Estate Flashcards

Question

Estate Tax Formula MEMORIZE at least to TTT form 706 feet under

Answer 1

Gross Estate less Deductions (Exp, debts, taxes) =Adjusted Gross Estate less Charitable less Marital deduction =Taxable Estate + taxable gifts after 1976 = TTT (Total taxable transfers) * tax rate =TENTATIVE estate tax (TET) less gift taxes paid on post 1976 =Gross estate tax less applicable credit amount less other credits =Estate tax liability Estate tax is tax on property transferred @ death

Answer 2

POOLED INCOME FUNDS Donor gifts and receives annual pro-rata share of income from the charity's COMINGLED funds, for life. -Ad'l gifts can be made to the fund to increase the income stream -Charity manages the fund which CANNOT invest in tax exempt securities -Charity receives the remained when the donor's income interest ends -Donor's income tax ded = PV of charity's remainder interest - Donor pays income taxes on income rec'd from the fund

Answer 3

PRIVATE FOUNDATION -Separate legal entity. -Expensive to set up and maintain -NFP or tax exempt trust -Fund must distribute 5% assets to charities each year -Family members who make gifts may take income tax deduction limited to 30% cash, 20% LTCG property

Answer 4

Charitable Lead Trusts Charitable Remainder Trusts Charitable gift annuities Pooled income funds Private foundation Donor advised funds

Answer 5

Durable POA Living Will Will with guardianship for minors and some Revocable living trust and if so FUNDED

Answer 6

Transfer of business interests, estate tax reduction, creditor protection GP are the senior family members LP are the junior family members (gifted or purchase shares) -GPs retain control :-) -GPs have unlimited liability :-( -Shifts income to LPs in lower tax brackets -LPs have protection from creditors. limited liability -Valuation discounts for - lack of marketability discount - minority interest discount -Gifting - easy of gifting assets that are difficult to distribute. Transfers qualify for annual exclusion Disadvantages: -Income shifting could result in kiddie tax - ad'l filing fees and info tax returns - gifts do NOT receive basis step up -retained partnerships interests continue to appreciate in senior family member's estate

Answer 7

>36k. Each spouse files >18 but <36. Donor only but other spouse gives consent on 709 <18 no gift tax return. no need to split as neither would need to file IGNORE b/w US CITIZEN spouses b/c of UNLIMITED MARITAL DEDUCTION

Answer 8

No annual exclusion but can use unified credit for future interest gifts -Remainder interest in property -Trusts that accumulates income (Exc 2503c which is treated as present interest) -Nonincome producing property unless trustee can sell and buy nonincome producing property ? did I write this wrong -Trust has sprinkle or spray provision

Answer 9

Married donor - with consent of nondonor spouse, can elect to treat as if each spouse gave half -If elect G/S - applies to ALL gifts in that CALENDAR YEAR -Does NOT decrease unified ex or credit amount if < 36k/person

Answer 10

At date of gift, if FMV > donor's basis, then the donee uses the donor's adjusted basis and holding period If donor paid gift taxes, donee can add portion to adj basis Appreciation / taxable gift = % of gift tax to add to basis Appreciation = FMV - basis taxable gift = FMV - annual exclusion

Answer 11

@ date of gift if FMV less than donor's basis Basis higher than FMV If Donee sells above basis - use donor basis and holding period Donee sells between - no gain or loss Donee sells @ less than FMV, use FMV @ date of gift AND gift date starts the holding period

Answer 12

Trusts Operation of LAW (JtWROS, TBE, TOD etc) Contracts (life insurance, annuities, beneficiaries

Answer 13

If grantor dies w/i terms FMV goes in the gross estate Revocable trust in which all INCOME will be taxed to the GRANTOR No 1041, no trust taxes Taxed at highest ordinary rate of grantor Taxed as a grantor trust if trust allows: - grantor, a spouse even a 3rd party w/o a beneficial interest in the trust... any rights or powers as specified in grantor trust rules (sep card)

Answer 14

Grantor may revoke or modify Grantor retains - beneficial enjoyment - administrative powers - control Income is or can be used to pay premiums on life insurance policy for grantor or spouse Income is or can be distributed to the grantor for the support of the grantor's children Grantor trust rules also state that a trust becomes a grantor trust if the creator of the trust has a reversionary interest greater than 5% of trust assets at the time the transfer of assets to the trust is made

