Estate Flashcards
What are the Will Clauses?
Residuary Clause (check)
Disclaimer Clause
Codicil(amendment)
Living will
What is Post Mortem?
Post-mortem planning, also known as estate or legacy planning, is a technique that involves managing and distributing a deceased person’s assets and affairs. Planning does not stop with the death of the client
Living will also named as?
Advanced medical directive(need more than this)
What do we need that will allow somebody to make decisions on somebody else’s behalf when they are incapacitated?
Durable power of appointment
What is the characteristics of General power of appointment?
Own, if dies with the power, added to the gross estate power holder unless it is “ascertainable standard” = HEMS
Springing power of attorney
Incapacity= durable power of attorney
Fee Simple
Fee Simple, 100% ownership. 100% in Gross Estate/100% in Probate Estate
Tenants in common
TC share %, fractional share goes into Gross and Probate estate. Can convey piece without other’s permission
JTWROS
2 tenants: spousal/ non spousal tenant;
50/50 ownership;
Can convey piece without other’s permission
Tenancy by Entirety
Married only;
Cannot sever without spouse’s permission; Creditor protection is higher
Community Property
Married only, 50/50 ownership
Full step-up basis at first death
No survivorship, goes into probate.
Avoid probate - By Laws
By law includes JTWROS, Tenancy by Entirety, Trust.
Avoid probate - By Contract
By contract includes Beneficiary designations, retirement, life insurance, annuities, TOD, POD(Payable on Death).
SCIN - Self Canceling Installment Note
Note cancels at seller’s death.
No estate inclusion. Buyer owes no more.
“bet to die”.
Buyer pay a risk premium.
Always have a term.
Secured promise pay – have collateral.
Buyer’s basis = purchase price
Private Annuity
Buyer pays for the seller’s life.
Lifetime income. No term.
No collateral. No security.
Basis of the buyer is accumulated P+I.
FLP - Family Limited Partnership
GP(100%)+ LP(0%) goes into GP(1%)+LP(99%). Gifting arrangement, stay in control, utilizing discounts.
Lack of marketability, minority discount
CRAT
Grantor received fixed payment, remainder goes to charity;
Trust is tax exempt – trust generate income but not taxable;
term up to 20 yrs/life; 10% Rule – Remainder interest ;
Tax deduction to the grantor is PV of the remainder interest(Take the tax deduction by life insurance and name kids as beneficiaries); No new money; fixed payments;
CLAT
Deduction: PV of the future payment stream to the charity;
“Grantor trust for tax purposes” – income generated taxed to grantor;
Remainder could goes to grantor or kids.
Fixed payments to the charity.
Kids as remainder—Gift is the PV of the remainder interest
GRAT
Estate reduction.
Fixed payments to grantor, remainder goes to kids.
Grantor must survive the trust term.
Gift value is the PV of the remainder interest.
At end of term – no step up basis.
No additional $. Fixed payment to the grantor.
Assume you have 100k you bought in 1975, FMV 10M. Grantor survived the term, right now the FMV is $30M and transferred to the kids. What would be the basis when transfer to the kids?
$100k.
Assume you have 100k you bought in 1975, FMV 10M. Grantor survived the term and died, right now the FMV is $30M and transferred to the kids. What would be the basis when transfer to the kids?
$30M
Form 709
Gift tax return, due 4/15 plus extension.
Gross gift – reductions ( Annual exclusion, spouses, charity)
Form 706
Gross estate return, due 9 months after death
Mom and Dad gifted 20k to JR, split gift — need 709?
Yes, need 1 return.
If Mom and dad give Jr 40k. – need 709?
Yes. Need 2, one for mom(3k), one for dad(3k).
What is a way that grandparents can transfer an enormous amount of assets without gift tax?
Qualified transfer: payment directly to medical, education, political to the party( not deductible)
Who pays the gift tax, donor or donee? Donor
What is the “net gift” ?
Donee pays for the gift tax
Assets to add back to estate
- Gift tax paid within 3 years of death;
- Life insurance Proceeds(LIP) received by the estate (no beneficiary or estate is the beneficiary) ;
- LIP on policies owned by the insured transferred within 3 years of death — how to correct – have ILIT own the insurance from day 1.
- GPOA (no HEMs).
- Failed GRAT/GRUT/QPRT
Inherited property Characteristics
Step up basis; ALWAYS long term
A Trust
Marital Trust;General POA
Marital Deduction,
B Trust
Bypass Trust/Credit Shelter Trust. No Marital deduction
C Trust
QTIP. Marital Deduction
Which trust qualify for marital deduction?
A trust(martial trust), C trust (QTIP)
Is gift splitting allowed for community property?
No
Value of the house $10M, Debt 7M, if debt and house is on decedent, what is the martial deduction of the house?
3M
Value of the house $10M, Debt 7M, debt is jointly held, what is the martial deduction of the house?
1.5M
Types of Wills
• Statutory.
• Holographic (handwritten) -must be handwritten, dated and signed by a testator.
• Nuncupative dying declaration only covering tangible personal property).
In terrorem clause
An in terrorem clause (no contest) will only be effective if the decedent has left the legatee in question enough of a legacy so as to not risk losing the contest.
Per stripes vs per capita
The number of heirs per stirpes (by the root) is less than or equal to the number of heirs per capita (count the people),
Property Ownership Key Features (Summary)
Is bypass trust a non-marital trust?
Is the income beneficiary have inclusion of gross estate?
A bypass trust is always a non-marital trust.
The income beneficiary will not have inclusion and the trustee does not need to seek permission.
Is QTIP assets included in the gross assets of the surviving spouse?
Is QTIP trust must payout all income?
What can QITP income beneficiary to trustee do?
QTIP assets are always included in the gross estate of the surviving spouse.
QTIP must pay out all income at least annually.
Income beneficiary (spouse) of the QTIP can force the trustee to invest the assets in income producing investments
401(k) plan.
Profit sharing plan.
SIMPLE IRA.
SIMPLE 401(k) plan
Which plan allows EE to make pre-tax contributions and low cost?
SIMPLE IRA
