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CFP > Estate > Flashcards

Estate Flashcards

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1
Q

Non-community property interest

A
  1. Income earned by spouses prior to marriage
  2. Property received as a gift by one spouse
  3. Property inherited by one spouse
  4. Interest earned on separate assets held by one spouse as a sole owner
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2
Q

Joint tenancy with rights of survivorship

(JTWROS)

A
  • Property can be held by husband and wife, parent and child or children, siblings and business partners
  • Control, ownership and enjoyment shared equally by all joint tenants
  • Upon death of each tenant, property immediately passes to surviving joint tenants in equal shares.
  • Property NOT controlled by terms of the will
  • NOT subject to probate
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3
Q

Tenancy by the entirety

A
  • Ownership can only be held by a husband and wife
  • Transfer of property can only occur with the mutual consent of both parties
  • In most states, property is protected from the claims of each spouse’s separate creditors, but NOT protected from the claims of both spouse’s joint creditors
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4
Q

Tenancy in common

A
  • Two or more owners each own an undivided interest in the property
  • Any income is distributed according to each owner’s respective share in the property
  • Owners are free to transfer their respective share of the property to other individuals
  • Ownership stake goes through probate upon death
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5
Q

Assets NOT subject to probate

A
  • Property conveyed by deeds of title (IRA)
  • Property held by joint tenancy with rights of survivorship
  • Government savings bond - co-ownership
  • Revocable living trusts
  • Payable on death accounts (PODs)
  • Totten trust
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6
Q

Assets subject to probate

A
  • “Singly” owned assets
  • Property held by tenancy in common
  • Assets where the beneficiary is the “estate of the insured”
  • Community Property (CP)
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7
Q

Assets included in the Gross Estate

A
  • Singly owned assets
  • Tenancy in common
  • Beneficiary is the estate
  • Community Property
  • JTWROS/Entirety
  • Life Insurance
  • General Powers
  • 3-year gross-up on gift taxes paid (but NOT GST taxes paid)
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8
Q

Life insurance added to the estate

A
  • Proceeds are paid to the executor of the decedent’s estate
  • Decedent at death possesses an incident of ownership in the policy
  • Decedent transferred a policy with an incident of ownership within 3 year of death
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9
Q

Valuation of a gift

A
  • The value of a gift for gift tax purposes is its fair market value (FMV) at the date of gift.
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10
Q

Basis of a gift

A
  • If FMV on the date of gift is greater than the donor’s adjusted basis, use the donor’s adjusted basis.
  • If FMV of the gift is less than the donor’s basis, use the chart below:

Client’s substituted basis $2,013,000 Gain

between $2,013,000 and no gain or loss

              $1,513,000

                                                 \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

FMV date of gift $1,513,000 Loss

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11
Q

Deductible Gifts

(not taxable gifts)

also called exempt gifts or

qualified transfer

A
  • Gifts to a spouse, provided they are not a terminal interest
  • Gifts to qualified charities
  • Qualified payment in any amount made directly to an educational institution for tuition
  • Qualified payment in any amount made directly to a medical care provider on behalf of any individual
  • Gifts to American political parties
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12
Q

Summary of rules regarding

gifts and the donor’s estate

A
  • Generally, gifts given are simply “taxable gifts” to the extent such gifts exceed the annual exclusion.
  • Taxable gifts are added to the taxable estate
  • Gift taxes paid (or payable) are generally allowed as credit against the tentative tax
  • Gift taxes paid on any gifts within three years of death are added to the gross estate
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13
Q

Powers of Attorney

A

Traditional, non-durable power of attorney - Power ceases when the principal is no longer legally competent

Durable power of attorney - Authority of agent continues when principal become incompetent

Springing durable power of attorney - Main strength is the agent has no authority over the principal’s assets until incompetency.

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14
Q

Power of Appointment

(Trusts)

A
  • Special Power - Exercisable only with the consent of the creator of the power or a person having a substantial adverse interest
  • Ascertainable standard - Relating to health, education, maintenance or support (HEMS)
  • General Power - Holder may exercise the power in any manner he/she wishes
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15
Q

Gift and Estate Tax Implications

(General Power)

A

Gift Tax Implications (General Power)

  • Exercised, released or lapsed - taxed
  • Lapsed with a “5 or 5” power - not taxed

Estate Tax Implications (General Power)

  • Exercised, released or lapsed - taxed
  • Exercised, released or lapsed with a “5 or 5” power - greater of the “5 or 5” is taxed
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16
Q

“5 or 5” Power

A
  • Property subject to a general power will be included in a donee decedent’s estate (or considered a taxable gift” only to the extent that the property exceeds the greater of:
  1. $5,000 or
  2. 5% of the total value of the fund subject to the power as measured at the time of lapse
17
Q

