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estate Flashcards

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1
Q

non community property interest

A
  • income earn by spouses prior to marriage
  • property received as a gift by one of the spouses
  • property inherited by one spouse
  • interest earned on separate assets held by one spouse as sole owner
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2
Q

Post Mortem Planning Techniques (Estate Liquidity)

A

STOCK REDEMPTION (SECT 303)

  • Business must be incorporated (closely held)
  • Value of business must EXCEED 35% of decedents AGE
  • Redemption cannot exceed the sum of the estate taxes plus administrative expenses

INSTALLMENT PAYMENT OF ESTATE TAXES (SEC 6106)

  • Value of estate must exceed 35% of decedent’s Adj Gross Estate
  • During first 4 years(of 14) can pay interest only on taxes due
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3
Q

Non-Marital “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 the surviving spouse or other individual
  • Decedent has post mortem control
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4
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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5
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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6
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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7
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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8
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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9
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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10
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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11
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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12
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 subtituted basis $2,015,000 Gainbetween $2,015,000 and no gain or loss$1,515,000 _________________FMV date of gift $1,515,000 Loss
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13
Q

Deductible Gifts(not taxable gifts)also called exempt gifts orqualified 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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14
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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15
Q

Powers of Attorney

A

Traditional, non-durable power of attorney - Power ceases when the principal is no longer legally competentDurable power of attorney - Authority of agent continues when principal become incompetentSpringing durable power of attorney - Main strength is the agent has no authority over the principal’s assets until incompetency.

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16
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

17
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

18
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:
  • $5,000 or
  • 5% of the total value of the fund subject to the power as measured at the time of lapse
19
Q

Grantor Trust Rules(Tainted / Defective Trusts)Income Tax & Estate

A
  • Trust may be defective/tainted for Income Tax and Estate Tax purpose if the Grantor retains–
    1. the right to Income to the Right to Use/Enjoy Trust Property (beneficial Enjoyment
    2. A revisionary Interest exceeding 5% (Retained Interest)
20
Q

Elements of a Trust

A

In Order for a trust to exist there must be Property (Principle/Corpus)

  1. There must be a Grantor–person who transfers the Property to and dictates the terms of the Trust
  2. There must be a Trustee who received legal title to the Property placed in the Trust and who general manages and distributes income according to the terms of a formal written agreement (Trust Instrument)
  3. There must be a Beneficiary who has Equitable Title tot he property
  4. The grantor and Trustee must be legally competent
21
Q

Simple vs. Complex Trusts

A

SIMPLE TRUST-2503b, Marital, QTIP are considered merely a conduit for forwarding income to the Beneficiaries (PASS THROUGH)

COMPLEX 2503c are separate TAX ENTITIES and taxed as such if meet two requirements

  1. It is irrevocable and the Grantor has not retained and control
  2. Income is accumulated
22
Q

Crummey Trust

A

Irrevocable Trust with Demand Rights

Demand Right given to a minor through the guardian

Beneficiary has Temporary Right to Demand a withdraw from the lesser of the amount of the Annul Gift Exclusion or the Value of the gift Transferred

23
Q

QTIP “C” Trust(Current Income Trust)

A 
Provides surviving spouse with a Stream of Income for life, but decedent has post mortem control of the Trust property
Property qualifies for Marital Deduction
Mainly used for SECOND MARRIAGE
KEY WORD--LAME
Lifetime income for spouse
Annual Payments to spouse
Mandatory payment to spouse
Exclusive for spouse
24
Q

Qualified Domestic Trust (QDT / QDOT)

A

NO Unlimited Marital Deduction
However, NO ESTATE Tax due
Jointly held property between spouses is not considered half owned
Limited gift between spouses of only $100K (indexed) per year

25
Q

Present Interest Gift Vehicles

A 
UGMA
UTMA
2503c Trust
529 college saving plan
GIFT to 2503b
Trust is a gift of FUTURE interest
26
Q

Charitable Contributions/Transfers

A

INCOME TO DONOR UNTIL DONOR’S DEATH

  1. CRAT Charitable Remainder Annuity Trust-5%
  2. CRUT-Charitable Remainder Uni Trust-5%
  3. Pooled Income Fund-no 5% required
  4. Charitable Gift Annuity-no 5% required

INCOME TO CHARITY

  1. CLAT/CLUT-charitable Lead Trust-no 5% required
  2. Private foundation-5%-can give money to individuals
27
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)
28
Q

Intrafamily Transfers(Property owner wants to gift assets and/or income to family members)

A

Partnership / S Corp
Family Limited Partnership
Gift Leaseback
Qualifies Personal Residence Trust (QPRT)

29
Q

Disclaimer

A

In order to DISCLAIM PROPERTY
1.Disclaimer must be an Irrevocable Refusal to accept interest
2.Refusal must be in writing
3 Refusal must be received in 9 months
4 Intended donee cannot have accepted any interest in the benefits
5 As a result of the refusal the interest will pass WITHOUT THE DISCLAIMING PERSON”S DIRECTION to someone else

cfp-1 (6 decks)

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