Estate Flashcards
1
Q
deductions FOR gross estate
A
ABCDE
Administrative
Burial/funeral
Casualty losses during admin
Debts of decedent
Expenses for medical
2
Q
deductions FROM gross estate
A
- charity
- marital
- state tax paid for estate, inheritance, legacy, succession
3
Q
what does prior transfer credit apply to?
A
credit for estate taxes paid within the last 10 years
<2 years = 100%
2 years = 80%
3 years = 70%
purpose is to help avoid double taxation when couple dies at close time
4
Q
estate credits
A
-estate tax credit
-prior transfer credit
-foreign death taxes credit (property outside US)
5
Q
what basis and holding period do heirs get? exception
A
-step to FMV (not necessarily up; could be a step down)
-holding period is always LT
-no step to for IRD
6
Q
how are publicly traded securities valued for gift purposes?
A
- average of high and low trading price for the day (including accrued dividends/interest)
- if death occurs on a weekend, based on averages for trading day before and after
if rarely traded security, there is a different formula
7
Q
Crummey provision
A
allows trust beneficiary to withdraw some or all of a contribution to a trust for a limited period of time (e.g., 30 days) to create a present interest
5/5 lapse rule:taxable gift occurs when power to withdraw >$5K or 5% of assets lapses (if >1 beneficiary)
note: 5 days is NOT enough for Crummy
8
Q
heir vs legatee
A
legatee inherits under the will
heir inherits under state law
9
Q
abatement
A
reduction of a bequest
e.g., will said $100K but you only have $80K at death
10
Q
ademption
A
extinguishment of a right when we no longer have the asset we gave in a will
e.g., it names a specific house but decedent doesn’t live there anymore
11
Q
durable and general vs limited power of attorney/appointment
A
general means right to manage asset broadly
limited can be narrow (pay my bills) or braod (anything I can do except); limited appointment often limited to HEMS
durable means it survives incapacity
12
Q
holographic will
A
handwriten; must be signed and dated
13
Q
noncupative will
A
oral, dying wishes
only applies to personalty
not valid in most states
must have witnesses
14
Q
statutory will
A
drawn by attorney and complies with domicile state law
15
Q
survivorship clause
A
requies beneficiary to survive decedent by certain period of time
for spouse, must be <6 months to get marital deduction
16
Q
disclaimer clause
A
outlines who gets the property if a named legatee disclaims (doesn’t want) it
cannot be used to avoid GSTT
17
Q
power of attorney vs power of appointment
general and limited
A
attorney is the right to manage; cannot survive past death
appointment is the power to appoint
- general can appoint assets to yourself
- limited can only appoint assets to others
18
Q
tenants in common
owners, estate inclusion, survivorship feature, partioning
A
owners: 2+
estate: include based on % owned
survivorship feature: none
partitioning: CAN be partitioned without consent of all
19
Q
JTWROS
owners, estate inclusion, survivorship feature, partioning, probate
A
owners: 2+
survivorship feature: yes
estate: % contributed unless spouse (50/50)
survivorship feature: yes
partition involuntarily: yes
probabte: no
20
Q
tenancy by entirety
owners, estate inclusion, survivorship feature, partioning, probate
A
owners: 2 only
estate inclusion: 50%
survivorship feature: yes; automatically goes to surviving owner, even if will says otherwise
probabte: none
partitioning: cannot be partitioned involuntarily
21
Q
community property
owners, estate inclusion, survivorship feature, partioning, probate
A
owners: 2
estate: 50% inclusion
survivorship feature: no
probate: yes
partitioning: no
surviving owners also gets a step to FMV
22
Q
what is required to elect gift splitting?
A
filing a 709 for each person that has a taxable gift (i.e., gifts >$16K each and has used credit)
23
Q
what is the annual exclusion for non-citizen spouses?
A
$164K
24
Q
intestate
A
- to die without a valid will
- includes dying with a will that only covers some assets (or without a risiduary clause)
25
attestation clause
aka witness clause
signed by at least two qualified witnesses (3 in some states)
26
self-proving clause
notary signing a declaration
27
requirments to disclaim a bequest
- cannot benefit from property (some exceptions for surviving spouse)
- cannot direct future interest
- must disclaim within 9 months
- must be in writing
28
per capita vs per stirpes
stirpes: grandchildren stand in for decased parent and split
per capita: equal shares among living beneficiaries
29
codicil
a suplement to a will used to modify, amend, or explain
30
what are the community property states?
