Chapter 1: Estate Planning Process Flashcards
What are nonfinancial goals of estate planning?
1.2
Meet needs of dependents Proper distribution of assets Transfer by trusts Efficient transfer of assets at death Asset protection Control of assets
What are Non-Tax financial goals of estate planning?
1.2
Non tax related:
Preseerving business value
Maximizing pre-mortem flexibility
Maximizing benefits for a surviving spouse
Minimizing non-tax transfer costs
Maintaining a satisfactory standard of living
Maintaining adequate liquidity
What are tax related financial goals of estate planning?
1.2
Goals that relate to income tax: Shifting receipt of income Shifting taxation of income Obtaining a stepped-up basis Deferring recognition of income and gain
Goals related to transfer tax:
Freezing or reducing the value of assets subject to tax
Leveraging exclusions, exemptions, reductions and credits
What are common mistakes and weaknesses of estate plans?
1.2
Failure to recommend necessary changes to a will
Improper disposition of assets
Improper titling of assets
Improper arrangement of life insurance
Lack of estate liquidity
Failure to avoid ancillary probate, provide business planning, minimize taxes and costs
Failure to give advice on funeral arrangements
What are the three forms of individual property ownership?
1.3
Fee Simple (absolute ownership) Life estate (use it until you're dead) Term of years (use it for a term)
What is tenancy in common?
1.3
For 2 or more people
Each owns an undivided fractional interest
Shares may be unequal
When you pass your share goes to who you choose in the will
When a tenant in common dies, the amount included in their estate is equal to what they owned
Ex: Meggie/Erin home purchase
What is joint tenancy with right of survivor ship?
1.3
Each owns an undivided interest
When someone dies, the entire asset goes to the other owner(s)
Shares must be equal (50/50)
Can sever interest without consent
Tax ramification depending on spouse or not
What are Spousal Joint Tenants rules in JTWROS?
1.3
No gift tax
Each own half of the property
when first spouse dies, only half of the property is included in their estate
Survivor receives stepped-up basis in one-half
What are nonspousal joint tenants rules in JTWROS?
1.3
If they each contribute equally, no gift tax
If one person pays 100% for the asset, the 50% is a gift tax
When one owner dies, the other owes federal estate tax
What is tenancy by the entirety (TE)?
1.3
Limited form of JTWROS
Only between spouses
Only in some common-law states
Survivor ship not severable without mutual consent
One-half included in gross estate
Protection from separate creditors (but not joint)
This is for a couple where one of them has big debt or bad credit
What is community property?
1.3
Property acquired by spouses during marriage
Only in 11 states
Can’t sell or gift without consent
Everything is 50/50
At death of the first spouse, there is generally no right of survivor-ship
Both halves get a stepped up basis
How is income in a community property treated?
1.3
Income generated by community property is community
Income generated by separate property is seperate
What is an estate?
An estate consists of all the rights, titles, and interests that a person (living or deceased) has in any property.
What is the consideration furnished rule?
Applies to non-spouse JTWROS
Property at death is included in the decedents gross estate to the extent that the joint tenant cannon prove that he actually contributed to the purchase price
