Estate Flashcards
In one’s gross estate what are examples of property owned at death
-liquid assets
-autos
-clothes
-medical insurance reimbursements
-awards for pain and suffering
-state income tax refunds
-cash surrender value of life insurance that you owned on someone else’s life.
-rental income accrued before death
What are things where there’s a three year look back to include in gross estate
-any gift tax paid within three years
-gifts given within last three years if the gift was a transfer with a life estate, transfer taking effect at death, revocable transfer, transfer of life insurance on the life of the decedent.
What are transfers with a retained interest
Property transferred where the decedent still receives some benefit from the property
What is the alternative valuation date
Measuring of estate value is pushed to six months after death.
What are deductions from gross estate
-funeral expenses
-last medical expenses
-administration expenses
-debts
-losses during administration
Who pays the estate tax
The executor or the administrator. If they don’t pay or are late, they are held liable
What are Totten trusts used for
Used to avoid probate. This doesn’t help you lower the gross estate value.
Are gift taxes paid included in gross estate?
Yes- gift taxes paid over the three years before death
If you gift life insurance to someone before you die, is it included in gross estate.
Yes if it was transferred in last three years. No if not.
What is the definition of a gift
Voluntary transfer of property. Nothing was received in return.
What are the types of gifts
direct
indirect
complete (you’ve completed given the gift, not getting it back)
incomplete (not a taxable gift at the current time)
Reversionary interests- a gift that could be returned to you
Net gifts
How do you value a gift
Use FMV at the date of the gift. Real estate would need an appraisal. Publicly traded companies are valued at the average of the high and low trading price of the stock that day. Bonds would be the PV of the expected future returns.
What’s the annual exclusion
All individuals may gift a certain amount tax free per donee each year. Gift must be a present interest. Use it or lose it. Non- US citizen spouses don’t qualify for the unlimited martial decduction, so instead you can give a “super annual exclusion”
What are split gifts
Married spouses can elect to split gifts effectively doubling the annual exclusion. Must be elected for all gifts that year. No gift splitting for community property.
What’s the gift tax exclusion for 2022?
$16,000/person
What’s the Crummey provision
Allows the trust beneficiary to withdraw some or all of any contribution to a trust for a a limited period of time. Usually 30 days.
What is a qualified transfer
A qualified transfer is a payment for someone else paid directly to a
-Qualified educational institution for tuition
-Medical care provider for qualifying medical expenses
Does not apply against the annual exclusion amount.
What are the rules around payment for support
Payments for legal support are not gifts. Think special needs. Legal support does not necessarily stop at age 18.
How are transfers in a business setting treated
Transfers in this situation are presumed to be compensation and not a gift.
Gift to spouses
Unlimited martial deduction allows for unlimited transfers between married people without gift tax. Spouse must be a US citizen.
sWhat’s a good multi party gifting strategy
Generally want to gift property with the greatest appreciation potential to the youngest donee. Gift appreciated property to charities to avoid the capital gain taxes. Never gift property in a loss position, sell it instead and take advantage of the loss.
What is a charitable lead trust (CLT)
Provides immediate income to the trust and the estate tax advantage is that there is an unlimited charitable deduction at the estate level.
What a charitable remainder annuity trust (CRAT)
This is less flexible than a CRUT
Provides a fixed annuity to the donor for an amount that is at least five percent (and no more than 50%) of the initial net fair market value of the property contributed to the trust. The term of the annuity may be for life, or if for a period certain no more than 20 years. Once established no more contributions are allowed. Trustee of the CRAT can be given right to make distributions to income beneficiaries as he desires. Donor does not have to notify the charity of its beneficial status, and reserves the right to change the charity if they want
What is a charitable remainder unit trust (CRUT)
More flexible than a CRAT.
Yearly payout is a fixed percentage that is at least 5% and no more than 50% of the annual fair market value of the assets. Assets are revalued annually to determine payout. CRUT income can fluctuate. You can make additional principal contributions later on if you want to. Trustee can distribute income to beneficiaries as he desires, same as CRAT.
