A qualified trust is a tax-advantaged fiduciary relationship between an employer and an employee in the form of a stock bonus, pension, or profit-sharing plan. In a qualified trust, the underlying beneficiary may use his or her life expectancy to determine required minimum distribution (RMD) amounts, but other considerations like gender, race, or salary cannot be used.
Key Takeaways
- A qualified trust is a stock bonus, pension, or profit-sharing plan established by an employer for their employees.
- A qualified trust is tax-advantaged as long as it meets IRS requirements.
- In order to determine benefits, an employer may consider the life expectancy of their employees, but they cannot factor in the race, gender, religion, or current compensation of their employees.
Understanding Qualified Trusts
A trust may be \
Related Terms: fiduciary, profit-sharing plan, charitable lead trust, bare trust, personal trust, Section 401(a), IRA
References
Get ready to put your knowledge to the test with this intriguing quiz!
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## What is a Qualified Trust?
- [ ] A trust established with limitations on beneficiary access to funds
- [ ] A personal trust with no tax advantages
- [x] A trust that meets specific requirements under the IRS code for tax benefits
- [ ] A trust exclusively designed for minors
## Which of the following is commonly a benefit of establishing a Qualified Trust?
- [ ] Increased risk of tax penalties
- [ ] No legal protection for assets
- [x] Deferral of income taxes
- [ ] No need for a trustee
## Which type of trust is designed to be a Qualified Trust specifically for retirement accounts?
- [ ] Dynasty Trust
- [x] Qualified Terminable Interest Property (QTIP) Trust
- [ ] Irrevocable Life Insurance Trust (ILIT)
- [ ] Charitable Remainder Trust (CRT)
## What key feature distinguishes a Qualified Trust under IRS regulations?
- [ ] It must be revocable by the grantor at any time
- [ ] It can be modified without the consent of the trustee
- [x] It must have specific provisions that comply with IRS qualifications for favorable tax treatment
- [ ] It must distribute all earnings to the grantor annually
## In a Qualified Trust created under the Employee Retirement Income Security Act (ERISA), who typically qualifies as beneficiaries?
- [ ] Only minor children
- [ ] Just the grantor
- [x] Participants in employer-sponsored retirement plans
- [ ] Only charitable organizations
## Which document is crucial when setting up a Qualified Trust?
- [ ] Insurance policy
- [ ] Bank account statement
- [x] Trust agreement or deed
- [ ] Power of attorney
## How is a Qualified Trust typically funded?
- [ ] Through government grants
- [ ] Exclusively via loans
- [x] By transferring property or assets into the trust
- [ ] Via credit card payments
## Which type of instrument cannot typically be placed inside a Qualified Trust?
- [ ] Real estate
- [ ] Stocks and bonds
- [ ] Cash equivalents
- [x] IRA or 401(k) accounts without specific trust provisions
## Why might someone choose to create a Qualified Trust for estate planning purposes?
- [ ] To increase overall tax liability
- [x] To minimize estate taxes and protect assets
- [ ] To nullify other financial plans
- [ ] To decrease financial flexibility of the trust holder
## What happens to assets in a Qualified Trust in the event of the grantor's death?
- [ ] All assets are immediately liquidated
- [ ] Assets revert to the state automatically
- [x] Assets are managed and distributed according to the trust's specific terms
- [ ] Assets can only go to a charity