Grantor Trust Rules

(Tainted / Defective Trusts)

Income Tax & Estate

A
  • Trust may be defective / tained for Income Tax and Estate Tax purposes if the grantor retains:
  1. A right to income or the right to use/enjoy trust property (beneficial enjoyment)
  2. A reversionary interest exceeding 5% (retained interest)
18
Q

Elements of a Trust

A
  • In order for a trust to exist, there must be property (also known as principal, re, or corpus)
  • There must be a **grantor. **This is any person who transfers property to a dictates the terms of a trust.
  • There must be a trustee who received legal title to the property placed in the trust, and who generally manages and distributes income according to the terms of a formal written agreement (trust instrument).
  • There must be a **beneficiary **who has equitable title to the property.
  • The grantor and trustee must be legally competent.
19
Q

Simple vs. Complex Trusts

A
  • Simple trusts (2503(b), Marital, QTIP) are considered merely a “conduit” for forwarding income to the beneficiaries (pass-through). Must distribute income, NO charitable gifts
  • Complex trusts (2503(c)), are separate tax entities and taxed as such if it meets two requirements:
  1. It is irrevocable, and the grantor has not retained any control
  2. Income is accumulated
  3. Charitable gifts are allowed
20
Q

Crummey Trust

A
  • Irrevocable trust with demand rights
  • Demand right given to a minor through his/her guardian
  • Beneficiary has temporary right to demand a withdrawal from the trust that is the lesser of the amount of the annual gift exclusion or the value of the gift transferred
21
Q

Nonmarital “B” Trust

(Family, Bypass, Credit Shelter, Unified Credit Shelter)

A
  • Property transferred to the trust at the time of the decedent’s death
  • Can be structured to provide a stream of income to surviving spouse or other individuals
  • Decedent has postmortem control
22
Q

QTIP “C” Trust

(Current Income Trust)

A
  • Provides surviving spouse with a stream of income for life, but decedent has postmortem control of trust property
  • Property qualifies for marital deduction
  • Mainly used for second marriages
  • Key word for QTIP - LAME
    • Lifetime income for the spouse
    • Annual payments to spouse
    • Mandatory payments to spouse
    • Exclusively for spouse
23
Q

Qualified Domestic Trust

(QDT / QDOT)

A
  • No unlimited marital deduction
  • However, no estate tax due
  • Jointly held property between spouses is not considered one-half owned
  • Limited gift between spouses of only 100K (indexed) per year
24
Q

Present Interest Gift Vehicles

A
  • UGMA
  • UTMA
  • 2503(c) trust
  • Section 529 college savings plan

Gift to a 2503(b) trust is a gift of a future interest

25
Q

Charitable Contributions / Transfers

A

Income to donor until donor’s death:

  • Charitable Remainder Annuity Trust (CRAT) - 5%
  • Charitable Remainder Unitrust (CRUT) - 5%
  • Pooled Income Fund - no 5% required
  • Charitable Gift Annuity - no 5% required

Income to the charity:

  • Charitable Lead Trust (CLAT/CLUT) - no 5% required
  • Private Foundation - 5% - can give money to individuals
26
Q

Intrafamily transfers

(Property owner needs income)

A

PIGS need income

  • Private annuity
  • Installment Sale
  • Grantor Annuity Trusts (GRAT/GRUT)
  • Self canceling installment note (SCIN)
27
Q

Intrafamily Transfers

(Property owner wants to gift assets

and/or income to family members)

A
  • Partnership / S-corp
  • Family Limited Partnership (FLP)
  • Gift Leaseback
  • Qualified Personal Residence Trust (QPRT)
28
Q

Disclaimer

A
  • In order to disclaim property, the following requirements must be met:
  1. Disclaimer must be an irrevocable refusal to accept the interest
  2. Refusal must be in writing
  3. Refusal must be received within 9 months
  4. Intended donee cannot have accepted any interest in the benefits
  5. As a result of refusal, the interest will pass, without the disclaiming person’s direction, to someone else
29
Q

Postmortem Planning Techniques

(Estate Liquidity)

A

Stock Redemption (Section 303):

  1. Business must be incorporated (closely held)
  2. Value of business must exceed 35% of the decedent’s adjusted gross estate
  3. Redemption cannot exceed the sum of the estate taxes plus administrative expenses

Installment payment of estate taxes (Section 6166):

  1. Value of business must exceed 35% of decedent’s adjusted gross estate
  2. During the first 4 years (of 14 years) can pay interest only on taxes due
30
Q

Portmortem Planning Techniques

(Estate tax reduction)

A

Special Use Valuation (Section 2032A):

  1. 25% of the gross estate consists of real property
  2. Must be in qualified use: 5-out-of-8 year rule before death and 10 years after death.

CFP (7 decks)

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