Book 6 Pages 1 - 61 Flashcards
the process of accumulation, management, conservation, and transfer of wealth, considering legal, tax, and personal objectives
estate planning
emotional issues such as ____ and ____ make estate planning difficult
control and affection
what are the costs associated with estate planning?
cost of professional guidance cost of probate cost of transfer taxes opportunity costs cost of documents
estate planning objectives should include the ____ and ____ transfer of assets
efficient and effective
the efficient transfer of assets refers to ____
minimizing costs
the effective transfer of assets refers to ____
assets go to the desired beneficiary
when someone dies without a valid will
intestate
true or false?
when intestate occurs, the assets may not transfer to the desired beneficiary
true
a legal document that enables the testator (maker) to transfer property at the testator’s death in the manner the testator desires
will
what are some advantages of a will?
can name an executor can transfer property to anyone desired can specify how estate taxes are apportioned can designate guardians for minors can name charitable beneficiaries
when a person dies without a will (intestate), who directs how the decedent’s property will be distributed?
the probate court based off state laws
true or false?
in some states, a spouse’s share of the decedent’s estate will be equal to a child’s share. Example if 9 kids then each kid would get 1/10 and the spouse would get 1/10
true
true or false?
if intestacy occurs, assets will still be left to charity
false
the person making a will must be ___ years old or older
18
the person making the will must be of sound mind, also known as_____
testamentary capacity
the person making the will must have absence of ______
undue influence
_____ is present when someone, such as a trusted advisor, friend, or family member, influences the testator to include provisions in the will the testator would not have included otherwise
undue influence
true or false?
the absence of fraud is required for a will to be valid
true
the person making the will must:
understand the ____ of the act of making a will
understand the general nature of the will-maker’s ____
have the ____ to remember and ____ the nature of the ____ to the persons affected
nature ; property ; ability ; understand; relationship
a handwritten will
holographic will
true or false?
holographic wills are recognized in all states
false
do holographic wills need to be witnessed?
false
a dying declaration before sufficient witnesses
nuncupative will
true or false?
noncupative wills are recognized in all states
false
an oral will
nuncupative will
a formal will
statutory will
true or false?
an attorney should draw up a statutory will
true
true or false?
a statutory will does not have to comply with the laws of the domiciliary state
false
any real property outside the state of domicile will be subject to ____ probate
ancillary
true or false?
a valid will must include a revocation of all prior wills and codicils
true
true or false?
a valid will must name an executor and successor executor
true
states a beneficiary must survive a specific period beyond the testator’s death to receive the bequest
survivorship clause
to qualify for the estate tax marital deduction, the will cannot require the spouse to survive for more than ____ months to receive the bequest
6
bars transfer of beneficiary’s interest to a third party and stipulates that the interest is not subject to claims of the beneficiary’s creditors
spendthrift clause
if both spouses die simultaneously it creates a presumption as to the the order of death (the other spouse dies first)
simultaneous death clause
discourages heirs from contesting the will by substantially decreasing or eliminating their bequest if the file a will contest
no contest clause
a separate document that amends a will
codicil
what is the default method a court will use to determine where inherited property will go if there is not a valid will in place?
per stirpes
Give an example of per stirpes
Stephen had 3 children
1 of his children had two kids
the other two children had no kids
the child who has 2 children of their own passes away
Stephen then passes away with $300k of assets
the $300k would get distributed as 1/3 to each of Stephen’s own kids ($100k and $100k) and then 1/3 to the 2 grandkids ($50k and $50k)
give an example of per capita
Stephen had 3 children
1 of his children had two kids
1 of his children had one kid
1 of his children had no kids
the child who has 2 children of their own passes away
Stephen then passes away with $300k of assets
the $300k would be split up into 5 equal parts
1/5 to each remaining living person
per capita provides for an ____ share to each beneficiary
equal
a will that leaves everything to the surviving spouse
sweetheart or I love you wills
true or false?
a sweetheart or I love you will may cause over-qualification of an estate
true
synonyms for prenuptial agreement
antenuptial
married property agreement
___ avoids cluttering the will with small details or assets such as photos and other items of only sentimental value
letter of personal instruction (side letter)
states the writer’s wishes regarding tangible possessions of nominal pecuniary value and other matters such as funeral arrangements
letter of personal instruction (side letter)
true or false?
