Estate Flashcards
Tenancy by the entirety may be severed by?
Tenancy by the entirety is not protected from the claims of both spouses’ creditors.
Tom and his son JR paid $1,000,000 for a vacation home held in JTWROS. Tom put up $750,000 and JR put up $250,000. If Tom dies, how much with the IRS try to include in his gross estate?
$1,000,000. HR will need to prove that he contributed $250,000 to the purchase of the home with his own money; rather than from a gift from his father.
Grandpa dies in 2023. Which of the following items can be included in his gross estate?
- $108,000 in gift tax paid this year
- A $2 million life insurance policy bought by a grandson on his life 2 years ago
- His claim for an income tax refund not yet received
- $5 million in his revocable living trust
- A taxable gift of $12,397,000
- $108,000 in gift tax paid this year - within 3 years so yes
- His claim for an income tax refund not yet received - yes
- $5 million in his revocable living trust - yes
Will a lapse of a general power typically subject the holder to a gift tax liability?
Yes
What type of power held by the income beneficiary is considered to be a general power of appointment, thus causing all the trust corpus to be included in the beneficiary’s estate for federal estate tax purpose?
The power that can be exercised in favor of the holder for the holder’s health, education, maintenance, and well-being. This is because well-being is not an ascertainable standard; therefore, it is a general power of appointment and is included in the gross estate.
Distributed net income (DNI) is a concept that has been developed for?
Advising beneficiaries of the amount of income the trust has earned that represents their interest.
What type of title to the property in the trust does the trustee hold?
Legal
At death, Beth’s husband established a QTIPtrust for her benefit. She is concerned that some of the assets are not producing income. What can she do?
She should try to get the trustee to reposition assets to produce more income.
Charles sets up an “A”, “B”, and “C” trust arrangement before his death. The assets placed in the “A” trust go to Sarah (his second wife). The income from both the “B” and the “C” trusts go to Sarah while living. At his death, who will ultimately receive the assets in all three trusts?
Sarah will specify the remainderman of the “A” trust.
Charles will specify the remainderman of the “B” trust.
Charles will specify the remainder of the “C” trust.
John and his wife want to give a gift to their 12-year-old in an UTMA account for college education purposes. What investment strategy would be most appropriate if John Is in the 35% marginal tax rate?
A 5-year CD $30,000 with a 6% rate. This is because the $1,800 is below the unearned income where the kiddie tax starts ($2,500) and the CD matures close to when the kid would start college.
Felix owns a parcel of land in NY. The land is worth $500,000 and has a basis of $50,000. He wants to gift the land to get a charitable deduction. His current year AGI is $1,000,000. He also would like to improve his children’s inheritance. How could he do both of these?
Make an outright gift to a charity and then purchase a life insurance policy in an ILIT. This will allow him to claim a charitable income tax deduction and the children will get an estate and income tax free death benefit.
What charitable transfers allow for distributions to be paid to a life annuity or for a term certain (up to 20 years)?
CRAT and CRUT
What is the required minimum distribution from a CLUT to avoid payment of the excise tax?
The trust’s annual income and there is no required minimum distribution unlike the CRAT, CRUT, and family foundation where 5% annual distribution is required.
Mr. Substantial made a gift of $13,000,000 into an irrevocable trust naming his daughter and her children as the beneficiaries. He paid the gift tax. He appointed an independent trustee with the discretion to distribute money to Mr. Substantial’s daughter and her three children. After his daughter’s death, the trust principal will be distributed to her children. What is the GST consequence at the daughter’s death?
This situation is a taxable termination. The GSTT is paid by the trustee at the time of the distribution.
Mr. Substantial made a gift of $13,000,000 into an irrevocable trust for his daughter. He paid the gift tax. He appointed an independent trustee with the discretion to distribute money to Mr. Substantial’s daughter and her three children. The trust principal will be distributed to his grandchildren after his daughter’s death. What is the GSTT consequence of distributing income to the daughter?
The daughter will be taxed on any income she receives.
