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Danko + MJG > Estate > Flashcards

Estate Flashcards

1
Q

Non-Community Property Interest

A
  • Income earned by spouses prior to marriage
  • Property received as a gift by one spouse
  • Property inherited by one spouse
  • 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 years of death
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9
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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10
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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11
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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12
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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13
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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14
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
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15
Q

Grantor Trust Rules (Tainted / Defective Trusts)

Income Tax & Estate

A
  • Trust may be Defective / Tainted for Income Tax and Estate Tax purposes if the Grantor retains:
  • A Right to Income or the Right to Use/Enjoy Trust property (Beneficial Enjoyment)
  • A Reversionary Interest exceeding 5% (Retained Interest)
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16
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 and 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.
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17
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)

Complex Trusts (2503(c)), are separate Tax Entities and taxed as such if it meets two requirements:

  • It is irrevocable, and the Grantor has not retained any control
  • Income is accumulated
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18
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
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19
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 Trust property
  • Property qualifies for Marital Deduction
  • Mainly used for second marriages

Keyword for QTIP - L.A.M.E.:

  • Lifetime income for the spouse
  • Annual payments to spouse
  • Mandatory payments to spouse
  • Exclusively for spouse
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20
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
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21
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
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22
Q

Intrafamily Transfers

(Property owner needs income)

A

Remember: PIGS Need Income

Private Annuity

Installment Sale

Grantor Annuity Trusts (GRAT/GRUT)

Self Canceling Installment Note (SCIN)

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23
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)
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24
Q

Disclaimer

A
  • In order to Disclaim Property, the following requirements must be met:
  • Disclaimer must be an Irrevocable Refusal to accept the interest
  • Refusal must be in writing
  • Refusal must be received within 9 months
  • Intended donee cannot have accepted any interest in the benefits
  • As a result of refusal, the interest will pass, without the disclaiming person’s direction, to someone else
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25
Q

Post-mortem Planning Techniques

(Estate Liquidity)

A

Stock Redemption (Section 303):

  • Business must be Incorporated (Closely Held)
  • Value of business must exceed 35% of the decedent’s Adjusted Gross Estate
  • Redemption cannot exceed the sum of the estate taxes plus administrative expenses

Installment Payment of Estate Taxes (Section 6166):

  • Value of business must exceed 35% of decedent’s adjusted gross estate
  • During the first 4 years (of 14 years) can pay interest only on taxes due
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26
Q

Port-mortem Planning Techniques

(Estate Tax Reduction)

A

Special Use Valuation (Section 2032A):

  • 25% of the Gross Estate consists of real property
  • Must be in Qualified Use: 5-out-of-8 year rule before death and 10 years after death.
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27
Q

Family Limited Partnership Key Features

A
  • Used only between family members
  • Makes use of minority discounts
  • Makes use of lack of control discounts
  • Minority interest usually has transfer restrictions
  • Can allow the transferor to maintain control of the asset with little ownership interest
  • Makes use of the annual exclusion
  • Makes use of the applicable credit amount
  • Gift is of a present interest
  • Transaction requires sophisticated and, perhaps, repeated valuation
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28
Q

SCIN Features

A
  • Used between family members
  • Transaction is a sale—seller will have capital gain, ordinary income (if depreciable property), and return of capital
  • Sale is for the full FMV of the property, and the buyer pays a risk premium
  • