Estate Flashcards

Question

Elements of Form 706 (Estate Tax Return)

Answer 1

Gross Estate (Probate and Non-Probate Assets) Less Funeral Expenses, Administration expenses, debts, taxes and casualty losses =Adjusted Gross Estate Less Marital and Charitable Deductions =Taxable Estate Plus taxable gifts =Tax Base Less estate tax deduction ($12,060,000) =Tentative Tax Less gift tax paid =Net Estate Tax

Answer 2

All Probate Assets: Singly owned (fee simple) Tenancy in Common Estate as Beneficiary Community Property All Non-Probate Assets: JTWROS and TBE (50%) Life Insurance General Powers of Appointment Gift Taxes Paid within 3 years of death Certain transfers of life insurance within 3 years of death Survivorship annuities (lump sum or net present value of payments)

Answer 3

Property is included in the decedent's gross estate if they retained a right to use or enjoy the property or receive income from it during their lifetime. Even trusts (revocable trusts) will fall into this category. 529 plans are an exception UTMA/UGMA are included up until the beneficiary reaches the appropriate age. RETAINED life estate is the key. A life estate is excluded from the gross estate

Answer 4

Life Insurance owned by others Completed gifts to others Life estate for the decedent's life only (not a RETAINED life estate - which would be included)

Answer 5

Gross estate less funeral and administrative expenses, debts, taxes, income taxes and casualty losses. (State level inheritance taxes may also be deducted here) Also called tentative taxable estate.

Answer 6

Adjusted Gross Estate, less marital and charitable deductions. In some cases, state level death or inheritance taxes are also deducted.

Answer 7

Gifts made after 1976. Not included in gross estate. Added to taxable estate to arrive at tentative tax base.

Answer 8

Amount used to calculate estate tax due

Answer 9

Subtract the lifetime exemption ($12,060,000) from the tax base and multiply any remainder by 40%

Answer 10

Gift taxes paid are subtracted from the tentative tax to arrive at the net tax due.

Answer 11

Income Tax Gift Tax GST Tax Estate Tax

Answer 12

Gift Taxes and Estate Taxes use the same lifetime exemption ($12,060,000 for 2022) (remember, taxable gifts are added back to the taxable estate) Allow for unlimited transfer of property between spouses Allow for unlimited gifting of property to charity

Answer 13

May help a wealthy individual get appreciation out of their estate.

Answer 14

Gift Tax GST Tax Estate Tax (Cumulative in nature)

Answer 15

An estate tax credit is available for property received from a prior taxable estate within 10 years. This credit avoids double taxation on property transferred.

Answer 16

Sale of assets (including marketable securities, annuities and business interests - taxability is a consideration) Life Insurance (direct ownership, life insurance trust, buy sell)

Answer 17

An interest held by a person providing the ability to determine who shall use, enjoy, and possess property subject to the power. Generally occur in estates and trusts.

Answer 18

General Power is generally deemed outright ownership of property. There are no restrictions on this type of power.

Answer 19

The holder of this type of power can only transfer the property to specific designated individuals (typically children of the holder or someone other than the holder) or only under certain circumstances (consent of another that has an adverse interest to the holder).

Answer 20

Property subject to a general power will only be included in a donee-decedent's estate (or considered a taxable gift) up to the greater of: $5,000 or 5% of the total value of the property subject to the general power

Answer 21

Power not exercised within a given time period is considered lapsed When the holder uses it in favor of one or more beneficiary, it is exercised A release of power occurs when the holder relinquishes all control to determine who the beneficiaries of the property will be.

Answer 22

An ascertainable standard is not a general power. It is a limitation on the right to exercise a power for the needs (health, education, maintenance and support). Also known as HEMS

Answer 23

Special Power and Ascertainable Standard - No gift or estate tax implications General Power - Both gift and estate tax implications (fully taxed) 5 or 5 power - No gift tax implications. Estate tax = greater of 5% or $5,000 is taxed

Answer 24

Donor must be capable of transferring property Donee or Donee's agent must be capable of receiving and possessing the property There must be delivery and acceptance Donative intent is not required for federal taxation, but is required to be a valid gift The gift must be a completed gift

Answer 25

A non-canceled check A revocable trust

Answer 26

A canceled check An irrevocable trust Retitling the ownership of a house or car

Answer 27

Highly appreciated property - Charity or person in low tax bracket (may want to keep to gain a step-up in basis) Property likely to appreciate - Good gift to remove from future value of an estate Income-Producing Property - Good to gift to a donee in a low tax bracket Loss Property - sell to take the loss then gift proceeds Property Subject to Depreciation - Keep until fully depreciated Out of State Property - Gift to avoid ancillary probate Life Insurance - Excellent to gift - tax based on replacement value; benefit based on face value

Answer 28

Family Limited Partnerships (FLPs) Limited Liability Corporations (LLCs) Preferred Stock Recapitalizations Gifting closely held stock These transfers reduce the value of the business interest in the donor's estate Care must be exercised in making gifts of closely held stock, because such gifts may disqualify the estate from making Section 303 or Section 6166 elections Gift fully depreciated property to family members and then lease it back.

Answer 29

$16,000 in 2022 Gifts of present interest qualify for this exclusion Gifts of future interest do not qualify for this exclusion (exceptions are gifts in trust of future interest for minors, 2503(c) trusts, Crummey trusts and 529s)

Answer 30

Do not enjoy unlimited marital gift (or estate) exclusion of US citizens. Super annual gift exclusion if $164,000 is available.

Answer 31

Must be appreciated property (same value as original owner's basis does not count) Donor must have paid gift tax Calculation = Original owner's basis, plus gift tax paid that was attributable to appreciation (calculated by taking the total gift, less original basis times 40%)

Answer 32

Only the net gift (property value less the encumbrance) is subject to gift tax. If the encumbrance is greater than the donor's basis in the property, the donor will also realize a capital gain.

Answer 33

Consent of the non-donor spouse is required Two gift tax returns (709, one by each spouse) if the value of the split gift to an individual donee exceeds the annual exclusion. Only the donor needs to file a 709 if the value of the split gift to an individual donee is under the annual exclusion. There is a line for the spousal consent that must be signed.

Answer 34

Most types of property are considered transferred when documents proving the transfer of title are executed. Exceptions: Joint tenancy bank account - gift arises when funds are withdrawn by the donee, not upon creation. Joint tenancy US Government bonds, a gift arises when the bond is redeemed.

Answer 35

If a person gives more than the annual exclusion to a single donee, that person uses their lifetime exemption. The gifts accumulate on form 709. Once the lifetime exemption is used up, the donor is subject to immediate gift tax on gifts exceeding the annual exclusion.

Answer 36

No gift tax for: Qualified payments made directly to an educational institution for tuition Qualified payments made directly to a provider of medical care Gifts to a spouse (provided they are not a terminal interest) Gifts to a qualified charity Gifts to a political organization Gifts to the President of the US

Answer 37

No 709 needs to be filed unless the gift exceeds the annual exclusion. In cases where property is owned 50/50, it is automatically assumed the gift is split, and no spousal consent is needed.

Answer 38

DPOAHC is drafted separately DHOAHC is always springing

Answer 39

Buy, sell, lease assets Collect debts Operate a business Sue others Refuse life-prolonging procedures Make gifts Make disclaimers Make living trusts Sign income and gift tax returns with competent spouse Exercise special powers of appointment

Answer 40

Cannot execute or revoke a will Cannot execute a living will

Answer 41

Power ceases when the principal becomes incompetent

Answer 42

The trust is recognized generally universally Revocable trust continues after death (becomes irrevocable) Revocable trust is the better answer for planning

Answer 43

Expenditures need to be approved by the trustee, protecting a disabled person from exploitation Allows the beneficiary to continue to receive public benefits like Medicaid, Section 8 housing assistance, and SSI The trust can only pay for supplemental needs not covered by public programs, like private nursing, furniture, supplemental housing, and a few luxuries Can be used by parents for a disabled child or in litigation settlements where someone becomes disabled.

