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Estate Planning > 8. Estate Tax Compliance and Tax Calculation > Flashcards

8. Estate Tax Compliance and Tax Calculation Flashcards

1
Q

Gross Estate

2033 - Property owned by decedent

A
  • All property owned and transferred but maintained an interest
  • Other items included
    1. Medical reimbursements owed on bills paid
    2. State income tax refunds received after death based on taxes paid before tax
    3. Court award for pain and suffering, even if paid to surviving spouse
    4. Rental income if paid to estate
    5. Wrongful death award NOT included
  • Income in respect of a decedent
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2
Q

Gross Estate 2033 cont’d

Income in Respect of a Decedent

A
  • IRD an asset for estate tax purposes (706) and income for income tax purposes (1040 or 1041)
  • Examples
    • Distributions from IRA or qual plan after death - beneficiary must report income
    • Forgiveness of debt at death of an installment note, unless SCIN
    • Salary paid after DOD
    • Rental income and interest income accrued but unpaid at death
    • Annuity paid after death
  • IRD represents assets of the decedent, therefore included in Gross Estate
  • No step-up in basis to FMV at death
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3
Q

Gross Estate

2034 - Dower and Curtesy Interest

A
  • State statutes give survivor a share of decedent’s estate, included in Gross Estate
  • Fully deductible under marital deduction
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4
Q

Gross Estate

2035 - Gifts within 3 years of death

A
  • Any gift tax paid within 3 years included in GE
  • (The gift itself typically is out of the GE)
  • Deceased estate is taxed on the amount of gift taxes paid
  • Exceptions include
    1. 2036 Transfers with retained life estate (GRUT, GRAT)
    2. 2037 Transfers at death
    3. 2038 Revocable transfers
    4. 2042 Life insurance proceeds
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5
Q

Gross Estate

2036 - Transfers with Retained Life Estate

A
  • Premised on notion that, despite the gift, decedent retained some control
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6
Q

Gross Estate

2037 - Transfers Taking Effect at Death

A
  • Possession can only be enjoyed by succeeding the decedent
  • Reversionary interest retained by decedent exceeded 5%
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7
Q

Gross Estate

2038 - Revocable Transfers

A
  • Decedent retained power to alter, amend, or revoke
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8
Q

Gross Estate

2042 - Life Insurance Proceeds

A
  • Includable in GE if estate was beneficiary or decedent retained ownership in policy
  • Policies on others’ lives owned by decedent included in GE
  • If decedent had given away ownership of policy on own life within 3 years, included in GE, especially for irrevocable life insurance trust (ILIT)
  • The decedent’s post-1976 adjusted taxable gifts (not gross estate) will include the value of the gift of any life insurance policy (as of the date of the gift) for which the decedent made a completed transfer more than three years before death.
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9
Q

Gross Estate

2039 - Annuities

A
  1. Straight life annuities - not included
  2. Survivorship annuities
    1. Value of annuity comparable to survivorship annuity included in decedent’s estate
    2. If second-to-die has contributed to purchase of annuity, inclusion is proportionate
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10
Q

Gross Estate

2040 JTWROS

A
  1. GE includes
  2. If the only surviving joint owner is spouse, include only 1/2
  3. If non-spouse joint owner(s), consideration furnished test applies to determine proportion included
  4. Funds received as a gift by decedent and applied to cost of property cannot be included
  5. If all owners received property as a gift from a 3rd party, all are considered to have contributed
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11
Q

Gross Estate

Powers of Appointment (SS 2041 and 2514)

A
  • General POAs included in GE regardless of whether exercised
  • Limited and Special POAs NOT included in GE
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12
Q

Valuation of Assets

General Rules

A
  1. FMV on DOD or, if AVD selected, 6 months after DOD
  2. AVD requirements
    1. Estate tax return must be filed
    2. Both the value of the GE and estate tax liability must be reduced below the DOD value
    3. Election made on 706
    4. If AVD elected, all assets valued at AWD, except the following
      1. Assets disposed between DOD and AWD valued at net proceeds
      2. Wasting assets (e.g., copyrights, patents, annuities that have been annuitized, installment notes, cash accounts) valued as of DOD
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13
Q

Gross Estate

Valuation of Real Estate

A
  • Appraisal is required
  • Special use valuation may be available under S2032A
  • If real estate sold shortly after DOD, sale price used
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14
Q

Gross Estate

Valuation of Stocks and Dividends

A
  1. After ex-dividend date, div added to stock price
  2. After record date, dividend accrued and stated separately on 706
  3. Stocks traded on DOD valued at avg(High, Low)
  4. If not traded, pro-rata between most recent and next trade dates
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15
Q

Gross Estate

Valuation of Life Insurance and Government Bonds

A
  1. Life insurance proceeds, or proceeds if a lumpsum were selected
  2. Series EE valued at redemption price on DOD
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16
Q

Gross Estate

Valuation of Grantor Retained Interest Trusts (GRITs)

A
  1. All trusts with grantor retained interest
    1. GRATs, GRUTs, GRITs, QPRTs
    2. CRATs, CRUTs
    3. Pooled Income Funds (PIFs)
  2. Valuation of assets
    1. Corpus portion, using Federal interest rate at DOD
    2. S 2032 AVD if applicable
    3. QPRT: FMV of residence
17
Q

Gross Estate

Deductions

A
  • Funeral
  • Administrative
  • Unpaid mortgages
  • Claims against estate
  • Casualty losses incurred in administering estate
  • Charitable contributions (unlimited)
  • Marital deductions (unlimited)
  • State death taxes
18
Q

Taxable Estate and Estate Tax Liability

A
  1. Tentative tax base is taxable estate plus all adjusted taxable gifts (ATGs)
    1. Gifts after 1976
    2. At Date of Gift Value
    3. Do not include gifts in Taxable Estate
  2. Apply tax rates from unified tax rate schedule
  3. Subtract gift taxes deemed previously paid
  4. Apply estate credits
    1. $4,505,800 (2019)
    2. Federal estate tax on prior transfers (declines 20% every two years to zero after 10)
    3. Foreign death taxes
  5. 2 - 3 - 4 = Estate Tax Liability
19
Q

Estate Tax Form Due Date

A
  • Form 706
  • Due 9 months after death
  • 6-month extension may be requested
20
Q

Inclusion in Gross Estate v Adding to Taxable Estate

A
  • If included in Gross Estate, value is FMV on DOD
  • If in Taxable Estate as an adjusted taxable gift, value at date of gift is added
21
Q

Basis of Property Acquired from a Decedent

A
  1. FMV at DOD or at AVD
  2. Deathbed gifts - within one year of death, at decedent’s basis
  3. JTWROS - stepped up to FMV from decedent
  4. Community property - stepped up to FMV
  5. Holding period deemed to be long-term, regardless of decedent’s holding period

Estate Planning (21 decks)

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