Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

HLR CFP > Estate > Flashcards

Estate Flashcards

You may prefer our related Brainscape-certified flashcards:
CFP® flashcards
1
Q

What is elective share?

A

It is the same as “election against the will”, and means that if a spouse (often 2nd spouse) is left out of the will he/she still has a claim to a share of the assets (varies by state) unless it was signed away with a prenup (But they have to ask for the election!!)

(Typically in common law states to equate to community property and make sure people don’t get screwed)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is the period for the USDA?

A

120 hours (5 days); if you die w/in 120 hours it’s as if you both predeceased each other.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is a Totten Trust?

A

Similar to a POD/TOD but in a bank account; depositor maintains full control until death.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Why are there no survivorship rights in a community property state?

A

Because all assets are owned separate but equal (undivided equal interest). This is why a will is needed by each spouse and the property will be subject to probate.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Is there a step up for IRA/401K accounts and why?

A

No, because they’re taxed ordinary!!

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What does “fee simple” mean?

A

Individual ownership

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Can TBE property be disclaimed and why?

A

No, because you own it locked with your spouse.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is a non-cupative will?

A

Oral; must be witnessed (death bed)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

When does a testamentary trust become effective?

A

When will enters into probate, but the TT isn’t subject to probate - only the will that creates it is.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is a prior transfer credit, and how much is it?

A

When property passes through a taxable estate and then the beneficiary dies with a taxable estate w/in ten year; 70% credit on estate taxes paid.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Mnemonic to remember the three steps between adj gross estate and net estate tax?

A

Tax Everything
Then Begin
Tax Trimming

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Is the assignment of a life insurance policy a gift? If so, how is it taxed?

And, what happens if you gift/transfer a LI policy w/in 3 years of death?

A

Yes!! At face value (but then “blossoms” at death to DB)

It comes back into the gross estate. If you’re the insured it’s in at face value, if it’s someone else then it comes in as CV + unused premium.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are the (4) exclusions to the “present interest” requirement of a gift?

A
  1. UGMA/UTMA
  2. Crummey
  3. 529 and Coverdell
  4. 2503(c)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What types of gifts go on a form 709?

A
  1. Gifts of present interest > $18K exclusion (NOTE: the entire gift goes on the form if the form is required for another gift trigger, but the $18K is subtracted!!)
  2. Gifts of future interest (e.g; gifts to trusts) EXCEPT Crummey and 2503c
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Are gifts to a political organization and/or the US President excluded from gift tax rules?

A

YES

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are (3) key facts about a DPOAHC? (when does it take effect, what does it cover and how is it drafted?)

A
  1. It is springing; only effective on incapacity
  2. It’s only for medical decisions
  3. Separately drafted from DPOA
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What’s the difference b/w a durable and non-durable POA?

A

Durable continues through incapacity and non-durable ends at incapacity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is an OBRA and how does it differ from a SNT?

A

OBRA = Payback Trust
1. Assets xferred in by disabled person (not parents)

  1. No 5-year lookback for medicaid
  2. Beneficiary = state for medicaid payback (SNT can have anyone as the remainder ben)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is a simple trust?

Who pays the taxes and are charitable gifts allowed?

What happens to corpus?

A

Distributes income only (it’s a conduit) (eg: 2503b, QTIP, QDT, A/Marital). No corpus distributed nor charitable gifts.

Distributions taxed to ben

Corpus dist at termination

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What is a complex trust?
What can be distributed?
How are distributions taxed?
Are charitable gifts allowed?

A

EG: 2503c - Income may be distributed (often accumulates), corpus can be distributed per trust document.

Dist income taxable to ben; retained income taxed to trust

Charitable gifts are allowed.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is DNI?

A

Distr Net Income; prevents double taxation. Trust can only deduct dist <= DNI. Beneficiaries pay tax up to DNI amount (character - LT or ST - carryover). Any income not distributed is taxed to the trust.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What are advantages of an revocable trust? (Re: probate, gifting and creditor protection)

A

AVOIDS PROBATE!!

Xfer to trust not a gift b/c it’s not complete

No creditor protection; part of estate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Are irrevocable trusts in the grantor’s estate?

A

No, not usually. Separate TIN and it’s in the trustee’s estate.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Crummey trust/provision?

A

Allows <=$18K (max annual contribution or $18K) w/d within short window (demand right)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What’s a spendthrift provision?

A

It prevents creditors from claims to the trust; bad ben can’t sell or mortgage their share of trust.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What’s a B-Trust?
Simple or Complex?
What type(s) of powers?
How is it taxed (estate wise)?

A
  • Bypass/non-marital
  • Rule from the grave
  • Can be simple or complex
  • Provides stream of income to spouse/others
  • 5 of 5 or HEMS
  • Usually <=$13.62M; passes to next ben (after
  • spouse dies) tax free b/c it was the exclusion
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What’s an A-Trust?
What powers?
How are estate taxes handled?

A
  • Marital Trust - for spouse
  • Full control/general powers
  • When spouse dies -> estate tax (b/c they got it w/o estate tax)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

C-Trust?
Is it simple or complex?
What’s required (4)?