a letter of personal instruction is a legally binding document
false
establishes the medical situations in which the maker no longer wants life-sustaining treatment
living will/medical directives
true or false?
a medical directive gives permission to another person to make health care decisions on behalf of the incapacitated
false, it just lays out the incapacitated persons wishes that were made prior to becoming incapacitated
true or false?
durable and nondurable powers apply to medical directives
false
appoints a person to make health care decisions for the principal
durable power of attorney for health care
____ means the power remains effective even if the principal becomes incapacitated
durable
a durable power of attorney for health care may be ____ which means it becomes effective on incapacity
springing
a written document in which one individual designates another person or persons to act as attorney in fact
durable power of attorney
true or false?
you must be 18 years old to be a durable power of attorney
true
a durable power of attorney survives the principal’s ____ but not ____
incapacity ; death
a nondurable power of attorney does not survive the principal’s ____
incapacity
what types of people is having a durable power of attorney important for?
nontraditional couples such as cohabitating couples who haven’t married or same sex couples. It is important to have a durable power of attorney in place for them because if they didn’t the powers to make crucial decisions may fall to unintended family members
includes rights and interest associated with ownership in things other than real property
personal property
personal property can be ____ or ____
tangible or intangible
give examples of tangible property
cars, jewelry, furniture
give examples of intangible property
stocks, patents, copyrights, bonds
what are the two property rights?
right to possession and enjoyment
right to make disposition by sale, gift, other conveyance
personal property that is affixed to real property
fixtures
true or false?
even if the contract of sale specifically states that fixtures are not to be included in the sale of real property, they will still be sold
false, if they are specifically excluded by contract then they won’t be sold
a property interest where the is complete ownership with all rights
fee simple
true or false?
under fee simple interest, the property will pass through probate
true
fee simple property is also referred to as _____ ownership property
sole
the holder of the ______ has an exclusive right to the use and enjoyment of the property for the remainder of her life or for the life of another person
life estate
has the right to possess and use the property during the specified life
life tenant
the life tenant has an obligation to ______, ________, and _____
pay taxes
make repairs
not commit waste
similar to life estate except the interest is for a specific amount of time/specific period
interest for term
a right to ownership or enjoyment of property at some point in the future or upon the occurrence of a specified event
future interest
if the future interest goes to someone other than the grantor it is called ____
a remainder
if the future interest goes back to the original grantor, it is called _____
a reversion
the interest retained by a grantor who transfers a life estate to another without making a disposition of the interest remaining after the life estate terminates
reversion
a reversion is a ____ future interest
vested
interest that exists at the termination of a prior interest, such as a life estate
remainder
a remainder may be ___ and ____
conveyed and inherited
two or more persons holding an undivided interest in the whole property
tenancy in common
true or false?
under tenancy in common, each tenant’s interest can be sold, donated, willed, or pass through intestate
true
true or false?
when one tenant in common dies, the others automatically receive the dead tenant’s interest
false
two or more persons owning the same fractional interest
joint tenancy with right of survivorship (JTWROS)
true or false?
under JTWROS the interest of property passes to surviving owners if one were to die
true
does JTWROS property go through probate?
no
does tenancy in common property go through probate?
yes
true or false?
if two or more unmarried individuals purchase real property as JTWROS, there are no gift tax consequences if each individual contributed the same amount toward the purchase price
true
who would pay the gift tax if two or more unmarried individuals purchased property as JTWROS but with unequal contributions
the person who made the highest contribution
true or false?
when two or more unmarried individuals purchase property as JTWROS but with unequal contributions, the resulting gift tax is eligible for the annual exclusion
true
Joey owns a piece of real estate he purchased outright several years ago. When the value of the real estate increased to $300k he added his daughter’s name to the title as a JTWROS. What is the value of the gift that Joey just gave to his daughter?
