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CFP > Estate > Flashcards

Estate Flashcards

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1
Q

Best donee for highly appreciated property

A

Good to gift to charity or donee in lower tax bracket

Note: May want to keep until death to get a step-up in basis

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2
Q

Gifting property likely to appreciate

A

Good gift to remove future growth from donor’s estate

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3
Q

Best donee for income-producing property

A

Good gift only if donee is in a lower tax bracket

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4
Q

Best donee for loss property

A

Sell to take the losses then gift the proceeds from the sale

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5
Q

Best donee for out-of-state property

A

Gift to avoid ancillary probate

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6
Q

Best donee for property subject to depreciation

A

Keep property until fully depreciated

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7
Q

Best donee for fully depreciated property

A

An excellent gift using gift-leaseback technique

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8
Q

Gifting life insurance

A

Excellent to gift– valued at replacement value but “blossoms” to face value

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9
Q

Gift tax return form

A

Form 709

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10
Q

Living will

A

Directs physician to discontinue life-sustaining procedures if you are in a terminal condition or permanently unconscious state

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11
Q

A reversionary interest that exceeds ___% of the trust value at the time of creation is retained by grantor or grantor’s spouse makes a trust defective/tainted

A

5%

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12
Q

Distributable net income (DNI)

A

Limits the amount that trust (or estate) beneficiaries must report as gross income for income tax purposes

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13
Q

What are the two conditions that make a trust complex?

A

A complex trust is taxed as a separate tax entity on income earned if it meets two conditions

  • It is irrevocable, and grantor has not retained any control
  • Income is accumulated
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14
Q

How is income taxed in a simple and complex trust?

A

Simple: taxed to beneficiary
Complex: Accumulated income is taxed to the trust and income distributed is taxed to beneficiary

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15
Q

Annual right of withdrawal in a Crummey Trust

A

Equal to the lesser of the amount of the annual exclusion ($17k) or the value of the gift transferred

The typical use of Crummey trust is in an unfunded life insurance trust

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16
Q

Ascertainable standard

A

A power limited by some specific measurement:

HEMS: health, education, maintenance, and support

Distributions are not subject to estate tax or gift tax

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17
Q

Five or five power

A

Provides that property subject to a general power will be included in a donee-decedent’s estate (or considered a taxable gift) only to the extent that the property exceeds the greater of $5k or 5% of the total value of the fund subject to the power

The withdrawal is only available only after Crummey right is settled

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18
Q

Who controls a bypass trust?

A

First spouse to die

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19
Q

How much is typically put in a bypass trust?

A

$12,920,000

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20
Q

The C trust is also called?

A

QTIP Trust

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21
Q

QTIP property is included as an asset in the gross estate of ____?

A

Surviving spouse

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22
Q

Keys for a QTIP Trust

A

L - Lifetime income interest for the spouse
A - Annual payments to the spouse
M - Mandatory payments to the spouse
E - Exclusively for the spouse

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23
Q

Trust tax rate

A

37%

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24
Q

How long can Dynasty Trusts last?

A

For the life of all lives in being plus 21 years and 9 months or as long as local law allows

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25
Q

Pooled income funds are not allowed to have what?

A

Munis

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26
Q

Term limit for CRAT/CRUT

A

Life of income recipient, or 20 years

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27
Q

Are additions allowed in CRATs or CRUTs?

A

CRUTs only

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28
Q

Are payments fixed or variable in CRATs/CRUTs?

A

Fixed in CRATs, variable in CRUTs

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29
Q

How much younger does someone need to be to be a step-person?

A

37.5 years

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30
Q

2503(c) trust conditions to obtain annual gift tax exclusion

A
  • Trust must provide that the property and income may be expended by or for the benefit of the donee before the donee attains age 21
  • Any portion of the property not so expended will pass to the donee at age 21
  • If the donee dies before age 21, the property must be payable to the donee’s estate
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31
Q

Is income from a 2503(b) trust subject to gift tax?

A

No, but it is subject to income tax (kiddie tax)

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32
Q

Can real estate be added to a UGMA/UTMA?

A

Only UTMA

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33
Q

Can 529 plans be used to pay student loans?

A

Yes, up to $10k in beneficiary’s lifetime

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34
Q

Type of payments in a CRAT/CRUT

A

CRAT = fixed payments (lifetime or term certain)
CRUT = variable payments (assets revalued annually)

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35
Q

Charitable Gift Annuities

A
  • No additions
  • Fixed lifetime income
  • Payable to one specific charity
  • Charitable deduction based on gift less annuity
  • No 5% rule
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36
Q

How much must be distributed as income annually in a CRAT/CRUT?

A

At least 5%

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37
Q

Donor Advised Fund (DAF)

A

Donor makes a gift to a public charity or community foundation, then the public charity sets up a sub-account or fund in the donor’s name

A poor person’s private foundation

No income stream to donor or other non-charitable beneficiaries

38
Q

Another term for a wealth replacement trust

A

ILIT

39
Q

How much can be distributed from a Crummey trust within 30 days of transfer?

A

Lesser of $17k or amount of gift transferred

40
Q

What type of trust should someone use if they are in a second marriage with kids from a first?

A

B trust for max exclusion, then C trust so assets don’t go to the second spouse exclusively

41
Q

Who controls assets in a C trust?

A

First spouse to die

42
Q

Who controls assets in a B trust?

A

First spouse to die

43
Q

Who controls assets in an A trust?

A

Second spouse to die

44
Q

Why would someone do an A trust?

A

If they want to name a trustee to take care of the trust that isn’t the spouse

45
Q

Reverse QTIP

A

For if you want QTIP assets to go to grandchildren instead of their children and not lose the GSTT exemption

46
Q

Does a spouse get marital deduction if they are a resident alien?

A

Yes, but only for $12,920,000

47
Q

Non-citizen spouse marital deduction (annual)

A

$175k annually, no lifetime exclusion

48
Q

QDT/QDOT

A

Same as a QTIP but for a non-citizen spouse

Good for huge estates that are over $12,920,000 because estate taxes wouldn’t be owed on it until the non-citizen resident spouse dies and then the next inheritor will pay estate taxes on it

non-citizen spouse can use it basically as a piggy bank and take income from it

49
Q

What is deducted from the Adjusted Gross Estate to get to the Taxable Estate?

A

Marital deduction and charitable deduction, NOT the $12,920,000 exclusion

50
Q

2503(b) Trust

A
  • Income distributions only
  • Must use the $12,920,000 exemption to fund
  • Income payout subject to kiddie tax
51
Q

UGMA

A
  • Must be funded with EEs, securities, mutual funds, annuities, etc. Not real property
  • Normally distributed at age 18
  • Can be included in custodian’s estate
52
Q

UTMA

A
  • Can be funded with any type of asset including real property
  • Normally distributed at age 21
  • Can be included in custodian’s estate

T for Trump (real estate)

53
Q

2503(c) Trust

A
  • Can be funded with any type of asset
  • Normally distributed at age 21
  • Costs to setup and maintain (legal and accounting)
  • Can be included in grantor/trustee’s estate
  • Trust tax rates (37% for $14,450+)
54
Q

Are 529 assets included in owner’s estate?

A

Nope! And it’s not in the bene’s estate either

55
Q

Options for income to donor until donor’s death

A
  • CRAT
  • CRUT
  • Pooled Income
  • Charitable Gift Annuity
56
Q

Options for income to charity

A
  • CLAT
  • CLUT
  • Private Foundation
57
Q

CRAT

A
  • 5%
  • No additions
  • Payments fixed (lifetime or term certain)
  • Payable to any charity
  • 10% ending value
58
Q

CRUT

A
  • 5%
  • Additions allowed
  • Payment variable (assets revalued annually)
  • Payable to any charity
  • 10% ending value
59
Q

Pooled Income Fund

A
  • no 5%
  • Additions allowed
  • Payments variable (based on fund income)
  • Payable to a specific charity
  • NO MUNIS
60
Q

Charitable Gift Annuity

A
  • No 5%
  • Fixed lifetime income
  • Payable to a specific charity
  • Charitable deduction based on gift less annuity
61
Q

CLAT/CLUT (charitable lead trusts)

A
  • 0%
  • Income/estate tax deduction
  • After a period of time paid to a non-charitable beneficiary
62
Q

Private Foundation

A
  • 5%
  • 30% income tax deduction
  • Payments can be to a charity OR a private individual
  • Can continue for an indefinite time period (assume to be non-operating)
63
Q

Installment Sale

A

Sale of property at FMV in exchange for payments

  1. PV of remaining payments is included in owner’s estate
  2. Property is secured
  3. Gain is capital gain. Do not use if property is subject to recapture (1245 depreciation)

Do not use if there is an estate issue

64
Q

Self-canceling installment note (SCIN)

A
  1. No value is included in the owner’s estate
  2. Gain is capital gain
  3. Assets can be depreciated
  4. Interest can be deducted
  5. Higher payout than installment
65
Q

Private annuity

A

Sale of property in exchange for periodic payments

  1. No value is included in owner’s estate
  2. Property is transferred (exchanged) for a promise. No recourse!
  3. Taxation to the seller - all the gain that would have been recognized over the life of the annuity now will be taxed in the year in which the private annuity is established
66
Q

Grantor Retained Annuity Trust (GRAT/GRUT)

A

Irrevocable trusts that allow the grantor to make gifts of property while retaining an income interest

  1. At the end of a term, corpus is distributed to a remainder person
  2. The value of the gift is discounted (due to the retained interest)
  3. Owner must outlive term or the asset is brought back into the estate

Best asset - one likely to appreciate

67
Q

Partnership / S Corporation (gifting shares)

A
  1. Family member receives conduit income. Ineffective if a child is under age 24 (kiddie tax)
  2. Business entity must be capital sensitive. Not available if business is service related
68
Q

Family limited partnership (FLP)

A

Gifts interests to limited partners to reduce the estate

  1. Qualifies for various “valuation discounts” allowing for a lower gift tax
  2. General partner maintains control
69
Q

Gift Leaseback

A

Gift of fully depreciated property

  1. Lease payments are a business deduction, income to family member.
  2. Do not use if child is under age 24
70
Q

Qualified Personal Residence Trust (QPRT)

A

An irrevocable transfer of a personal residence

  1. At the end of a term, the residence is eliminated from the grantor’s estate
  2. The value of the gift is discounted
  3. Owner must outlive term, or asset is brought back into Grantor estate
71
Q

GSTT tax rate

A

40%

72
Q

What is a skip-person?

A

A related person at least 2 generations younger than the transferor (typically a grandchild) is a skip person. If parent is deceased, it moves up a generation

Unrelated persons who are more than 37.5 years younger than the transferor are skip persons

73
Q

GSTT lifetime exemption

A

$12,920,000
Also a yearly $17k annual exclusion

74
Q

Postmortem elections for estate liquidity

A
  • Section 303 stock redemption
  • Installment payment of estate taxes (6166)
75
Q

Postmortem elections for estate tax reduction

A

Special use valuation (2032A)

76
Q

Section 303 stock redemption

A

Postmortem election for estate liquidity
1. Business must be incorporated (closely held stock)
2. Value of stock must exceed 35%
3. Amount of stock redeemed as capital gain cannot exceed the sum of the estate taxes plus administration expenses

77
Q

Special use valuation (2032A)

A

Postmortem election for estate tax reduction
1. Real estate used for farming or a closely held business
2. Several rules to qualify
- 50% of the gross estate must consist of real and personal property
- 25% of the gross estate must consist of real property
3. $750k reduction in decedent’s gross estate ($1,310,000 in 2023)
4. Must be qualified use: 5-out-of-8 rule before death / 10 years after death

78
Q

Installment payment of estate taxes (6166)

A
  1. Property must be in a sole proprietorship, partnership, or corporation. (Aggregation is allowed if more than 20% interest in each business)
  2. Interest must be carried on as the day of death
  3. Value of the business(es) must exceed 35% of decedent’s adjusted gross estate
  4. During first 4 years (of 14 years) can pay interest only on taxes due
  5. The interest rate will be 2% on the first $1,750,000
  6. The 2% is not deductible
79
Q

Are dynasty trusts simple or complex?

A

Simple

80
Q

Are dynasty trusts gifts of present or future interest?

A

Future interest

81
Q

Can QTIPs be used for anyone other than a spouse?

A

No

82
Q

Do CLATs have a 5% requirement?

A

No

83
Q

Do pooled income funds have a 5% requirement?

A

No

84
Q

Do charitable gift annuities have a 5% requirement?

A

No

85
Q

Do private foudnations have a 5% requirement?

A

Yes

86
Q

What is a recapitalization?

A

Freezes asset in the gross estate

87
Q

What is a key person discount?

A

A discount that may be used when a key employee is lost

88
Q

When can co-ownership discounts be used?

A

For real estate when owned with another person

89
Q

A QDOT qualified the estate for

A

The marital deduction

90
Q

When is a reversionary interest tainted for income tax purposes?

A

When the interest exceeds 5% of the trust value at the time of creation

91
Q

Is debt included in the gross estate?

A

No, it is deducted from the gross estate to get to adjusted gross estate

CFP (6 decks)

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