Taxation of Inter Vivos Trusts
KNOWLEDGE EXPECTED OF: CFP® Professionals
Highest Knowledge Level: Understanding
Knowledge Levels and Associated Verbs
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Awareness
The state of being aware that something exists / to have familiarity with a particular activity or subject
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Understanding
To comprehend the general relationship of particulars / to have an expertise with how something works
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Application
Ability to put information to use / to use knowledge for relevant, practical purposes
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Evaluation
To judge or conclude by utilizing data / a systematic determination of something’s worth or significance
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Define
To state exactly the meaning of
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Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
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Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
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Determine
To ascertain / to come to a decision, such as by investigation or reasoning
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Compare
To note the similarities and differences between two or more things
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Estimate
To determine an approximate value for
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Calculate
To find the value using mathematics
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Convert
To change from one form or purpose to another
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Evaluate
To reach a conclusion or make a through careful study
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Interpret
To give the meaning of / to construe or understand / to translate orally
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Hold cursor over or click on each term to read its definition.
Additional Knowledge Expected of CFP Professionals
- Define an inter vivos trust.1
- Identify how an inter vivos trust is viewed in relation to the parties to the trust for tax purposes.
- Explain how property transferred into an inter vivos trust may be treated for tax purposes.
- Explain circumstances when a tax-deferred transfer of capital property may be made into an inter vivos trust.2
- Identify circumstances when an election to opt out of a tax-deferred rollover of property into an inter vivos trust may be beneficial, such as:
- Settlor has carry-forward capital losses that may be used to offset capital gains upon deemed disposition of property
- Settlor has capital gain deduction limit that may be used upon deemed disposition of property
- Explain how income earned by an inter vivos trust will be taxed.
- For income retained by a trust
- For income distributed to the beneficiaries
- Explain when property is deemed to have been disposed of by an inter vivos trust.
- For a spousal trust
- For an alter ego trust
- For a joint partner trust
- For all other trusts
- Define a preferred beneficiary of a trust for income tax purposes.
- Explain the value at which capital property may be transferred to a beneficiary from an inter vivos trust.
- When the trust is irrevocable
- When the trust is revocable
- Identify that an election is available where a preferred beneficiary may be allocated income from an inter vivos trust without having the funds distributed to them.
- Identify the tax year-end for an inter vivos trust.
- For an inter vivos trust
- For an inter vivos trust in the year the trust is wound up