A

QTIP Trust (AKA Current Income)
Executor elects via tax return
For spouses only (Sven can’t get $$$)
Rule from grave
Stream of income for life
Can include a house
Only income - simple trust
LAME
- LIFETIME Income
- ANNUAL Income
- MANDATORY Income for spouse
- EXCLUSIVELY for spouse

29
Q

2503b Trusts:
Simple or complex?
Kiddie Tax?
What type of assets go into these?

A

Simple; distribute income only
Yes, kiddie tax
Income producing assets

30
Q

CRAT/CRUT Keys
Percentages?
#years?
Who gets $??
Can it be added to?

A

Charitable REMAINDER (remainder -> char)
5%
20 yrs
Dist to donor; balance to charity
Fixed Payments/no additions
Min 10% ending valuel

All same for CRUT EXCEPT: vbl payments (fixed %) and can be added to

31
Q

CLAT/CLUT Keys (3):
Who gets $?
Who gets remainder?
What is the deduction?

A

Income to Charity; remainder to donor/ben
Charitable LEAD trust (leads w/income -> char)
Up front char ded (PV of stream to charity)
NO 5% DIST REQ or 10% @ END!!

32
Q

NIMCRUT

A

For working people: you aren’t taking dist and paying tax during early years - you’re delaying until you’re retired and presumably in a lower tax bracket

33
Q

Wealth Replacement Trust

A

Uses ILIT to replace wealth parents donated to charity

34
Q

Charitable Gift Annuity
Are additions allowed?

A

Give bulk sum to charity up front and the charity pays the donor an annuity and keeps the remainder (they’re overpaying for the annuity). NO ADDITIONS

35
Q

Pooled Income Fund?
What type of investment CAN’T be in the PIF?

A

MF run by/held at charity; donors get payments.

Donors $ all pooled

No Munis

36
Q

Private Trust/Foundations:
1. Min Annual Dist? Can the dist include admin expenses?
2. What’s the penalty if the req’d percentage isn’t distributed?
3. Can it make tax ded gifts to non-char ben?

A
  1. 5%, can include admin exp
  2. 15% penalty if < 5%
  3. Yes: eg: scholarship, research in Africa, etc.
37
Q

What’s a Supporting Organization?
Who operates/controls it?

A

Similar to private found, but for one charity and OPERATED/CONTROLLED BY CHARITY

38
Q

What can’t be done with/to a DAF?

A

NO QCDs to DAF!!!

39
Q

Charitable Bargain Sales: how to calc new basis and calculate gain & ded?

A

Sale Price/FMV *Basis = Adjusted Basis

Sale Price - Adjusted Basis = Gain; balance = charitable deduction

40
Q

ILITs:
1. Why (2 uses/reasons)?
2. When does a LI policy go back into Gross Estate?

A
  1. To keep LI out of gross estate (as it would be if the estate were the beneficiary) and also wealth replacement trusts (CRAT/CRUT)
  2. If you move/gift the LI into the ILIT w/in 3 years
41
Q

Corporate Recapitalization?
Purpose and what happens?

A

Used to get closely held corp out of estate; reissue stock (preferred to me) and common to kids

42
Q

What are business valuation discounts?

A

They’re discounts used to reduce the FMV of stock to lower valuation.

Minority Discounts: shares worth less b/c minority holders have lower sway

Marketability Discounts: shares that aren’t marketable are worth less

43
Q

QDOT?
What type of trust (simple or complex)?
What happens to remainder?

A

Used for non-US spouse: allows > $13.6M - trust to be enjoyed by foreigner (income only - simple trust) until s/he dies then corpus reverts to first spouse’s estate, and estate tax is paid on remainder. This is a marital deduction (not an exemption amount).

44
Q

Net Gifting? What is it and what’s the calculation?

A

Recipient pays gift tax instead of donor; since it reduces value of the gift they pay less (divide GIFT TAX DUE by 1.4 to get reduced amount of the gift tax you’ll actually pay and the rest if the value of the gift).

45
Q

Reverse Gift - what is it and how’s it used?

A

One spouse much wealthier than other - to increase basis on low basis assets.

Wealthy gifts low basis assets -> poor. If they die >1 year later, wealthy spouse gets gift back step up. (If poor spouse dies <1 year, gift goes back to wealthy w/orig basis - unless it’s left to a 3rd party).

46
Q

Installment Sale Gotchas?
When are you screwed?
What type of property shoudn’t you ever use and why?

A
  1. If family member sells w/in 2 years = screwed!
  2. NO 1245 property b/c full recapture would be recognized in year of sale (BAD)
47
Q

Private Annuity Keys (4):
What is it?
Secured or unsecured?
Under what circumstances is it a gift?
What’s the key disadvantage (re: gains)?

A
  1. LIFETIME income -> owner (like single annuity)
  2. Unsecured loan
  3. When the PV of the annuity > property value
  4. DISADVANTAGE: Seller pays all gain up front!!
48
Q

What type of partnership/S-Corp businesses CAN’T be gifted?

