Ch 12 - Procedural Principles Of Estate Planning Flashcards
Asset valuation
Size of gross estate
Gross estate reduction
Marital deduction
What are the Excessive Transfer Costs considerations?
●Adequate future income
●Distribution patterns
●Estate liquidity
●Excessive transfer costs
What are the Organizational Categories in Estate Planning Procedural Principles
Special-use valuation
Alternate valuation date
What are the Asset Valuation Excessive Transfer Costs?
Apply Code Sections 2033-2042
What are the Size of the Gross Estate Excessive Transfer Costs?
Gifting program
Removal of life insurance from estate
Estate freezing techniques
What are the Gross Estate Reduction Excessive Transfer Costs
Optimal marital deduction should be beneficial and a high net worth couple should plan for equalization of estates
What are the Marital Deduction Excessive Transfer Costs
6-month extension
12-month extension [Section 6161(a)]
10-year extension [Section 6161(a)(2)]
14-year extension for closely-held business or farm interest [Section 6166]
What are the 4 Filing and Tax Payment Extensions
- easily granted
- interest on estate tax due commences to run 9 months after death
What are the details of the 6-month Filing and Tax Payment Extensions
- granted for “reasonable cause”
- pending estate litigation (not lack of liquidity)
What are the details of the 12-month Filing and Tax Payment Extensions
●difficult to marshal assets
●assets providing future payments
●only higher than normal rate of interest for loan available
What are the details of the 10 –yr Filing and Tax Payment Extensions
14-year extension for closely-held business or farm interest [Section 6166]
What are the details of the 14-yr Filing and Tax Payment Extensions
●Installment Payment of Estate Taxes
What is the Code Section 6166 Election apply to?
●14-year 9-month payout
●Greater than 35% of Adjusted Gross Estate
●2% interest on estate tax during deferral period on first $1,390,000 (2012) of business value •(excess business value taxed at 45% of federal interest rate on tax underpayments)
●Tax installment payments begin in 5th year
How does the Section 6166 Election work?
Example: Sec. 6166 Installment Payment of Taxes for Closely Held Business
Sam’s estate has the following facts:
- Personal Residence $1,200,000
- Brokerage Account $2,000,000
- Samco, Inc. stock $2,500,000
- Roth IRA $1,500,000
- Funeral & Admin Expense $ 300,000
- Sam’s Recourse debt $ 250,000
- Charitable bequest $1,000,000
Does Sam’s estate qualify to defer estate taxes?
- Gross Estate is $7,200,000 = (1,200,000+2,000,000+2,500,000+1,500,000)
- Adjusted Gross Estate is $6,650,000 or 7,200,000 – (300,000 + 250,000)
- Samco stock is what % of AGE= 2,500,000 ÷ 6,650,000 = 37.6
- IT QUALIFIES – 37.6 > 35%
●Creates problems with banks and creditors (may discourage lenders due to federal tax lien)
●Causes estate to be kept open longer
●Generates ongoing/extra administrative fees (attorney, accountant fees, etc.)
●Hampers estate liquidity planning
●Inflexible
What are the disadvantages to Code Section 6166