$150k
half of the value at the time of addition of daughter’s name to title
when is a gift made if one unrelated person creates a joint bank account for his/herself and another person?
when the donee draws the funds (when the person who didn’t create the account draws the funds)
does JTWROS property avoid probate?
yes
if the joint tenants are not married, the _____ rule determines what portion of the property will be included in the decedent’s gross estate
percentage of contribution
Joey owns a piece of real estate he purchased outright several years ago. When the value of the real estate increased to $300k, he added his daughter’s name to the title as JTWROS. If Joey dies before his daughter, how much of the value will be included in his gross estate? What if the daughter dies before Joey?
$300k for joey (he contributed all of the purchase)
$0 for daughter
true or false?
if the joint tenants are married, one half of the property is included in the gross estate of the first spouse to die regardless of the amount each spouse contributed to the property
true
Joey and his daughter purchased a piece of real estate as JTWROS several years ago for $300k. They each contributed in equal share to the purchase price. At joey’s death the value was $1million. How much is included in his gross estate and what will his daughter’s new basis be?
$500k
$650k
a JTWROS only between spouses
tenancy by the entirety
true or false?
under tenancy by the entirety, one spouse can sever interest without the consent of the other spouse
false
states that married individuals own an equal, undivided interest in all property accumulated during the marriage
community property
true or false?
one half of community property is included in the probate estate and gross estate of the first spouse to die
true
true or false?
both halves of the community property receive a step up in basis to FMV on the date of death of the first spouse
true
what happens to the property if you move from a common law state to a community property state?
the property remains separate if it was separate originally
what happens to the property if you move from a community property state to a common law state?
the property remains as community property
proves the validity of a will
probate
enables title of property to be transferred from a decedent to the rightful beneficiaries
probate
verifies the orderly distribution of assets to the heirs
probate
true or false?
probate protects creditors by ensuring debts of the estate are paid
true
true or false?
probate can be costly and complex
true
true or false?
probate is not open to public scrutiny
false, it is
true or false?
if assets pass to heirs by a will, then the will goes through probate
true
real property passes under law of the state where ____
the property is located
personal property passes under law of the state where the _____ is
decedent’s domicile
true or false?
assets passing to heirs by contract will avoid probate
true
what is the applicable exclusion (exemption) amount for gift tax, estate tax, and generation skipping transfer tax for 2017?
$5,490,000
the maximum tax rate for gift tax, estate tax, and generation skipping tax in 2017 is ____
40%
a completed transfer of an interest in property by an individual in exchange for less than full and adequate consideration
a gift
true or false?
gifts from an individual are usually excluded from the recipient’s gross income
true
true or false?
gifts from a business to employees may be included in the employee’s gross income
true
gifts effective at death are not actually called gifts, they are called ____ transfers
testamentary
true or false?
for the gift tax to apply to a person the property received must be tangible, but if it’s intangible no gift tax will be paid
false, it can be tangible or intangible
true or false?
the gift tax applies to non resident aliens who receive tangible or real property only
true
when does a revocable trust become a completed transfer?
when the grantor releases the power of revocation and the trust becomes irrevocable
a donor may exclude from taxable gifts the first $_____ for 2017 to each donee
$14,000
to use the annual gift tax exclusion of $14k, the gift must be of a ____ interest
present
true or false?
gifts of future interest are eligible for the annual exclusion of $14k
false
for gifts in trust that contain a ____ power, the annual exclusion applies to each beneficiary or contingent beneficiary of the trust
Crummery
the annual exclusion can be doubled to $28k by electing gift ____ with a spouse
splitting
true or false?
when gift splitting occurs, the spouses must file a gift tax return
true
Kelly makes the following gifts this year:
cash $14k to nephew 6 month CD $8k to niece antique rifle $20k to friend bonds in an irrevocable trust (life estate to father) $60k remainder $18k to cousin
what is her total gifts made and total taxable gifts for the year?
total gifts made = $120k
total taxable gifts = $70k (the full $18k to cousin is included because it is a remainder gift and therefore not a present interest gift
John and Mary made the following present interest gifts this year (they are married):
Son $40k and $16k
Daughter $40k and $6k
Grandaughter $30k and $6k
what are their taxable gifts with and without gift splitting?
without gift splitting = $70k
with gift splitting = $54k (add up both of their gifts and then divide by two. Then apply the exclusions to get to the taxable gift. For example for the son they gave $56k, divide by 2 = $28k (split gift). $28k each is over the annual exclusion by $14k each. So for the son the taxable gift is $28k
if your mom owns a condo and then adds you and your two siblings to the tile as JTWROS, has you mom made a gift? what if any gift would result from a $200k house in this situation?
