1. Intro to Estate Planning

Question 1

The proper maintenance of one’s professional certifications and designations

Answer 1

1) renewal fees
2) continuing education
3) abiding by Code of Ethics

Question 2

The definition of estate planning

Answer 2

-preserve estate for spouse and heirs
-stay in control as long as possible
-direct who will receive estate
-provide when and how they will receive
-avoid all unnecessary costs and fees
-deal only with experienced people
-avoid trust mills, high-priced lawyers, and probate costs
-work with (ideally) a financial advisor, tax professional, and lawyer

Question 3

The non-attorney’s professional role and limitations in the estate planning process

Answer 3

-educate the client in the broadest sense about estate planning and potential consequences (“I cannot give you legal advice, but from my/my clients’ experience…”)
-offer advice as to the funding of the estate plan

Question 4

The attorney’s professional role in the estate planning process

Answer 4

-counsel with client about estate planning needs
-recommend that a client have a Will or RLT, etc.
-oversee, supervise, and control production of legal docs

Question 5

The minimum requirements of an estate plan

Answer 5

-a Will, which includes naming an executor
-Powers of Attorney for both financial and healthcare decisions

Question 6

The three ways that wealth is transferred

Answer 6

-law: intestate succession subject to state guidelines, the Laws of Descent and Distribution, Joint/TIC/TIE
-Will/probate court: assessing the estate, filings and payments, and distribution to heirs
-contract: Trusts, POD/TOD, life insurance and annuities, qualified/retirement plans

Question 7

Each of the ways that real property is owned

Answer 7

-Joint ROS: equal, undivided interest that avoids probate (step up in basis for inherited half only)
-Tenants in Common: each person owns a portion they can sell or bequeath and that interest goes to estate at death, no ROS
-Tenants in Entirety: married only, equal interest and cannot buy/sell without consent of both parties
-Community Property: separate undivided one-half interest, full step up at death of one owner

Question 8

The different between one’s gross estate and taxable estate

Answer 8

-gross estate includes all substantially valuable property (stocks, real estate, cash, life insurance, etc.)
-taxable estate is after deductions (debts, admin expenses, property to spouse or charity)

Question 9

How portability provisions factor into estate planning

Answer 9

Executor may elect portability of unused exemption at death of first spouse to prevent married couples from wasting some or all of the exemption amount.

Trust planning may provide meaningful benefits, such as eliminating estate taxes on post-mortem appreciation.

Question 10

What the gift tax is and how it is applied

Answer 10

Unified with estate tax thresholds with a top gift tax rate of 40% for assets over $13.61mm per person. There is an annual limit and a lifetime exclusion.

Question 11

Federal and state estate taxes, their application and assessment

Answer 11

Many states decoupled their estate tax thresholds from the federal government, and many have lower exclusions which makes estate planning essential even for smaller estates.

States may tweak as federal government makes changes.

Question 12

What a “stepped up basis” on assets is and how it works

Answer 12

-joint: step up on inherited half.
-probate/Trust: all property passing through receives total step up.

Question 13

What a “substituted basis” on assets is and how it works

Answer 13

Property acquired by gift and/or transfer in trust during life of donor retains the donor’s basis. No step up.

Question 14

The application of IRS Code 121 on the sale of one’s principal residence

Answer 14

For principal residence, $250K of capital gain is excluded from gross income at sale ($500K married).

IF during five years prior, property was owned and used by taxpayer as principal resident for aggregate of two+ years.

Question 15

The earmarks of a “trust mill”

Answer 15

Provide model trust docs for attorney to use in planning.
-overstate challenges of probate and benefits of RLT
-bash lawyers
-steer clients to financial products that are not suitable or have high commissions
-target the elderly

Question 16

The definition and purpose of a Will

Answer 16

Communicates client’s wishes for transfer of wealth at death.

Judge is not bound by Will. Can be contested. It is merely an expression of desires.

Question 17

The consequences of having no estate plan whatsoever

Answer 17

Die intestate.

Wishes not honored, expensive, public.

Question 18

How and when an estate is valued for estate tax purposes

Answer 18

Either date of death or Alternative Valuation Date exactly six months later, if elected. Whole estate must be valued either or.

If an asset is sold or distributed, it is valued as of date disposed of.

Question 19

The considerations involved in when to transfer assets

Answer 19

Gift property that will appreciate.

Because of step up in basis, better to give highly appreciated property by Will or Trust.

Question 20

The ACA additional net investment income tax for higher income earners

Answer 20

3.8% additional tax on net investment income above certain thresholds

$200K single
$250K joint and surviving spouses
$150K MFS