AZ, CA, ID, NV, NM, TX, WA
LA, WI
31
which ownership types go through probate?
sole ownership
tenants in common
community property
32
duties specific to administrator and executor
administrator: petition court for appointment, pay security bond
executor: locate will, submit will to court
33
what letter does the court use to name administrator and executor?
administrator: letter of administration
executor: letters of testamentary
34
when is imputed interest required?
loan > $100K
Loan $10-100K AND borrower has inestment income $1K+
| note: If $10-100K, imputed interest is limited to net investment income
35
what is a qualified transfer?
| what does it include?
payment made directly to:
- education facility for tuition (NOT books/supplies/room & board)
- medical care provider
36
are gifts to a political organization exempt from gift tax?
yes
37
when is a Form 709 required?
- when any gift is made unless it is < annual exclusion, not subject to gift tax (qualified transfer, spouse, charity)
- when gift splitting is elected
38
what is the statute of liminations on gift tax?
3 years unless gift was not disclosed
39
how do gifts made within 3 years of death impact the gross estate?
- any gift tax paid on them is included in gross estate
- if any retained interest, value is included in gross estate
- proceeds from any life insurance policy gifted within 3 years is included
40
are annuities included in the gross estate?
- **no** if a straight single life annuity beause it terminates at death
- **yes** if survivorship annuity; in that case, it's included in the estate for the first to die
41
is life insurance on the decedent's life included in the gross estate?
proceeds are included if proceeds were receivable by estate or decedent had any incident of ownership
42
what are minority discounts, lack of marketability discounts, and blockage discounts, and how much are they typically?
- **minority**: has a minority interest in closely held business; 15-50%
- **marketability**: closely held buisness that is hard to market; 15-50%
- **blockage**: block of corporate stock so large it would have a material impact on stock price
| there is also a key person discount
43
how are rarely traded securities valued for estate tax inclusion purposes?
[(price after death x business days until death) + (price before death x business days since death)] / (business days until death + business days since death)
| basically a weighted average
44
what is the alternate valuation date and what is required to use it?
assets valued at date 6 months after death
requirements:
- value must be lower than valuation on date of death
- estate tax must be lower than date of death
- if asset is sold between death and 6 months, include value of sale
- wasting assets (annuities, patents, lease income) must be valued as of date of death still
45
when is Form 706 required?
- **required** if gross estate + adjusted taxable gifts is > estate tax credit
- **time**: must be filed and estate tax must be paid 9 months after death
- **extension**: executor can request up to 12 month extension by filing form 4768
46
penalties for not filing Form 706
- same as income tax
failure to file: 5%/mo up to 25%
failure to pay: 0.5%/mo up to 25%
- if fraud, 15%/mo up to 75%
47
reverse gift
if heir receives property that was given by the heir to the decedent within 1 year of death, no step to basis
48
what is the estate tax rate?
varies by estate tax base
remember that if taxable gift >$1M: $345,800 + 40% of amount that exceeds $1M
49
what is the deadline for filing a 709 and who is liable for the tax?
- tax due date + extensions
- donor is primarily liable but may go after donee if donor doesn't pay
50
what type of gifts are best to gift to charity from a strategic perspective?
those that have appreciated the most
51
is general power of appointment included in gross estate?
| follow up - how to avoid inclusion
- yes because you have the right to appoint to yourself, your creditors, etc
- avoid by creating an ascertainable standard (HEMS) or Crummey provision
52
how is life insurance valued for gross estate?
- **paid up**: include replacement value
- **premium pay status** (i.e., still making payments: include interpolated terminal reserve + unearned premium
53
when are 1041's due when someone dies?
they continue to be filed annually until the estate is closed out
54
which expenses can you choose whether to take on 1041 or 706?
AMC
- admin
- medical
- casualty losses
55
high-leve estate formula
Gross Estate
(-) ABCDE
= Adjusted Gross Estate
(-) marital and charity
= Taxable Estate
(+) post '76 gifts
= Tentative tax base
56
requirements for marital deduction
- married at death
- citizen
- item must be included in gross estate
- later must be included in spouse's gross estate
57
how are things valued for marital deduction?
the NET value of what the spouse is receiving (i.e., FMV - mortgage)
58
reasons that would prohibit spouse from using marital deduction for an item
items with a terminable interest
- >6 month survival contingeny
- terminable interest where spouse has general power of appointment (A Trust)
- QTIP (ultimately goes to kids)
- CRT where spouse is only noncharitable beneficiary
59
ways non-citizen spouse can get full marital deduction
- become US citizen before due date of return
- utilize QDOT with at least one US trustee who withholds sufficient assets for taxes
| Note: Non-citizen spouse can transfer any unlimited amount to US spouse
60
portability
| what is it, when and how to file, who can use
- port over deceased spouse's unused estate tax credit
- file timely 706
- based on the last deceased spouse only. I.e., if you have two husbands die, can only use your second husband's
61
what are IRD assets?
- qualified **retirement** accounts like IRAs, 401(k)s EXCEPT for Roths
- **income** not yet received like dividends, commissions
- **passive** income not yet reeived like rents, royalties, S corp income, annuities
- **Unpaid debt** on installment
62
transfers not subject to gift tax
- legal support (buying car for kid)
- qualified transfers (medical, education)
- below-market rate loans
- transfer to citizen spouse
63
SCIN
| payment term, interest deductibility, basis, collateral interest
installment sale for FMV between private (usually related) parties over a term
- **term**: determined by seller
- **deduct interest**: depends on property (e.g. mortgage interest can be)
- **buyer basis**: price of property, regardless of # payments made
- **collateral interest**: yes
- **gross estate**: no inclusion if payments are consumed
| Note: if seller dies before term, no further obligation to pay
64
private annuity
| payment term, interest deductibility, basis, collateral interest
transaction between private but usually related parties where seller needs cash for life
- - **term**: life of annuitant
- **deduct interest**: none
- **basis**: sum of annuity payments
- **collateral interest**: no (i.e., can't take property back if buyer doesn't pay)
- **other**: good to use if you think you'll live less than IRS does, but CAN'T be terminally ill
65
FLP
- limited partnership used to transfer assets to younger generation
- parent keeps 1% general partner share so they can maintain control of assets
- remaining 99% kept as limited and transferred to children over time via annual exclusion
- able to utilize minority shares and marketability discounts
66
who holds the legal title of a trust?
- trustee who must act as fiduciary
- beneficiaries hold benficial title
67
spendthrift clause
- trust clause used for creditor protection
- says beneficiary can't assign/pledeg/promise assets to anyone
- can't be used if grantor is the beneficiary
- must allow distributions to be made on a discretionary basis for this to work
68
spenthrift clause
- trust clause used for creditor protection
- says beneficiary can't assign/pledeg/promise assets to anyone
- can't be used if grantor is the beneficiary
- must allow distributions to be made on a discretionary basis for this to work
69
reasons to use trusts
- management - beneficiary isn't capable of managing
- creditor protection - spendthrift clause
- there's a valuable asset that can't be split up (e.g., farm)
- avoid taxes - transfer future appreciation, transfer to younger generations, avoid gross estate inclusion
- avoid probate - living trust
70
what is a living trust
- revocable trust managed by grantor
- becomes irrevoacable at death
- INCLUDED in gross estate because incident of ownership
71
how is trust income taxed?
- **grantor** trust: taxed to grantor
- **non-grantor**: depends on whether income is distributed (beneficiaries) or accumulated (taxed at trust rates)
72
simple vs complex trust
**simple**: requires distribution of income
**complex**: permits accumulation of income
72
what makes a trust considered a grantor trust
- income is or can be paid to grantor or spouse
- income is or may be used to buy life insurance on grantor or spouse
- grantor has right to alter beneficiary/enjoyment of trust
- trust assets will return to grantor or spouse
- grantor can dispose of < FMV
- grantor can get loans from trust
73
inter vivos trust
created/funding during life
74
testamentary trust
created/funded at death
75
standby trust
unfunded or minimally funded trust waiting for some triggering event (usually incapacity)
76
pourover trust
receives assets from another source
77
why use inter vivos recocable trust
to maintain privacy (avoids probate)
to avoid probate costs
to discourage will contests
78
GRAT and
What kind of assets to put in it
irrevocable trust that pays fixed annuity to grantor for defined term
- use when in **good health** when it's likely grantor will outlive term
- pays **fixed** annuity
- put highly **appreciating assets** (higher than 7520 rate) to get the appreciation out of the gross estate/gift tax
- remainder goes to non-charity at end of **term** (usually kids)
- **gift**: PV of expected remainder is a future gift
79
GRUT
- like a GRAT but **Uncertain** payment based on % of assets
- must be valued annually
- infrequently used
80
QPRT
- like the GRAT but for personal residence
- ideal if home is appreciating faster than 7520 rate
- **gift** = PV of remainder interest
- **estate**: if grantor dies before term, FMV of home is included in gross estate
81
ILIT
- irrevocable life insurance trust
- not included in probate or gross estate if Crummy provision is used
- grantor typically puts money in for premiums
- can allow liquidity by allowing trust to purchase assets of the estate and make loans to the esate (don't require it)
| requiring trust to pay estate admin or taxes causes inclusion in estate
82
2503(b) and 2503(c)
trusts for minors used to be able to utilize the annual gift tax exclusion
**B: bad boy**
- hold assets but must distribute income annually
- use annual exclusion for PV of income interest
**C: chior kid**
- allows them to accumulate interest but assets made available to child at 21
- use annual exclusion for contribution
83
ABC trust arrangement: A
- A: general power of appointment trust
- for spouse so marital deduction can be used
- 2nd spouse controls assets and it will be included in 2nd spouse's estate
- may be used to avoid GSTT
| not necessarily any better than just gifting the assets
84
ABC trust arrangement: B
- B: bypass (aka credit shelter) trust
- assets ultimately go to non-spouse beneficiaries (kids)
- transfer amount over estate tax limit (~$12M) when first spouse dies, not to exceed second spouse limit (~$24M) so nothing is included when 2nd spouse dies
- spouse can get income for HEMS, Crummy
- use for highly appreciating assets
85
ABC trust arrangement: C
- C: QTIP
- usually created at death
- exception to allow qualification for marital deduction but still control ultimate disposition
- must give spouse income for life and allow spouse to be able to sell non income-producing assets (e.g., to replace with income-replacing property that spouse can get)
- included in gross estate of 2nd spouse
| Can choose whether to apply it for estate tax but not GSTT
86
how and when to make QTIP election
executor elects it on the 706 by the due date (15 months = 9 months + extension)
87
QDOT
- allows noncitizen spouse to qualify for marital deduction
- requires domestic trustee who withholds tax
88
CRAT
- fixed annual **annuity** **5-50%** of initial FMV
- life or term if 20 years or less
- CAN change charitable beneficiary
- **no** contributions after inception
- remainder interest **10%+** of initial FMV
89
CRUT
- more flexible than CRAT
- annual annuity of **5-50%** of **annual** FMV
- **can** contribute after inception
- remainder interest **10%+** of initial FMV
- catch up provision allowed if it doesn't earn enough for interest (so you don't dilute principle)
90
PIF
- pooled income funds
- basically a poor mans CRUT
- contributions pooled into trust maintained by charity (so can't change charity)
- income for life to donor
- good for small gifts
91
charitable lead trust
- like CRAT/CRUT, can be CLAT/CLUT
- charity receives income and remainder goes to noncharitable beneficiary
- used by high net worth people who don't need income so asset goes to kids
- choose AT or UT based on how long you want to pay interest to the charity and whether you want it to be a fixed amount
92
installment payments of estate tax
if it is a closely held buisness (>35% adjusted gross estate where decedent owned >20%), can extend payment of estate tax over 14 years (interest only for 4 years then amoritize)
93
special use valuation
- normally FMV implies highest and best use
- if not using asset at highest and best (e.g., farm in gentrifying area), can reduce to current use value as long as reduction is <$1.23M
- must have managed it 5/8 years before death
- must be 25%+ of gross estate
- heirs must use for 10 year period
94
section 303
- stock can be redeemed from an estate to pay for taxes, admin, funeral without being treated as a dividend
- to qualify the business must be a C corp with >35% of adjusted gross estate
95
what is the GSTT rate?
40%
| gift tax paid is also taxed at the additional 40%
96
who is considered a skip person?
- lineal descendant 2+ generations down
- **un**related person >37.5 years younger
- 2+ generation becomes non-skip if non-skip person dies (e.g., if dad dies, grandson becomes nonskip)
- trust can be a skip person if all beneficiaries are skip people
97
taxable termination vs direct skip vs taxable distribution
- **direct skip**: outright gift to skip person
- **taxable termination**: any termination of a trust interest unless trust property is subject to estate or gift tax, non-skip person receives interest, or distribution will never be made to a skip person; trustee is liable for GSTT
- **taxable distribution**: any distribution from trust to skip person that is not a taxable termination or direct skip; transferee is liable for GSTT
98
GSTT exclusions and exemptions
| what does the exemption apply to first?
- qualified transfers
- $16K annual exclusion
- same lifetime exemption amount as estate tax but doesn't function as a credit
- exemption is automatically allocated first to direct skips; transferor or executor allocate exemption to transfers and doing so is irrevocable
99
arms-length transaction
transfer between unrelated parties
100
TPPT
- like QPRTs but for **personalty**
- **gift** = PV of remainder interest
- **estate**: if grantor dies before term end, included in gross estate
101
medicaid
| who is it for, requirements
- **who**: 65+, blind, disabled US resident or citizen
- **SSI**: $2K countable assets for single, $4K married (excludes primary home, car, term life insurance, biz property)
- **income**: varies by state but usually < 133% federal poverty level
- **lookback**: 5 years
102
rule against perpetuities
all trust interests must vest within lives in being (when the last person identified in a group; can include child in womb) +21 years
103
when does a trust have gift tax?
when it is irrevocable
104
Totten trust
not really trusts
basically bank accounts that include POD benficiary
105
blind trust
revoable trust
used for high ranking political figures
used so grantor is not able to manage the assets
106
when is an appraisal required for donations?
>$5K ($10K for nonpublicly traded stock)
107
exceptions to GSTT
transfers between sep '85 and oct '86 unless:
- to irrevocable trust established before sep '85
- related to will before sep '85
- mentally disabled
108
Who pays estate tax on a bequest?
If it doesn’t specifically say how (e.g., out of residual estate), it comes out of the bequest
109
Is a testamentary will safe from will contests?
No; it is created in the will, so it can be contested to block creation
110
do assets in a testamentary trust go through probate?
yes
111
can a disclaimant disclaim part of an asset?
yes; they can disclaim some or all of it
112
is GSTT paid on top of gift tax or is gift tax paid on top of GSTT?
gift tax is paid on top of GSTT
e.g., if GSTT = $400K on $1M gift, gift tax = $1.4M x 40% = $560K
113
what are requirements of a family partnership?
- The partnership interests must receive a pro-rata share of distributed income.
- General partners must be adequately compensated for services rendered.
- Capital must be a material income-producing factor.
| NOT required: Personal service income may be earned by the partnership.
114
who can be the beneficiary of marital trusts?
only the spouse (e.g., QTIP)
115
can the annuitant deduct interest payments with a private annuity?
no
116
do revocable living trusts avoid dissipation of assets?
yes
117
what is an Estate Trust?
a special type of power of appointment trust which grants surviving spouse a testamentary general power of appointment over assets
118
what is a life estate
an interest in property that ceases upon the death of the owner of that life estate
119
what happens to appreciation with an estate freeze?
future gain would occur in the transferee's estate
120
what kind of property transfers at death by contract?
something with a beneficiary designation like a Roth IRA
121
do Totten trusts go through probate? are they included in the gross estate?
they do **not** go through probate but they **are** included in the gross estate
122
are grantor trusts included in the gross estate?
yes, even though there is a beneficiary and it's irrevocable, it still has a life interest in income
123
what is a reversionary gift?
| included in gross estate? how far prior to death must it be completed?
- a gift given with the intention that the donor will receive it back with a step-up in basis
- property is included in gross estate
- gift must be completed one year prior to donee's death
124
is property acquired via gift or inheritance during marriage considered community property?
generally no
125
what are the ways a will can be revoked?
by shredding or by writing, dating, and signing a new one
a codicil is NOT a proper way
126
in what ways can tenancy by entirety be terminated?
| and what happens when terminated in each scenario
- death (survivor takes entire tenancy)
- mutual agreement
- divorce (converts to tenancy in common or joint tenancy)
127
what is ancillary probate?
decedent is resident of one state and owns realty in another state
128
in the hands of the creator, what can be deducted for charity?
only materials and actual costs
e.g., rental of a space is not deductible
129
for medical concerns, what is the difference between power of attorney, living will, and DNR?
- **power of attorney**: providing of medical care but NOT ending of life sustaining treatment
- **living will**: ending of life sustaining treatment but NOT providin of medical care
- **DNR**: not a replacement for either; additional document that addresses prevention of resuscitation
130
how many residences can a QPRT hold and how many QPRTs can one person have
- it can hold only one residence
- you can have 2 QPRTs
131
who retains the tax advantages of a QPRT, donor or donee?
donor
132
is a CRUT for life included in the gross estate of the grantor?
yes if it is for the life of the grantor
133
what type of charity trust requires invasion of corpus to meet income payout requirements
CRAT
134
who are the parties to a power of attorney?
principal and agent
135
if a couple elects to split gifts, which gifts does that apply to?
all gifts that year that occured PRIOR to death
136
Devisee
Devisee is a gift of real property through a will
137
under what circumstances is a decedent required to file an estate tax return?
when the gross estate, plus adjusted taxable gifts, exceeds the applicable exclusion amount ($12,060,000 for 2022).
138
what is a defective grantor trust
treated as a grantor trust for income tax purposes but as a completed gift for gift and estate tax purposes.
139
no contest clause
if legatee contests, they get nothing, so they must have enough skin in the game
140
forced heirship
only in Louisiana; requires some assets to go to children
141
divorce statute
provision that leaves assets to ex-spouse; otherwise, if not specifically spelled ouit, it will typicaly be assumed that the ex-spouse legatee is an old provision and they wont get anything