Answer 15

Grantor Retained ANNUITY Trust IRREVOCABLE Grantor places assets and right to a fixed pmt of income ANNUITY for chosen period In order to... -Reduce value of grantor's estate b/c appreciation of property goes to beneficiaries w/o ad'l gift tax at death -Transfer $ in @ reduced or 0 gift tax value FMV assets - PV annuity stream = remainder interest = gift Corpus is protected from creditors Disadv If die b4 term - assets go into gross estate NO ad'l assets can go in Ben rec c/o basis Income subj to creditor claims No ad'l assets allowed Corpus protected from creditors but NOT income

Answer 16

see picture

Answer 17

Grantor Retained UNITRUSTS U is for up and down (pmts) Assets valued annually. This amount determines income b/c it is a % IRREVOCABLE -Grantor places assets and right to a fixed pmt of % assets ...for chosen period -Can be used as inflation hedge In order to... -Reduce value of grantor's estate b/c appreciation of property goes to beneficiaries w/o ad'l gift tax at death -Transfer $ in @ reduced gift tax value (FMV - PV annuity) If grantor outlives term, no estate tax but if dies before, pulled into gross estate Ad'l assets ARE permitted therefore valued annually

Answer 18

Skip person = the "skip TO person" - the one who is 2 or more generations below GST is in ADDITION to the gift/estate tax For unrelated the skip person is 37.5-62.5 years younger A gift made to a skip person is both a gift AND a GST

Answer 19

H is for Handwritten will

Answer 20

1. NEW policy purchased by an ILIT - FV of insurance is removed from the owner's estate and not subject to 3-year rule 2. Existing policy transferred to an ILIT -if the owner is not the insured, the owner must survive by at least 3 years to exclude the DB from the estate 3 Funded ILIT Both a life insurance policy and income producing property are transferred into the ILIT -grantor is taxed on trust income -income used for trust to pay premiums - ben do NOT have crummey powers 4. Unfunded ILIT (Better than funded) - includes only the grantor's life insurance - but each year, $ must go in to pay the premiums. And that cont to trust is a present interest gift - beneficiaries have Crummey Powers - right to withdraw some or all of a grantor's contribution to the trust. (Which would mean no income to pay the premium and thus forfeiting the policy) -as a result, this turns a future interest gift into a **present interest gift** & eligible for annual exclusion -withdrawal amount LESSER of -annual exclusion -annual contribution to the trust -greater of 5k or 5% of any trf in

Answer 21

Think about what the CHARITY receives Remainder trusts PV of remainder = FMV - PV income stream Lead trusts PV of income stream

Answer 22

sell business to family member or 3rd party and receive *SECURED income - promissory note is secured and does not require a set sale price & *fixed term -buyer does not need down pmt - pmt amounts can vary, be skipped or spread out over several years BUT at least ONE PMT must be made to owner after taxable year in which sale occurs *PV of outstanding installment payments are included in the seller's gross estate His chart says "fixed term"

Answer 23

Installment notes and SCINs have a fixed term and are secured Property and SCINs is not in the gross estate For installment notes and private annuities the present value of unpaid payments might be included. In private annuities if it's a single life it's not. Privately are for the life of the seller and are not secured

Answer 24

receive fixed annuity stream of income for LIFE, transfer business asset out of estate -Pmts from the sale structured as annuity and UNSECURED -Single life annuity - remaining pmts NOT in gross estate Jt and surv annuity - pmts continue for 2 lives. PV of survivor's future annuity pmts included in seller's estate (marital deduction available to offset tax) IF BUYER DIES BEFORE SELLER, buyer's estate must make pmts for LIFE of seller. *If SELLER OUTLIVES life expectancy, buyer MUST continue to pay the seller No collateral in private annuities

Answer 25

Removes asset from gross estate and receive income Owner GIFTS property into IRREVOCABLE trust Leases property back Takes business deduction for lease pmts made Trust distributes lease pmts to family benef Family beneficiaries taxed at lower rates

Answer 26

Self-Cancelling Installment Notes cancel at death, removed from estate *fixed term, secured, removed from estate -partially or fulling cancels note before it matures 3 ways -can be canceled in the will and the unpaid balance is NOT included in sellers gross estate -can cancel all at once - subject to CG and gift taxes (remember the annual exclusion) -can cancel in increments of 18k/year/buyer to avoid or reduce taxable gifts

Answer 27

IRAs 401ks Deferred annuities Income such as salaries, commissions this income, which the decedent would have included in gross income if he or she had lived, does not escape taxation. Keep in mind that IRD assets are not capital assets, and do NOT receive a step up or down in basis on the date of death.

