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Victor's Personal CFP > Estate > Flashcards

Estate Flashcards

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1
Q

Community Property State Estate Planning

A

Will is needed by each spouse. No survivorship rights, so the property will be subject to probate upon death.

LTCG property (only) gets a FULL step-up in basis, but only 1/2 is included for estate tax purposes. 
(Don't forget Section 121 on these problems)
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2
Q

Non-Community Property Interests: (AKA Separate)

A
  1. Income earned by spouses prior to marraige
  2. Assets owned by either spouse prior to marraige
  3. Property received as a gift by one spouse
  4. Property inherited by one spouse

ALL OTHER PROPERTY is COMMUNITY

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3
Q

Section 121 Exemption for Widow

A

A widow/widower can claim the 121 exemption for two years following their spouse’s death (follows filing requirements)

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4
Q

In a Community Property State, what will go into a given spouses’ probate estate at death?

A

100% of separately owned property

50% of all community property

(same for gross estate)

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5
Q

Can JNT be disclaimed?

A

Yes!

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6
Q

Estate Tax for a Non-Spouse JNT Tenant

A

FULL value of the property included in gross estate of the first tenant to die UNLESS:

  • The survivor can document that he/she contributed to the purchase price of the JT property (keep good records)
  • (A gift of property is not a contribution)

Spouse is automatic 50/50

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7
Q

Tenants by the Entirety

A
  • TBE for Her and Me (spouses only)
  • NO probate
  • Can NOT be disclaimed
  • Property held TBE is, in most states, protected from individual creditors, but not JNT creditors

NOT AVAILABLE in community property states!

Can only do sever/transfer property with mutual consent of both parties.

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8
Q

Tenancy in Common

A
  • Subject to Probate and Can be Disclaimed
  • An undivided interest in property (Can’t develop your piece of the land. You own 20% of every square foot)
  • TIC are free to transfer their respective shares, no right of refusal

NO survivorship rights exist.

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9
Q

Can a JNT WROS owner deplete all of the accounts?

A

Yes, only one JT Tenant can drain the accounts (divorce, etc.). Will come out in the property settlement.

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10
Q

There’s a 4MM account, held JTWROS by two brothers. One brother calls, instructing to sell all of the stock and send him a check for the full amount. What do you do?

A
  1. Place the order (you have to sell when they say to sell)
  2. Contact the other brother, also your client. The distribution check must be made payable to both tenants, so he needs to know.

(He could always go around us and take the money himself)

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11
Q

Assets Subject to Probate (KNOW IT COLD)

A
  1. Singly owned assets
  2. Property held TIC
  3. Assets where beneficiary is “Estate of Insured”
  4. 50% of Community Property assets
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12
Q

Will Substitutes (avoiding Probate)

A
  • JT WROS
  • TBE
  • POD / TOD designations
  • Totten Trust ^ similar
  • Named beneficiaries (retirement, Life Ins, annuities)
  • Deeds of title
  • Trusts (revocable / irrevocable)
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13
Q

Federal Estate Form, and Who Needs to File It

A
  • Form 706
  • Needs filed for all decedents who are citizens or residents with a total gross estate, plus adjustable taxable gifts, equaling or exceeding the amount of exemption for the year of death
  • Also, required when “Portability” is elected
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14
Q

What is included in the gross estate?

A
  • All Probate assets
  • All non-probate assets, including
    General Powers
    Gift taxes paid (within 3 years) - not GST
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15
Q

What is taken out of the Gross Estate to arrive at the Adjusted Gross Estate (AGE)

A

Less:

  • Funeral Expenses
  • Administrative expenses
  • Debts
  • Taxes
  • Casualty Losses
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16
Q

How do you go from the AGE to the Taxable Estate

A

Take out the UNLIMITED

  • Marital Deduction
  • Charitable Deductions
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17
Q

Taxable Estate to the Tax Base

A

Add back “Taxable Gifts” - lifetime

Amounts exceeding the annual gift tax exclusion

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18
Q

Tax Base to Tentative Tax

A

Tax Base less the exemption amount * the tax rate (any excess over exemption times the 40% tax rate)

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19
Q

Final Step from Tentative Tax to Net Estate Tax

A

Deduct the Gift Taxes Paid (which were included in the gross estate) - Within 3 years

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20
Q

Gifts and the Donor’s Estate (important rules)

A
  • Gift taxes paid within 3 years of death are added to the gross estate
  • “Taxable Gifts”, even if not paid, are added to the taxable estate to get to the tax base (before exemption is taken out)
  • Generally, gift taxes paid are generally allowed as a credit against the tentative tax.
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21
Q

What are the two 3-year rules for inclusion in the gross estate

A
  • 3 years for gift taxes PAID

- 3 years for life insurance, with incidents of ownership (gifted)

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22
Q

Which assets might not be inluded in the gross estate at FMV?

A
  • Life estates
  • Remainder interests
  • Reversionary interests
  • Single life annuities

(Assuming these would be discounted in some way)

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23
Q

3 Circumstances where Life Insurance is included in the decedent’s estate:

A
  1. Proceeds are paid to executor of the decedent’s estate
  2. Decedent, at death, possessed an incident of ownership in the policy
  3. Insured transferred a policy with an incident of ownership, within 3 years of death

Incidents include right to assign, terminate, borrow, name beneficiaries, etc. (NOT premium paying - Crummey powers come in here)

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24
Q

When you sell a life insurance policy, is it included in your gross estate?

A

NO. Sale of a policy is NOT subject to the 3 year rule.

Transfer for value applies though

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25
Q

How to value insurance, included in your gross estate?

A
  • If you are the insured, and it’s one of the 3 circumstances, it’s likely the Death Benefit included in your estate.
  • If you’re not the insured, “Replacement Cost” is what is typically included (terminal reserve + unused premium). 3 year rule doesn’t apply, since you’re not the insured.
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26
Q

If I die owning a policy on Lizzy, would it be subject to probate?

A

YES. It’s a singly owned asset, and probate will determine who the successor owner would be.

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27
Q

General Powers of Appointment (for estate tax)

A

Considered outright ownership. Subject to estate and gift tax.

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28
Q

Special (limited) powers of appointemnts

A

NOT subject to gift or estate tax implications.

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29
Q

Roadmap for Powers of Appointment

A

Estate 2-13 in Pre-study

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30
Q

Purpose of 5 and 5 powers?

A

A General Power with 5 and 5 Powers:

  • Not subject to Gift Tax (normally would be)
  • Subject to estate tax, only to the extent of the greater of 5% or $5,000 (normally would be the whole thing)
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31
Q

What makes a Limited Power of Appointment

A
  • Ability to exercise the power only with the consent of the creator of the power, or someone with an “Adverse” interest.
  • There is a clear “Ascertainable Standard” with regard to HEMS (Health , education, maintenance or Support”

Limited Powers of appointment are not subject to Gift or Estate Tax!

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32
Q

Qualification for Unlimited Marital Deduction

A
  • Property must be included in the decedents’ estate
  • Property must actually pass to the surviving spouse (QTIP trust is the exception)
  • Recipient spouse must be a US Citizen
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33
Q

Gifting Methods: Highly Appreciated Property

A
  • Good to gift to charity, OR
  • Good to gift to a donee in a lower tax bracket.

(NOTE: May want to keep until death for step-up in basis)

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34
Q

Gifting Methods: Property Likely to Appreciate

A
  • Good to gift, to remove future appreciation from donor’s estate
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35
Q

Gifting Methods: Income-producing Property

A
  • Gift to a donee in a lower tax bracket (only)
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36
Q

Gifting Methods: Loss Property

A
  • Sell it! Take the loss, then gift the cash.
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37
Q

Gifting Methods: Out of state property

A

Gift! To avoid ancillary probate.

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38
Q

Gifting Methods: Property subject to Depreciation

A

Keep until fully depreciated! When fully depreciated, gift it (maybe do a lease-back)

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39
Q

Life Insurance Gifting Benefit

A

Excellent to gift! Valued at replacement value, but blossoms to face value

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40
Q

Gifts Exempt from Gift Tax

A
  • Gifts to US Citizen spouse
  • Gifts to qualified charities
  • Qualified payments (unlimited) made DIRECTLY to an educational institution for Tuition (ONLY), and payments made directly to a provider of medical care on behalf of ANY individual
  • Gifts to AMERICAN political parties and PRESIDENT
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41
Q

Who must file a form 709?

A

Gift-tax return must be filed by any donor who:

  • Gave > 15K to any non-spouse donee
  • Gave a gift of future interest (in any amount)
  • Gave a gift, and used gift splitting

Form 706 is Estate Tax Return (not 709)

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42
Q

Who needs to file Gift Tax Form 709 for Gift Splitting?

A

– IF a gift is from a JNT account, no form 709 required (automatic consent)

  • If gift is for 30K, only one spouse needs to file to make gift splitting work
  • If gift is for >30K, both spouses need to file form 709 (beyond exemption)
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43
Q

How does holding period carry over for Gifts vs. Inheritance?

A

Gift - Original basis and holding period carry over.

Inheritance - Some basis step-up, and automatic LTCG treatment.

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44
Q

Four Exceptions to Present Interest Rule (annual exclusion qualification)

A
  1. UGMA / UTMA transfers
  2. 2503(c) trust
  3. Crummey trust
  4. 529 Plans
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45
Q

Life Insurance Gift Value / Treatment

A

Treated as “Current Interest” (15K exclusion)

Valued at CV + Unused Premium (replacement value)

46
Q

Toby died holding a policy on his father on June 30th of this year. On November 30th of last year, the CV was 40K. On November 30th of this year, the CV would have been 46K. He also made an annual premium payment on November 30th last year of 5,000.

What’s the value of the policy included in the gross estate of Toby?

A

7/12 * 6K + 40K = 43,500

5/12 * 5K = $2,083

Added together, you get $45,583

47
Q

Powers which cannot be given to another person (powers of attorney)

A
  • Power to execute or revoke a will

- Power to execute a living will (right to die)

48
Q

Revocable Trust vs. Powers of Attorney

A

Revocable trust (trustee) is going to be accepted more widely than the POA in the case of incapacity.

The trust continues after death, whereas the POA is terminated at the principals’ death.

49
Q

Another name for Living Will

A

Advanced Medical Directive

50
Q

What is a Guardianship or Conservatorship? Who creates them?

A

COURT APPOINTED

Makes personal and financial decisions.
“Guardian of the Person” makes healthcare/personal
“Guardian of the Property” makes financial decisions

51
Q

CFP Board LOVES the 2 Gs

A
  1. Need to know the GOALS

2. Need to have GUARDIANS

52
Q

Irrevocable Grantor Trusts

A

When the Grantor has too many “Strings” attached. Income taxed to the grantor, not the trust. Defective and Tainted trusts.

(ILIT is classic. Not tainted for Estate Tax purposes)

53
Q

Defective Trust (Violations) INCOME TAX purposes

A
  • Trust income is or may be used to pay premiums on a life insurance policy on the life of the Grantor or Grantor spouse.
  • Reversionary interest > 5% of trust value at time of creation, for grantor or spouse
  • Power to control the beneficial enjoyment of trust principal or income, by grantor or spouse. (who and when will receive income)
54
Q

Defective Trust (Violations) ESTATE TAX purposes

A
  • Reversionary interest >5% measured at time of death
  • Right to income or the right to use /enjoy trust property (beneficial enjoyment) retained by GRantor or Spouse

Tainted for Income is sometimes desirable. NEVER desirable for estate purposes.

55
Q

Elements of a Trust

A

(1) Trust Property
(2) Must be a grantor (or trustor). Person who transfers property to, and dictates the terms of the trust. (must be competent when created)
(3) Must be a trustee (legal title holder, must be competent legally always)
(4) Beneficiary (must hold equitable title, need not be competent legally ever)

56
Q

Simple Trust

A

Conduit Principle (pass through, with same character).

DNI limits the amount that trust benficiaries must report for income tax purposes (distributable net income)

2503(b) ,QTIP, QDT, Dynasty (NO Charitable Gifts)

57
Q

Complex Trust

A

Separate tax entity! (Charitable gifts ARE PERMITTED)

2503(c) trusts

2 Requirements for Treatment:

(1) Irrevocable and grantor has not retained any “control”
(2) Income is accumulated (by discretion or decree)

58
Q

2503(c) vs. 2503(b) Trusts. Simple or complex?

A

Bad Boy = Simple

2503(c) = complex

59
Q

Simple trust realized 8K in capital gains during the year, and 5K in dividends on stock. How much is distributed?

A

Only the 5K in Dividends. Capital gains are added to corpus.

60
Q

Crummey Trust!

A

Objective: Qualify for Present Interest exclusion!

It’s a “Withdrawal Right”. Each time a contribution is made to the trust, the beneficiary has a temporary right to demand a withdrawal from the trust.

Annual right is = lesser of the amount of the annual exclusion (15K) or the value of the gift transferred!

Typical use is in an ILIT. But used for a variety of irrevocable trusts.

61
Q

5 or 5 vs. Crummey Power

A

The 5 or 5 power is only available after the Crummey right is settled for the year.

Crummey right only available in the year of a gift (to qualify for present interest). The same isn’t true for 5or5 and HEMS.

62
Q 
Bypass Trust, 
B Trust, 
Nonmarital, 
Family Trust, 
Credit Shelter, 
Unified Credit Trust
A

First spouse to die controls

  • First place to start
  • Use the unified credit amount (total exemption)
  • Gives decedent post-mortem control over the property.
  • Income stream can be split between spouse, others, etc.
  • As long as spouse has no more than 5 or 5 / HEMS, it’s not included in their estate (no extate taxes!)
63
Q

A Trust,
Marital Trust,
Power of Appointment trust,
Spousal Trust

A

2nd Spouse to Die Controls

  • Assets pass by marital deduction into the trust
  • Spouse can do whatever they want.
  • Subject to estate tax, 2nd time around.
64
Q

C Trust
QTIP Trust
Current Interest Trust

A

Decedent has the control

  • Qualifies for the Marital Deduction
  • Can have HEMS or 5 / 5 powers
  • Must be included as an asset in the gross estate of the surviving spouse. (Like an A trust, with 1st spouse control)
  • Executor of the decedent’s estate must make an election on the Federal Return for the property to be treated as a QTIP
Keys:
LAME
(1) LIFETIME income interest for the spouse
(2) ANNUAL payents to the spouse
(3) MANDATORY payments for the spouse
(4) EXCLUSIVELY for the spouse
65
Q

Does a QTIP election work for GSTT Tax

A

No! You must make the “Reverse” QTIP election, or it will be treated for GSTT purposes as part of the Decedents’ estate.

For example, if at 2nd spouses’ death, the property passes to grandkids instead of kids, a Reverse QTIP election would be required for GSTT.

66
Q

Limitations on Transfer for Non-Citizens

A

(1) No estate tax marital deduction! (ouch!)
(2) Exemption amount is available if the spouse is a Resident Alien
(3) Jointly held property between spouses is NOT considered 50/50. It’s treated as if it were a non-spouse.
(4) There is a limited (non-taxed) gift between spouses per year of only 100K (indexed). “Super” annual gift tax exclusion. (152K in 2018)

To qualify for Marital Deduction, Must pass to a QDT!

67
Q

Does the US impose estate tax on a Foreign citizen??

A

Nope! We’re just happy to have the money!

68
Q

UGMA vs. UTMA

A

T = trump / Testementary

UTMA accounts can hold REAL ESTATE, and be funded through TESTEMENTARY means. (can also have partnership interests, patents, royalty interests, intellectual property, etc.

UGMA can only use securities, life insurance, annuities.

Both present interest gifts

Extras:
- If the donor is the custodian and predeceases the minor, property included in custodian’s estate.

69
Q

2503(b) Trusts Keys

A

B = Bad Boy = Simple

  • Two parts to a gift:
    (1) Income Interest (Qualifies as PRESENT INTEREST)
    (2) Remainder Interest (Future interests)

Can be used for minors, but the disadvantage is the kiddie tax. May have a better application for an adult child. Only income must be distributed

Does not revert to child at age 19 or 24 like a UGMA/UTMA. At account owners’ discretion.

70
Q

2503(c) Trusts Keys

A

C = Complex & Costly

  • Contributions qualify as a present interest gift, IF:
    (1) Property and income may be expended for the donee before the age of 21
    (2) Any portion of the property not expended will pass to the donee at 21
    (3) If the donee dies before 21, property must be made payable to donee’s estate

Can be funded with almost any type of asset (not just income producing, like the b trust.

Only $100 trust tax standard deduction, unlike kiddie tax rules.

71
Q

529 Three Advantages over UTMA/UGMA/2503(c)

A

(1) No 15K limit
(2) No age 21 rule
(3) No retained interest throwback (not in estate)

529 is also owned by the parent, and they can take the money back at any time.

72
Q

Advantage to UTMA / UGMA primary

A

Custodian retains total investment control.

73
Q

Dynasty Trust

A

SIMPLE Trust. A basic B trust.

Can continue for lives in being, plus 21 years and 9 months OR as long as local law allows (Deleware and Nevada are basically perpetual).

Beneficiary interests are limited to a life estate.

74
Q

CRAT Keys

A

FIXED payment stream

  • No additions
  • Must pay out at least 5%
  • Extra investment appreciation benefits the charity
75
Q

CRUT Keys

A

Donor can make multiple transfers

  • Fixed percentage of income each year (5% mnimum)
  • Percentage uses reappraised value of the corpus.
76
Q

Pooled Income Fund Keys

A
  • Donor places donation in the common trust fund of the ONE charity, which cannot be changed (commingled)
  • NO MUNICIPALS
  • Public charity controls / manages the assets
  • Income varies based upon income, no 5% rule

(simpler and cheaper to setup)

77
Q

Charitable Gift Annuity

A

Donor transfers cash or other property to a charitable org, in exchange for a commitment by the organization to pay a specified amount each year for the remainder of the donor’s life.

  • No required amount of income
  • No additions (like CRAT)
  • Deduction based on gift less annuity
  • Value of property transferred is MORE valuable than the annuity (really a separate purchase of an annuity and a gift)
78
Q

CLAT or CLUT

A

Purpose: To qualify for estate tax deduction of PV of the payment stream to the charity, at DEATH.

CLAT / CLUT established during life is not effective. Establishment at death is key.

Ultimate beneficiaries could be children / grandchildren after annuity payout period.

79
Q

Private Foundation

A
  • 5% per year distribution of investments assets, minimum (or excise tax)
  • Gifts can be to an individual OR charity
  • Major difference between a private foundation and a CLUT: There are no specific minimum or maximum percentages (5% rule) for a CLUT. Also, a CLUT can’t make contribution to an individual (scholarship, etc.)
80
Q

Intrafamily Transfers:

Property Owner Needs Income (Types)

A

PIGS Need Income!

  • Private Annuity
  • Installment Sale
  • Grantor retained annuity trust
  • Self-canceling installment note (SCIN)

(GRIT is other, non-family)

81
Q

Intrafamily Transfer:

Property owner wants to gift assets and/or income to family members

A
  • Partnership / S Corporation
  • FLP
  • Gift Leaseback
  • Qualified Personal Residence Trust (QPRT)
82
Q

Installment Sale

A

Purpose is to spread out and defer the capital gain.

  • Advantage: the seller can remove an appreciating asset from his/her estate and substitute installment payments

Disadvantages (summarize more concisely):

  • Seller dies, PV of pmts remaining in estate (pmts CONTINUE)
  • IF forgiven via will, considered paid in full to estate (gain recognized)
  • If 1245 property, recapture is fully recognized in year of sale
83
Q

SCIN (Self-cancelling installment note)

A

Safe answer on the test!

  • In-short, installment sale with a higher payment, but excluded from estate if death (still cap gains)
  • Variation of installment sale
  • The balance of any payments due at death automatically canceled (not included in estate!). No pmt stream after death
  • Payments are higher than installment (as a result)

Cancellation of payments at death will STILL produce a remaining capital gain for estate! (same as installment). Just no estate tax, unlike installment.

84
Q

Private Annuity

A

WRONG ANSWER on the test (proposed regs would neuter)

  • gains all up front
  • No vaue included in the estate.
  • Property transferred for a promise to pay.
85
Q

GRAT / GRUT (grantor retained annuity trust / unittrust)

A

Best asset = EXPECTED TO APPRECIATE

  • STRING attached
  • You get to discount the value of the gift.
  • Grantor transfers appreciating / income producing property in exchange for the right to receive a fixed annuity for a number of years.
  • When term of trust ends, remaining balance is transferred tax-free to named beneficiaries
  • STRING - If grantor doesn’t live th eterm out, all the property comes back into the estate
86
Q

What is a GRIT?

A

Grantor retained income trust.

Similar to GRAT, no family members. Doesn’t work for related parties.

87
Q

Gifting with S-Corporation

A
  • NOT good for Kiddie Tax
  • Capital Sensitive Businesses only!
  • Gifts of shares can be made to younger family members, using annual gift tax exclusion (Shifting income)
  • Under 24, kiddie tax applies
  • S-Corp must be capital sensitive because service related businesses can’t shift income this way (CPA, attorney, planners, etc.)
88
Q

Transfers with FLP

A
  • Qualifies for Marketability / Control discounts! (bigger tax-free gifts!)
  • GP maintains control (no personal service still)

Must Meet Certain Requirements:

  • Income and tax benefits must be distributed / allocated according to each owner’s %
  • GP may be paid for personal service to partnership
  • Capital must be “Material income-producing factor”. Income can’t be personal service related

Why create it? Gifts can qualify for valuation discounts (can be discounted up to 50%, in some cases)

89
Q

Gift-Leaseback

A

Keys: Child > 24, Fully depreciated business asset, parent business owner, kid in lower tax bracket

Business owning parent wants to gift, but only owns business assets.

Gives FULLY DEPRECIATED assets, and leases back from kids for use in business (makes lease payments deductible).

Can be done outright, or in a trust to a LOWER INCOME / Bracket family member. BAD FOR KIDDIE TAX

90
Q

QPRT (Qualified personal residence trust)

A

Keys:

  • String attached, but VALUATION DISCOUNT!
  • Must be primary home + 1 vacation
  • Good for reasonable life expectancy, large estate, valuable residence.
  • Donor continues TO LIVE in the house. (kids can charge rent after trust term)
  • Irrevocable trust, person gifts residence retaining an interest for personal occupancy for a period of years.
  • After the term, the residence passes to beneficiaries
  • 2 residences max, but one must be primary. Vacation home must be lived in > 14 day / 10% of days rented.

“STRING” attached.

91
Q

GSTT Tax Rate, and definition of a skip person

A

Flat tax, same as federal estate (40%).

Skip Person:

  • 2 Generations, unless a parent died and next generation moves up.
  • Unrelated person, anyone more than 37.5 years younger
92
Q

GSTT Lifetime Exemption

A

15K, just like gift tax. Can split gifts.

93
Q

Types of Transfers to SKip Persons

A
  1. Direct Skips - only one with annual exclusion
  2. Taxable termination (no 15K exclusion). Termination of non-skip interest in income or principal of a trust, with the result being that skip people are only remaining benificiaries
  3. Taxable distribution (no 15K exclusion)
    D is for DOUBLE = 2 generations getting it. Any distribution of property out of a trust to a skip person. When a trust has beneficiaries in 2 or more generations, it’s taxable.
94
Q

Who pays the GST Tax?

A
  1. Direct Skip > Transferor pays the GST (donor or estate)
  2. Taxable Termination > GST paid by trustee
  3. Taxable Distribution > GST paid by Transferee
95
Q

How to calculate GSTT?

A

First, calculate after-gift tax remaining amount. Then, use 40% flat tax rate. GSTT is calculated AFTER gift tax is deducted.

(E-42 is the question for this one).

96
Q

When can Alternate Valuation Date be used?

A
  1. It must cause a reduction in the value of the gross estate
  2. The amount of federal tax liability must be reduced (AKA YOU HAVE TO HAVE A TAX LIABILITY)

Cannot use it for assets passing to a spouse using unlimited marital, or other family and friends less than exclusion. (Can’t use it to juice the step-up, unless overall estate goes down)

6 months after the date of death. So that if value decreases a bunch, you’re not stuck paying unnecessary taxes.

97
Q

What assets do NOT use the AVD if elected?

A
  • Assets sold before AVD, use date of sale value.

- Wasting assets (annuities, pension payouts, etc) use Date of Death, since they always go down in value.

98
Q

Disclaimer!

A

REFUSAL by a primary beneficiary to accept property.

JNT ACCOUNT CAN USE DISCLAIMER! (goes into Will)

To qualify:

  • Irrevocable refusal to accept the interest
  • In Writing
  • Within 9 months of death
  • Donee cannot have accepted / received any interest in benefits (no income!)
  • Interest will pass, without disclaimant’s input, to someone else.

Property may still be subject to gift, estate, or GST tax. Donor is responsible, not disclaimant

Remember no income received.

99
Q

What is a disclaimer trust?

A

SIMPLE trust

  • Spouse can disclaim, but receive stream of income
  • Usually included as a clause in the decedents’ will (testementary)
  • Disclaimed property must be irrevocably transferred
  • Surviving spouse cannot retain any power to invade corpus) (HEMS allowed to invade, but not 5or5)

Removes appreciation. SImilar to a Bypass trust.

100
Q

What to look out for in Disclaimer problems?

A
  • TBE can’t be disclaimed
  • To feed a disclaimer trust, you can’t have a secondary beneficiary that isn’t the will (will feeds the bypass style trust)
101
Q

“Election Against the Will” basics, and how to prevent it?

A

In most states, a surviving spouse who hasn’t inherited a certain minimum percentage (common law states), has a right to demand a share of the deceased spouses’ estate (Elective Share).

Pre-nuptial is to limit or eliminate the elective share. Even a QTIP doesn’t fully eliminate it.

102
Q

For a Prenup to be enforceable, what must it do?

A
  • Must be in writing!
  • Must be preceded by a full and accurate disclosure of each parties’ net worth
  • Must be willingly executed by both parties.
103
Q

Post-Mortem Planning is for who? What two categories of problems?

A

Businesses Only

Either an Estate Liquidity problem or an Estate Tax Reduction problem

Liquidity:

  • 303 Stock Redemption (C Corp)
  • 6166 Installment Payment of Estate Taxes (Safe Answer)

Reduction:
- Special Use valuation 2032A (Real Property, farm or closely held)

104
Q

Section 303 Stock Redemption Keys

A

Allows corporation to make a distribution of a portion of stock of a decedent that won’t be taxed as a dividend (Basically, with step-up the capital gain is zero, no tax). Enables tax-free liquidity to pay estate taxes.

Requirements:

(1) C or S corporation (closely held)
(2) Value must be >35% of Gross ESTATE
(3) Only an amount of stock equal to a total of all estate taxes & administrative expenses can be redeemed (AKA, can’t do it to do more than pay estate taxes)

105
Q

Installment Method 6166 Keys:

A

Estate can be paid in 10 equal installments, beginning 4 years after the decedents’ death (Idea to give inheriters a chance to learn how to run the business).

Another avantage, a portion of the deferred tax qualifies for a 2% interest rate (low low low).

Requirements:

(1) Gross estate must include an interest classified as “Closely Held” (can be sole prop, partnership, or corp)
(2) Value must be > 25% of gross estate
(3) You can aggregate business interest, if they all were owned by decedent > 20%

106
Q

Special Use Valuation 2032A Keys:

A

Method to discount valuation of real estate used with closely held biz or farming operation. Can result in MAXIMUM deduction of 1,140,000 from the decedents’ gross estate.

Requirements:

(1) At least 50% of the value of the gross estate, reduced by liens, must consist of real estate or personal property devoted to qualified use.
(2) Value of the “Real” property MUST BE 25%
(3) Must have been held for “Qualified Use” for 5/8 prior years
(4) Must pass to a qualifying heir and must continue in qualified use for >10 years after decedent’s death

107
Q

Estate Planning Issues for Children of Non-Married

A
  1. Being unmarried, partners won’t be entitled to advantages like Elective Share or Unlimited Marital deduction
  2. If the partners don’t have children in common, guardianship might be undetermined.

How to solve:

  1. Revocable Trust or Tenancy in Common are good answers to solve.
  2. Nontraditional familieis can benefit from a GRIT, treated like a GRAT
108
Q

What Planning Methods don’t work for non-traditional family structures?

A

Wills can be CONTESTED by family members. A disenchanted family member can contest it. Lack of will can be worse, with court deciding.

JTWROS can be dangerous, because one partner can sever the joint tenancy (50/50 rule doesn’t apply either for non-spouses). Non-contributing partners’ withdrawals can create a taxable gift. The assets are reachable by both spouses (can drain it), and also their creditors individually.

109
Q

Can a husband, who is giving his wife the ability to LIVE IN HIS house for the remainder of her life, treat this as QTIP property?

A

YES. If the executor elects QTIP treatment.

This is an instance that it doesn’t need to be in a trust.

110
Q

A client is looking to gift to minor kids using a trust, but is concerned, what should he do?

  • Bad Boy trust
  • 201(c) trust
  • Crummey Trust
  • Irrevocable trust
A

CRUMMEY trust.

  • qualifies as present interest (irrevocable doesn’t)
  • Doesn’t have to pass at age 21 (like C trust)
  • NO kiddie tax, if complex trust (unlike B trust)

Victor's Personal CFP (7 decks)

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