Estate Flashcards
100% of ownership is referred to as ________?
Fee simple.
What does an ascertainable standard mean?
It implies that a trustee can make distributions to beneficiaries based on needs related to health, education, maintenance, and support (HEMS).
How is basis calculated on non-marital property titled JTWROS?
Basis is pro-rata.
How much can a Totten Trust lower a gross estate?
Totten Trusts do not lower gross estates. They do help avoid probate.
What can a spouse demand from a trustee regarding a QTIP?
They can demand that non-income producing assets be sold and income producing assets be purchased with the proceeds.
If a 529 Plan lives inside an UTMA/UGMA. Who owns the account?
- *Th**e parents(s).
- *Whi**le an UGMA/UTMA typically belongs to the child/minor, the 529 Plan remains an asset of the parent.
If a trust directed a trustee to pay estate taxes, what are the implications?
Trust assets are included in the gross estate.
Who pays the tax obligation on an intentionally defective trust?
The grantor.
What will allow a child with special needs to receive governmental assistance?
A special needs trust.
Is a bypass trust considered to be a marital trust?
- *No**.
- *Byp**ass trusts can have beneficiaries that are not the surviving spouse.
A credit shelter trust is also known as a ________?
Bypass trust.
What trusts are considered to be marital trusts?
- *AC**E.
- *A** Trusts: General Power of Appointment Trusts.
- *C** Trusts: Qualified Terminable Interest Trusts.
- *(E)s**tate Trusts.
________ require an invasion of corpus is income is insufficient to meet annual payments.
- *CRA**Ts require invasion of corpus.
- *CRU**Ts permit invasion.
What is a completed gift that still allows a grantor to retain control?
A 529.
Can a vacation home be included in a QPRT?
- *Ye**s.
- *Reme**mber that only one home can be included in a QPRT but each individuals can have up to 2 QPRTs.
What are two responsibilities of the personal representative of an estate?
- *Inven**tory the estate.
- *Prob**ate the will.
What is the gift value of a GRAT?
The fair market value of the property minus the retained interest of the grantor.
Who pays the income tax obligation in a 2503(c) trust?
The trust.
What types of trusts are exceptions to the terminal interest rule?
- *Gene**ral Power of Appointment Trusts (GPOA).
- *Quali**fied Terminable Interest Trust (QTIP).
- *Chari**table trusts.
Who is responsible for conducting inventory of an estate?
The personal representative.
What is a requirement within a QPRT to realize estate tax savings?
The grantor must survive the trust term.
What is an advantage of a cross purchase plans compared to a entity purchase agreements?
There is a step up in basis within a cross purchase plan.
What percentage of income needs to be distributed annually from a CRAT/CRUT?
5-50% annually.
Does a QPRT lower a gross estate?
Yes.
How do you calculate the new basis when gift tax is being paid?
- *Th**e total gain is divided by the FMV of the gift and multiplied against the gift tax paid. This amount is added to the grantors basis.
- *Exam**ple. Rob gifts 500 shares to Jon (not related). The FMV at the time of the gift is $10,000 and Rob pays $1,000 in gift taxes. Rob’s basis in the shares is $2,000. What is Jon’s new basis?
- *$8,000/**$10,000 =.8 | .8 * 1,000 = $800 | $800 + $2,000 = $2,800.
Who pays the tax in a grantor trust?
The grantor.
CRATs and CRUTs are ________ in the decedent’s gross estate.
- *Inclu**ded.
- *Whi**le included, the amount is deducted from the gross estate.
How is the basis of an asset determined in a gift?
Typically, the donor’s basis is carried over to the recipient.
What type of trust cannot distribute trust corpus?
Simple trusts.
The extension of time for payment of estate tax is completed by electing Section ________.
Section 6166.
What are the deductions from gross estate?
- *ABC**DE.
- *Administ**rative.
- *Buri**al.
- *Casu**alty losses.
- *Deb**ts.
- *Expen**ses, medical.
Who is responsible for probating a will?
The personal representative.
Who makes the alternative valuation date election?
- *Th**e executor of the estate.
- *Nee**ds to be elected within 6 months of death.
Can a living will help with incapacitation?
Yes.
What’s the difference between heir and legatee?
- *Hei**rs inherit under state law.
- *Lega**tees inherit based on the provisions of a will.
Estate tax portability is not ________?
- *Autom**atic.
- *Nee**ds to be elected by the executor.
Fee simple is not presumed in what states?
Community property states.
A bypass trust is also known as a ________.
Credit shelter trust.
What is one of the primary differences between a SCIN and a private annuity?
A SCIN (self-cancelling installment note) is for a fixed period of time while a private annuity indicates payments for life.
Does power of appointment survive death?
Yes.
A revocable standby trust will ________.
Take effect at incapacitation.
An ILIT (irrevocable life insurance trust) must adopt a ________.
Calendar year.
Does ownership constitute control in a FLP (family limited partnership)?
- *No**.
- *On**ly general partners have control of the FLP.
Which form of ownership will receive a full step up in basis when one of the owners passes.
Community property.
A spouse cannon be given ________ in a QTIP.
- *Gene**ral power of appointment.
- *Doi**ng so would disqualify the spouse for the unlimited marital deduction.
Are testamentary trusts subject to probate?
Yes.
QDOT (qualified domestic trusts) must ________.
Distribute all income annually.
A client purchases a $50 raffle ticket at a charitable event. Her AGI is $50,000. How much can she deduct as a charitable contribution?
- *$0**.
- *Raf**fle tickets are not considered to be a charitable deduction.
For reverse gifts, how long must the recipient survive for the property to pass back to the original owner and receive a step up in basis?
At least 1 year.
What is an example of property passing via law?
- *Prop**erty passing according to titling.
- *Assoc**iate passing by contract with beneficiaries. Associate passing via law with titling (ex. JTWROS).
Is fee simple assumed in community property states?
No.
A grantor is also known as a ________.
- *Trus**tor.
- *Crea**tor.
- *Sett**lor.
Who makes a QTIP election?
The executor.
Where is income taxed in a QPRT?
Taxed to the donor.
If you give someone the power to pay their own creditors, what have you granted?
- *Gene**ral power of appointment.
- *B**e careful of how these questions are worded. You may see a question that asks you to identify which action would be a power of appointment. You’re looking for a situation that has the power holder pay for something outside of an ascertainable standard (HEMS).
QTIPs are also known as ________.
C Trusts.
How is income treated in a 2503(b) trust?
- *Inc**ome is distributed annually.
- *Howe**ver, income can be accumulated in a 2503(c) trust.
The term “sum certain” is found in what type of trust?
- *A** Charitable Remainder Annuity Trust (CRAT).
- *CRA**Ts pay out a specified amount each year while CRUTs can vary in their pay out amounts.
Who owns the policy in an entity purchase agreement?
- *Th**e business.
- *Prem**iums are not deductible.
When would a cross-purchase plan become too cumbersome?
- *Wh**en there are a high number of owners of the business.
- *Cross-p**urchase plans require each owner of the business to own a policy on the other owners. As the number of owners increase so do the number of policies.
What is an example of property passing via contract?
- *A**n account passing via beneficiary designation.
- *Assoc**iate passing by contract with beneficiaries. Associate passing via law with titling (ex. JTWROS).
How can a grandparent pay for their grandchild’s education without paying gift taxes or using any of their lifetime exemption?
Pay the institution directly.
How many residencies can be held in a QPRT?
- *On**ly one.
- *Howe**ver, remember that each spouse can have two QPRTs.
How should you treat overhead expenses in in relation to a charitable gift?
Overhead expenses are not included in the value of the gift.
A good example here would be an artist who donates a piece of work. They may give you the value of the artwork but also include things like rent, utilities, etc., make sure not to include those additional amounts.
A QDOT is a ________?
- *Quali**fied Domestic Trust.
- *Assoc**iate this with a spouse that is not a U.S. citizen.
What are some of the common items included in the 3-year lookback period?
- *Gi**ft taxes paid.
- *Trans**fers of life insurance policies.
- *The**se are important to know as you may be asked to calculate the gross estate of a client. In the list of assets, you may see “a life insurance policy that was transferred to an Irrevocable Life Insurance Trust last year,” as an option. Transfers of policies within 3-year of death come back into the gross estate of the deceased.
Which type of trusts give immediate income to charity?
Charitable Lead Trusts.
What happens if a grantor retains an interest in a trust?
Any incident of ownership of a trust will force the trust assets back into the decedent’s estate.
How does property titles tenants in the entirety pass?
Outside of probate.
Can a spouse sever ownership in a property titles tenants by the entirety?
Not without permission of the other spouse.
Are CRATs included in the gross estate?
- *Ye**s.
- *Bu**t they are deducted from the gross estate as a charitable deduction.
What is the type of interest that a trustee holds in a trust?
Legal interest.
QTIPs qualify for ________?
The unlimited marital deduction.
What happens to the loan payment on a SCIN when the creator passes?
The loan is essentially cancelled.
If a client transfers property to an irrevocable trust but retains income from the trust, what happens when the client dies?
The property is included in the gross estate of the deceased.
Why would a testamentary trust be a bad idea for non-married couples?
The will can still be contested.
Who is taxed on interest and dividends inside of a GRAT?
The Grantor.
What does a power of attorney fail to cover compared to an advanced medical directive?
Life-sustaining treatment at end of life.
What title of assets is an automatic passing of title?
Tenants by the entirety and Joint Tennant with Right of Survivorship (JTROS).
What can a surviving spouse demand regarding a QTIP?
That non-income producing assets be converted into income producing assets.
A taxable gift occurs when a GRAT is ________?
Created.
Parties to a power of attorney include _______ and _______?
- *Princ**ipal.
- *Princi**pal’s agent.
Gift tax paid within three years of death will ________ the gross estate.
- *Incre**ase.
- *Gi**ft taxes paid and transfers of life insurance policies within three years of death are the two important items to remember on the exam.
What is the main purpose of estate planning?
- *T**o ensure that property goes to the intended party after death.
- *Th**is is considerably subjective as estate planning has many useful features.
Property that is acquired by either spouse during marries is equally owner by both parties. What is this describing?
Community property.
Are testamentary trusts revocable or irrevocable?
Irrevocable.
What is the minimum amount a charity will receive from a CRAT/CRUT?
At least 10% of the value of the trust.
A residuary clause covers what?
Disperses any items that have not addressed in the will.
Tenants in the entirety can only be used by ________?
Married couples.
What are the two primary ways to avoid probate?
- *La**w (think titling).
- *Cont**ract (think beneficiaries).
Form 709 refers to ________?
Gift tax returns.
What’s the dollar limit of property that can be given to a spouse that can be included from the gross estate?
Unlimited.
What must happen for a GRAT to stay out of a gross estate?
The grantor must outlive the term of the trust.
Complex trusts can ________.
- *Accum**ulate income.
- *Sim**ple trusts must distribute income annually.
Between a SCIN and a private annuity, which option includes collateral?
SCIN.
When would a springing power of attorney come into effect?
At incapacitation.
When would a 529 plan be included in a bankruptcy estate?
If the plan was created within 24 months of bankruptcy.
Legal title is held by the ________?
The trustee.
A Rabbi Trust avoids ________?
Constructive receipt.
Who can pay the tax on income received from a trust?
- *Th**e grantor.
- *Th**e remainderman.
- *Th**e trust.
Is a springing power of attorney considered to be durable?
- *Ye**s.
- *I**t survives incapacitation.
Crummey provisions are typically found in ________?
Irrevocable life insurance trusts (ILITs).
What is a C-Trust?
A QTIP.
Tenancy by the entirety can be terminated by ________? (3 ways)
- *Dea**th.
- *Agree**ment (mutual)
- *Divo**rce.
- *Reme**mber DAD as an acronym.
Regarding income, what is the difference between a 2503(b) trust and a 2503(c) trust?
- *2503**(b) trusts must pay out income annually.
- *2503**(c) trusts can accumulate income.
Relate the term, “in terrorem” with?
No-contest.
Can a disclaimant disclaim only part of a bequest?
- *Ye**s.
- *Th**ey have the right to disclaim part of or the entire bequest.
Can a will establish a testamentary trust?
Yes.
A reduction of a bequest is called a ________?
An abatement.
At what age must a 2503(c) trust be terminated?
By age 21.
A ________ must adopt a tax calendar year.
An ILIT.