Answer 28

provide dec estate with liquidity for pmt of all death taxes with - existing life insurance - insurance the trust intends to purchase w/o subjecting the proceeds themselves to depletion by estate taxes

Answer 29

*Asset protection Must be funded to exist Property is property of the trst *Grantor gives up control, ability to amend dominion (?) of property avoid probate not in estate b/c completed gift

Answer 30

The 13.610 is ONE POOL of $ that applies to both lifetime gifts and transfers @ death These transfers are NOT taxable gifts - IRS approved CHARITIES -US Citizen spouse (unlimited marital) -DIRECT to MED provider -DIRECT to ED Inst for TUITION Remember portability of leftover lifetime excl to SS - must make DSUE election

Answer 31

-Established and funded during lifetimes and take effect immediately -Avoids probate - Title of property is held in the name of the trust

Answer 32

Unlimited EXCEPT for: -TIP -Transfers TO noncitizen spouse Only 185k/year exclusion and this is only for LIFETIME giving Doesn't the 13.610 still apply? -

Answer 33

A trust QTIP Estate trust outright gift

Answer 34

Ascertainable standard

Answer 35

A trust Estate

Answer 36

Disclaimer trust Set up IRREV trust to fund ONLY IF SS chooses to disclaim

Answer 37

B Estate trust

Answer 38

Estate equalization divide in 2 to lower tax, progressive estate tax rates

Answer 39

Will made in agreement with another person to dispose of certain property interests

Answer 40

cup as in ORALLY over a cup of coffee

Answer 41

Nondurable - ceases when principal no longer competent vs Durable - authority continues even when principal incompetent Springing - starts when principal is incompetent - takes time to be declared but plus is that agent has not authority until this time General - broad - lapses at incapacitation Special - specific - until certain task completed

Answer 42

UGMA/UTMA - gift of present interest 529 plans - yep even though parent is "owner" and it's counted as parent asset for fin aid! 2503 B trust with multiple Beneficiaries. income distributed to at least one beneficiary annually 2503c trust gets present interest treatment one beneficiary, inc accum to age 21 Though accum vs dist, exception applies that allows gifts to it to qualify for the annual exclusion

Answer 43

If property transferred into IRREVOCABLE trust, it is a COMPLETED GIFT and Beneficiary receives income for life OR term certain RESULT Beneficiary has a present interest since they can receive income this year AND in subsequent years THEREFORE the Donor can take annual exclusion for the PV of the beneficiary's income interest

Answer 44

1. FRAUD 2. Testator being subject to UNDUE INFLUENCE BY someone benefiting from the will 3. MISTAKES in will clauses 4. Will not PROPERLY executed/signed/witnessed according to STATE LAW

Answer 45

To qualify decedent's estate for marital deduction. Assures the IRS that assets will not leave US without being taxed! QDOT must be setup as QTIP or Estate Trustee must be -US citizen, or -US domestic corp, or -US Bank if assets >$2 million Trustee must approve all distributions of principal and withhold estate taxes from distributions that are not subject to HEMS QDOT must retain sufficient assets to cover noncitizen's estate taxes Since no marital deduction is available for transfers to non US citizens, the QDOT qualifies transfers to a non US citizen for the marital deduction

Answer 46

Qualified Personal Residence Trust IRREVOCABLE grantor trust for houses -Allows COUPLES to move high value asset out of estate and keep living there during the "trust term" -Like GRAT and GRUT, if grantor outlives the term, FMV is NOT included in the gross estate -Risk is that the grantor dies w/i term and FMV is pulled back into gross estate -NO step up in basis if grantor survives (b/c it wasn't in gross estate) -Basis to beneficiary (if sold) = grantor's basis plus any gift taxes paid -If grantor survives term, move out or rent back! It's NOT their home any more. -Renting though is a way to get more $ out of the estate and to the beneficiaries. -Must pay rent and sign agmnt or risk house being pulled back into estate

