ACC 630 Milestone Three
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Southern New Hampshire University *
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630
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Accounting
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Jul 2, 2024
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docx
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Milestone Three
Southern New Hampshire University
ACC 630
Trusts
A trust is a fiduciary arrangement that authorizes a third party or trustee to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways and can be set up precisely when and how assets are passed to beneficiaries. Considering that trusts customarily avoid probate, the beneficiaries may be granted access to the assets more promptly than they would if a will were used instead. Also, if it is an irrevocable trust, it may not be considered part of the taxable estate, leaving less taxes due upon death (Fidelity, n.d.). Conclusion Walmart’s Walton family’s fortune is estimated to exceed $100 billion. They are famous for using creative, but legal, methods of preserving their wealth. One method they use is a Charitable Lead Annuity Trust (CLAT) and has been exceptionally useful in recent years. The basic procedure starts with the donor giving the property to a trust. The trust then pays the charity a definite amount each year for a set number of years. When the trust ceases, the property
is then transferred to the donor’s heirs. The best element of this method is that if the trust is set up properly, the donor will receive tax deductions for their charitable contribution and much of the donated property transfers to the donor’s heirs’ tax free (Dossey, 2013).
The Walton family has informed Walmart the recently formed entity, the Walton Family Holdings Trust, has no set timetable for the sale of shares and expects it may take place over a period of years. The heirs to the Walmart fortune have donated Walmart shares worth an estimated $48 billion to their family trust, which equals 415 million shares that were transferred (Walmart Enterprises, 2015).
Estate Planning Purposes
Keen business owners use trusts so their business can continue in their absence. However,
many business owners do not have an estate plan arranged to protect their business. Trusts can ensure that the business does not end without you. The greatest issue that people do not understand is that often, funds from a business will be used to satisfy the debts of the business owner’s private affairs. An inadequately planned estate can show that there is not enough money to meet the personal debts of the business owner. If this happens, the government will look to the
business to satisfy the debts. The business must then pay or assume the debt, which could potentially leave it trapped. This could cause the business to shut down because the operating capital is taken to satisfy personal debts (Lapin, 2023).
A living trust that provides a succession plan is needed. Each employee should know what is expected of them in the absence of the business owner. A succession plan will create a clear chain of command for someone to succeed the business owner so the business can continue to function in case of the business owner’s absence. The trustee that is appointed is also someone
who can oversee the affairs of the business to ensure things are running smoothly (Lapin, 2023).
Income Protection
When a business is set up with the proper business structure, it can set the business up for
long-term success. Depending on the size of the business, it may be suited under a trust, sole trader, or company structure. Therefore, it is imperative to consider the several types of business structures. When a business is under a trust, it typically means the trust owns and runs the assets, distributes the business’ income, and must follow the trust obligations. The trustee of the trust is
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Related Questions
What is the difference between a testamentary trust and an inter vivos trust?
Multiple Choice
A testamentary trust is created by a will; an inter vivos trust is created by a living individual.
A testamentary trust conveys money to a charity; an inter vivos trust conveys money to individuals.
A testamentary trust ceases after a specified period of time; an inter vivos trust is assumed to be permanent.
A testamentary trust conveys income to one party and the principal to another, an inter vivos trust conveys all monies to the same party.
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a. What is the difference between distributing property per capita and per stirpes?
When would a per stirpes distribution be required?
what are two ways in which the duties of an administrator differ from those of an executor?
Must the grantor, trustee, and beneficiary of a trust all be different people?
What formalities must be followed to create a testamentary trust?
arrow_forward
What is the difference between a testamentary trust and an inter vivos trust? Choose the correct.a. A testamentary trust conveys money to a charity; an inter vivos trust conveys money to individuals.b. A testamentary trust is created by a will; an inter vivos trust is created by a living individual. c. A testamentary trust conveys income to one party and the principal to another; an inter vivos trust conveys all monies to the same party. d. A testamentary trust ceases after a specified period of time; an inter vivos trust is assumed to be permanent.
arrow_forward
What is the difference between a testamentary trust and an inter vivos trust.
A testamentary trust conveys money to a charity; an inter vivos trust conveys money to individuals.
A testamentary trust is created by a will; an inter vivos trust is created by a living individual.
A testamentary trust conveys income to one party and the principal to another; an inter vivos trust conveys all monies to the same party.
A testamentary trust ceases after a specified period of time; an inter vivos trust is assumed to be permanent.
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Question #23 of 85
Your client has taken the following actions:
Established an inter vivos trust in which she reserved the power to revoke the trust if she is not satisfied with its operation
Funded the trust with a diversified portfolio
Named herself trustee and specified that, upon her death, her husband is to become the trustee
Named herself and her husband as the income beneficiaries and her children as remainder beneficiaries after the surviving spouse's death
Which one of the following is an income tax implication of this trust arrangement?
A)
Your client, the grantor, must pay income tax on all income earned by the trust.
B)
The trust must pay income tax on earned income that is not distributed.
C)
The trust receives a deduction for the distributable net income paid to the lifetime income beneficiaries.
D)
Income earned by the trust is taxed to the children as irrevocable remainder beneficiaries.
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Describe the usefulness of a discretionary intervivos trust when used as part of an estate freeze.
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For the following definitions, indicate the type of trust being described by selecting the correct answer from the dropdown.
option for answer - blind trust, life insurance trust, living (revocable) trust, divorce trust, trust for minors
a.
Holds life insurance policies on the insured.
b.
Provides funds for a college education or other needs, shifts income to other taxpayers, and transfers accumulated income without permanently parting with the underlying assets.
c.
Manages assets, reduces probate costs, provides privacy for asset disposition, protects against medical or other emergencies.
d.
Manages the assets of an ex-spouse.
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Question #71 of 85
Question ID: 1251878
For which of the following sources will the transferee of assets be certain to receive a basis in the assets equal to the asset's fair market value on the date of transfer?
From a decedent's testamentary trust
By inter vivos gift
By intestate succession
From a revocable living trust after the grantor has died
A)
II and III
B)
I and II
C)
I and III
D)
I, III, and IV
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A note secured by a deed of trust provides for an automatic action of the laws known as
a.a strict foreclosure.
b.equitable rights.
c.a power of sale.
d.a statutory right.
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A charitable trust is used to split assets between surviving spouse and the trust.
True or False
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A release clause in a note and deed of trust is activated by
a.the full satisfaction of the terms of the loan.
b.the reconveying of the property to the trustee.
c.the foreclosure on the property.
d.the conveying of title to the trustee.
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26
These statements are presented to you for evaluation:Statement I – The transfer of property is perfected by delivery, either actually or constructively, of the donated property to the donee.Statement II – The transfer of property by gift is completed from the moment the donor knows of the acceptance of the donee.In your evaluation of the foregoing statements:
Group of answer choices
Both statements are true.
Both statements are false.
Only Statement II is true.
Only Statement I is true.
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A grantor is disallowed from doing which of the following in a grantor trust?
Avoiding taxation until the trust is revoked.
Controlling the disposition of trust property.
Distributing current income to the grantor or grantor's spouse.
Revoking or modifying the trust.
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Which of the following are nontax characteristics of a qualified terminable interest property (QTIP) trust?
The income may go to multiple beneficiaries.
The donor or decedent's executor qualifies the trust assets for the marital deduction by making a timely election
The principal of the trust is paid to the surviving spouse's estate if the election to qualify the assets for the marital deduction was not made upon creation of the trust.
The grantor of the trust determines who receives the remainder interest in the trust assets.
A)II, III, and IV
B)I and III
C)IV only
D)II and IV
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Give typing answer with explanation and conclusion
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How does a devise differ from a legacy? Choose the correct.a. A devise is a gift of money and a legacy is a nonmonetary gift.b. A devise is a gift to an individual and a legacy is a gift to a charity or other organization. c. A devise is a gift of real property and a legacy is a gift of personal property.d. A devise is a gift made prior to death and a legacy is a gift made at death.
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The party to which legal title and management responsibilities are initially given in a trust agreement is referred to as the
a.
trustee.
b.
remainderman.
c.
grantor.
d.
beneficiary.
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20) The party to which legal title and management responsibilities are initially given in a trust agreement is referred to as the
1
trustee
2.
remainderman.
3
grantor.
4
beneficiary.
arrow_forward
Outline the anti-avoidance provisions as they relate to the transfer of property to a child, a trust, or a connected person
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Related Questions
- What is the difference between a testamentary trust and an inter vivos trust? Multiple Choice A testamentary trust is created by a will; an inter vivos trust is created by a living individual. A testamentary trust conveys money to a charity; an inter vivos trust conveys money to individuals. A testamentary trust ceases after a specified period of time; an inter vivos trust is assumed to be permanent. A testamentary trust conveys income to one party and the principal to another, an inter vivos trust conveys all monies to the same party.arrow_forwarda. What is the difference between distributing property per capita and per stirpes? When would a per stirpes distribution be required? what are two ways in which the duties of an administrator differ from those of an executor? Must the grantor, trustee, and beneficiary of a trust all be different people? What formalities must be followed to create a testamentary trust?arrow_forwardWhat is the difference between a testamentary trust and an inter vivos trust? Choose the correct.a. A testamentary trust conveys money to a charity; an inter vivos trust conveys money to individuals.b. A testamentary trust is created by a will; an inter vivos trust is created by a living individual. c. A testamentary trust conveys income to one party and the principal to another; an inter vivos trust conveys all monies to the same party. d. A testamentary trust ceases after a specified period of time; an inter vivos trust is assumed to be permanent.arrow_forward
- What is the difference between a testamentary trust and an inter vivos trust. A testamentary trust conveys money to a charity; an inter vivos trust conveys money to individuals. A testamentary trust is created by a will; an inter vivos trust is created by a living individual. A testamentary trust conveys income to one party and the principal to another; an inter vivos trust conveys all monies to the same party. A testamentary trust ceases after a specified period of time; an inter vivos trust is assumed to be permanent.arrow_forwardQuestion #23 of 85 Your client has taken the following actions: Established an inter vivos trust in which she reserved the power to revoke the trust if she is not satisfied with its operation Funded the trust with a diversified portfolio Named herself trustee and specified that, upon her death, her husband is to become the trustee Named herself and her husband as the income beneficiaries and her children as remainder beneficiaries after the surviving spouse's death Which one of the following is an income tax implication of this trust arrangement? A) Your client, the grantor, must pay income tax on all income earned by the trust. B) The trust must pay income tax on earned income that is not distributed. C) The trust receives a deduction for the distributable net income paid to the lifetime income beneficiaries. D) Income earned by the trust is taxed to the children as irrevocable remainder beneficiaries.arrow_forwardDescribe the usefulness of a discretionary intervivos trust when used as part of an estate freeze.arrow_forward
- For the following definitions, indicate the type of trust being described by selecting the correct answer from the dropdown. option for answer - blind trust, life insurance trust, living (revocable) trust, divorce trust, trust for minors a. Holds life insurance policies on the insured. b. Provides funds for a college education or other needs, shifts income to other taxpayers, and transfers accumulated income without permanently parting with the underlying assets. c. Manages assets, reduces probate costs, provides privacy for asset disposition, protects against medical or other emergencies. d. Manages the assets of an ex-spouse.arrow_forwardQuestion #71 of 85 Question ID: 1251878 For which of the following sources will the transferee of assets be certain to receive a basis in the assets equal to the asset's fair market value on the date of transfer? From a decedent's testamentary trust By inter vivos gift By intestate succession From a revocable living trust after the grantor has died A) II and III B) I and II C) I and III D) I, III, and IVarrow_forwardA note secured by a deed of trust provides for an automatic action of the laws known as a.a strict foreclosure. b.equitable rights. c.a power of sale. d.a statutory right.arrow_forward
- A charitable trust is used to split assets between surviving spouse and the trust. True or Falsearrow_forwardA release clause in a note and deed of trust is activated by a.the full satisfaction of the terms of the loan. b.the reconveying of the property to the trustee. c.the foreclosure on the property. d.the conveying of title to the trustee.arrow_forward26 These statements are presented to you for evaluation:Statement I – The transfer of property is perfected by delivery, either actually or constructively, of the donated property to the donee.Statement II – The transfer of property by gift is completed from the moment the donor knows of the acceptance of the donee.In your evaluation of the foregoing statements: Group of answer choices Both statements are true. Both statements are false. Only Statement II is true. Only Statement I is true.arrow_forward
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