yes ; $50k gift to the children
true or false?
a transfer of any amount to a qualified educational institution for the payment of tuition is not subject to gift tax
true
true or false?
a payment of any amount to a provider of qualified medical expenses is not subject to gift tax
true
gift loans under $_____ are not subject to gift tax unless the loan proceeds are used by the donee to purchase income producing property
$10k
gift loans of $_____ or less where the donee’s net investment income does not exceed $____ are not subject to gift tax
$100k ; $1k
Grace made an interest free loan to her daughter for $90k. On the basis of applicable federal rates, the interest would have been $7200. The daughter’s net investment income is $3k. The imputed interest is $3k. What is the amount of the gift that Grace made to her daughter?
$3,000
net investment income was over $1,000 so you have to take the difference between the federal interest $7200 and the actual interest $0. But that gets capped by the total net investment income which is $3,000
a refusal by a person to accept property that is designated to be transferred or passed to him/her
disclaimer
for a disclaimer to be effective for federal transfer tax purposes, it must be in ____ and be ____
writing ; irrevocable
for a disclaimer to be effective for federal transfer tax purposes, it must be made within ____ months of the later of the date the interest came into being or the date the person named to receive the property reached age ___
9 ; 21
for a disclaimer to be effective for federal transfer tax purposes, the disclaiming party cannot have ______ from the interest disclaimed
previously benefited
for gifts to a noncitizen spouse, only the first $_____ per year of gifts of a present interest are not subject to gift tax
$149k
the value of a gift for gift tax purposes is the ____ on the date of the gift
FMV
for securities, the value of the gift is the average of the ____ and ___ prices on the date of gift or date of death
high and low
a ____ is an interest in property that begins in the future
remainder
what is the gift tax value of a remainder?
the present value of the interest on the date of gift
the ___ is liable for any gift tax due
donor
true or false?
if the donor fails to pay gift tax, the donee may become liable
true
___ gifts occur when the donor and donee agree, prior to the gift, that the donee will pay any gift tax due
net
form ___ is used for gift tax purposes
709
if gift splitting is selected form ___ must be filed
709
true or false?
if a gift of future interest has been given, you must file a gift tax return form 709
true
true or false?
if the gifts to one donee for one calendar year exceed the annual exclusion amount then you must file a gift tax retrun
true
when net gifts occur, the donor may need to realize taxable income. What amount would they realize?
an amount equal to the gift tax paid by the donee - adjusted basis of the donor
gift taxes paid are not included in gross estate except when gifts are made within ___ years prior to death
3
transferee receives both legal title and beneficial (economical) ownership
outright gift
transferee only receives legal title
legal gift
transferre only receives beneficial (economical) ownership
beneficial gift
true or false?
the uniform gifts to minor act allows for gifts to include real property
false
true or false?
the uniform transfers to minors act allows for transfers to include real property
true
true or false?
a crummery minor’s trust requires distributions to begin once the child is age 21
false
under a section 2503(c) trust, principal distribution is discretionary until the minor reaches age ___
21
a trust set up for a beneficiary composed of an income interest and a remainder interest
2503(b) trust
true or false?
under a 2503(b) trust, income must be distributed annually
true
when the donor gives appreciated property to the donee, generally the basis to the donee is equal to ____
the basis of the donor
chelsea gave virgina stock with a FMV of $60k and paid gift tax of $15k. Chelsea originally acquired the stock for $20k two years ago. What is Virginia’s basis in the stock?
$33,043
$20k + ($40k/$60k) x $15k
Bill received an acre of land from his father as a gift. at the time of the gift the land had a FMV of $700k. His father purchased the land 4 years ago for $800k. His father paid gift tax of $100k.
If Bill sold the land one week later for $850k, what is his gain or loss?
if he sold it for $550k, what is his gain or loss?
if he sold it for $730k, what is his gain or loss?
