1. Which of the following is not true concerning defective grantor trusts?
The income tax paid by the grantor is an additional gift to the trust beneficiaries.
The income tax brackets applied to trusts are generally less favorable than the income tax brackets applied to the grantor.
If the grantor is not reimbursed by the trust for income tax, assets owned within the trust effectively grow income tax free.
The trust can contain a provision directing the Trustee to reimburse the Grantor for any income tax paid on distributions not received by the Grantor.
2. Which of the following would not cause a trust to be treated as a grantor trust?
The grantor’s spouse may substitute trust assets for other property of equal value.
The grantor’s spouse is a potential trust beneficiary.
The grantor’s spouse serves as trustee.
The grantor’s spouse retains a 10% reversionary interest.