Answer 47

*Executor qualifies the TIP for the marital deduction (ie grantor receives marital ded) *SS has income for life *Corpus to children from PREVIOUS marriage (SS cannot change terms) -SS does NOT have PoA BUT it IS included in SS estate - it's a tradeoff so that decedent can use the marital deduction WHY Take care of current spouse but also ensures children from another marriage recieve corpus. Common Scenario: Divorced and remarried with children from PREVIOUS marriage May be concerned about SS ability to ability to manage the assets in future years and/or Possibility that SS may change the plans for who gets the remaining assets

Answer 48

Treated as if the property went directly from original transferor to the one who ultimately received the property 1. Refusal must be IN WRITING 2. Refusal must be rec'd within 9 MONTHS of the later of : date on which transferor made OR date reaches 21 3. Intended donee cannot have accepted ANY INTEREST or BENEFITS 4. Personal disclaiming cannot influence recipient. No undue influence!

Answer 49

Each person's will designates all property to the other

Answer 50

any person over 18 can make a will. but to be valid you need test capacity 1. Will creator/testator must know they are executing a will 2. Must be aware of what ASSETS they own 3. Must KNOW and REMEMBER their RELATIONSHIP with the beneficiaries

Answer 51

Identifies the person(s) that will inherit any residue Residue = everything that is left of the estate (after specific bequests?) after payment of funeral fees, executor fees, other fees, and after all claims are satisfied

Answer 52

FLEXIBILITY -may be funded or not - becomes IRREVOCABLE when -grantor gives up right to amend/revoke/reclaim OR dies - avoids probate -but in gross estate (b/c grantor has control and can revise, not a completed gift)

Answer 53

REVOC IRREVOC Grantor can terminate? yes no Completed gift? no yes Subject to estate tax? yes no

Answer 54

Under IRC Section 6166, a personal representative may defer payment of estate taxes if the interest in a closely held business exceeds 35 percent of the decedent's adjusted gross estate Section 6166 is a useful tool when, an estate is unable to pay tax without selling assets at a loss, and when the business or estate can earn a greater after-tax rate of return than it spends in interest for the deferral privilege.

Answer 55

Under IRC Section 2032A, an executor may elect to value qualifying real property based on its actual special use rather than its highest and best use The maximum reduction of the decedent's gross estate under this provision in 2024 is $1,390,000. See appendix

Answer 56

Section 303 Redemption Section 303 of the Internal Revenue Code (IRC) allows the purchase of a portion of a decedent shareholder’s stock by the shareholder’s corporation to be treated as a sale or exchange rather than as a dividend. Appropriate Uses of an IRC §303 Redemption: When the decedent shareholder’s family wants to keep control of a closely-held or family corporation after decedent’s death. When the corporation stock is a major estate asset and there is a threat of a forced sale or liquidation of the business to pay death taxes and other estate administration costs. Where a tax-favored withdrawal of funds from the corporation at the death of the stockholder would be useful. Requirements The redeemed stock must be included in the decedent’s gross estate. The value for federal estate tax purposes of all stock of the corporation that is included in determining the value of the decedent’s gross estate must be more than 35% of the excess of The value of the gross estate over [(estate expense, indebtedness, and taxes) + (losses)]. Example Gross estate = $1,250,000. Admin. and funeral costs = $250,000 No other deductible expenses To qualify for a Section 303 redemption, the value of the stock must exceed $350,000 {35% of ($1,250,000 - $250,000)}

Answer 57

Cash, Assets, Life Insurance Premiums IDK why the "premiums" but just know it

Answer 58

WHY? - Preserve eligibility for gov't benefits - Pay for extra services not covered by gov't programs HOW DESIGNED? - Pooled- managed by a NFP org - 1st party - funded by the sp needs person like $ from injury settlement - 3rd party - assets that never belonged to beneficiary WHAT does it pay for? - Basic - food, shelter, clothing Note that medical is not a basic need but a supplemental need - Extra/supplemental services: medical, supp attendant & custodial care, add'l therapies, respite care for family caregivers - Pays for: phone, computer, TV, basic furnishings, travel & companion, education

Answer 59

SSDI - Social Security Disability Insurance SSI - Supplemental Security Income Medicaid To qualify for SSI, they cannot have more than 943/mo in UNEARNED income If they have income from another trust or elsewhere, it could affect the eligibility.

