the assets by an independent trustee and forbids the beneficiary from selling his interest in the trust.

a. Spendthrift Trust
b. Qualified Terminable Interest Property Trust
c. Insurance Trust
d. Generation-Skipping Trust

 

Question #11

This trust benefits a particular charity or non-profit organization. Normally, a charitable trust is established as part of an estate plan and helps lower or avoid estate and gift taxes. A charitable remainder trust, funded during a person’s lifetime, disperses income to the designated beneficiaries (like children or a spouse) for a specified period of time, and then donates the remaining assets to the charity.

a. Special Needs Trust
b. Credit Shelter Trust
c. Totten Trust
d. Charitable Trust

 

Resource: Investopedia.

Learn more about types of trust from the IRS: Special Types of Trusts

 

Answers

  1. A – Generation-Skipping Trust
  2. C – Separate Share Trust
  3. B – Credit Shelter Trust
  4. A – Totten Trust
  5. D – Qualified Terminable Interest Property Trust
  6. A – Qualified Personal Residence Trust
  7. B – Insurance Trust
  8. B – Blind Trust
  9. C – Special Needs Trust
  10. A – Spendthrift Trust
  11. D – Charitable Trust
 
Credit Shelter Trust

Sometimes called a bypass trust or family trust, this trust allows a person to bequeath an amount up to (but not over) the estate-tax exemption. The rest of the estate passes to a spouse, tax-free. Funds placed in a credit shelter trust are forever free of estate taxes, even if they grow.

 

Generation-Skipping Trust

This trust allows a person to transfer assets tax-free to beneficiaries at least two generations their junior, typically, their grandchildren.

 

Qualified Personal Residence Trust

This trust removes a person’s home (or vacation home) from their estate. This could be helpful if the properties are likely to appreciate greatly.

 

Insurance Trust

This irrevocable trust shelters a life insurance policy within a trust, thus removing it from a taxable estate. While a person may no longer borrow against the policy or change beneficiaries, proceeds can be used to pay estate costs after a person dies.

 

Qualified Terminable Interest Property Trust

This trust allows a person to direct assets to specific beneficiaries (their survivors) at different times. In the typical scenario, a spouse will receive lifelong income from the trust and children will get what’s left after the spouse dies.

 

Separate Share Trust

This trust lets a parent establish a trust with different features for each beneficiary (i.e., child).

 

A Spendthrift Trust

This trust protects the assets a person places in the trust from being claimed by creditors. This trust also allows for the management of the assets by an independent trustee and forbids the beneficiary from selling his interest in the trust.

 

Charitable Trust

This trust benefits a particular charity or non-profit organization. Normally, a charitable trust is established as part of an estate plan and helps lower or avoid estate and gift taxes. A charitable remainder trust, funded during a person’s lifetime, disperses income to the designated beneficiaries (like children or a spouse) for a specified period of time, and then donates the remaining assets to the charity.

 

Special Needs Trust

This trust is meant for a dependent who receives government benefits, such as Social Security disability benefits. Setting up the trust enables the disabled person to receive income without affecting or forfeiting the government payments.

 

Blind Trust

This trust provides for the trustees to handle the assets of the trust without the knowledge of the beneficiaries. This could be useful if the beneficiary needs to avoid conflicts of interest.

 

Totten Trust

Also known as a payable-on-death account, this trust is created during the lifetime of the trustor, who also acts as the trustee. It’s generally used for bank accounts (physical property cannot be put into it). The big advantage is that assets in the trust avoid probate upon the trustor’s death. Often called a “poor man’s trust,” this variety does not require a written document and often costs nothing to set up. It can be established simply by having the title on the account include identifying language such as “In Trust For,” “Payable on Death To” or “As Trustee For.”

 

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