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CFP Review > Estate > Flashcards

Estate Flashcards

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1
Q

What assets get a step-up basis when the individual passes away?

A

Appreciated property (including Life Insurance death benefit as the DB value is greater than the premium paid.

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2
Q

What property gets included in the decedent’s gross estate in a community property?

A

1/2 of community property.

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3
Q

Does the decedent’s single life annuity get included in their gross estate?

A

No because it ceases payments when the decedent dies.

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4
Q

Can the donation to the decedent’s club qualify as charity donation?

A

No

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5
Q

Estate, gift, and GST taxes all feature what rate?

A

Flat rate

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6
Q

Treatment of the taxable gifts and gift taxes.

A

Gif taxes within 3 year of death are added to gross estate. Taxable gifts are added to the taxable estate.

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7
Q

Gift tax filing for community property or jtwros.

A

Only when it exceeds $17.000 does it need to be filed. Transfers are automatically split into two $17,000.

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8
Q

Charitable income tax deduction for a Life Insurance.

A

Life Insurance is an ordinary income type of the asset. Deduction is the lessor of cash value of the policy or cost basis.

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9
Q

Jtwros of a son and dad. How much will the IRS try to include in the dad’s gross estate?

A

The full $ of dad’s contribution as the son needs to prove that his contribution is his own $, not the dad’s gift.

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10
Q

Is income tax decedent paid this year deductible to calculate adjusted gross estate?

A

No.

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11
Q

Inclusion of assets if the 5 - or 5 power is exercised?

A

No.

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12
Q

The pv of the survivor benefit from a joint life and survivor annuity. Include in the grantors gestate?

A

Yes

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13
Q

Client transferred all income- producing assets into a revocable living trust. Income tax treatment of the trust income?

A

Taxable to client as the trust is tax neutral / conduit.

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14
Q

Which could be simple trusts?

A

2503(b), Qtip, irrevocable, spray

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15
Q

The surviving spouse’s right to a QTIP.

A

Demand all assets to be income producing to qualify as terminal interest property.

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16
Q

Crummy provision’s withdrawal amount

A

Lesser of the amount of annual exclusion or the value of the gift transferred.

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17
Q

A 2503(b) trust income cannot be distributed to whom?

A

Donor

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18
Q

What’s the RMD from a CLUT to avoid payment of the excise tax?

A

The trust’s annual income as there’s no required min. distribution unlike CRAT and CRUT and family foundation (5% distribution).

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19
Q

Typical amount usage of a CLAT

A

Large donation ($500,000 would be small)

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20
Q

30% of AGI (FMV) or 50% of AGI (basis) valuation for long-term appreciated assets?

A

Generally valuation at FMV gives higher deduction. You can always carry forward the difference into next year.

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21
Q

Would donor retaining the life estate in the gift property cause the dale of death value of gifted property included in the gross estate?

A

Yes

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22
Q

QTIP property requirement.

A

The surviving spouse must be provided with a terminal interest that is expected to produce income on another economic benefit.

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23
Q

Why is a custodial account (utma) preferable to a minors trust (2053c)?

A

Simplicity, cost, and earnings are taxable to child. Both qualify as present interest unlike 2053b.

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24
Q

Are UTMA and UGMA a trust?

A

No they’re custodial accounts.

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25
Q

Will QTIP trust property pass to clients remainder beneficiaries estate tax free?

A

No

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26
Q

Definition: The trust instrument permits the trustee to have discretion to determine whether a particular beneficiary needs income (only) at a particular time.

A

Sprinkling or spray provision.

27
Q

A clients wants to make a gift to charity with a guaranteed fixed 7% payment. Which trust will do it?

A

A CRAT (not a CRUT because of its annual re-evaluation).

28
Q

Treatment of charitable deduction if there’s death of a family member.

A

No change as the original deduction was based on the life expectancies of the family members at the time it was set up.

29
Q

Exception to the 3-year rule for gift transfers.

A

If the donor gifts Life Insurance policy where he’s not the insured, then it doesn’t matter whether he transfers within 3 years or not.

30
Q

Which are planning techniques for freezing assets for tax transfer purposes?

A

GRAT, QRPT, SCIN, private annuity, and a preferred stock recapitalization (recap)

31
Q

True/false: grat generally provides a fixed income for grantor’s life.

A

False - it’s only for a number of years stated.

32
Q

Taxation to who when donor transfers a term policy and bond to-pay for the ILIT premium and the remaining to his family?

A

Taxable to donor during their lifetime as the trust is tainted by a combination of trust income used to pay premium and support.

33
Q

Donor created an irrevocable trust and paid the gift tax for his daughter. He made a distribution to his daughters childrenwhile she is alive.

A

Taxable distribution and the daughter’s children must pay the GSTT tax.

34
Q

What happens if the seller forgives the payment during an installment sale?

A

It’s as if the donor made dl gift in that y early amount and received a payment and must report the taxable portion of that yearly amount as income.

35
Q

No longer a viable estate planning strategy.

A

Private annuity-creation of phantom income.

36
Q

FLP and gifting of assets when the parents die. Do children get the step-up in basis at death?

A

No, the interests given will retain the parent’s income tax basis.

37
Q

Are distributions from S corp considered earned or unearned income?

A

Unearned income and subject to kiddie tax.

38
Q

Valuation of the grantors assets in GRAT when he dies before the term ends.

A

Trust assets will be included in the estate at the date of death value with certain adjustments.

39
Q

Can a vacation home be transferred to a qrpt?

A

Yes

40
Q

Can the residence be sold during the initial term of the QRPT trust?

A

Yes

41
Q

Calculation of the federal estate tax and the GSt tax.

A

Federal estate tax = 40% of taxable estate.
GST tax= (taxable estate - federal estate tax) x 40%

42
Q

Is GST subject to the 3-yr gross-up rule and can it be credited against estate taxes for GST paid?

A

No and no

43
Q

What assets can elect special use valuation?

A

Real property held in conjunction with a farm, ranch, or closely held business.

44
Q

Can the surviving spouse disclaim JTWROS assets?

A

Even without being the beneficiary, the SS can disclaim 1/2 of the JTWROS property (decedent’s).

45
Q

Can property owned as tenants by the entirety be disclaimed?

A

No

46
Q

Can the surviving spouse get the1/2 step-up in basis in a community property even it they were not married?

A

Yes

47
Q

Testamentary trust process and creation.

A

It’s created in a will but is not subject to probate. Generally funded and not in force until after death. Assets first go through probate and the decedent expenses, taxes, debts, and the remainder goes to the trust itself.The trust isn’t funded until all aspects of the probate estate are settled.

48
Q

Which trust enables the widower to receive principal per hems?

A

QTIP or Disclaimer Trust (non - marital)

49
Q

Exception to the “terminal interest” rule with allowing the spouse (surviving) to live in the decedents house? Qualify for marital deduction?

A

Yes because letting her live in the house is deemed the same as paying her housing expenses.

50
Q

Life Insurance inclusion in the gross estate.

A

Decedent is the policy owner on another person - the person hasn’t died - the interpolated terminal reserve (cash value and paid premium) gets included in the gross estate and probate.

Decedent is the owner and insured and the beneficiary is the estate, death benefit gets included in estate and probate.

51
Q

When can 303 stock redemption and 6166 installment sale be used?

A

At the owners death.

52
Q

Can a money purchase plan provide a 401(k) provision?

A

No

53
Q

What happens during the owners death for an entity buy-out agreement?

A

The % of owner’s share of the business value gets included in his estate. The company will purchase the stock from his estate, and the stock will appreciate to its FMV at death (get step-up basis). Zero will be subject to income tax.

54
Q

When does the social security rider of the disability policy kick in?

A

Usually after the policy’s elimination period.

55
Q

Would a child under 18 yet subject to FICA or the self- employment tax if he or she works for their parents?

A

No

56
Q

Will the variable annuity get a step-up basis when its owner dies?

A

No and it’ll be subject to income tax.

57
Q

Examples of simple trust?

A

2503 (b), QTIP, QDT, dynasty

58
Q

What trust is a 2503(c)? Simple or complex?

A

Complex

59
Q

Four exceptions to the present interest requirement for gifts.

A

Ugma/utma, 2503(c) trust, crummy trust, and 529.

60
Q

Is the form 709 required it gifts are under $17,000 or gift splits under $34,000 or from JTWROS?

A

No only for gift splits above $34,000 and with spousal consent.

61
Q

Is sole proprietorship under the conduit principle?

A

Yes

62
Q

How long does the rule against perpetuities last?

A

21 years and 9 months

63
Q

Should you do an installment sale with a fully depreciated asset? And with estate issue?

A

No

64
Q

What is code section 6166?

A

Election to pay federal estate tax in installments.

CFP Review (6 decks)

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