Ch4 - Estate Planning & Federal Taxation

Question 1

From an individual’s perspective, what are the FOUR non-tax drivers in making charitable gifts?

Answer 1

(a) achieving the public good and the joy of giving
(b) enlightened self-interest
(c) repaying a psychological debt
(d) “doing good” as a family tradition

Question 2

Generation-Skipping Transfer Tax could result in substantial transfer taxes because this tax is unrelated and imposed in addition to…

Answer 2

gift taxation and estate taxation.

Question 3

Because of the nature of the federal gift and estate tax system, estate and gift taxes are the ________ of taxable transfers an individual makes during lifetime or at death to avoid having to pay any gift and estate tax.

Answer 3

cumulative amount (eg - $11M and $22M for spouses)

Question 4

What is the meaning of the “unified” system of estate and gift tax?

Answer 4

The current federal estate tax is part of an overall unified transfer tax system that includes gift taxes, estate taxes, and generation-skipping taxes whether given during life or at death.

Question 5

Any form that purports to provide a power of attorney for medical decisions must be compliant with…

Answer 5

HIPAA

Question 6

Name the TWO types of trust that are used to preserve federal estate marital deduction.

Answer 6

Qualified Domestic Trust (QDOTs)

and

Qualified Terminable Interest Property Trusts (QTIPs)

Question 7

Loan forgiveness, a payment of another’s expenses, transfers by corporations, and life insurance transactions are considered what type of gift?

direct gift

indirect gift

Answer 7

indirect gift

Question 8

What are the FOUR main requirements of a QTIP?

Answer 8

1) property is included in the decedent spouse’s gross estate, then deducted using the marital deduction
2) value of property is included in surviving spouse’s gross estate
3) spouse is enititled to all the income generated by the trust property for life
4) the first spouse to die is the only one able to control remainder interest

Question 9

What is the difference between Sec. 2503(b) and a Sec. 2503(c)?

Answer 9

Sec. 2503(b) - requires the trustee to distribute income annually to the minor at any age.

Sec. 2503(c) - permits the trustee to accumulate income until the minor attains age 21 and still have present interest.

Question 10

This form gives seriously-ill patients more control over their end-of-life care.

Answer 10

Physician Orders for Life-Sustaining Treatment (POLST)

Question 11

What is federal estate tax?

Answer 11

A tax on the right of a decedent’s estate to transfer property or an interest in the property to others.

Question 12

The new estate planning environment utilizes the advice from a ____________.

Answer 12

team of specialists

Question 13

There is NO standard estate plan, but rather it is…

Answer 13

customized to suit the needs of each individual, couple or family.

Question 14

If the alternate valuation date is chosen, all assets (except annuities) must be valued on this date unless sold or otherwise disposed of within this six-month period, in which case, their values are established as of…

Answer 14

the date of sale, exchange, distribution, or disposition

Question 15

When can an executor elect the alternate valuation date?

Answer 15

Only if it will lower the overall gross and taxable estate. You CANNOT pick and choose which assets to apply the alternate valuation date.

Question 16

What is a trust designed to do with the assets for the creator?

Answer 16

Place assets in a legal entity without giving the beneficiary control over the assets.

Question 17

A trust can be structured by the grantor to be effective when?

Answer 17

During the clients lifetime or begin at the client’s death.

Question 18

A trust is a relationship that divides the…

Answer 18

ownership of property.

Question 19

Who holds the legal title of a trust?

Answer 19

By the trust to be managed by the trustee

Question 20

What does a trust allow a grantor to prevent?

Answer 20

Used to prevent unfettered access to the assets by the beneficiaries for a certain length of time or under certain conditions.

Question 21

What are TWO purposes for using a trust in estate planning?

Answer 21

a) to render control of the assets
b) to shield the assets from maximum taxation

Question 22

A trustee has a fiduciary responsibility to transact the trust in accordance with…

Answer 22

the trust document.

Question 23

Who makes the QTIP/QDOT elections on a decedents’s estate tax return?

Answer 23

the executor

Question 24

______ are utilized for noncitizen spouses.

Qualified Terminable Interest Property Trusts (QTIPs)

or

Qualified Domestic Trust (QDOTs)

Answer 24

Qualified Domestic Trust (QDOTs)

Question 25

What are the TWO possible property valuation dates?

Answer 25

date of death (annuities use this date too)

the alternate valuation date(6 months after death)

Question 26

The alternate valuation date CANNOT be used for what type of assets?

Answer 26

wasting assets