Chapter 7 - Transfers During Life & At Death Flashcards
Define Applicable Federal Rate (AFR)
Rates published monthly by the IRS for federal income tax purposes, in accordance with section 1274(d) of the IRC. Interest rates on loans should not be less than the AFR for the loan to be considered a taxable event and not a gift by the IRS.
Define Arm’s Length Transaction
A transfer generally between unrelated parties in the form of a sale, an installment sale, or an exchange.
Define Exchange
A mutual transfer of assets with equal fair market value between individuals.
Define Family Limited Partnership (FLP)
A limited partnership created under state law with the primary purpose of transferring assets to younger generations using minority and marketability discounts to create reduced gift tax valuations.
Define Grantor Retained Annuity Trust (GRAT)
A irrevocable trust that pays a fixed a annuity to the grantor (settlor) for some defined term, and pays the remainder interest of the trust to a non-charitable beneficiary.
Define Grantor Retained Income Trust (GRIT)
An irrevocable trust in which the grantor retains an income interest in the trust for the term of the trust. Thus, the grantor will donate property to the trust and the income from the asset will be distributed to the grantor during the term of the trust. At the end of the trust term, the remaining property is distributed to the beneficiary (remainderman)
Define Grantor Retained Unitrust (GRUT)
An irrevocable trust that annually pays a fixed percentage of the value of its assets (as revalued on an annual basis) to the grantor or (settlor) for some defined term, and pays the remainder interest of the trust to a non-charity beneficiary.
Define Installment Sale
A sale of property that includes a note from the buyer to the seller. The buyer pays the seller the full valuable consideration of the property over a specified set of terms.
Define Intentionally Defective Grantor Trust (IDGT)
An irrevocable trust that is used to freeze the value of assets transferred to family members or loved ones for estate tax purposes. A gift to an IDGT is a completed gift for estate and gift tax purposes, but is treated as a grantor trust for income tax purposes. It should be noted that the trust is intentionally established as a grantor trust.
Define Private Annuity
The annuitant sells an asset to a buyer in exchange for an unsecured promise from the buyer to make fixed annual payments to the annuitant for the remainder of the annuitant’s life.
Define Section 7520 Rate
To be used to value certain charitable interests in trusts. Pursuant to IRS 7520, the interest rate for a particular month is the rate that is 120% of the applicable federal midterm rate (compounded annually) for the month in which the valuation date falls. That rate is then rounded to the nearest two-tenths of one percent.
Define Qualified Personal Residence Trust (QPRT)
A special form of GRIT in which the grantor transfers his home to the QRPT and receives “use” of the personal residence as the annuity. The remainder interest of the trust passes to a noncharitable beneficiary.
Define Sale
The direct transfer of property to another for a note, money, or property of equal fair market value.
Define Self-Cancelling Installment Note (SCIN)
An installment sale that terminates at the earlier of the (1) death of the seller or (2) the term set forth in the installment note.
Define Tangible Personal Property Trusts (TPPT)
A special form of GRAT in which the grantor transfers tangible personal property to the TPPT and receives “use” of the property as the annuity. The remainder interest transfers to a non-charitable beneficiary.