$50k long term gain ($850 - $800) (use original basis as his own basis when there is a gain)
$150k short term loss (use the FMV on date of gift as basis)
no gain or loss because it was sold for a value between FMV on date of gift and original basis
last year melisa gave her daughter melanie stock with a FMV of $20k. Melisa paid gift tax of $5k. Melisa purchased the stock several years ago and had an adjusted basis of $12k. In the current year Melanie sold the stock for $24k. What is Melanie’s basis and gain on the sale?
Basis = $8k / $20k x $5k + $12k = $14k
gain is $10k long term
the holding period for gain basis starts on the date the ____ acquired the property
donor
the holding period for loss basis starts on the date of the ___
gift
property owned by the decedent
section 2033 property
is section 2033 property included in a decedent’s gross estate?
yes
is a court award for wrongful death paid to a decedent’s family included in his/her gross estate?
no
are state income tax refunds included in a decedent’s gross estate?
yes
dower and curtesy interest
section 2034
true or false?
dower and curtsey interest are fully deductible under the marital deduction
true
certain gifts made within 3 years of death
section 2035
transfers with a retained life estate
section 2036
transfers taking effect at death
section 2037
revocable transfers
section 2038
proceeds of life insurance
section 2042
this type of annuity pays the annuitant until his death
straight life annuities
are straight life annuities included in a decedent’s gross estate?
no
what type of annuity would be included in the decedent’s gross estate?
survivorship annuities
if a decedent has ownership interest in a life insurance policy on the life of another person, will there be anything included in their gross estate?
yes, likely the cash surrender value
section ___ states that some annuities most be added to a decedent’s gross estate
2039
as a general rule, jointly owned property will be fully included in a decedent’s gross estate unless
- ___
- ____
the other joint owner is the spouse then only half of the value gets added to gross estate
the other joint owner has documentation that can prove what amounts each of them contributed to the purchase
section ___ states that some joint interests in property will be included in a decedent’s gross estate
2040
true or false?
assets under a limited or special power of appointment are not included in a decedent’s gross estate
true
section ___ states any assets under a general power of appointment held by the decedent at the time of death are included in their gross estate
2041
the alternate valuation date is = to ____
the FMV as of 6 months after the date of death
wasting assets are valued as of the ____
date of death
give some examples of wasting assets
annuities copyrights patents cash accounts installment notes
Ben died recently and left the following assets:
land with FMV of $5mil and Alternate val of $4.5mil
stock with FMV of $3mil and alternate val of $3.1mil
annuity with FMV of $100k and alrernate val of $95k
condo with FMV of $300k and sold 2 months after death for $295k
if we use the alternate valuation date, what amount is included in his gross estate?
$7,995,000
the annuity is a wasting asset and can’t use the alternate valuation date
the condo is valued as of sale date
what value is reported on Bill’s estate tax return if he dies on August 29th and the stock he owned was trading at a high of $60 for that day and a low of $58 for that day?
$59 per share
what value is reported on Bill’s estate tax return if he dies on June 5th but the stock doesn’t trade that day, it trades on the following dates?
Monday 6/2 $27
Wednesday 6/4 $25
Monday 6/9 $28
Tuesday 6/10 $29
(1 x 28 + 2 x 25) / 3 = $26 per share
when is the estate tax return due?
generally 9 months after the date of death
is there an extension allowed for the estate tax return?
yes, 6 months
under _____, both spouses’ halves receive a step up in basis to FMV at the death of the first spouse
community property
the date the board of directors approves and declares that a dividend will be paid to shareholder
date of declaration
the date the market price of the stock adjusts for the dividend
ex dividend date
true or false?
if the stock is selling ex dividend on the date of death, the amount of the dividend is added to the ex dividend price in valuing the stock on the estate tax return
true
the date the company determines who owns the stock in the company and is entitled to a dividend
date of record
the date the company pays the dividend to its shareholders
date of payment
can life insurance be included in a uniform gift to minors?
yes
can securities be included in a uniform gift to minors?
yes
under the double basis rule, if the donee disposes of the property at a higher price than the donor’s adjusted basis, the donee determines the gain based off ___
the donor’s basis
under the double basis rule, if the donee disposes of the property at a lower price than the donor’s FMV at the time of the gift, the donee determines the loss based off ___
the FMV at the time of the gift
true or false?
you never add gift tax to a gift of loss property
true
true or false?
you always add gift tax to a gift of property that has gain
true
