Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

CFP > CFP Estate > Flashcards

CFP Estate Flashcards

You may prefer our related Brainscape-certified flashcards:
CFP® flashcards
1
Q

Non community property

A

Income earned / assets owned prior to marriage
Received as gift or inheritance by one spouse

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Community property step up

A

Full step up in basis (LTCG property only) if at least 50% is included in deceased’s gross estate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What assets do not get a step up in basis?

A

Profit-sharing plan (NEVER a step up in common or community)
CDs (not LTCG)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

JTWROS

A

does NOT go through probate
passes to joint owners directly bypassing the will

would require attorney to sever joint tenancy which would change it to TIC

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Non spouse joint owner

A

First to die gets 100% in gross estate unless other person can prove CONTRIBUTION

A gift of property is not deemed to be a contribution

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

TBE

A

can ONLY be held by spouses
no probate
cannot be disclaimed
transfer requires MUTUAL consent

Why? Protected from claims of ONE spouse’s creditors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

TIC

A

Tenants in common
subject to probate

UNDIVIDED interest

no survivorship rights, just goes through probate/gross estate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Probate assets

A

ICET
Individually owned
Community
Estate as bene
Tenants in common

NOT Probate
JTWROS
TBE
POD / TOD
Totten Trust
Transfer by contract (beneficiaries) for IRAS, Qual plans, life ins, annuities
Deeds of title
Trusts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

When is estate tax filing required?

A

Form 706
if gross estate plus taxable gifts > exemption amount
OR
if electing portability

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Gross Estate

A

All probate
+
JTWROS/TBE
Life insurance (including any transferred w/in 3 years)
Gen power of appointment
Retained interests
and
GIFT TAXES PAID WITHIN 3 years of DEATH

GSTT paid within 3 NOT added back

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Adjusted Gross Estate

A

After funeral expenses, admin expenses, debts, taxes, casualty losses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Taxable estate

A

Gross > AGE
Minus marital
and charitable deductions

BOTH UNLIMITED for US citizen spouse

property must actually pass to spouse (Exception: QTIP)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Which ownership types are disclaimable?

A

JTWROS
Sole ownership
Tenants in common

Exception:
Tenants by Entirety
Think “E” for exception

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

USDA
Uniform Simultaneous Death Act

A

IF two people die within 120 hours = 5 days

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Totten trust

A

Like a POD/TOD

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Which assets get step up?

A

LTCG - stocks, mututal funds, Home, Life insurance death ben (amount over premium paid)

NOT ordinary income producing
Vehicles, IRAs, CDs, 401k, Var Annuity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Testamentary trust

A

created by will after probate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Estate / Gift
Exemption vs Exclusion

A

Annual Exclusion: $18K
Lifetime Exemption: $13.61M

Total: $13,628,000

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Estate Tax Base

A

Gross > AGE > Taxable Estate
PLUS Adjusted Taxable Gifts (amounts > annual exclusion)
= Tax Base

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Estate Tentative Tax

A

Gross > AGE > Taxable Estate > Tax Base
LESS estate tax deduction
* 40%
= Tentative Tax

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Net Estate Tax

A

Gross > AGE > Taxable Estate > Tax Base > Tentative Tax
Less Gift Taxes Paid
=
Net Estate Tax

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What assets might not be included in the gross estate at FMV?

A

Life estates
Remainder interests
Reversionary interests
Single (pure) life annuities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

When is life insurance included in estate?

A

Decedent is insured:
Proceeds paid to executor of estate
Decedent at death possessed an incident of ownership in the policy
Insured transferred a policy with incident of ownership within 3 years of death

IF SOLD for value (vs gifted), nothing is included (VIATICAL) except cash value rec’d

If SPOUSE or someone else is the insured:
Replacement cost of policy included in your estate

If gifted to child, nothing included

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What is an incident of ownership in life insurance?

A

Right to assign, terminate, borrow against, name bene’s, change bene’s

NOT paying premium

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Estate tax implications of power of appointment

A

General power (outright ownership)
Subject to estate and gift tax

Limited power
NOT subject to estate or gift tax b/c holder cannot appoint the property to themselves

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Estate tax - Retained interest property

A

Included in gross estate
Exception: 529 plans

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Non typical forms of a gift

A

Forgiveness of debt
Below market loans
Assignment of benefits of an insurance policy
Transfer of property to an irrevocable trust (Transfer to a revocable trust controlled by donor is not a gift)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Appropriate donee for highly appreciated property

A

Charity or donee in low tax bracket
May want to keep until death to get step-up in basis (compare estate tax vs cap gains rate)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Donating Property LIKELY to appreciate

A

Good to gift to remove future growth from estate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Gifting income-producing property

A

Good to gift only if donee is in a lower tax bracket

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Gifting Loss Property

A

Sell to take the loss and then gift the proceeds from the sale

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Gifting out of state property

A

Good to avoid ancillary probate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Gifting property subject to depreciation

A

Keep until fully depreciated

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Gifting fully depreciated property

A

Excellent gift using lease back technique

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

Gifting life insurance

A

Excellent to gift - valued at replacement value but “blossoms” to face value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

Valuation of gift

A

Gain property
Value = FMV minus annual exclusion
Basis carries over from donor if FMV > adjusted basis

Loss property
“Dual basis” or “Double basis” rule
Sale price above original basis > Gain
Sale price between original basis and FMV of gift > 0 no gain or loss
Sale price below FMV value > Loss (ST/LT based on holding period)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

Deductible gifts (for gift tax purposes)
aka Exempt gifts
aka Qualified transfer

A

Gifts to US citizen spouse
Gifts to qualified charities (may or may not be INCOME tax deductible)
Qualified payments in any amount made directly to Education institution for tuition only, or Medical Care Provider
Gifts to AMERICAN political parties

Taxable gift amount = 0

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

When is 709 required?

A

> $18K to any non spouse donee
Gift of future interest in any amount
Gift from INDIVIDUAL account for which electing gift splitting

If joint account, consent/filing not required - assumes 50% from each - unless over the limit

If 36K from single account, have to file and spouse signs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

Gifts of a future interest

A

do NOT qualify for the gift tax exclusion - meaning they are a taxable gift
- 2503b is future interest except annual income
- remainder interest
- trust in which income will be accumulated for a period of years

exceptions (these do qualify):
529
UTMA/UGMA
2503c minor trust
crummey trusts - also used for minors - 30 day withdrawal rule makes it a present interest

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

Non citizen gift recipient exclusion

A

$185K annual

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

Taxable gift vs Gift tax

A

can still be a taxable gift, but only TAXABLE after exclusion

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

Not a completed gift

A

Revocable trust
Disclaimer
Disclaimer trust

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

Tainted trust for income tax purposes

A

Trust income is or may be used to pay premiums on life insurance (ILIT) for life of grantor or spouse
(via yearly gift or income on lump sum gift)

Reversionary interest that exceeds 5% of trust value at TIME OF CREATION

Power to control beneficial enjoyment of P&I held by grantor or spouse, retaining right to decide WHO will receive and/or WHEN they will receive

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

Tainted trust for ESTATE tax purposes

A

Reversionary interest > 5% at TIME OF DEATH

Beneficial enjoyment - right to income or right to enjoy trust property

> > Double taxation - income & estate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

Simple vs Complex Trust

A

Complex taxed as separate entity
Irrevocable AND grantor has NOT retained any control
and
Income is accumulated , MAY be distributed
Accum income taxed to trust
Corpus MAY be distributed
Example: 2503c
Charitable gifts permitted

Simple - conduit for forwarding income to beneficiaries
Income MUST be distributed, taxed to beneficiaries
No distribution of corpus
Example: 2503b, QTIP, QDT, Dynasty
Charitable gifts not permitted
Corpus distributed at termination

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

DNI

A

Distributed/Distributable Net Income

Limits the amount that trust beneficiaries must report as gross income for income tax purposes

Provision added to a trust to prevent general power by limiting the amount that the bene can pull out.
DNI means they only have right to income.
When beneficiary dies, none of the corpus will be included in beneficiary’s estate.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

Distributed net income (DNI) is a concept that has been developed for which of the following purposes except?

