Estate Flashcards
What does it mean when someone dies “intestate”?
They died with no will found
What does ancillary probate mean?
If real property is located in another state of a decedent
What does elective share mean?
A surviving spouse has a right to take a share of the deceased spouse’s estate.
What is a trotten trust?
A revocable trust in a bank account in which the depositor is named as trustee for another’s benefit. The depositor retains the right of w/d until death - then the balance passes to the bene.
Community property states get how much of a step up?
100%
“Communist party”
Is JWROS subject to probate?
No - passes to the other owner automatically
How is the value of a JWROS considered when it comes to estate?
The full value of jointly held property is included in the gross estate of the first tenant to die - UNLESS the survivor can establish ownership of some portion of the property.
What is the benefit of Tenancy by the entirety.
The assets are protected from the claims of each spouse’s separate creditors but are not protected from the claims of both spouses’ joint creditors.
TBE can only be used with spouses
**Not subject to probate as it passes to the other spouse automatically
Is tenants in common subject to probate?
Yes.
Assets can be owned by several owners simultaneously and can be separated by respective interest in the property.
What is a no contest clause?
A clauses that can be added to a will, stating that anyone who contests the decedent’s will gives up his rights to the decedent’s property.
What is a testamentary trust?
A trust that is created by a will. It becomes effective only if the will creating the testamentary trust is admitted to probate.
What is a form 706?
“6 feet under”
Estate tax filing
Write out the estate tax calcuation
GROSS ESTATE
- expenses
= AGE (Adjusted gross estate)
- marital/charitable deductions
= TAXABLE ESTATE
+taxable gifts (form 709)
= TAX BASE
- estate tax deduction ($13,610,000)
then x 40%
= TENTATIVE TAX
- gift taxes paid
= NET ESTATE TAX
What is all included in the gross estate?
All probate assets
All non-probate assets
Don’t forget:
- Cash value of life insurance transferred within 3yrs
- Gift taxes paid within 3 yrs
**GSTT is not added back in (even within 3 years)!
Is the value of a survivorship annuity included in the 1st decedents estate?
Yes IF the survivor has the right to a lump sum of the annuity’s full value
T or F
Property is included in the decedents estate if they retain enjoyment rights?
True
When are powers deemed to be general or special?
General:
- When the grantor (or anyone) holds the power of beneficial enjoyment or the ability to transfer the assets to another person
Special:
- This power limits the class of ind who may receive the trust/estate property.
- The holder of the special power can transfer the property only to specially designated people or only under specific circumstances.
What is the 5 or 5 power?
Allows the person to take out corpus - the greater of the following:
- $5,000
or
- 5% of the total value of the fund
This is a DEMAND RIGHT - trustee cannot ask “for what?”
What is an ascertainable standard?
“HEMS”
Gives the person the ability to ASK for funds for “Health / Education / Maintenance/ Support”
**Not a general power of appointment
What is another word for transferring property when the transferor is alive?
Inter-vivos gifting
Gifts of present value include the following:
- Anything that is given where the enjoyment by the recipient can start immediately
- Gifts in trust of future interest on behalf of minors
- 2503(c) trust
- Crummey trusts
- 529
- UGMA/UTMA
Non-citizen spouses get how much for an annual gift exclusion?
$185,000
How are indebted gifts taxed?
Example: Mr Gooddad has undeveloped land purchased for $100k. The land is now worth $520k with a mortgage of $200k. If he gifts the land to his son, subject to the mortgage, the gift is $320k.
The capital gain is $100,000 to Mr Gooddad (Debt of $200k minus basis of $100k)
The gift is $320k, but the taxable gift is $302k (less $18,000)
What is the number of the gift tax return form?
Form 709
What are the 6 exempt gifts (deductible gifts)?
- Qualified payments made directly to an educational institution for tuition
- Qualified payments made directly to a provider of medical care
- Gifts to a spouse
- Gifts to a qualified charity
- Gifts to a political organization
- Gifts to the President
When does a durable vs non-durable power of attorney terminate?
The death of the principal terminates both
Durable: incompetency does not affect it
Nondurable: power ceases when the principal is no longer legally competent
What is another name of an advanced medical directive?
A living will
A legal document which directs the client’s physician to discontinue life-sustaining procedures if the client is in a terminal condition. *Generally followed by the client’s physician.
Two types of guardianship
1) Guardianship: makes residential, health care and other personal decisions
2) Conservator: makes financial decisions
Difference between a revocable trust and a POA.
Revocable trusts continue after death.
What is the medicaid lookback rule
5 years
Special Needs Trust allows the trustee to pay for what?
Supplement needs not covered by medicaid/other programs
Ex. Furniture, vacations, etc
SNT vs OBRA
(Special Needs Trust vs Omnibus Budget Reconciliation Act of 1993)
OBRA allows a disabled person under age 65 to transfer their assets into an irrevocable OBRA “Payback trust” and become eligible for Medicaid.
If any assets remain after death, the state (Medicaid) is paid back first.
Per stirpes vs Per capita
Per Stirpes:
-Grandchildren will receive an equal share of the portion their parent would have received.
Per Capita:
- If a child dies, all their children now move up in the line and each one gets equal share of the estate.
(4 kids and one of your children (Bob) has 5 kids. If Bob passes away, the estate will be split 8 ways)
What is a crummey trust?
An irrevocable trust with demand rights.
The demand right is given to the beneficiary each time a new contribution was made to the trust, giving them the right to w/d the lesser of the amount of the current year contribution or the annual exclusion ($18k) for 30 days.
What is a spendthrift provision?
Stipulates that it is not subject to the claims of the beneficiaries creditors
(Benes cannot mortgage their share of the trust property)
B / C / A Trust
B Trust
- By Pass Trust
- Put $13,610,000 into it
- Can add 5 or 5 and HEMS
C Trust
- QTIP
- “LAME” rules
- For spouse only
- Can add 5 or 5 and HEMS
A Trust
- Marital Trust
“Estate trust”
What is a pour over trust?
Purpose is to catch any assets that the clients owns but are not yet controlled by the revocable trust at death.
Is a 2503(b) trust a gift of future interest or present interest?
Future interest
*2503(c) = present interest
What is a sprinkling or spray provision?
The power to direct (distribute) income at the discretion of the trustee for the beneficiary
Discretionary provision
A provision in a trust document that provides the beneficiary with only as much trust income or principal (if any) as the trustee alone see fits to distribute.
Support Trust
A trust which distributes only the amount of income and principal the trustee deems necessary for the support or education of the beneficiary
What is the longest that a Dynasty trust can be in place?
The lives in being + 21 years and 9 months
Charitable transfers that provides income to the donor until death
CRAT (Charitable Remainder Annuity Trust)
CRUT (Charitable Remainder Unitrust)
Pooled Income
Charitable Gift Annuity
What is the difference between a CRAT and a CRUT
CRAT:
- Charity gets the REMAINDER
- no additions
- payment dollars fixed
CRUT:
- Charity gets the REMAINDER
- additions allows
- payments are variable (revalued annually)
When would you choose a pooled income or charitable gift annuity over a CRAT/CRUT?
When you only want to gift to a specific charity.
CRAT vs Charitable Gift Annuity = payable to a specific charity vs any charity (CRAT). Both have fixed lifetime income.
CRUT vs Pooled income = payable to a specific charity vs any charity (CRUT).
Both have variable lifetime income
What is a NIMCRUT?
An alternative form of a CRUT.
The non-charitable beneficiary will receive the lesser % of the trust’s value or the net income earned by the trust during that year.
What is another name for an ILIT?
Wealth replacement trust
**Set this up after after gifting to charity. The face amount of the policy can be less than or equal to the value of the property that was transferred to the charity.
How much does a private foundation/family foundation has to distribute each year to a charity?
A minimum of 5% of its investment assets each year (or else a 15% penalty)
Can make a grant to any individual for study, travel, scholarship, or intended to improve a literacy in art, music, science, teaching or other skill/talent
Are DAF’s allows to accept QCDs?
No
What is a charitable stock bailout?