Answer 44

An OBRA or payback trust is a type of trust that allows a disabled individual who is under 65 to remain eligible for Medicaid. The person transfers their assets into the trust. If any assets remain when the disabled beneficiary dies, the state is entitled to be paid back for any costs Medicaid paid while they were living.

Answer 45

There must be trust property (corpus) There must be a grantor There must be a trustee. The trustee holds legal title to the property. There must be one or more beneficiaries The grantor must be legally competent at the time the trust is created The trustee must be competent at all times

Answer 46

Operates as a conduit for income to beneficiaries. Passes income and deductions to the beneficiaries who then report it with the same character it had for the trust, paying taxes at their marginal rate Normally no distribution of corpus Cannot make charitable gifts

Answer 47

Distributable Net Income (DNI) is the accounting rule that limits the amount that the beneficiaries must report as gross income for income tax purposes. Provides the trust or estate with a deduction for the amount distributed to beneficiaries. The deduction is the lesser of the actual amount distributed or the DNI Limits the portion of the distribution that is taxable to the beneficiaries Ensures the character of the distribution remains the same in the hands of the beneficiary as it was in the trust.

Answer 48

Taxed as a separate entity on its income. To be taxed separately, a trust/estate must meet two requirements: It is irrevocable, and the grantor has retained no control Income is accumulated in the trust (either because the trust document requires income to be accumulated or the trustee has the discretion to accumulate) Income accumulated is taxed to the trust, income distributed is taxed to the beneficiary Corpus can be distributed May make charitable gifts An irrevocable trust is generally, but not always, a complex trust.

Answer 49

An irrevocable trust with demand rights Classifies a gift of a future interest as a gift of a present interest, making it eligible for the annual gift exclusion (including split gifts). The demand (or withdrawal) right can be granted to a minor through a guardian. Each time a new contribution is made to the trust, the beneficiary has a temporary right to withdraw from the trust. The withdrawal amount is the lesser of the annual gift exclusion or the current year contribution. If the demand is made, the trustee must deliver the funds. Most frequently added to life insurance trusts.

Answer 50

Revocable living trust. The grantor is generally the trustee during their lifetime. At death, the trust either terminates with the corpus distributed to the remainderman, or becomes irrevocable

Answer 51

Organization of property during lifetime Potentially lower cost than probate Alternative to guardianship or conservatorship Greater privacy than a will Speedy disposal of property Avoids probate

Answer 52

Legal fees Funding burden Longer creditor period

Answer 53

Created through instructions from a will. Does not result in immediate estate or income tax savings, but eventually can as the will is executed. Can protect trust property from successive estate tax levies as it passes from one beneficiary to another.

Answer 54

A provision that prohibits the transfer of the beneficiary's interest and stipulates that it is no subject to claims of the beneficiary's creditors.

Answer 55

First spouse to die controls the corpus Property is transferred at the time of owner's death Give the decedent post-mortem control Property up to the federal estate tax exemption Provides income to surviving spouse or whoever the decedent chooses May have 5 or 5 power or HEMS May be excluded from surviving spouse's estate and pass estate tax free

Answer 56

Non-marital trust Non-marital B trust B trust Family Trust Applicable Credit Amount Trust Applicable Credit Amount Shelter Trust

Answer 57

2013 Law allows executors of a deceased spouse's estate to transfer any amount of the unused estate tax exemption to the surviving spouse

Answer 58

Second spouse (surviving spouse) to die has control of the corpus. Property transfers at the death of the owner Passes estate tax free under the unlimited marital estate tax deduction. Surviving spouse has post mortem control and can leave the property to whomever they wish when they die. Included in the decedent's estate, but not subject to estate tax Included in the gross estate of the surviving spouse (subject to estate tax) No HEMS or 5 or 5 power

Answer 59

Power of Appointment trust A Trust Marital A trust

Answer 60

First spouse to die maintains control of the corpus Appropriate when the owner wants to leave the surviving spouse with a stream of income that will be paid only for life but also wants the property to qualify for the marital deduction. Lifetime Income for the spouse Annual Payments to the spouse Mandatory payments to the spouse Exclusively for the spouse The executor must make an election on the decedent's federal tax return for the property to be treated as QTIP property Estate tax paid on death of second spouse Surviving spouse may be given 5 or 5 power or HEMS over corpus

Answer 61

C Trust Current Income Interest Trust

Answer 62

Marital trust that does not provide the surviving spouse with an income stream. Generally holds non-income producing assets

Answer 63

Also called pour over will Catch any assets a client owns that is not yet controlled by the revocable trust at death Trust is setup first, then pour-over will is executed

Answer 64

Uniform Gifts to Minors Act Securities Cash Life Insurance Annuities No real estate

Answer 65

Uniform Transfers to Minors Act Any property including Real Estate Partnership Interests Royalties Intellectual property Can be testamentary in nature

Answer 66

Created for one minor Income is taxable to the minor Custodian can distribute income and principal at any time If Donor is custodian and predeceases the minor, the property is included in the donor's gross estate Donee must receive property by 18/21 based on state law May not be used to satisfy obligation to support the minor Property passes to the administrator or executor of the minor's estate if they pass before age of majority

Answer 67

Can be used for minors but often used for adult children Provides a stream of income Income is a gift of a present interest Remainder interest is a gift of future interest Only income needs to be distributed

Answer 68

Enables grantor to make a gift to a minor in trust and still obtain the annual exclusion. Not a gift of future interest if the following conditions are met: Property and Income can be expended before beneficiary attains age 21 Any portion of the property not expended passes outright to the beneficiary (trust does not have to be terminated, but they must have unfettered access) If the donee passes before 21, the property must be included in the donee's estate or the donee must hold a general power of appointment over the property If donor acts as trustee and predeceases the minor, the property is included in the donor's estate (like UGMA/UTMA)

Answer 69

Power to direct income at the discretion of the trustee for the benefit of the beneficiary (estate or trust)

Answer 70

Power to direct income and/or principal at the discretion of the trustee (trust only)

Answer 71

Trust which distributes only the amount of income and principal the trustee deems necessary for support or education of the beneficiary

Answer 72

These are future interests or trust corpus and income that pass to another beneficiary after termination of the prior interest to the first beneficiary.

Answer 73

Interest in property is invalid unless the interest vests no later than 21 years plus 9 months (period of gestation for a posthumous child) after the youngest life or lives in being when the interest was created. Typical application is a dynasty trust.

Answer 74

A B trust for multiple future generations Free of estate, gift and GST tax for lives in being plus 21 years, 9 months or as long as local law allows. Beneficiary interests are limited to life estates

Answer 75

Donor wishes to provide a non-charitable beneficiary with a stream of income either for life or period certain (not more than 20 years). Donor receives a tax deduction for the present value of the remainder interest (after income has been paid out). Property passes to the charity upon termination of the income stream. One initial transfer only Remainder must be at least 10% Payout is a specific amount and must be at least 5% to the beneficiary (fixed/sum certain)

Answer 76

Similar to a CRAT, except: More than one transfer can be made into the trust Income paid out is fixed percentage of corpus. Corpus value adjusts each year, so income is variable.

Answer 77

Beneficiary receives the lesser of the percentage of the trust's value or the net income earned by the trust. Income lost due to low yields can be made up in future years.

Answer 78

Lead Trusts allow a grantor to claim an upfront income tax deduction for the present value of the immediate payment stream distributed to charities (or estate tax deduction if formed at death) Payments are made for 24 years Future income and gains are taxed to the grantor Present Value is provided on a table (given on the exam) The non-charity beneficiary is the remainderman who receives all remaining trust corpus upon income stream termination. Annuity and Uni versions

Answer 79

Property is transferred to a charitable organization and income is received in return The value of the property exceeds the value of the guaranteed annuity. The excess value of the property is the deduction. The transaction is both an acquisition of an annuity and a charitable contribution, simultaneously.

Answer 80

Donor transfers property into a common trust fund Property is comingled with other donors Single public charity controls and manages the trust assets After income distributions terminate (at death of donor) the charity receives the remainder interest. Cannot be invested in tax-exempt securities Each beneficiary receives a pro-rated share of the income from the trust. Donor receives an income tax and gift tax deduction of the present value of the remainder interest that goes to the charity. Donor cannot be trustee Income must be paid out over the life of the donor (no period certain)

Answer 81

Essentially an Irrevocable Life Insurance Trust

Answer 82

Separate Legal Entity that holds and invests funds and distributes a minimum of 5% of it's investment assets each year (either income or income and principal if income alone is insufficient) to support charitable activities and other charitable organizations. Established as a trust or nonprofit depending on state law. State requirements and language to satisfy federal tax law should be incorporated into the organizational documents. Without state and federal backing, contributions to the organization will lose tax deductibility.

Answer 83

Donor has complete control of amounts and recipients of annual gifts 5% must be distributed annually Control may remain with the family for generations Can distribute tax deductible gifts to individuals and noncharitable beneficiaries. Grants must be made for: Study, travel or similar purposes A scholarship, fellowship, prize or award Intended to improve or enhance literary, artistic, musical, scientific, teaching, or other similar capacity, skill or talent of the grantee.

Answer 84

Subject to a number of excise taxes 2% excise tax on net investment income 15% penalty if the foundation does not distribute 5% of the fair market value of its assets.

Answer 85

Similar to a private foundation, but only created to benefit one public charity. Operated, supervised and controlled by the selected public charity. Not controlled by the donor's family Board of directors with 50% or more control by the charity. Donor and donor's family can serve on the board but may not have veto power. No excise taxes or minimum distribution requirements

Answer 86

Fund held by a community foundation or other public charity Donor or committee appointed by the donor can recommend eligible charitable recipients for grants from the fund The charity's governing body must be free to accept or reject the recommendations. Can be opened with very low initial deposits Controlled or owned by the sponsoring orgnanization Funded by an individual donor

Answer 87

Gift of closely held stock to a charity which is then redeemed back to the corporation for cash. Corporation receives a tax deduction and a bail out of corporate earnings without incurring dividend income. Younger family shareholders concentrate their ownership Charity receives cash Cannot be an agreement as to the timing of the redemption Corporation should redeem the stock. If not, adverse dividend treatment could occur.

Answer 88

Right to assign Right to terminate Right to borrow against cash value Name beneficiaries Premium payment is not an incident of ownership

Answer 89

Used to replace wealth to younger family members when their parents have charitable remainder trusts.

Answer 90

Proceeds were paid to the executor of the decedent's estate Decedent possessed an incident of ownership at death The decedent gifted the policy within 3 years of death

Answer 91

The value of the gift is established by adding the interpolated terminal reserve (adjusted reserve at the date of the gift) plus the value of the unearned portion of the premium. Actual change in value is adjusted to the period before the gift, then the premium paid after the gift is added.

Answer 92

Business owners who wish to reduce the value of their business interest may do so through stock recapitalization or by gifting closely held stock. Shifts appreciation out of the owner's estate.

Answer 93

Minority Discounts Marketability Discounts Blockage Discounts Key Person Discounts

Answer 94

Discount recognizes the inability of a small shareholder to influence corporate policy, making their shares worth less.

Answer 95

Due to lack of established market, closely held business interests are more difficult to sell. The discount can range anywhere from 15% to 50%.

Answer 96

If the decedent holds a large block of a publicly traded stock's shares, selling it all at once could depress the market price. A discount from FMV is given.

Answer 97

May be allowed for a business that loses a key employee who was responsible for its goodwill or administrative and management skills.

Answer 98

A terminal interest is one that might terminate on the happening or failure of a certain event or contingency.

Answer 99

A transfer in which the surviving spouse receives a life estate income, payable at least annually, plus a general power of appointment. The executor elects to treat certain property as QTIP property The executor elects to treat certain property as QDOT property

Answer 100

Non-US spouses do not get the unlimited marital deduction The $12,060,000 exemption remains available Joint property between spouses is not considered 1/2 owned (consideration must be established) There is a tax-free gift of $164,000 between spouses In order to get the marital deduction, property must pass through a QDOT.

Answer 101

Spousal property One half of community property Life insurance owned by others Life estate (no retained interest upon death)

Answer 102

Gift where the donee pays the gift tax Lifetime exemption must be used up before NGT will work Gift Tax to the donee is lower because the tax reduces the gift Divide the normal gift tax that would be paid by the donor by 1.4 Gift taxes paid by donee within 3 years of death will still end up in donor's estate

Answer 103

Appealing when one spouse possesses most of the wealth and the less affluent spouse has a relatively short life expectancy Wealthier spouse gifts low basis assets to dying spouse Steps up the basis of the property Non affluent spouse must live for 1 year

Answer 104

Interpolated Terminal Reserve for Gift Valuation of life insurance: 1. Calculate the amount of policy growth to be included in the gift: a) Number of months from policy anniversary to death b) Divide by 12 c) Multiply the result to the change in value of the contract by next anniversary Write that answer down (need for final answer) 2. Calculate the amount of premium to be included in the gift: a) Number of months from insured's death to next contract anniversary b) Divide by 12 (should be opposite of factor in step 1) c) Multiply the result by the last premium paid 3. Add result from 1 and 2 together.

Answer 105

Spreads out taxable gain from sale Removes appreciating asset from estate Only works well if it remains in tact for full term. Any cancelation or forgiveness is ends up back in the seller's estate: If seller dies before completion, present value of remaining payments is added back to estate If installment sale is forgiven in seller's will, remainder is added back to deceased's estate If the sale is canceled between parties, seller is on the hook for remaining tax bill while alive (and the remaining canceled amount is a gift) If related party sells property within 2 years of initial sale, seller is on the hook for the full tax bill (and the full amount of the agreement becomes a gift) If the property was depreciated, seller has to recapture depreciation and pay 25% in tax

Answer 106

Variation of an Installment Sale Remaining payments are automatically canceled at seller's death Retains a payment stream for seller while alive (ends at death) Depreciated assets are ok - no recapture Buyer pays interest, but can depreciate the asset and write off the interest paid Buyer essentially pays a premium for the property in return for the self canceling feature. Premium is calculated using a factor from a mortality table Seller pays more in income tax while living, but saves greatly on estate tax Estate still pays capital gains tax on the remainder of the installment sale, but only up to 20%. A SCIN avoids estate tax

Answer 107

Unsecured promise of a life annuity (generally by a family member) It eliminates estate tax on the transferred property as long as the property value equals the discounted promised annuity payments. Relative to income tax, however, all the gain that would have been recognized over the term of the annuity are taxable in the year the annuity is created. Usually a wrong answer for the test Only works if property being transferred as little gain, or if transferor has sufficient losses to offset the gain.

Answer 108

Can be used to transfer equity in a closely held business (income passes to shareholders) Gifts of stock can be made to younger family members using annual exclusion Kiddie tax can apply to under 24 year old recipients No service related businesses because of assignment of income doctrine Note - Only Certain Types of Trusts can own stock in an S-Corp

Answer 109

Owned by members of a family (spouses, ancestors, lineal descendants and trusts) If it has a business purpose, it is taxed like any other partnership Income and tax benefits get distributed to partners according to their share General partners can be paid a salary for personal service to the partnership Capital in the partnership must be the income producing factor, not the service/labor of the general partner Donor (general partner, as little as 1% ownership) retains control of the business Allowed to use discounting for the valuation of gifts Gifted property does not step up in basis at death Same limited asset protection afforded a regular limited partnership

Answer 110

Lack of Control/Marketability allow for discounts of gifted property. More value can be gifted but treated as a lesser amount for the purpose of using gift exclusion or exemption

Answer 111

Business owning parent wants to gift to a child but has no money or assets Parent gives fully depreciated business assets outright or in trust to lower-bracket family member Leases the equipment back for use in their business Parent can use the asset and deduct the lease payment as a business expense To deduct lease payments, must be a legitimate business use, must be a reasonable lease amount and must have a written contract for the lease If the gift is made in trust, the trustee cannot be subservient to the donor parent

Answer 112

Sale to charity at a discount from FMV. Basis is adjusted by the amount of the charitable donation (seen in previous examples) Sale to some other party - basis is not adjusted. Discount is a taxable gift over and above the annual exclusion. Both get appreciation out of the estate.

Answer 113

Irrevocable Trust into which the Grantor transfers appreciating or income producing property (appreciating is better) Assets valued once (at inception) In exchange, receives a fixed annuity for a guaranteed term When the term ends, assets transfer to beneficiaries tax free If the grantor does not outlive the term, property is brought back into the their estate at the date of death value with certain adjustments The gift amount is the property value less the present value of the annuity to be received by the grantor (reduced gift tax exposure) Considered gift of future interest (no $16,000 exclusion)

Answer 114

Irrevocable trust into which a Grantor transfers appreciating or income producing property (appreciating is better) Assets are valued every year In exchange, grantor receives a fixed percentage of corpus for a guaranteed term If grantor doesn't out live the term, the property is brought back into their estate at the date of death value with certain adjustments The gift amount is the property value less the present value of the annuity to be received by the grantor (reduced gift tax exposure) Best in cases where you're trying to combat inflation

Answer 115

Not as effective as a GRAT or GRUT because the mere right to income does not guarantee that there will be any distributed. No discounting for the present value of the annuity because there is no annuity. The gift is the full value of the GRIT when established which triggers gift tax. There is nothing gained by establishing the GRIT (for related parties) Gift of a future interest (no $16,0000 exclusion) May be useful for unrelated parties because of a tax loophole (treated like a GRAT)

Answer 116

Arrangement where two parties agree to purchase an asset.

Answer 117

Grantor transfers personal residence into the trust, retaining an interest for personal occupancy (or for related person) for a period of years, at which point it passes to beneficiaries either outright or in trust. Up to two residences may be transferred in (one MUST be primary) Residence should be $1,000,000 or more Life Expectancy is reasonable (10+ years) Donor wishes to continue living in the residence Estate is large (over the exemption amount) If the donor dies before the term is up, the full FMV on date of death is included in their estate. (this is the same effect as if the trust was never established) If residence is sold within the term of the QPRT, and a new residence is not purchased within 2 years, the corpus must be paid out or the trust must meet the requirements of a GRAT

Answer 118

Transfer tax system designed to catch wealth transfers not covered under estate tax law Has a separate $12,060,000 lifetime exemption (for gifts while alive or at death) Has a separate $16,000 skip exclusion (gift splitting is allowed) Flat tax of 40% Gifts can be subject to both Gift Tax AND GSTT Estate transfers can be subject to both Estate Tax AND GSTT GSTT is secondary to Estate and Gift Tax, meaning the amount of Estate or Gift Tax paid is excluded in the calculation of GSTT

Answer 119

A person two generations younger than the transferor (if related) or A person who is unrelated and more than 37 1/2 years younger Exception to the two generation rule - if an individual's parent who is a lineal descendant from the transferor is deceased, the individual and all their lineal descendants move up a generation (deceased parent rule)

Answer 120

GSTT is imposed at the time of the direct skip (person to person, no trust involved) Transferor is liable for the GSTT on direct skips Exemption utilization is automatic for direct skips, but can be opted out (all, portion or none)

Answer 121

Occurs at the termination of a non-skip person's interest in income or principal of a trust resulting in skip persons becoming the remainder beneficiary. Considered a gift of future interest (no $16,000 exclusion) Exemption utilization is NOT automatic for taxable terminations. Must be elected by the executor/trustee (can be all, portion or none) Trust is responsible for the GSTT

Answer 122

Distribution of property out of a trust to a skip person (other than a direct skip or a taxable termination). Trust has beneficiaries in two or more generations. If the trustee makes a distribution from the trust to a skip person, it is taxable. Gift of future interest (no exemption applies) Exemption utilization is NOT automatic for taxable terminations. Must be elected by the trustee (can be all, portion or none) Beneficiary is responsible for the GSTT if it is due

Answer 123

Person or entity that occupies a position of special trust in relation to another Hold legal title to property (trustee) Makes personal decisions (Medical POA, POA, Guardian) Executors or estate administrators (personal representatives)

Answer 124

Loyalty to the beneficiaries No self-dealing Preserve and make property productive Impartiality to all beneficiaries Breach of these duties can result in civil or criminal proceedings against the Fiduciary

Answer 125

Income (including capital gains) which a decedent had a right to receive but was not received. Unpaid Salary Renewal Commissions QP Distributions S Corp Income Partnership Income Gain on an Installment Sale IRD is included in the income taxable calculation for the decedent's estate (usually) Normal deductions apply (including for GST and Estate taxes paid)

Answer 126

Alternate Valuation Date (reduce estate) Section 303 stock redemption (closely held stock) (liquidity for taxes) Section 6166 Installment payment of estate tax (liquidity for taxes) Special Use Valuation 2032A (reduce estate)

Answer 127

Personal Representative or Executor can elect the AVD (6 months after death) Must: Reduce the gross estate Reduce federal gift tax liability Be applied to ALL property in the gross estate with some exceptions Cannot be applied to assets that decrease with the passage of time (annuities, retirement plan payouts, mortgage payouts or notes receivable) Cannot be applied to assets that pass to spouse, charity or children (less than exclusion) because no estate tax would be due. Property distributed between date of death and AVD is valued at date of distribution

Answer 128

If the FMV of a stock is lower than the cost basis of a decedent, a step down in basis can occur for beneficiaries.

Answer 129

Refusal of a beneficiary to receive property that is bequeathed to them Requirements: Must be irrevocable Submitted in writing Received within 9 months after transfer was initiated or after person disclaiming became 21 Cannot have accepted any interest in the benefits Interest passes to someone else

Answer 130

Trust designed to allow a spouse to disclaim bequeathed assets, but receive an income stream from those assets. Usually a clause in a decedent's will (testamentary in nature) The trust is irrevocable Spouse CANNOT invade corpus (exception - HEMS, if provided)

Answer 131

Must be a closely held corporation (S or C, because there has to be stock) Decedent's stock interest (closely held) must be more than 35% of gross estate Only an amount equal to the ALL estate tax or administrative expenses may be redeemed (not limited to estate tax attributable to the business interest like 6166) Qualifies for special LTCG treatment (versus dividend treatment)

Answer 132

Allows estate tax attributable to a closely held business to be paid in 10 equal installments beginning 4 years after decedent's death. 2% interest rate applies Maximum of $1,640,000 in estate tax ($1,000,000 indexed for inflation) can qualify for 6166 Interest paid (2% or 45%) cannot be deducted for estate or income tax purposes 45% interest applies to the amount of estate tax above $1,640,000 Business interest (closely held) must be more than 35% of gross estate Aggregation of business interests can occur provided decedent owned at least 20% of each business (must be closely held) Can only apply 6166 to the amount of estate or GSTT attributable to the business interest. Any additional balance must be paid on the regular payment date

Answer 133

Can be sole prop, partnership or a corporation. Must be actively carried on and require a management function

Answer 134

Valuation Method for Real Estate used in connection with a closely held business or farming operation. Maximum Reduction of $1,230,000 if elected by the executor Requirements: Qualified Use/actively managed by decedent or decedent's family for 5 out of 8 years prior to decedents death 50% of the value of the gross estate (reduced by liens) must consist of real OR personal property devoted to qualifying use 25% of the value of the gross estate must be real property Property must pass to qualifying heir and continue in qualified use for at least 10 years after decedent's death