A. Limiting the amount of distributions that may be taxable to the beneficiaries.
B. Advising beneficiaries of the amount of income the trust has earned that represents their interest.
C. Establishing the character of the amount taxable to the beneficiaries.
D. Limiting the deduction, a trust may receive for amounts distributed to beneficiaries.

A

B

DNI accounts for the income to the beneficiary as well as the corresponding deduction for the trust.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
48
Q

During the year a simple trust realized $8K capital gains from sale of bonds and $5k from dividends. how much would be distributed?

A

$5K
Trust req’d to payout income. The rest is addition to corpus and taxed to the trust.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
49
Q

Crummey trust

A

Irrevocable trust with demand rights. Temporary demand right for period after contribution is made to trust

Makes it a gift of a PRESENT interest

Typical usage for unfunded life insurance trust

ANNUAL right of w/drawal is LESSER of value of gift transferred OR annual exclusion $18K

HAPPENS WHEN MONEY IS GOING IN

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q

Ascertainable standards

A

ie HEMS

Distributions for ascertainable standards are NOT subject to estate tax or gift tax

51
Q

Five or five power

A

Greater of $5000 or 5% of corpus is included in my estate if i die and have NOT exercised my 5 or 5 right that year

Nothing to do with future vs present interest
This withdrawal is available only after Crummey right is settled

AFFECTS MONEY GOING OUT

52
Q

Grandmother sets up $1m trust where I receive all income and 5 or 5 power.

What is included in my estate if i have NOT exercised my 5 or 5 right for that year and I die?

A

Greater of $5K or 5% included in my estate

53
Q

Grandmother sets up $1m trust where I receive all income and 5 or 5 power.

What is included in my estate if i exercised my 5 or 5 right and spent the money and then died?

A

Nothing

54
Q

Grandmother sets up $1m trust where I receive all income and 5 or 5 power.

What is included in my estate if i exercised my 5 or 5 right and and then died without spending the money?

A

Nothing from trust included but the unspent money is included

55
Q

How much of a trust from grandmother is included in my estate if I do NOT have a 5 or 5 power?

A

Zero

56
Q

Durable vs Non Durable vs Springing POA

A

Durable extends throughout Competent to Incompetent

Non Durable only good while Competent

Springing good for Incompetent

57
Q

Special needs trust

A

For disabled individual
Preserves PUBLIC benefit eligibility
(Medicaid, SSI, Section 8 housing)

Funded by parent or other

58
Q

OBRA
Omnibus Budget Reconciliation Act ‘93
“Payback Trust”

A

Funded by disabled person
Medicaid eligible but state paid back on death

59
Q

3 year rules
(within 3 years of death)

A

Gift taxes paid go to gross estate

Life insurance on your life transferred goes to gross estate

60
Q

Trust provisions

A

Crummey - when money goes IN
lesser of 18K or value of gift PER YEAR

Money going OUT:
Income only
Special power (HEMS) ascertainable standard
5 or 5 - only taxable to estate if > 5K or 5%

61
Q

B Trust

A

First spouse to die controls it

Controlled from “B”elow ground
aka: Bypass
Credit Shelter
Family Trust
Non-Marital
Applicable Credit Amount

Usually an amount up to exemption amount $13.61
can have HEMS and 5 or 5 provisions

