Ch 1 - Forecasting Estate Settlement Costs Flashcards
Documentation fees
Realty transfer tax
Name the 2 real estate fees
Real Estate Fees
Legal Fees
Accounting Fees
Possible Gift Tax Trustee Fees
Name the 5 Asset Transfer Costs during lifetime.
Final Expenses
Probate
Appraisal Fees
Taxes
Name the 4 Asset Transfer Costs at Death
Funeral
Medical
Debts
Taxes
What are final expenses?
Court costs
Attorney
Executor
Accountant
What are probate costs?
Buy-sell agreements
When are appraisal fees necessary?
Federal
State
GST
What taxes are due at death?
No annual exclusion is available
Appreciation is “in”
High effective tax rates
Tax inclusive
Name 4 Facts about Estate Tax Costs?
Administrative cost projections
Estate tax estimations
Inflation projections
Name 3 forecasting issues when making informed guesstimates
Appraisal skills of forecaster
Input availability of clients other advisors
Types of assets held
Willingness to pay for accurate appraisals
Name 4 valuation estimation factors
Credit reports
Proper/Casualty liability insurance
Mortgages
Clients financial statements
Appraisal guide books
Business valuation software
Name 6 valuation sources
Real property
Cash/money equivalents
Stocks/bonds
Notes/mortgages
Outstanding loans by decadent to others
Income tax refunds due
Patent/copyrights
Damages owed decedent
Dividends declared and payable
Income in respect of decedent
Partnership/unincorporated business interests
Tangible personal property
Vested future rights
Decadents share of property held with others
Name the 14 items that qualify for Section 2033 inclusion.
*Transfer of rights of retained interests for life
*Transfer of rights taking effect at death
*Transfer of rights to alter amend revoke or terminate transferred property
*Transfer of power to affect beneficial interests in transferred property
*Transfer of life insurance policies
*Gift taxes paid
Name the 6 items that qualify for Section 2035 inclusion - i.e. Within 3 years of death
Transfers by gift with retained life interest
Retention of voting rights
Property comes back into estate at date of death value
Name the 3 items that qualify for Section 2036 inclusion.
Change beneficiaries for income or corpus
Hasten/delay time for receipt of property
Increase/decrease beneficiary’s share
Terminate trust
Revoke trust
Manage/control trust property
Replace trustee with self/spouse
Name the 7 inclusion powers for section 2038 revocable transfers. Power to:
Add to trust corpus
Help determine investment policies
Direct issuance of voting proxies
Name the 3 NON inclusion powers for section 2038 revocable transfers. Power to:
*Did decedent have the right to an annuity while alive
*Did the decedent leave anything to a survivor
*Did the decedent or decadents employer provide some or all of the funds
Name the 3 things required for section 2039 annuity inclusion
Amount includible is the value of the survivor annuity provided by decadents or employers funds
What is the amount includible in a section 2039 annuity inclusion
Section 2040 - Joint Tenancies Right of Survivorship Married: 50% rule Barry & Betty buy a $200k house. It is titled in both names jointly with right of survivorship. Barry pays $150 and Betty pays $50. Barry dies shortly after home was purchased. What amount is included in Barry’s GROSS Estate?
100K
Self
Creditors
Estate
Estate creditors
Section 2041 - general power of appointment - allows unlimited right to appoint property to:
Section 2041 - general power of appointment are limited rights taxed?
No - limited rights are not taxableUnder
Section 2041 - general power of appointment - when transfer rights were created by another donor: Mom creates trust fund with life income to son. Son can invade principal so not a limited power. What happens to the remainder?
Remainder goes to the moms other heirs
Section 2041 - general power of appointment - when transfer rights were created by another donor: Mom creates trust fund with life income to son. Son has testamentary power to appoint remainder to include his estate or estate creditors. What happens to the remainder if son does not exercise right?
Remainder goes to moms other heirs
*Direct/indirect responsibility to pay insurers estate expenses
*Retention of incidents of ownership by insured
Under section 2042 - Life Insurance Inclusion, what 2 scenarios cause life insurance to not be included in estate
Inheritance tax
State estate tax
Credit estate tax - decoupled states only
Name the 3 elements of state death taxes
Tax on right of beneficiary to receive estate property
What is inheritance tax
Tax on right of decedent to leave property to beneficiaries
What is state estate tax
Tax to bring state death tax up to credit amount allowed by federal law
What is credit estate tax in decoupled states
Gross Estate
Less:
- Funeral expenses
- Administrative expenses
- Debts Taxes Losses
Equals: ??
Step 1 for computing federal estate tax - Adjusted Gross Estate
Adjusted Gross estate
Less:
- Marital deduction
- Charitable deduction
- State Death Tax deduction
Equals: ??
Step 2 for computing federal estate tax - Taxable Estate
Taxable Estate
Plus:
- Adjusted taxable gifts (Post 1976 lifetime taxable transfers not included in gross estate)
- Tentative tax base
- Also have tentative tax and Gift tax payable on post-1976 gifts
Equals: ???
Step 3 for computing federal estate tax - Estate Tax Payable Before Credits
Estate Tax Payable before credits
Less:
- Applicable credit amount
- Credit for foreign death taxes
- Credit for gift tax for pre-1977 gifts
- Credit for tax on prior transfers
Equals: ??
Step 4 for computing federal estate tax - Net Federal Estate Tax Payable
Estate tax credit is 2,045,800 Estate tax inclusion is 5.25 million
What is the 2013 applicable credit amount?
Federal estate taxes
State death taxes
Funeral & administrative expenses
Unpaid property taxes
Unpaid income taxes
Creditor claims
What are the cash needs of an estate?
Confidence for client
Enables accurate estate settlement forecast
Highlights property ownership interests
Helps client formulate goals
Helps financial advisor recommend proper plan
What are the advantages of Fact Finders?
Estimate cost for current date of death Project costs in future then identify planning methods to:
- Reduce settlement costs
- Preserve estate assets
- Secure additional funding (like life insurance)
How do you calculate estate settlement costs for Singles
Use 2 mortality contingencies
One person dies in current years and one in the future
Assume:
- administrative costs -3%; growth rate
- -2-4% Marital deduction usage
- Both applicable credit amounts?
- Deferral of all estate taxes at 1st death
- Optimal marital deduction?
How do you calculate estate settlement costs for Marrieds?
Adequate retirement income
Estate tax deferral
Minimize taxes
Reduction of probate costs
Maximize children’s inheritances
Charitable wishes
Special needs
What are the common spousal estate planning goals of spouses
