Ch 8

Question 1

What are the goals of estate planning?

Answer 1

• distribute assets according to wishes (people who don’t receive property under intestacy laws)
• minimize estate and inheritance taxes
• minimize income taxes
• create needed liquidity
• minimize probate costs

Question 2

What are the steps in the estate planning process?

Answer 2

• gather data
• evaluate existing plan
• creating and testing a new plan
• implementing and monitoring the new plan

Question 3

How is estate planning data gathered?

Answer 3

• questionnaires
• list of assets and liabilities
• intentions for transferring property must be stated
• executor must be identified

Question 4

What happens in the “evaluate existing plan” phase of estate planning?

Answer 4

The plan is tested as if the estate owner died immediately. Attorney typically classifies property as being included in the gross vs. probate estate.

Question 5

How can probate be avoided?

Answer 5

Naming beneficiary
Titling property as JTWROS or tenancy by the entirety
Pay on death arrangement (bank account)

Question 6

What kind of scenarios are run during evaluating the existing plan?

Answer 6

Husband dies
Wife dies
Both die simultaneously

Question 7

What steps are involved in the “implementing the new plan” phase of estate planning?

Answer 7

• purchasing additional life insurance
• drawing up new legal documents
• revising existing legal documents
• making gifts m

Question 8

Which class(es) of property does the Federal gift tax apply to?

Answer 8

Both tangible and intangible.

Question 9

What does proper estate planning do?

Answer 9

• prevent estate shrinkage
• lets people have estate distributed according to wishes-preserves value of estate and passes the preserved value to heirs

Question 10

How does gift splitting work. Provide an example.

Answer 10

If I want to give a $20,000 gift but the exclusion amount is $14,000, I can treat this as two separate gifts of $10,000; one from each spouse.

Question 11

Are gifts to pay for tuition subject to a limit?

Answer 11

As long as it is paid directly to school there is no limit. This only covers tuition (not books, room & board, etc)

Question 12

Are gifts made to cover medical expenses subject to a limit?

Answer 12

No; as long as they are made directly to a provider.

Question 13

Are charitable gifts subject to a limit?

Answer 13

No

Question 14

What is the gift limit to a spouse?

Answer 14

None. There is a marital deduction.

Question 15

What is the Federal Estate Tax?

Answer 15

It is a tax imposed on property transferred at death.

Question 16

How is Federal gift tax calculated?

Answer 16

1) Determine gross estate
2) Determine taxable estate
3) Determine tentative tax
4) Determine tax payable
* Review BDU Handout

Question 17

What does the gross estate include?

Answer 17

Assets owned at death.

Question 18

What is the alternate valuation date for estate tax purposes?

Answer 18

Using a date six months after the date of death. The default is value of estate at death.

Question 19

This estate valuation rule states that half the value of property owned jointly with a spouse is included in the gross estate of the first spouse to die.

Answer 19

Fractional interest rule.

Question 20

This estate valuation rule states that property owned jointly by non-spouses is included in the estate based on consideration furnished.

Answer 20

Consideration furnished rule

Question 21

What are the allowable deductions from the gross estate?

Answer 21

ABCD-MC  
Administrative 
Burial 
Casualty Losses
Debts 
Marital Deduction
Charitable Deductions

Question 22

What is the tentative estate tax reduced by?

Answer 22

UFC
Unified credit
Foreign death taxes
Credit for taxes paid on prior transfers

Question 23

Why is a will important?

Answer 23

Can provide income to surviving family members during the probate process

Allows decedent to select the executor

Can minimize problems arising from distributions to minor children.

Question 24

What should be done for a will to be properly drafted?

Answer 24

Be in writing and signed by the creator and at least two witnesses.

Identity heirs and property to be received.

Name the executor.

Be reviewed periodically with an attorney’s help.

Question 25

A trust that gives surviving spouse rights in property but not enough to cause inclusion in their gross estate.

Answer 25

Marital trust

Question 26

No marital trust

Answer 26

Designed to take advantage of the decadents unified credit.

Question 27

Trust that provides income to an individual wile alive and when they die it goes to charity.

Answer 27

Charitable remainder trust

Question 28

Life insurance that pays benefit when second spouse dies.

Answer 28

Second-to-die.

Question 29

What happens if you have incidence of ownership in your life insurance (ability to change beneficiary or surrender or borrow from cash value)

Answer 29

Included in gross estate

Question 30

What does someone do to not have incidence of ownership in their life insurance policy.

Answer 30

Put it in life insurance trust.

Question 31

If someone has a universal life policy that names their child as a beneficiary how will it be treated for estate planning purposes upon his death?

Answer 31

Will be part of the gross estate but not part of the probate estate.

Question 32

This is an estate tax that equals the credit for death taxes available under the federal estate tax

Answer 32

Sponge tax

Question 33

This type of trust is usually funded at your death with any amount in excess of a person’s available federal estate tax exemption amount and would be eligible for the unlimited marital deduction.

Answer 33

marital trust

Question 34

What is a QTIP (qualified terminable interest property)?

Answer 34

A trust often used in order to take advantage of the marital deduction and still control the ultimate distribution of the assets at the death of the surviving spouse. The surviving spouse is given the right to receive all income from the property at least annually for life. The executor of the donor spouse must make an irrevocable QTIP election and income and property can be provided only to the surviis often used in order to take advantage of the marital deduction and still control the ultimate distribution of the assets at the death of the surviving spouse as long as they are alive