62
Q

C Trust

A

POST MORTEM control over trust when 2nd spouse dies

QTIP trust
Cue-TIP “C”
Current Int

Assets pass by Marital Deduction

L-A-M-E
Lifetime income
Annual payments
Mandatory
Exclusively for spouse

Included in ESTATE OF 2nd spouse

63
Q

A Trust

A

Second spouse to die controls it
“A” above ground
Marital
Spousal
General power of appointment = outright ownership

Assets pass by Marital Deduction
Included in ESTATE OF 2nd spouse

64
Q

Reverse QTIP election

A

Preserves the GSTT exemption

Although a marital deduction is claimed for a QTIP trust, the estate can treat the trust, solely for GSTT purposes, as if it is still part of the decedent’s taxable estate.
Simply put, GSTT exemption is not lost if reverse QTIP elected.

65
Q

QDT / QDOT

A

Qualified Domestic Trust
Similar to QTIP but for non-citizen spouse

Qualifies for the unlimited marital deduction

66
Q

Non-citizen spouse estate tax implications

A

No estate tax marital deduction
Exemption amount IS available if resident alien (green card)
Jointly held property is NOT considered 1/2 owned. Ownership based on consideration.

Gift “Super” annual gift tax exclusion of $185K

To qualify for marital deduction property must pass to QDT

67
Q

US citizen married to Non-US citizen
Non-US citizen dies leaving all to US citizen
Estate tax implications?

A

No federal estate tax due
Cannot impose on foreign citizen

68
Q

Betsy Ross US citizen married to Canadian living in the US

She has gross estate of $15.61m. She dies. No QDT in place. What will be the taxable estate?

A

$15.61M
no marital deduction
This is TAXABLE ESTATE
before the estate tax deduction

69
Q

Sprinkling / spray provision

A

income only
vs P&I

70
Q

Rule against perpetuity RAP

A

Dynasty trust = B trust
can cover lives in being + 21 yrs and 9 mos
then distributed

71
Q

Trust Powers

A

General - outright ownership - included in estate at death
DNI - income only - not included in estate
5 or 5 - use it or lose it each year - general power but limited to 5/5 - unused
HEMS - ascertainable standard - not included in estate

72
Q

UGMA vs UTMA

A

UGMA securities, EE’s, life insurance, annuities. Most states, no real estate.
Distributed normally at 18

UTMA allows ANY property including real estate, partnership interests, patents, royalty interests, IP
Distributed normally at 21
Can be testamentary

Both can be included in custodian’s estate

73
Q

529’s and K-12

A

$10k a year

74
Q

529’s and student loans

A

$10k / lifetime / student

75
Q

529 benefits over UGMA/UTMA or 2503c

A

no $18000 annual gift limit
No age 21 rule
and Retained Interest

76
Q

2503b vs 2503c

A

2503b:
future interest (no exclusion)
INCOME distributions only, can be subject to kiddie tax
the income is present interest qualifying for annual exclusion

2503c:
present interest qualifies for exclusion, remainder taxed at TRUST RATES (not kiddie tax)
normally distributed at 21
can be included in grantor/trustee’s estate
costs to setup and maintain
any type of asset

77
Q

Dynasty trust

A

B trust benefitting multiple generations
Can last for the lives in being plus 21 years and 9 months (rule against perpetuities) OR as long as local law allows

Income is taxable but the trust passes from one generation to the next tax-free

78
Q

Mr and Mrs want to establish a dynasty trust. how much can they contribute and not incur any tax due at inception?
A: Mr up to his exemption amount
B: Mr and Mrs up to combined exemption amount
C: Mr and Mrs up to exemption amount plus 2 annual exclusions

A

B
no annual exclusion b/c gift of future interest

79
Q

Charitable transfer
Income to charity first

A

CLAT / CLUT (no 5%)
not effective while living but rather established at death
income goes to charity, then remainder to children/bene’s

Private Foundation (5%)
can grant to individual person/non charitable bene

80
Q

Charitable transfer
Income to donor first

A

Trust:
CRAT (5%) - no add’s, payments fixed “sum certain”
CRUT (5%) - add’s allowed, payments variable min 5% of reappraised value. Think U - unequal payments.

