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CFP Exam > Estate > Flashcards

Estate Flashcards

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1
Q

Non-Community Property Interest

A

AKA: Separate property, common law state

  • Income earned by spouses prior to marriage
  • Property received as a gift by one spouse
  • Property inherited by one spouse
  • Interest earned on separate assets held by one spouse as a sole owner

All other property is community property!!

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2
Q

Joint Tenancy with Rights of Survivorship (JTWROS)

A
  • Property can be held by husband and wife, parent and child or children, siblings, and business partners
  • Control, ownership, and enjoyment shared equally by all joint tenants
  • Upon death of each tenant, property immediately passes to surviving joint tenants in equal shares.
  • Property NOT controlled by terms of the will
  • NOT subject to probate
  • Can be disclaimed.
  • Surpasses the will, but can be disclaimed and go back to will
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3
Q

Tenancy by the Entirety

A
  • Ownership can only be held by spouses
  • Transfer of property can only occur with the mutual consent of both parties
  • In most states, property is protected from the claims of each spouse’s separate creditors, but NOT protected from the claims of both spouse’s joint creditors
  • No probate
  • Cannot be disclaimed
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4
Q

Tenancy in Common

A
  • Two or more owners each own an undivided (and can be unequal) interest in the property (Undivided ex: a piece of land is shared inch by inch, not split in half)
  • Any Income is distributed according to each owner’s respective share in the property
  • Owners are free to transfer their respective share of the property to other individuals
  • Ownership stake goes through probate via will
  • Can be disclaimed
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5
Q

Assets NOT Subject to Probate

A
  • Property conveyed by Deeds of Title
  • Property held by Joint Tenancy with Rights of Survivorship (JTWROS)
  • Tenancy by Entirety (TBE)
  • Government Savings Bond - co-ownership
  • Payable on Death (POD)
  • Transfer on Death (TOD, bene for taxable accts)
  • Transfer by contract (beneficiaries)
  • Trusts
    • Funded Revocable/Living
    • Irrevocable
    • Totten Trust
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6
Q

Assets Subject to Probate

A
  • “Singly” owned assets
  • Property held by Tenancy in Common (TIC)
  • Community Property (CP), 50% attributable to each spouse
  • Paid to estate
  • will into testamentary trust
  • pour over will to trust
  • life insurance policy where decedent was not the insured
  • Intestacy
  • homestead and exempt property allowances
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7
Q

Assets Included in the Gross Estate

A
  • Singly Owned Assets
  • Tenancy in Common
  • Beneficiary is the Estate
  • Community Property
  • JTWROS/Entirety
  • Life Insurance
  • General Powers
  • 3-year gross-up on gift taxes paid (but NOT GST taxes paid)
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8
Q

Life Insurance Added to the Estate

A
  • Proceeds are paid to the Executor of the Decedent’s Estate
  • Decedent at Death possesses an Incident of Ownership in the policy (Includes the right to assign, to terminate, to borrow against the cash reserves, to name benes, and to change benes.)
  • Decedent transferred a policy with an Incident of Ownership within 3 years of death
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9
Q

Valuation of a Gift

A

The value of a gift for gift tax purposes is its fair market value (FMV) at the date of gift.

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10
Q

Basis of a Gift

A
  • If FMV on the date of gift is greater than the donor’s Adjusted Basis, use the donor’s Adjusted Basis.
  • If FMV of the gift is less than the donor’s basis, use the chart below:

Client’s Subtituted Basis/Dual/Double Basis

Above $2,015,000 Gain

Between $2,015,000 and $1,515,000 NO Gain or Loss

Below $1,515,000 Loss

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11
Q

What isn’t a gift?

(Deductible Gifts, not Taxable Gifts, Exempt Gifts or Qualified Transfer)

A
  • Gifts to a spouse, provided they are not a Terminal Interest
  • Gifts to qualified charities
  • Qualified payment in any amount made directly to an educational institution for tuition
  • Qualified payment in any amount made directly to a medical care provider on behalf of any individual
  • Gifts to American political parties
  • court ordered legal support for dependent family members
  • property transferred due to divorce
  • Loans expected to be paid back with interest
  • Property transferred into revocable trusts
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12
Q

Summary of Rules Regarding Gifts and the Donor’s Estate

A
  • Generally, gifts given are simply “Taxable Gifts” to the extent such gifts exceed the Annual Exclusion.
  • Taxable Gifts are added to the Taxable Estate
  • Gift Taxes paid (or payable) are generally allowed as credit against the Tentative Tax
  • Gift Taxes paid on any gifts within three years of death are added to the Gross Estate
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13
Q

Powers of Attorney

A
  • Traditional, Non-Durable Power of Attorney: Power ceases when the principal is no longer legally competent. Think of if people go over seas and need documents signed.
  • Durable Power of Attorney: Authority of agent continues when principal become incompetent
  • Springing Durable Power of Attorney: Main strength is the agent has no authority over the principal’s assets until incompetency. Need sign off from Dr that principal is truly incapacitated.