Gifting stock from your closely held corporation.
**CANNOT agree to the time or certainty of the redemption.
What is another name for cash value?
Interpolated terminal reserve
Marketability discounts are what?
Due to a lack of an established market, closely held business interests ae more difficult to sell so a discount can range from 15%-50%
Blockage discounts are what?
If the decedent held a large block of publicly traded stock, selling it all at once could depress the market discount so a discount from FMV would be allowed
What is a key person discount?
A discount may be allowed for a business that lost a key employee
What is a reverse gift?
When one spouses posses most of the family wealth the less affluent spouse has a relatively short life expectancy - the wealthier spouse makes a gift of low basis assets to the dying spouse and then gets a step up in basis when they pass away.
Spouse must life for 1 year after transfer!
What is the difference between an installment sale and a SCIN?
Installment sale:
- PV of remaining payments is included in owners estate
- Gain is a cap gain
- Subject to recapture if its been depreciated
SCIN:
- No value is included in the owners estate
- Gain is cap gain
- Assets can be depreciated
- Higher payout than installment
What are some details about a private annuity?
Private Annuity:
- No value is included in owners estate
- Property is transferred for a promise
- All gain which would have been recognized over the life of the annuity will now be taxed in the year the private annuity is established.
Who maintains control in a FLP?
The general partner - even if they are only 1% owner. Allows the parent to gift the interests to limited partners and reduce their estate, but maintain control.
What is a QPRT?
An irrevocable transfer of a persons residence.
At the end of the term (usually 10 years), the residence is eliminated from the grantor’s estate.
The owner must outlive the term or the asset is brought back into the Grantor’s estate.
What is the difference between a GRAT and a GRUT?
Irrevocable trust that allows the grantor to make gifts of property and retain the income interest.
At the end of the term, corpus is distributed to the remainder person.
The value of the gift is discounted future interest gift - no $18k exclusion.
The owner must outlive term or the assets is brought back into the estate.
GRAT = annuity = fixed annuity for a number of years.
GRUT = fixed % of the FMV and revaluated annually.
What is a GRIT?
Same as a GRAT/GRUT except for it is just a “right” to income but does not assure that any income will actually be distributed.
What qualifies as a skip person for GSTT?
A related person who is at least 2 generations younger than the transferor.
An unrelated person who is a more than 37.5 years younger.
GSTT tax calculation
An additional 24%
Total tax would then be 64%
Who pays the GSTT?
1) If the transfer is a direct skip, the transferor pays the GSTT
2) If the transfer is a taxable termination, the GSTT is paid by the trustee
(A non-skip persons interest is terminated, so the skip person is now the only bene)
3) If the transfer is a taxable distribution, the GSTT is paid by the transferee.
(A distribution out of a trust)
What is IRD?
“Income in respect of the decedent”
Ex. sale commissions, unpaid salary, etc
IRD’s must be included in the gross income of the recipient.
When can you use AVD? (Alternate Valuation Date)
Is calculated 6 months after death and can only be used if:
- Electing the ADV reduced the total value of the gross estate
- Must be in “estate tax land”
*Cannot be elected for assets that decrease in value with the mere passing of time (wasting assets)
Inherited property is always taxed at what?
LTCG - even if it only held for 1 day. No 12 month holding period is required after death.
Post-Mortem elections: Section 303
Section 303: Stock Redemption
- Business must be incorporated (closely held stock)
- Value of stock must exceed 35% of adjusted gross estate
- Amount of stock redeemed cannot exceed the sum of the estate taxes + admin expenses
Post-Mortem elections: Section 6166
Section 6166: Installment payment of estate taxes.
- Value of the business must exceed 35% of adjusted gross estate
- Property must be in sole prop, partnership, or corporation
- During the first 4 years (of 14 years), can only pay interest on the taxes due
- The interest rate will be 2% on the first $1M (not deductible)
Post-Mortem elections: 2032(A)
Special Use valuation for Farmers
- 50% of gross estate must consist of real and personal property
- 25% of the gross estate estate must consist of real property
= $1,390,000 reduction in decedents gross estate