Life term or not > 20 years

No Trust/Single Charity:
Pooled Income - add’s allowed, payments variable, common fund
Charitable Gift Annuity - no add’s, fixed income. Deduction is excess over annuity amount.

81
Q

Which charitable transfers have 5% min rule?

A

CRAT
CRUT
Private Foundation

82
Q

Donor advised fund

A

“poor person’s private foundation”

charity sets up a sub account or FUND in the donor’s name
donor makes recommendations of grants to be paid
no income stream

83
Q

Wealth replacement trust

A

ILIT
to provide estate liquidity
or
to fill the gap of money put into CRT’s so there is money for heirs

84
Q

NIMCRUT

A

Net Income with Make-Up Unitrust

CRUT for working people who don’t need/want the income from the CRUT

Make-Up - deferring the initial income payments until retirement and then making up the entire amount

Good way to defer income

85
Q

Charitable stock bailout

A

Gift of stock of closely held corp
cannot agree on timeframe for redemption

86
Q

Charitable bargain sale

A

sale for less than FMV

(sale amount / FMV ) * basis = adjusted basis

sale - adjusted basis = taxable gain

87
Q

Intrafamily transfers - Property owner needs income

A

Installment sale
SCIN - self-canceling installment note
Private annuity
Grantor Retained Annuity Trust (GRAT/GRUT)

PIGS need income
Private.. Installment …GRAT/GRUT… SCIN

88
Q

Installment sale

A

sale of property at FMV in exchange for payment stream
spread out and defer capital gain

PV of remaining payments INCLUDED in estate
Gain is capital gain
Do NOT use if property is subject to recapture - if installment sale triggers recapture of depreciation it must all be recognized in year of sale

89
Q

SCIN

A

Self cancelling installment note
Balance of any payments due at date of death are cancelled

NO value included in owners estate
Gain is capital gain
Assets can be depreciated
Interest can be deducted
Higher payment than installment and buyer will pay more

Cancelation of payments will trigger recognition of the entire remaining capital gain on decedents estate tax return

90
Q

Private annuity

A

Not used anymore
Sale of property in exchange for periodic payments from private party/family member

NO value in owners estate
Property transferred for a promise
Proposed regulations would have ALL gain from life of annuity taxed in the year it was established

If reg changes, likely to stop using private annuities

91
Q

GRAT / GRUT

A

Grantor Retained Annuity Trust / Uniform Trust
Irrevocable trust FOR APPRECIATING OR INCOME PRODUCING PROPERTY in exchange for annuity - think “GR” for GReatly Appreciating, like crypto
NOT GOOD IF HEALTH ISSUES

End of term, corpus distributed to remainder person
Value of the gift is discounted (due to the retained interest)
Owner must outlive term or the asset is brought back into estate - “string” attached

GRUT will have variable payout due to fixed % of revalued assets

OBJECTIVE is to remove the asset from the estate

92
Q

GRIT

A

Grantor retained income trust
no tax advantage for family
good for common law arrangements
used to be for same sex couples

93
Q

Which intra-family / business transfer techniques allow owner to maintain control?

A

Partnership/S corp - gifting shares
Family Limited Partnership

NOT
installment sale
SCIN
Private annuity
Gift Leaseback
GRAT/GRUT

94
Q

Installment sale vs SCIN re: estate tax

A

Installment sale - use when no estate tax issue
SCIN - use if estate tax IS an issue

95
Q

Intrafamily transfers - Property owner does not need income / wants to gift assets and/or income to family members

A

Gifting shares of Partnership / S Corp - take advantage of annual gift exclusion and use to shift income to recipients