A

When it’s a service business (must be cap intensive) b/c a svc biz can’t shift income

49
Q

FLP Gotcha and keys (3):
What type of biz can it NOT be?
What can be done to reduce the value of the gift?

A
  1. Can’t be a service biz!!!
  2. Owner maintains control and liability (LPs no liability)
  3. Can use biz discounts (minority and marketability discounts) to reduce value of gift
50
Q

Gift Leaseback Gotcha and Keys(2):

A
  1. Passive income for kids (do NOT use for kid <24 or kiddie tax)
  2. Tax break for parent (lease payment becomes biz ded)
51
Q

GRAT/GRUT (4) + Example:
What type of asset?
What happens at the end (where does the balance go and how’s it taxed)?
Is it a gift of present or future interest?
What happens if the grantor dies before the end of annuity?

A
  1. xfer appreciating or income asset to trust and get annuity payments for fixed period
  2. At end, balance is xferred to ben TAX FREE
  3. Gift of FUTURE interest so no $18K exemption
  4. If grantor dies before annuity ends - asset goes back into estate

Example: NVIDIA stock. Buy low, xfer into trust and take some payments. After it skyrockets it goes to ben tax free!!

52
Q

QPRT Keys:
How many houses?
How does it work?
When are you screwed?

A
  1. Max (2) houses
  2. Grantor rents house back from trust and is left to ben (gets house out of estate)
  3. If grantor dies before xfer, house -> estate
53
Q

GSTT - when and how is it calculated?

A

AFTER Gift or estate tax; on gift amount less gift or estate tax paid.

54
Q

What are the (3) types of “skips”?

A
  1. Direct Skip: TRANSFEROR PAYS
  2. Taxable Termination: Gift goes into trust and NON SKIP person dies (interest terminates) so their interest goes to skip TRUSTEE PAYS
  3. Taxable Distributions: Trust has multiple gens and trustee makes a decision to skip a gen TRANFEREE PAYS
55
Q

What’s Income in Respect of Decedent?

A

Income owed to someone who died (e.g.: commissions)

If the estate tax increases because of the income, the estate tax bill is paid but it’s allowed an incomed tax deduction for the estate taxes attributable to the income.

56
Q

What’s AVD (Alternate Valuation Date)?
When can it be used (what’s the requirement)?
What is/are excluded?

A

Only for > $13.61M estate; if you use AVD it must be applied universally

Exclusions:
1. Wasting assets
2. Anything already distributed
3. IRD

57
Q

What type of property can’t be disclaimed?

A

TBE

58
Q

What’s a disclaimer trust?
When/how is it created?
What’s distributed and what powers?
When is it not allowed?

A

Testamentary trust clause in will; disclaimed property -> trust

Behaves like bypass (income to spouse) - only HEMS

Not allowed if there are named contingent ben

59
Q

What (2) post-mortem elections can help with estate liquidity?
What type of business can use one of them exclusively?

A

Section 303 stock redemption (stock > 35% gross estate) for CORP only

6166 Installment Payments of Estate Tax: allows you to pay estate taxes over (14) years w/2% interest on first $1M during first four years and then (10) equal installments

60
Q

What post-mortem election can help reduce estate taxes?

A

2032A Special Use Valuation: Farm or real estate (50% of gross estate must be real & personal property/25% must be RE). Gives you $750K indexed reduction (40% of $1.39M).

2032 goes hand in hand w/6166

61
Q

What is the only type of property that can get a step-up in basis?

A

CG property; not ordinary!!

62
Q

What is NOT in probate (aside from obvious) but IS in gross estate (3)?

A

Transfer by contract: IRA/retirement, life insurance and annuities

Trusts: all - revocable and irrevocable

Gift taxes PAID W/IN 3 YEARS OF DEATH except GSTT

63
Q

What is a tainted (grantor’s) trust?

When do you want a tainted (grantor’s) trust and when do you not (and why not)?

A

A tainted (grantor’s) trust is one where:
1. the trust income is used to pay LI prems (on grantor/spouse) eg: ILIT
2. a reversionary interest of >5% and/or
3. beneficial enjoyment/control.

You want a tainted trust for income taxes (lower bracket) but not estate taxes (double taxation when passed down).

Irrevocable trusts are always tainted for both (income and estate)!!

64
Q

What’s the difference between a funded and unfunded ILIT?

A

Funded is when there’s $ in the trust to throw off income to pay the prem.

Unfunded is when there’s nothing besides LI in the trust and outside funds (e.g.: Crummy) pays prems.

65
Q

What is a life estate?

A

You have beneficial enjoyment for life and then the asset goes to a beneficiary

66
Q

How should you invest funds in a trust?

A

Not to generate too much income b/c trust taxes are so high.

67
Q

In a community property state, would a child also get a full step up? What if it’s non-community property?

A

If it’s community property, both wife and child get full step up.

If it’s not community property, only the child would get the step up (the spouse wouldn’t)

68
Q

What does Simple vs Complex control/impact?

A

Taxation

HLR CFP (8 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions