Estate

Question 1

Gross Estate Exclusions

Answer 1

• Life Insurance owned by others
• Completed Gifts
• Life Estate (a RETAINED life estate is included in the estate)

Question 2

Calculation of Transfer Tax System

Answer 2

Cumulative

Question 3

Lifetime Gift Exemption

Answer 3

$5.43 MM

Question 4

Annuity Taxation at Death

Answer 4

Subject to income tax on gain above basis

Question 5

5 or 5 Taxable amount at lapse

$500,000 trust

Answer 5

$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.

Question 6

HEMS / Ascertainable Standard

Answer 6

Health
Education
Maintenance
Support

NO “comfort”; too general

Question 7

Gift of Loss Property

Answer 7

ALWAYS sell and take loss, gift cash proceeds

Question 8

Gift of Out-of-state Property

Answer 8

ALWAYS gift to avoid ancillary probate

Question 9

Gifts of Present Interest Vehicles /

Qualify for annual exclusion

Answer 9

2503(c)
Crummey Trusts
529 plans
Out-right gifts

2503(b) - the income is present interest; corpus is future interest (no annual exclusion)

Question 10

Gift Limit to Non-citizen Spouses

Answer 10

$147K (2015)

Question 11

Taxable Gift Amount

Answer 11

Almost always FMV less $14K annual exclusion (2015)

Question 12

Taxable G/L on Loss Gift at time of sale

Answer 12

If > donor’s basis = cap gain

FMV date of gift = no gain or loss

Question 13

Deductible/Exempt Gifts

Answer 13

• 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

Question 14

Deduction for Charitable Contribution of Life Insurance

Answer 14

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

Question 15

Powers that cannot be given

Answer 15

• Power to execute or revoke a will

- Power to execute a living will, “healthcare proxy,” “advance medical directive” (right to die)

Question 16

Distributable Net Income (DNI)

Answer 16

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)

Question 17

Demand Right Amount on Crummey Provision Trusts

Answer 17

Donee withdraws the lesser of the $14K annual exclusion or value of the gift w/in 30 days

Question 18

Gift Tax Return Code

Answer 18

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

Question 19

Estate Tax Return Code

Answer 19

Form 706

“Six-feet-under”

Question 20

Per Stirpes

Answer 20

Inheritance divided among all initial benes in equal shares. (Dead bene’s heirs get a split of one share)

Question 21

Per Capita

Answer 21

Inheritance divided equally among all living initial benes and living heirs of dead benes

Question 22

Totten Trust

Answer 22

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

Question 23

2503(b)

Answer 23

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)

Question 24

2503(c)

Answer 24

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

Question 25

Key words for QTIP

Answer 25

LAME

Lifetime income interest for spouse

Annual payments to spouse

Mandatory payments

Exclusively for spouse

Question 26

Lump sum gift 529

Answer 26

$70,000 per individual ($140K joint)

$14K ($28k) x 5 years

Question 27

UGMA vs UTMA

Answer 27

UGMA:

• Cash-type assets only (securities, mutual funds, etc.)
• Distributed at 18

UTMA

• can hold all property including real estate
• distributed at 21

Question 28

Gross Estate Inclusions

Answer 28

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)

Question 29

3-year rules

Answer 29

Life Insurance

AND

Gift Taxes Paid

Question 30

Reverse QTIP

Answer 30

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

Question 31

When would you recommend a QPRT?

Answer 31

• Large residence valued at
  +$1MM
• Reasonable Life Expectancy (>10 years)
• Donor continues to live in the residence
• A large estate >$7MM (single), >$14MM married

Question 32

Rules agains perpetuity

Answer 32

Lives in being plus 21 years and 9 months

Or as local laws allow

Question 33

GST Taxable events liability for payment (termination/distribution/direct skip)

Answer 33

Termination - GST paid by trustee with trust assets

Distribution - GST paid by the transferee

Direct Skip - GST paid by transferor