May NOT be recognized by banks & brokerage firms

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14
Q

Power of Appointment (Trusts)

A
  • Special Power: Exercisable only with the consent of the creator of the power or a person having a Substantial Adverse Interest
    • Not subject to gift or estate tax implications
  • Ascertainable Standard: Relating to health, education, maintenance, or support (HEMS). This is a limited power of appointment. Not subject to estate or gift tax implications.
  • General Power: Holder may exercise the power in any manner he/she wishes. Outright ownership
    • Generally subject to estate and gift tax implications
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15
Q

Gift and Estate Tax Implications (General Power)

A
  • Gift Tax Implications (General Power)
    • Exercised, Released, or Lapsed → Taxed
    • Lapsed with a “5 or 5” power →Not Taxed
  • Estate Tax Implications (General Power)
    • Exercised, Released, or lapsed →Taxed
    • Exercised, Released, or Lapsed with a “5 or 5” power → Greater of the “5 or 5” is taxed
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16
Q

“5 or 5” Power

A

Property subject to a General Power will be have no tax implications, and estate tax is the greater of:

  • $5,000, or
  • 5% of the total value of the fund subject to the power as measured at the Time of Lapse

This w/d is available only after Crummy right is settled.

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17
Q

Grantor Trust Rules (Tainted / Defective Trusts)

Income Tax & Estate

A
  • Trust may be Defective / Tainted for Income Tax and Estate Tax purposes if the Grantor retains:
  • A Right to Income or the Right to Use/Enjoy Trust property (Beneficial Enjoyment)
  • A Reversionary Interest exceeding 5% (Retained Interest)
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18
Q

Elements of a Trust

A
  • Property: also known as Principal, RE, or Corpus
  • Grantor: This is any person who transfers Property/Legal Title to a TTEE and dictates the terms of a Trust.
  • Trustee: who received legal title to the Property placed in the Trust, and who generally manages and distributes income according to the terms of a formal written agreement (Trust Instrument) for the benefit of the beneficiary.
  • Beneficiary: who has Equitable Title to the property.
  • The Grantor and Trustee must be legally competent.
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19
Q

Complex Trusts

A

Complex Trusts (2503(c)), are separate Tax Entities and taxed as such if it meets two requirements:

  • It is irrevocable, and the Grantor has not retained any control
  • Income is accumulated

They can:

  • accumulate income, distribute corpus, and make gifts to charities
  • accumulated income becomes undistributed net income (UNI) and may be subject to additional taxes to the beneficiary in later years when it’s distributed
  • accumulated income in non grantor trusts is taxed at 37% for amounts over $13,050 in 2021

SIMPLE AND COMPLEX TRUSTS CAN CHANGE YEAR TO YEAR, IT IS JUST HOW THEY RUN IT.

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20
Q

Simple Trusts

A

Simple Trusts (2503(b), Marital, QTIP) are considered merely a “conduit” for forwarding income to the beneficiaries (Pass-Through)

  • All income must be distributed in the year it is earned
  • TTEE cannot distribute corpus and make gifts
  • Pays no income tax because it is all distributed.

SIMPLE AND COMPLEX TRUSTS CAN CHANGE YEAR TO YEAR, IT IS JUST HOW THEY RUN IT.

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21
Q

Crummey Powers/Trust

A
  • Irrevocable Trust with Demand Rights
  • Demand Right can be given to a minor through his/her guardian
  • Donee has demand right
  • Beneficiary has Temporary Right to Demand a withdrawal from the Trust that is the lesser of:
    • the amount of the Annual Gift Exclusion
    • the value of the gift transferred (the annual contribution)
  • Must be given Crummy Notice: beneficiaries must be notified in writing that they may withdraw funds transferred into the trust within 30 days.
  • Can be added to a variety of irrevocable trusts, most common is a life insurance trust
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22
Q

Non-Marital “B” Trust

(Family, Bypass, Credit Shelter, Unified Credit Shelter)

