Question

Question 5 Vernon created a grantor trust with $1 Million. The trust will pay him $100,000 a year for the next 6 years with the remainder going to Greg, his life partner. When Vernon dies 8 years later, the trust is worth $300,000. What amount will be included in Vernon’s Gross Estate?

A. $0

B. $100,000

C. $300,000

D. $1,000,000

Answer 1

From the information available, the Trust will pay Vernon $100,000 a year for 6 years, accordingly, from the $1,000,000, at the end of 6 years, the Trust will be left with $400,000 ($1,000,000 reduced by $600,000 for 6 years at $100,000 per year).

When Vernon dies 8 years later, the Trust is should have been worth $400,000 only, however the same is worth $300,000 in the information given. Accordingly, amount to be included in Vernon's Gross Estate will be $100,000.