Answer 60

Estate equalization - divides into two parts to reduce tax b/c of progressive rates A trust - Gen PoA SS, access to income & Corpus B trust - utilize lifetime ex, SS income as needed, assets NOT in SS estate, 1st to die sets terms/beneficiaries of corpus QTIP - marital deduction, SS income for life, Corpus to kids from former marriage Disclaimer trust - IRREV trust funded if SS chooses to disclaim at 1st to die death ?Estate trust. Qualifies property for marital deduction. Use if SS has substantial wealth and does not need trust income OR corpus Ascertainable standard - HEMS. Added to trusts

Answer 61

B = Before A = After Fund the B trust first (13.61) Then fund the A (umlimited marital deduction)

Answer 62

Grantor is trustee and beneficiary Successor trustee steps into trustee role when/if grantor is incapacitated 3 parties GRANTOR - creates by transferring legal title of property to trustee TRUSTEE - manages the trust property for beneficiary BENEFICIARY - has equitable title to trust propery

Answer 63

Only the value in the decedent's estate gets step up JTWROS spouse - 50/50 ownership - Gross estate 50% FMV - Step up - in spouses 50% of the property -New basis: 50% purchase price + 50% FMV DOD of spouse JTWROS nonspouse acc to $ original contribution -Gross estate % cont*FMV -Step up % Dec's FMV - New basis % pp self + % FMV dec'd VS Community 100% step up 100% FMV can sell with zero gain or loss

Answer 64

Income from grantor trust - grantor taxed Retained income - trust taxed Distributed income/nongrantor trust - beneficiaries taxed

Answer 65

Created through a will Funded after death purposes: reduce estate tax professional investment management estate in right hands

Answer 66

When gifting TIP, the donor spouse can take an annual exclusion for the present interest gift. However, the marital deduction is not available.

Answer 67

Income and expense used to determine amount of income beneficiary entitled to receive Trust document usually specifies what accounting income is Does NOT determine trust's taxable income OR who will pay the tax

Answer 68

Trust is a legal entity that holds property and allows the grantor to coordinate the investment, use and distribution of property - often not only during life but after death

Answer 69

after personal exemption?

Answer 70

Must file 1041 if ANY of these: -taxable income -gross income >=600 -Beneficiary is a nonresident alien

Answer 71

2503b Bring Beneficiaries Bucks 2503 aCCmulate and Can Cease Current Cash

Answer 72

SIMPLE COMPLEX Dist of principal NO YES Req to dist YES NO all income Can accum income NO YES Ch ded permitted NO YES Inc exemption $300 $100

Answer 73

A is for Anchored, stAys the sAme valued only at creation and NO ad'l assets allowed U is for Up and down revalued every year and ad'l assets ARE allowed

Answer 74

1. Make a q-tip election on 706 2. Life estate with general power of appointment to SS

Answer 75

Ethan age 70 has four healthy children he has a disease likely to result in lowering life expectancy gross the state is 3 million two and a half million of it is rental real estate investment IE a business He wants to minimize the state and gift taxes and provide sufficient cash flow to himself for the rest of his life in order to pay for his health care what should he do? Answer is a private annuity He was between family members and in situations where the individual has a non-terminal medical condition that may reduce their life expectancy the early death would create a windfall for the four children a private annuity would allow the children to receive the property at a discounted price

Answer 76

Taxed as a pass through entity Assets never belonged to the beneficiary Taxable to beneficiary at their individual tax rates. Watch for Kiddie If Undistributed income, it is taxed to the trust at the higher non-grantor trust rates. Don't use 40% use the tables

Answer 77

This is just removing the business property like machinery and office equipment Gift graphic is on front Remember in a gift the property is put into an irrevocable trust The lease payments to the trust then become income to the beneficiary taxed at their lower rate Sale is below Owner keeps the business Just a transfer of business property

Answer 78

Growth is peeking Credit growth is strong Profit growth peaks Policy is neutral Inventories and sales grow; equilibrium reached

Answer 79

No and the grantie is taxed at his/hers highest ordinary rate