A
  • Property transferred to the Trust at the time of the decedent’s death
  • Can be structured to provide a Stream of Income to surviving spouse or other individual
  • Decedent has post-mortem control
  • avoids “over-qualifying” the marital deduction (think about a tax bomb that can be transferred to surviving spouse, these help avoid that). Does this by utilizing the decedent’s maximum unified credit.
  • Allows the surviving spouse to get income as needed
  • Trust assets are not included in the surviving spouses estate at death.
  • because income is received “as needed”, it is a terminable interest (TIP). Therefor, the decedent spouse cannot receive a marital deduction
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23
Q

QTIP “C” Trust (Current Income Trust)

A
  • Provides surviving spouse with a Stream of Income for life, but decedent has post-mortem control of Trust property
  • Property qualifies for Marital Deduction
  • Mainly used for second marriages “Ceeeeee ya later!”

Keyword for QTIP - L.A.M.E.:

  • Lifetime income for the spouse
  • Annual payments to spouse
  • Mandatory payments to spouse
  • Exclusively for spouse
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24
Q

Qualified Domestic Trust (QDT / QDOT)

A
  • No Unlimited Marital Deduction, however, no Estate Tax due
  • Used for spouses that are not US citizens
  • Jointly held property between spouses is not considered one-half owned
  • Limited gift between spouses of only $100K (Indexed) per year
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25
Q

Present Interest Gift Vehicles

A
  • UGMA
  • UTMA
  • 2503(c) Trust
  • Section 529 College Savings Plan
  • Gift to a 2503(b)
  • Trust is a gift of a future Interest
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26
Q

Charitable Contributions/Transfers

A

Income to donor until donor’s death:

  • Charitable Remainder Annuity Trust (CRAT) - 5%
  • Charitable Remainder UniTrust (CRUT) - 5%
  • Pooled Income Fund - no 5% required
  • Charitable Gift Annuity - no 5% required

Income to the charity:

  • Charitable Lead Trust (CLAT/CLUT) - no 5% required
  • Private Foundation - 5% - can give money to individuals
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27
Q

Intrafamily Transfers

(Property owner needs income)

A

Remember: PIGS Need Income

Private Annuity: unsecured

Installment Sale: unsecured

Grantor Annuity Trusts (GRAT/GRUT)

Self Canceling Installment Note (SCIN): secured (C for collateral)

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28
Q

Intrafamily Transfers

(Property owner wants to gift assets and/or income to family members)

A
  • Partnership / S-Corp
  • Family Limited Partnership (FLP)
  • Gift Leaseback
  • Qualified Personal Residence Trust (QPRT)
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29
Q

Disclaimer

A

In order to Disclaim Property, the following requirements must be met:

  • Disclaimer must be an Irrevocable Refusal to accept the interest
  • Refusal must be in writing
  • Refusal must be received within 9 months
  • Intended donee cannot have accepted any interest in the benefits
  • As a result of refusal, the interest will pass, without the disclaiming person’s direction, to someone else
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30
Q

Post-mortem Planning Techniques

(Estate Liquidity)

A

Stock Redemption (Section 303):

  • Business must be Incorporated (Closely Held Stock)
  • Value of business must exceed 35% of the decedent’s Adjusted Gross Estate
  • Redemption cannot exceed the sum of the estate taxes plus administrative expenses

Installment Payment of Estate Taxes (Section 6166):

  • Value of business must exceed 35% of decedent’s adjusted gross estate
  • During the first 4 years (of 14 years) can pay interest only on taxes due
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31
Q

Port-mortem Planning Techniques

(Estate Tax Reduction)

A

Special Use Valuation (Section 2032A):

  • Real estate used for farming or a closely held business
  • Rules to Qualify
    • 25% of the Gross Estate consists of real property
    • 50% of the gross estate must consist of real and personal property
  • Must be in Qualified Use: 5-out-of-8 year rule before death and 10 years after death.
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32
Q

Community Property

A

=Each spouse owns a separate, undivided, equal interest in property. (Think of partnership, each partner contributes time, parenting income, etc and it is all owned together)

If anything is comingled at all, it is now equally shared.

Only 6 states, California is the most well known, but so is Texas. There is variability in how the state handles it.

No survivorship rights, so a will is needed and probate will happen

Tax: 100% step up in basis (only LTCG property), but only ½ is included for estate tax and gets marital deduction

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33
Q

Section 121 Exemption

A

An Internal Revenue Service rule that allows you to exclude from taxable income a gain of up to $250,000 from the sale of your principal residence. A couple filing a joint return gets to exclude up to $500,000.

34
Q

Estate Tax with JTWROS

A
  • non-spouse
    • Based off proportional contribution when property was acquired.
    • Must provide proof of contribution, otherwise full value of jointly held property is included in gross estate of first to die
    • a gift of property is not deemed to be a contribution
    • The amount in the gross estate gets a complete step-up in basis at decedent’s death.
  • spouse
    • 50% of the property’s value is in the decedent’s estate
    • property in decedent’s estate will get a marital deduction (basically unlimited) to offset estate tax.
35
Q

Testamentary Trust

A

Trust in a will. The assets must go through probate to be put in the trust, but the trust itself does not go through the probate process

36
Q

Estate, Gift, and Generation Skip Tax exclusions and exemptions

A
  • Estate
    • Exemption: $11.7m lifetime
  • Gift
    • Exclusion: $15k annually / person
    • Exemption: $11.7m lifetime
  • GST (seperate from estate and gift)
    • Exclusion: $15k annually / person
    • Exemption: $11.7m lifetime
37
Q

Which joint ownership is subject to probate?

A

TIC

38
Q

What assets are not included in the gross estate at FMV?

A
  • life estates
  • remainder interests
  • reversionary interests
  • single (pure) life annuities
39
Q

Gross Up Rule

A

Any gift tax paid (not the gift) out of pocket on gifts within 3 years of death is included in the estate of the transferor.

40
Q

Transfers with retained life estate

A

Property transferred during decedent’s life is included in their gross estate if:

  • they retained the right to use or enjoy the property
  • they receive income from it
  • retain the right to designate who will possess or enjoy the transferred property or it’s income
41
Q

Intestacy

A

Intestacy refers to the condition of an estate of a person who dies without a will, and owns property with a total value greater than that of their outstanding debts. In addition, a will that covers only part of an estate sometimes is intestate. In either of these instances, a probate court often distributes the assets of the deceased and it is handled based on state law.

42
Q

Codicil

A

Minor changes to a will added after it is created. Usually needs a witness.

43
Q

Living Will vs. POA

A

At a high level, a Living Will is a legal document that clearly and explicitly states your wishes in regards to medical treatments and decisions, these are life saving decisions. A Power of Attorney grants authority to someone you trust to act on your behalf.

44
Q

Medicaid Planning

A

a joint federal and state program that pays for medical assistance to certain aged, disabled, and blind individuals, and provides benefits to families with low income and resources.

  • Individuals cannot have more than $2000/$4000 in countable assets when applying for Medicaid long term care services
  • There is a five year lookback penalty period for assets transferred to trusts, individuals, or charities. States withhold medical payments for nursing home care for a number of months, depending on the value of the property transferred.
45
Q

Property Interests

A

Who has ownership!

46
Q

What happens 2 basis that has gone through probate and paid estate taxes?

A

Generally, the remainder beneficiary will receive a step up in basis to FMV at the date of death

47
Q

Ancillary probate

A

Real property owned in a different state is probated in the other state. Putting that property in a trust avoids it.

48
Q

What are will substitutes to avoid probate?

A

TLC

  • Trusts
    • funded revocable
    • irrevocable
    • totten trust
  • Law
    • Rights of survivorship (JTWROS and Tenancy by the Entirety)
    • joint bank accts
    • Gvmt savings bonds
    • life estates
    • POD accounts (totten trusts and gifts causa mortis)
    • TOD accounts
    • General powers of appt exercised or released by will at death
    • deeds of title
  • Contract (named beneficiaries)
    • life insurance proceeds
    • pension plans and IRAs
    • annuities with named joint annuitants
    • buy/sell agreements
    • nupital agreements
49
Q

Types of trusts

A
  • Inter-vivos: established while the grantor is alive and takes effect immediately. created at life
  • Testamentary: created through a will. created at death
  • Revocable: may be funded or un-funded (not protected from creditors) flexibility
  • Irrevocable: must be funded to legally exist protection
  • Standby: usually unfunded, waiting for triggering event
  • Pourover: receives assets from another source
  • Grantor/Defective: inter-vivos trust for grantor, grantor pays all taxes
  • By-Pass/credit shelter/family/”B”: avoids “over-qualifying” the marital deduction, to minimizing or avoid their estate tax liabilities by passing on proceeds from individual estates onto the partner’s estate.
  • Marital: funded by revocable trusts, testementary, or stand-by
  • Power of Appointment: general power, they have power and are taxed
50
Q

How are Revocable Trusts taxed?

A
  • Income tax: to the grantor
  • Gift tax: none because they are incomplete gifts
  • Estate tax: FMV in the grantor’s estate
51
Q

How are irrevocable trusts taxed?

A
  • Non-Grantor trusts:
    • income that is not distributed is taxed to the trust
    • distributions made to trust beneficiaries are taxed to the beneficiary
  • grantor trusts:
    • income that is not distributed is taxed to the grantor
52
Q

How are irrevocable trusts taxed?

A
  • Gift tax: applies to most property transfers into the trust. The trust takes the donor’s basis in the transferred property.
  • Estate tax: trust assets are not included in the grantor’s estate if the grantor does not retain any interest or control over them.
53
Q

Distributable Net Income (DNI)

A

DNI ensures that a trust receives a deduction for the amounts distributed to the beneficiary, so the distribution is not taxed twice.

Ex: a trust earns $10,000 in income and distributes $6,000 to a beneficiary. The trust gets a deduction for the $6,000 distributed and the trust is taxed on the remaining $4,000.

DNI limits the amount of trust income the beneficiary is required to report. The deduction the trust takes for a distribution is equal to the lesser of the amount distributed to the beneficiary, or the DNI.

Ex: a trust earns $10,000 in income and distributes $12,000 to a beneficiary. The first $10,000 is considered to be income, and the remaining $2000 is considered to be a tax free distribution of corpus. The trust will deduct $10,000 distributed to the beneficiary which avoids taxation. The beneficiary is only taxed on the $10,000 not the full $12,000 distributed from the trust.

54
Q

Inter-Vivos Gifting

A
  • Reduces the value of the owner’s estate
  • donor loses control over gifted property
  • donee receives the gifted property income tax free
55
Q

Best property to gift

A
  • Income producing property
  • appreciating property
  • property that will be sold in the near future
  • out of state property
  • life insurance policy
56
Q

What is the best property to keep?

A
  • Highly appreciated property
  • FMV of property is less than the donor’s basis
  • depreciating income property
57
Q

Unified Tax Credit

A

$4,625,800

A unified tax credit is a certain amount of assets that each person is allowed to gift to other parties without having to pay gift, estate, or generation-skipping transfer taxes. The credit is afforded to every man, woman, and child in America by the Internal Revenue Service (IRS)

It is the 40% gift tax rate (progressive taxes, just like our marginal tax rates) that gets us to the $11.7 exclusion. Everything above this tax credit is taxed at 40%

58
Q

What are the steps for determining if something is a taxable gift?

A
  1. Determine whether the property is a “gift”
  2. determine if the donor can use an annual exclusion ($15k and only present interest gifts)
  3. determine if gift splitting is possible
  4. determine if the spouse can take a marital deduction
  5. determine if the property is gifted to a “qualified” charity
59
Q

What must be present for a completed gift?

A

IPA

Intent (donor)

Presents (donor)

Accepts (donee)

60
Q

Qualified Disclaimer

A

=when someone refuses a gift

  • must be in writing
  • within 9 months after the later of
    • the date on which the transfer creating interest is made, or
    • the disclaimer reaches age 21
  • the disclaimer must not have accepted any beneficial interest
  • someone other than the disclaimant receives the property
  • (goes tax free to contingent donee)
61
Q

Gift Splitting

A

Doubling up on the annual exclusion

  • spouses only
  • not between spouses
  • spousal consent needed
  • all gifts in the same calendar year must be split
  • only individually owned property
  • both spouses are US citizens
  • tracked on form 709
62
Q

Marital Deduction

A
  • unlimited
  • gift to a non-US citizen has an annual exclusion of $159k
  • NOT available for terminable interest property (TIP): a gift with strings attached like something that stops or limits in any way, unless they are given a general power over it.
63
Q

Q-Tip

A

The donor spouse qualifies the terminable interest property (TIP) given to the spouse for the marital deduction.

  • Qualifying events: lifetime of interest, it is mandatory, and it is exclusive to them
  • Q tip elections can be used by the donor or the decedent’s spouses executor to obtain a marital deduction for gifts or bequests
  • Q-tip property is included in the recipient spouses estate. This could result in a higher estate tax.
64
Q

Steps to calculate gift taxes

A
  1. Calculate each year’s taxable gifts
  2. add together total taxable gifts
  3. figure out tax on total taxable gifts
  4. subtract tax on previous years taxable gifts
  5. apply unified credit

Result: current year’s gift tax liability

65
Q

GST: Direct Skips

A
  • related persons: determined by family tree
  • unrelated persons: person that was born between 37.5 and 62.5 years after the donor
  • Transferor is responsible for GST tax
66
Q

Types of GSTT Transfers

A
  • Direct skips
  • taxable distributions
  • taxable terminations
67
Q

GST: Taxable Distribution

A

Any distribution of income or corpus from a trust to a skip person that is not otherwise subject to estate or gift tax

  • taxable amount is amount received less expenses and consideration paid
  • Transferee (skip person) pays taxes
68
Q

GST: Taxable Terminations

A

The termination by death, lapse of time, release of a power, or otherwise of an interest in property held in a trust resulting in skip persons holding all the interests in the trust.

  • The trustee pays taxes
  • Ex: Alan leaves a life income to his son, Sam, with the remainder to his granddaughter, Gina. Sam’s death terminates his life interest in the trust property. The interest is then passed to Gina, a skip person.
69
Q

Irrevocable Life Insurance Trust

A

ILIT: a life insurance policy owned by an ILIT provides the trust with money to purchase estate assets at the insured’s death.

  • Existing policies transferred into the ILIT are subject to gift taxes and the three year rule
  • A the owners trust that buys a new policy on the owners life is not subject to the three year rule at the owners death.
  • Funded: transfer policy and income gets taxed
  • Unfunded: Crummy powers, more efficeint
70
Q

Gift tax value of life insurance policies

A
  • Single premium policy: replacement cost for a comparable contract of equal face value
  • whole life policy: interpolated terminal reserve + unearned premiums
  • term policy: unused premium
  • new policy: gross premium paid by the donor
71
Q

Charitable Gift Annuity

A

Donor transfers cash/property to charity, charity pays donor annuity payment each year for life and they get a charitable deduction as a result

72
Q

Pooled Income Funds

A

Donor gives to charity, gets annual pro-rata share of income from pooled funds

73
Q

Private Foundation

A

Separate legal entity, family members control, there are different tax ceilings and such versus a public charity. Famous people do this

5% distribution rule (and CRAT and CRUT)

74
Q

Donor Advised Funds

A

Donors put in stock, cash, property in an account, then select charities that receive funds. Fidelity Charitable Gift Fund

75
Q

Charitable Remainder

A

Gift residence, etc to charity while living there.

76
Q

Gross Estate

A

1st level on Form 706 (6 feet under)

  • FMV of all property at time of death
  • Property with a general power of appointment included
  • Insurance proceeds of:
    • payable to estate
    • policy with incidents of ownership
    • transferred within 3 years of death
77
Q

Alternate Valuation Date

A
  • irrevocable
  • can be used instead of date of death if it results in reduced gross estate value AND reduced estate tax + GSTT
  • AVD = 6 mos after date of death. if property is sold or distributed within those 6 mos, value is that date. After AVD (6 mos), value is AVD
78
Q

Estate Trust

A
  • use if bene has too much wealth and doesn’t need income or corpus
  • I and C can be distributed if needed
  • surviving spouse determines benes
  • included in surviving spouse’s estate at death
  • Qualifies property for marital deduction in the decedent’s estate
79
Q

Transfer for value rules

A

If valuable consideration is received for the sale or transfer of a life insurance policy, the tax free character of the death benefit might be lost. To avoid that, transfers to these parties will protect the tax free nature of the death benefit:

  • insured
  • the partner of the insured
  • partnership in which the insured is a partner, and
  • a corporation in which the insured is an officer.
80
Q

Grantor Retained Trust

A

Irrevocable trusts created to reduce estate taxes. With each, the grantor receives some form of income from the trust for a set amount of years, and then the property is transferred to a beneficiary free of estate taxes. Grantor must outlive income term for the asset to be removed from the gross estate.

  • GRAT: grantor receives a fixed annuity payment until the term ends
  • GRUT: grantor retains a payment rate of a fixed percentage of the value of the trust property, determined annually, for a fixed period of years
81
Q

Dynasty Trust

A
  • A “b” trust
  • Free of estate, gift, and GST taxes
  • Can last for the lives in being, plus 21 yrs 9 mos, or as long as local law allows
82
Q

What charitable transfers have a 5% annual distribution requirement?

A

CRAT, CRUT, and private foundation

CFP Exam (7 decks)

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