Chapter 6 - Estate Tax Flashcards
Define Adjusted Gross Estate
The adjusted gross estate is equal to the gross estate less any deductions for funeral expenses, last medical expenses, administrative expenses, debts, and losses during the administration of the estate.
Define Alternate Valuation Date
An alternate date, other than the date of death, to value a decedent’s gross estate. The alternate valuation date is either six months after the date of death, or if the asset is disposed of within six months of the date of death, the asset’s disposition date. Wasting assets do not qualify to use the alternative valuation date.
Define Blockage Discount
A reduction in the fair market value of a large block of publicly traded stock because the transfer of a large block of stock is less marketable than other transfers of smaller amounts of stock.
Define Date of Declaration
The date a board of directors approves and declares a dividend to be paid to its shareholders.
Define Date of Record
The date a dividend paying company determines the owners of its stock who are entitled to a dividend (regardless of whether of not the individual owns the stock as of the payment date).
Define Estate Tax Liability
The amount equal to the tentative tax less any applicable credits available to a decedent’s estate.
Define Gross Estate
The gross estate consists of the fair market value of all a decedent’s interests owned at the decedent’s date of death plus the fair market value of certain property interests the decedent transferred during his life, in which he retained some rights, powers, use, or possession.
Define Income in Respect of Decedent (IRD) Assets
Assets that, s a result of income deferral, have built income that must be recognized by the beneficiary of the asset.
Define Key Person Discount
A reduction in the fair market value of transferred stock due to an economic reality that the value of the stock will decline if a key person, such as the founder, dies or becomes disabled.
Define Lack of Marketability Discount
A reduction in the fair market value of a transferred asset because the interest is more difficult to sell to the public.
Define Minority Discount
A reduction in the fair market value of a transferred interest in property because the interest is not a controlling interest.
Define Portability
The ability of the executor of an estate to timely file Form 706 to transfer the decedent’s unused credit exclusion to the surviving spouse.
Define Power of Appointment
The power to name who will enjoy or own property.
Define Reversionary Interest
Interests that have been transferred and subsequently revert back to the transferor. Also, includes a possibility that the property transferred by the decedent may return to him or his estate and a possibility that property transferred by the decedent may become subject to a power of disposition by him.
Define Straight Single Life Annuity
An annuity for a term equal to the annuitant’s life.
Define Survivorship Annuity
An annuity that provides payments to one person, and then provides payments to a second person upon the death of the first.
Define Taxable Estate
The adjusted gross estate less the available unlimited marital and unlimited charitable deductions.
Define Tentative Tax
The estate tax calculated on the tentative tax basis.
Define Tentative Tax Base
The tentative tax basis equals the taxable estate plus all post-1976 taxable gifts.
Define X Dividend Date
The date the market price of a stock adjusts for a declared dividend (i.e. the market price of a stock is reduced approximately by the amount of the dividend.
What does section 2033 (Property owned by the decedent) required?
Requires value of all property in which the decedent held an interest at his death to be included in the gross estate.
What does the 3 year look back require (section 2035)?
Requires gross estate to include:
1) any gift talc paid on gifts made in 3 years of the decedent’s date of death
2) value of any property gifted in the last 3 years of date of death
3) death proceeds of any life insurance policy insuring the decedent’s life that was gifted with in 3 years of date of death
What does section 2036, transfers with a retained life estate, say? ,
Transferred interest is treated as having been retained if, at the time of the transfer, there was an understanding, expressed or implied, that the interest or right would later be conferred.
In what 3 situations is section 2036 used?
1) interest retained for life
2) interest retained for a period
3) retained interest held at death
What does section 2037 (transfers taking effect at death) say?
Requires transferred property by the decedent be included in the gross estate that :
1) possession or enjoyment of property can be obtained only by surviving the decedent, and
2) decedent retained a reviaionary interest, and
3) value of the revisionary interest is greater than 5% of the value of the property
What does section 2038 say regarding revocable transfers?
Decedent’s gross estate includes the FMV of any interest in property transferred by the decedent if the enjoyment of the interest was subject to any change through exercise of power by the decedent.
Which type of annuity is included in the gross estate?
Survivorship annuity (Value of comparable policy on the age of the survivor is included in the decedent’s GE).
What is the formula for the Gross Estate Inclusion for an annuity?
(Value of annuity at death) x (Decedent’s cost basis/Total annuity cost basis)
What does section 2040 require be included in the GE regarding Joint Interests?
- Property held in JTROS (Acutal Contribution Rate unless married)
- Property held as tenants by the entirety
- Money or bond held in the name of decedent and someone else, which is payable to either
What does section 2041 say regarding Powers of Appointment?
-Decedent’s gross estate includes the value of property over which the decent possessed, exercised, or released certain powers of appointment
What are the 3 parts of a power of appointment?
- Donor who grants power
- Holder who receives power
- Appointee whom the holder appoints to enjoy the property
Holder of a General Power of Appointment can appoint property to who?
- To holder
- To the holder’s estate
- To the holder’s creditor’s
- To the creditor’s of the holder’s estate
When is a Power of Appointment included or not included in the holder’s gross estate?
Included: General Power of Appointment
Not Included: Limited Power of Appointment (ascertainable standard)
What does section 2042 say regarding proceeds from Life Insurance?
- It includes the death benefit proceeds of a policy on the life of the decedent, in the decedent’s GE, if the decedent has any incident of ownership in the policy.
- It includes in the decent’s GE the cash value of a policy that the decedent has an incident of ownership in on someone else’s life.
When is a QTIP inlcuded in the GE?
When the surviving spouse dies.
