Estate Flashcards
Survivorship Annuities - Inclusion in gross estate
full value: if decedent had the right to a lump sum
PV of future pmts: if right to periodic pmts
3 Yr Rule: Included
gift taxes paid out of pocket
specific LI transfers
Transfers w/ Retained Life Interest
property transferred during decedents life is included if decended enjoyed a right to income or use the property during their lifetime
Exclusions from gross estate
LCL
life insurance owned by someone else (even if decedent is insured)
completed gifts
life estate for decedents own life only (interest in property terminates after death different than retained life estate).
prior transfer credit
death within 10 years
credit for double taxation
credit % based on proportion of 10 years. estate tax due is credit % x first decedent tax paid
what are powers of appointment
interest/provision usually found in trusts or estates
allows the holder to determine who gets to use the property subject to the power
general power of apointment
entitles holder to transfer property to anyone
invade corpus
can lapse if not exercised within a certain time period
pretty much the same as outright ownership
gift and estate taxed
special power of appointment
holder can transfer property to specific people or in specific situations
no tax implications
5 or 5 power
general power can also have a 5 or 5. holder of a 5 or 5 says is the greater of 5k or 5% of fund
that amount is included in donees estate. keeps larger portion out of estate
no gift tax imp
estate tax on greater of 5% or 5k
ascertainable standards
HEMS = not a general power
necessities of life
no tax implications
gift strategy: highly appreciated property
charity
donee in low bracket
or keep in estate for step up
gift strategy: likely to appreciate
remove from donor estate
gift strategy: income producing property
to donee in lower tax bracket
gift strategy: loss property
sell and gift proceeds
gift strategy: depreciation property
keep until depreciated
gift strategy: life insurance
great to gift
tax based on replacement value & benefit on face value
annual gift tax exclusion
18k
10k indexed
gift of future interest - annual exclusion
NO ANNUAL ExcCLUSOIN
i.e. transfers to an irrev trust (recipient does not have current enjoyment)
future interest exceptions
think 529s: you can get the 90k exclusion even though the kid doesn’t get to enjoy right away
2503c
crummey
gifts in tr on behalf of minors
THESE ONES DO GET THE EXCLUSION EVEN THOUGH THEY’RE TECHNICALLY FUTURE INTEREST
gifts to noncitizen spouses
super annual exclusion
185k
100k indexed
gift basis of appreciated property
owners original basis
+ gift tax paid that is attributable to the appreciation ONLY IF BY DONOR
find appreciation (fmv - basis)
X 40% = estate tax attributable to the appreciation portion
add to basis
basis of depreciated gifts
use diagram - wherever sale price lands
gain
_____________owner basis
0
_____________fmv
loss
gifts subject to debt
net value subject to gift tax (property - debt)
if debt exceeds original cost: donor realizes taxable gain on excess of debt over basis
donee new basis: original + gain realized
gift taxes 3 years
gift taxes paid within 3 years of death are added to gross estate
when to file gift tax
gifts made over 18k
future interest gifts of any amount
gift splitting
gift splitting - over 36k
both need to file
gift splitting - under 36k
donative spouse files, non signs
gifts of property into JT or community
most: gift occurs when transfer of title executed
jt accounts: upon withdrawal of funds
ees: jt bond, gift when bond is redeemed
when is an immediate gift tax due
when you exceed the 13.61
exempt/fully deductible gifts
qualified pmt direct to dr or school
american political parties
qualified charities
spouse
medicaid
2k in countable assets
5 year lookback for gifting
certain amount of home equity
state must be named as annuity bene
OBRA Trust
payback trust
disabled under 65
stay eligible for medicaid by transferring assets to irrev obra tr
state gets funds upon death
Per Capita
equal shares to each party specified
Per Stirpes
equal share to first row of benes
one bene dead: their decendents get equal split of that single benes shares
Simple Trust
conduit
income MUST BE distributed
income taxed to bene
usually do not distribute corpus
no charitable gifts
Complex Trust
taxed as separate entity on earned income
complex trusts MUST be irrevocable, grantor no control
income accumulate (taxed to trust) or distribute (taxed to bene)
may make char gifts
revocable trust
grantor transfers property and reserves right to revoke power if they want
not a tax play
grantor trust for tax purposes
trust exemption
$300 personal exemption
Crummey Tr
for 30 days after contribution, person with crummey power can take out lesser of annual exemption 18k or contribution
irrev tr with demand rights
you get the annual exclusion 18k since crummey power has the right to current enjoyment (otherwise it would be classified as future)
inter-vivos trust
revocable living trust
grantor trust rules
probate alternative
not a complete gift
testamentary trust
created from a will
the trust does not go thru probate
B Trust
Bypass trust, nonmarital, credit shelter, unified shelter, family trust
dead spouse controls. fill it with up to exemption amount. surviving spouse can get income
hems & 5 or 5 (no more than this)
bypasses 2nd spouse estate, @ death goes right to next benes
A Trust
Marital Trust
power of appt trust, spousal trust
second spouse controls and decides who next benes are
right to invade corpus
included in gross estate of decedent (but not taxed), and ultimately in surviving spouse
C Trust
QTIP
first to die controls
current income trust
marital deduction and stream of lifetime income
use when there are children involved
LAME
lifetime
annaul
mandatory
exclusively
for spouse!!
estate trust
marital tr
no income stream
holds non income producing assets
gifts to minors types
present interest
ugma, utma, 529, 2503c
future interest
2503b bad boy
ugma
ugma = ugly no real estate
cash type assets
may be included in custodian estate
cannot be testamentary
usually distrubted at 18
utma
can include RE
distribute at 21
can be testamentary
can be included in custodian estate
2503b
provides stream of income
income is present interest
18k exclusion is a gift
income taxable to recipient
remainder interest is future interest
2503c
any property not spent passes to donee at 21 (or given the option to do that)
kiddie tax ages
18 and less than half support
19-23, less than half support and full time student
sprinkling provisions
direct income at discretion of trustee to benes
discretionary provision
trustee sees fit to distribute principal and income
support trust
income only for support/essential needs or education
rules against perpetuity
interest must vest no later than 21 years 9 months after youngest life at time of creation dies
includes babies in the womb
Dynasty Trust
B trust fo multiple generations
free of estate, gift and gstt txes
life interest for as long as the state allows
CLAT/CLUT
charity leads
income to charity first
income or estate tax deduction
priv foundation 5%
30% deduction
CRAT
no additions (crap! restrictions!)
payments fixed
any charity
10% (of initial cont) ending value
income tax deduction based on pv of remainder
not subject to gift tax
corpus payout 5% per year
20 year term max
CRUT
additions allowed (inflation protection)
payments variable (assessed annually)
any charity
10% ending value
income tax deduction based on pv of remainder
not subject to gift tax
corpus pay out 5% per year
Pooled Income
additions allowed
specific charity
variable pmts
Charitable Gift Annuity
no additions
fixed lifetime income
payable to specific charity
gift - annuity deduction
NIMCRUT
non char bene gets lesser % of trust value or net income earned
if the amount is less, excess is forfeited
account accrues in the years when net income is less, then, yyou can take the makeup
DEFER INCOME
choose this if you dont want the income every year
Wealth Rep Trust
ILIT
face value of policy can be equal to or less than value of property transferred to charity
no incidents of ownership, therefore stays out of estate
CLT
upfront deduction for pv of income to charity
no deductions for annual dist
charitable gift annuity
transfer cash or property to charity and org pays donor an annuity stream
property transferred exceeds guaranteed value of annuity
charitable contribution = excess amount
excess amt contributed = char deduction
PIF
transfer property into common trust
single public charity manages the assets
no term of years. life
prorated share of income from trust
income tax deduction for present value of remainder interest
gift tax deduction of pv fremainder interest
private foundation
wealthy person, family charitable purposes
distribute min 5% each year
excise taxes
DAF
fund held by community foundation
donor may recommend recipies
no qcds
charitable stock bailout
gifting closely held stock
charity tenders stock for cash redemption
no contract for a specific time
deduction = gift amount
stock redemption in future, business value drops 3mm
bargain sales charitable
sale must be allocated proportionally to the gift and sale parts
basis must be proportional
gain on sale part
incidents of ownership
LI proceeds/value included in gross estate of insured
LI in gross estate
proceeds paid to estate
decedent had incidents of ownership at death
policy gifted within 3 years
sold policy - amt in gross estate of insured
none. no 3 yr rule
i own policy on my spouse, i die - gross estate inclusion
replacement cost
my spouse insured and i gift to my daugher - gross estate inclusion
not included - no 3 year rule
gifting life insurance during life
interpolated terminal reserve + unearned premium = gift amount (replacement value)
subtract annual exlcusion amt
taxable gift triggered by death
i purchase LI on my spouse and name my son primary bene.
spouse dies. i give a gift of the db to my son (because i could’ve named myself bene)
ILIT is better here
corporate recapitalization
reduce value of busines interest through stock recap
controlling interest of voting common stock»_space; after recap: limited or no voting shares. all preferred or nonvoting shares (w/ div)
future appreciation shifted to younger generation
terminal interest rule
cannot be included in marital deduction
what is it - interest that terminates on contingency of an event ocurring
exceptions: transfer w/ life estate, annual payout, general power of appt
qtip
qdot
QDOT
pass property to noncitizen spouse to qualify for marital deduction
Net gift
after you use up exemption
donee pays gift tax
gross estate includes gift taxes paid within 3 years
calc: donee pays og gift tax amount/1.4
adjusted taxable gift = gift amount - annual exclusion - tax calc
dead in 3 years: tax added back to estate and gift tax credit
reverse gift
wealthy spouse makes gift of low basis to less wealthy spouse with low life expectancy
works if spouse lives more than 1 year
Installment sale
pv of remaining payments in estate
secured property
capital gain. dont use if subject to depreciation
scin
no value included in estate
higher payout than installment
gain is capital gain, shows up on income tax return
higher premium for cancellation feature, more income tax while living
private annuity
no value included in estate
property transferred for promise
taxation to seller
grat/grut
irrev trust: grantor makes gifts of property and retains income interest
owner must outlive term or asset is brought back into estate
corpus distributed to remainder benes
grut: valued annually
BEST: APPRECIATING ASSETS
partnership/s corp
gift shares
family receives conduit income
not for service related biz (i.e. good if you have equipment and own capital. not a cpa/attorney)
FLP
gift interest to lp to reduce estate
shift income to other family members
capital, material income producing
take advantage of valuation discounts
gp can still control
gift leaseback
fully dep property
not if kid is under 24
biz deduction
lack of available money
qprt
end of term, residence out of estate
owner must outlive
value of gift is discounted
use when 10+ life expectancy
donor lives there
13.6 estate
residence is large
grit
retain right to income
skip persons
2 gens younger. if one gen dead, everyone moves up one
unrelated people : 37.5 years younger
exemptions and exclusions
18k annual exclusion for direct skip gifts
13.61mm lifetime exemption. SEPARATE FROM GIFT AND ESTATE
direct skip
gstt imposed at time of direct skips
transferor is liable
taxable terminations
termination of nonskip person income interest that results in a skip person being the remainin benes
gift of future interest
tax paid by trust
taxable dist
dist out of trust
