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My CFP Flashcards > BIG ESTATE CONCEPTS (Every Day) > Flashcards

BIG ESTATE CONCEPTS (Every Day) Flashcards

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1
Q

A CRAT must pay out at least ___% of the initial FMV of the property paid into the trust that functions as a fixed (guaranteed) annuity.

A

5

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2
Q

A testamentary trust is which of the following?

Simple trust
Complex trust
Either A or B

A

A testamentary trust can operate as either a simple or complex trust.

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3
Q

Can a bypass trust be used for non-married spouses?

A

Yes

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4
Q

Can QTIP trust be used for non-married spouses?

A

No it can’t

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5
Q

Is a GSTT gift also subject to gift tax?

A

Yes

If the amount of a gift to a skip person exceeds the GSTT exemption ($11,700,000 + $15,000), it also exceeds the federal gift tax exemption. Thus, both taxes are incurred. The $11,700,000 is not per donee but to all donees. A skip person is a beneficiary who is at least two generations younger than the transferor.

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6
Q

Can the alternate valuation date be elected if there is no estate tax due?

A

No

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7
Q

Are an installment sale and SCIN subject to income tax recapture?

A

Yes

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8
Q

Under an SCIN, with property be removed from the estate?

A

Yes- often effective strategy

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9
Q

Completed gifts, except certain life insurance transfers and gift taxes paid are never included in the gross estate. There is no 3 year rule with them.TF

A

T

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10
Q

When is a QPRT included in the donor’s gross estate?

A

When the donor does NOT outlive the term

If the grantor doesn’t outlive the term, the FMV of the home is brought back into the gross estate. It’s the same outcome as if the trust had never been created.

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11
Q

When gifting S corp stock to reduce gross estate what must the donor do?

A

Unless the donor gives away all the S corporation stock, something will be included in the donor’s gross estate.

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12
Q

What effect with the lapse of a general power have of the gift tax liability?

A

A lapse of a general power will subject the holder to a gift tax liability.

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13
Q

An individual’s deduction ceiling for gifts of appreciated long-term capital gains property to __% organizations is ___% of AGI unless he/she elects to ____.

A

NOTE: An individual’s deduction ceiling for gifts of appreciated long-term capital gains property to 50% organizations is 30% of AGI unless he/she elects to use the property’s basis rather than fair market value (FMV). An individual using basis can deduct up to 50% of AGI.

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14
Q

Distributed net income (DNI) is a concept that has not been developed for which of the following purposes?

It limits the amount of distributions that may be taxable to the beneficiaries.
It advises beneficiaries of the amount of income the trust has earned.
It establishes the character of the amount taxable to the beneficiaries.
It limits the deduction a trust may receive for amounts distributed to beneficiaries.

A

It advises beneficiaries of the amount of income the trust has earned.

DNI accounts for the income to the beneficiary.

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15
Q

Diane was an income beneficiary of a trust set up by her father. She was given a 5 or 5 power. At the time of Diane’s death, the trust was worth $100,000, and she had exercised her 5 or 5 right this year. What amount of the trust is included in Diane’s gross estate?

$0
$5,000
$10,000
$100,000

A

0

The question asked what amount of the trust is included. Nothing is included because she exercised her 5 or 5 right.

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16
Q

How can a gift to an irrevocable trust qualify for gift tax annual exclusion?

A

If it has crummey provision

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17
Q

The GRAT has a fixed income for how long?

A

a number of years

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18
Q

worried about depreciation and estate taxes with selling a business?

A

SCIN

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19
Q

Direct skip- Who pays GSTT?

A

transferor

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20
Q

Taxable termination- Who pays GSTT?

A

trustee

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21
Q

Taxable distribution- Who pays GSTT?

A

transferee

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22
Q

A CLAT is for what kind of donations?

A

LArge (over $500K)

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23
Q

For someone’s life insurance policy to be included in their gross estate under the 3 year rule, the person who gifted it away must be ____

A

the insured

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24
Q

Is the value of an annuity free from estate tax?

A

yes

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25
Q

What is special about the tax treatment about the remainder to a grat?

A

tax free to benes

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26
Q

What are the three situations in which life insurance would be included in the decedents estate?

A
  1. proceeds are paid to the executor of the decedent’s estate
  2. There was an incident of ownership at death
  3. The INSURED transferred a policy with an incident of ownership within 3 years of death (not sold)
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27
Q

Is a gift to a revocable trust a completed gift?

A

No

28
Q

Is a gift to a disclaimer trust a completed gift?

A

No

29
Q

Is a gift to a trust in which income will be accumulated for a period of years a completed gift?

A

Yes- but it is a gift of future interest.

30
Q

What’s the main difference in allowable investment holdings between an UGMA and an UTMA?

A

UTMAs can hold real estate

31
Q

With a charitable gift annuity, are there additions allowed? How long is income paid for? any charity or one specific?

A

No additions
Fixed lifetime income
One specific charity

32
Q

Simple or complex? 2503B and 2503C.

A

2503B is simple- income only- if it earns 6,000 in income, it’s paid to the bene and subject to income tax but excluded from gift tax

2503C is complex- taxed at trust rates

33
Q

Deductible debts include what three main types of debt?

A

Deductible debts include gift taxes payable, debts, and interest due

34
Q

When do you not use an installment sale?

A

Do not use if property is subject to recapture (1245 depreciation- gain is capital gain)

35
Q

Can interest on an SCIN be deducted?

A

yes

36
Q

Which has a higher payout, installment sale or SCIN?

A

SCIN

37
Q

If question says the property owner wants to gift away the property what are their options

A

Partnership S corp (gifting shares)

FLP (gift interests to limited partners to reduce estate)

Gift leaseback (gift of FULLY depreciated property)

QPRT- an irrevocable transfer of a personal residence

38
Q

When do you NOT to a gift leaseback?

A

When child is under 24

39
Q

What are the requirements for a section 303 stock redemption?

A

must be a regular or S corp (closely held)
value must be more than 35% of estate
only an amount of stock equal to a total of all estate taxes and admin expenses can be redeemed

40
Q

Can an A trust have HEMS provisions?

A

no, only ILIT, B trust, or C trust

41
Q

Which of the ABC trusts are subject to estate taxes?

A

A and C

42
Q

When are 529 plans included in the gross estate?

A

died within 5 years (no three year rule)

43
Q

First thing to consider when client is looking to gift

A

Can the client afford to gift

44
Q

When is a 709 required when spouses gift from a JTWROS or comm prop account?

A

If the gift is over 30k

45
Q

Bob (married) has terminal illness. His wife transfers low basis investments to his trust. Why?

A

If Bob dies within a year of his wife transferring those assets, they will get a step up in basis and the bypass trust CAN be fully funded.

46
Q

When do non durable power of attorneys become legally invalid?

A

At the onset on principals INCAPACITY

47
Q

Do dynasty trusts operate under the conduit principle?

A

yes

48
Q

For irrevocable (may any?) type of trust with a trustee, who do you listen to and why?

A

the trustee
trust in the client
trustee holds legal title
beneficiary hold only equitable title

When can you contact the attorney who drew up the trust? When funds are requested by the bene (or their attorney that may be for a HEMS issue like support)

49
Q

Best answer (type of trust) for a dad that wants to set up a trust for his minor children but worried they may not go to college?

A

crummey trust

50
Q

Which trust (2503 C or B) can distribute income to minor children?

A

2503C

51
Q

Which charitable giving technique should you think of when you see guaranteed income to donor and specific charity

A

charitable gift annuity

52
Q

Does totten trust avoid probate?

A

yes

53
Q

If someone dies owning a life insurance policy on someone else, is it included in the probate estate

A

yes, probate will determine who will own the policy after death

54
Q

Are taxable gifts subject to probate

A

no

55
Q

Does a donor paying the gift taxes on a gift like stock change the basis if there is no appreciation?

A

no

56
Q

If during lifetime an insured transfers his policy to someone else, the taxable gift is what?

A

equal to the interpolated plus the unearned premium (replacement value) of the policy

57
Q

What are the main ways a trust would be tainted for INCOME TAX PURPOSES?

A
  • trust income used to pay premiums on grantor or their spouse
  • they have a reversionary interest that’s more than 5% of value at the time of creation
  • grantor or their spouse has power to decide anything about the trust or principal and how it’s used
58
Q

What are the main ways a trust would be tainted for ESTATE TAX PURPOSES?

A
  • they have a reversionary interest that’s more than 5% of value at the time of DEATH
  • right to income or the right to use or enjoy trust property

tainting can be good for income tax purposes, but the client doesn’t want the irrevocable trust to be tainted for estate tax purposes

59
Q

What does DNI limit?

A

the amount that benes must report as gross income for tax purposes

60
Q

2503B
Qtip
Qdt
Dynasty

What kind of trusts are all these?

A

simple

61
Q

If a simple trust realized 8k from sale of stocks and it received $5k as divs on a stock held, what is the tax impact?

A

It’s required to payout the income (5K). The 8K is an addition to corpus. It is taxed as such to the trust.

62
Q

Gift tax implications (general power):

  1. under what circumstances is it taxed?
  2. what if it lapses with a 5 or 5 power?
A
  1. exercised, released, lapsed

2. not taxed

63
Q

Estate tax implications (general power)

  1. what is it taxed?
  2. what if is lapses, released, or exercised with a 5 or 5 power?
A
  1. exercised, released, lapsed

2. greater of the 5 or 5 is taxed

64
Q

slang for QTIP trust? and what is the key word to remember characteristics?

A 
current income trust
LAME
lifetime annual income for spouse
annual payments
mandatory payments
exclusively for spouse
65
Q

Which gifting techniques give income? (memory trick)

A 
PIGS. 
private annuity 
installment sale 
GRAT GRUT 
SCIN

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