Estate Flashcards
Gross Estate Exclusions
- Life Insurance owned by others
- Completed Gifts
- Life Estate (a RETAINED life estate is included in the estate)
Calculation of Transfer Tax System
Cumulative
Lifetime Gift Exemption
$5.43 MM
Annuity Taxation at Death
Subject to income tax on gain above basis
5 or 5 Taxable amount at lapse
$500,000 trust
$25,000; greater of $5K or 5% of trust assets
If taken during life, amt is added back to the estate but nothing from the trust.
HEMS / Ascertainable Standard
Health
Education
Maintenance
Support
NO “comfort”; too general
Gift of Loss Property
ALWAYS sell and take loss, gift cash proceeds
Gift of Out-of-state Property
ALWAYS gift to avoid ancillary probate
Gifts of Present Interest Vehicles /
Qualify for annual exclusion
2503(c)
Crummey Trusts
529 plans
Out-right gifts
2503(b) - the income is present interest; corpus is future interest (no annual exclusion)
Gift Limit to Non-citizen Spouses
$147K (2015)
Taxable Gift Amount
Almost always FMV less $14K annual exclusion (2015)
Taxable G/L on Loss Gift at time of sale
If > donor’s basis = cap gain
FMV date of gift = no gain or loss
Deductible/Exempt Gifts
- Qualified Payments made directly to an educational institution for tuition
- Made directly to a provider for medical care
- Gifts to a spouse (not terminable interest)
- Gifts to a qualified charity
- Gifts to a Political Organization
- Gifts to the President of the US
Deduction for Charitable Contribution of Life Insurance
The lesser of the Policy Value or the basis (limited to 50% of AGI)
This is because this is an ordinary income type asset, not LTCG where you would use FMV
*Also in Income Tax
Powers that cannot be given
- Power to execute or revoke a will
- Power to execute a living will, “healthcare proxy,” “advance medical directive” (right to die)
Distributable Net Income (DNI)
Accounting concept that limits the amount of income from a trust that must be reported by beneficiaries for income tax.
- provides the trust with a deduction for the distributed income
- limits the portion of the distribution that is taxable to beneficiaries
- ensures the character of the distributions remains the same (no double taxation because the trust receives a deduction)
Demand Right Amount on Crummey Provision Trusts
Donee withdraws the lesser of the $14K annual exclusion or value of the gift w/in 30 days
Gift Tax Return Code
Form 709
“Gifts in the one after nine-o-nine”
Taxable gifts (In excess of the $14K annual exclusion) accumulate on this form; records the $5.43MM lifetime exemption and any excess
Estate Tax Return Code
Form 706
“Six-feet-under”
Per Stirpes
Inheritance divided among all initial benes in equal shares. (Dead bene’s heirs get a split of one share)
Per Capita
Inheritance divided equally among all living initial benes and living heirs of dead benes
Totten Trust
Less of a revocable trust and more of a bank account that has the grantor as trustee and passes to a bene at death. Grantor retains right to revoke as any revocable inter-vivos trust
2503(b)
Bad Boy trust - allows income to be distributed to bene, but no demand right on corpus or principal.
Income is subject to income tax of bene and possibly kiddie tax (disadvantage). Better for adult “bad boy” child.
Income portion qualifies for annual exclusion:
Payout 6% on $500K bonds ($30K)
$500K is future interest
$30K is present interest (taxable gift $16K)
2503(c)
Similar to education IRA (529)
Gift of present interest as long as the trust meets qualifications:
- property and income may be expended by or for benefit of donee before age 21
- any remainder passes to the donee at 21
- death before 21, the property must of the donee estate or donee holds general power over trust property
Key words for QTIP
LAME
Lifetime income interest for spouse
Annual payments to spouse
Mandatory payments
Exclusively for spouse
Lump sum gift 529
$70,000 per individual ($140K joint)
$14K ($28k) x 5 years
UGMA vs UTMA
UGMA:
- Cash-type assets only (securities, mutual funds, etc.)
- Distributed at 18
UTMA
- can hold all property including real estate
- distributed at 21
Gross Estate Inclusions
Probate Assets
- “Singly” Owned
- TIC
- Estate as Beneficiary
- Community Property
Non-Probate
- JTWROS/ Entirety (1/2 of assets)
- life insurance
- General Powers
- Gift Taxes Paid (3 yr rule) NOT GSTT
- Survivorship Annuity PV of future payments (w/ lump sum payment = fully included)
3-year rules
Life Insurance
AND
Gift Taxes Paid
Reverse QTIP
A need to give money to grandchildren.
On the exam, just look for this as a key to selecting a reverse QTIP
*GSTT Exemption is not lost
When would you recommend a QPRT?
- Large residence valued at
+$1MM - Reasonable Life Expectancy (>10 years)
- Donor continues to live in the residence
- A large estate >$7MM (single), >$14MM married
Rules agains perpetuity
Lives in being plus 21 years and 9 months
Or as local laws allow
GST Taxable events liability for payment (termination/distribution/direct skip)
Termination - GST paid by trustee with trust assets
Distribution - GST paid by the transferee
Direct Skip - GST paid by transferor