Family Limited Partnership

Gift leaseback - for FULLY depreciated property
QPRT - personal residence

96
Q

Gifting shares of Partnership or S Corp

A

Business entity must be capital sensitive, not available if service related business (rental income OK)

Ineffective if child < 24 due to kiddie tax

Maintains control

97
Q

FLP
Family Limited Partnership

A

Why create it? Gifts can qualify for various valuation discounts.
example: $18K gift may be discounted by 50% allowing a tax free gift of $36K

No step up

General partner maintains control

98
Q

Gift leaseback

A

FULLY depreciated assets
Business can take a deduction for the lease payment
Gift to a lower bracket family member

99
Q

QPRT
Qualified Personal Residence Trust

A

irrevocable
retains interest for personal occupancy for period of years
then passes to beneficiaries of trust
can be primary residence + vacation home

gift of FUTURE interest - NO annual exclusion amount
at the END of the trusts initial term, value would pass estate tax free

Also has a “string” attached
if owner dies before initial term expires, FMV at date of death is included in donor’s estate

WHEN?
Large residence valued at $1m or more
Reasonable life expectancy (at least 10 years)
Donor stays in residence
Large estate > $13.61m single, $27.22M married

100
Q

Which family transfer techniques have a “string” attached?

A

GRAT/GRUT
QPRT

If owner dies before the term ends, full FMV comes back into estate

101
Q

Who is a skip person for GSTT?

A

2 generations younger (or more) if same family
or
Unrelated person 37 1/2 years younger (18 y + 9 mos + 18 y + 9 mos)

if children die, grandkids move up a level and are no longer SKIPs

102
Q

What are three types of skips for GSTT?

A

Direct skip (G1 > G3) No trust

Taxable Termination (Person terminates) Ex: Money in trust, G2 person dies so money goes to G3

Taxable Distribution (from Trust)

103
Q

Who pays the GSTT in different type of skips?

A

Direct Skip: Donor

Taxable Termination: Trustee

Taxable Distribution: Recipient

Danko Says Don’t
Talk Tennis w/Thomas
Thomas Doesn’t Relent

104
Q

GSTT exemption amount

A

flat tax of 40%
for each DONOR, $13.61m is exempt

$18K annual exclusion per DONEE for LIFETIME gen skipping DIRECT skip gifts only
NO $18K exclusion for Taxable Termination or Taxable Distribution

Spouse can consent to splitting
For DIRECT skips only:
Allocation of exemption is automatic but can elect to not apply some/all of it
For ALL other skips: allocation of exemption must be elected

105
Q

GSTT and Gift Tax

If Person dies with $18,610,000 estate tax base and all assets went to grandkids (children’s parents are living), how much GSTT and how much estate tax due?

A

Both apply

$2M estate tax ($5m x 40%)
GSTT =
$18.61 - ($13.61 + estate tax paid) = $3M x 40% = GST $1.2M

106
Q

GSTT calculation

A

Gen skipping amount
Minus
(exemption/exclusion amount PLUS estate/gift tax PAID)
=
Taxable amount
x 40%
GST tax due

Gift exclusion only while LIVING
GST exclusion only for Direct Skip

107
Q

Post mortem planning techniques
Alternate valuation date

A

Alternate value = FMV at six months after death

Both must occur before AVD can be elected:
Using it must cause reduction in total value of gross estate
Amount of fed tax liability must be reduced as a result

Generally must be applied to all assets
Not applicable to wasting assets that naturally lose value over time

CAN ONLY BE ELECTED IF ESTATE TAX DUE

108
Q

If the AVD alternate valuation date is elected, can assets be valued at dates other than the 6 month alternative valuation date?

A

Yes: Wasting assets cannot be valued with AVD

109
Q

Disclaimer conditions

A

Irrevocable refusal to accept interest
In Writing
Within 9 months of death
Cannot have accepted any interest in the benefits
As a result, interest will pass without disclaiming person’s direction, to someone else

110
Q

Disclaimer trust

A

Similar to bypass
If beneficiary disclaims assets, they can go into irrevocable trust that pays income or HEMS, no 5 or 5
Testamentary

111
Q

Post Mortem Elections for Estate Liquidity

A

Section 303 stock redemption
Installment payment of estate taxes

112
Q

Post Mortem Elections for Estate tax REDUCTION

A

Special use valuation (2032A)
Discounts the valuation of real estate up to $1,390,000

For Family farm or closely held business
50% of gross estate must be real/personal property
25% of gross estate must be real property
$750K indexed to $1,390,000 in 2024 reduction in gross estate
Must be qualified use: 5 out of 8 rule before death, 10 years after death

113
Q

Section 303 stock redemption

A

Post mortem election for estate tax liquidity
Corp makes a distribution of a portion of stock that will not be taxed as a dividend

Business must be INCORPORATED & CLOSELY HELD
Value of stock must be > 35% of adjusted gross estate

Amount of stock redeemed as cap gain cannot exceed the sum of the estate taxes plus admin expenses

114
Q

Installment method (6166)
Payment of estate taxes

A

Payable in 10 installments beginning 4 years after death

Property in a sole prop, partnership, or corp. Aggregation allowed if > 20% in each.
Value of businesses must be > 35% of AGE
First 4 years can pay interest only 2% for first tier, not deductible

115
Q

Estate planning for non traditional relationships

A

Revocable Trust or possibly Tenants in Common are good answers
Guardianship should be established for any kids

Will - not a good answer
JTWROS can be dangerous b/c one partner can sever the joint tenancy, reachable by creditors, etc.
No marital deduction
GRIT may be beneficial

116
Q

Mr X died while married to his 2nd wife. As part of estate settlement, she was given the right to live in HIS residence for remainder of HER life. Can property be treated as QTIP?

a. No there is no QTIP trust
b. Yes, as long as the executor elected to treat the property as a QTIP property

A

Answer: B
QTIP property need not be held in a trust. Only exception that he knows of.

117
Q

Dad is setting up educational trusts for his minor children now. Which type should he consider if concerned they may not attend college?

2503c
2503b
Crummey
Irrevocable
529

A

Crummey
Why? Gift of present interest but does not have to terminate at 21 (like 2503c) where they would get the corpus at 21.
2503b generally not for minors.

Both Crummey and irrevocable - can continue indefinitely. Irrevocable is gift of future interest.

529 is not a trust.

118
Q

Dad is setting up trusts for minor children. what type should he select?

2503c
2503b
Spendthrift
Irrevocable
UTMA

A

2503c
Present Interest until minor would take over

Unless irrevocable trust has crummey provisions it would be future interest (no exclusions)

119
Q

IRD

A

income in respect of decedent

120
Q

Net gift technique
Advanced gift strategies

A

Gift made on condition that donee pays the gift tax
Donor’s full exclusion $13.61 must first be exhausted
Decedents estate will include amount of gift tax paid by donees on net gifts made w/in 3 years of death

121
Q

Reverse gift
Advanced gift strategies

A

when one spouse possesses most of the wealth and other less affluent spouse has relatively short life expectancy

wealthier spouse makes a gift of low basis assets to the dying spouse

122
Q

Value of life insurance policy with partial premiums

A

Take expected growth in value over one year, prorate based on # of months into year

Plus interpolated terminal reserve at end of prior year/cycle

Plus Prorated portion of premium not used/received

Example:
Toby owns policy on his father face value $500K. Toby dies 6/30. Policy reserve was $40K on 11/30 last year and will grow to $46K this Nov. He made annual premium payment of $5K on 11/30 last year. What is value of policy in gross estate if IRR is 5%?

$46K-$40K = $6K x 7/12 months = $3500
+ $40K
+ $5000 x 5/12 = $2083 unearned annual premium

123
Q
A

CFP (7 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions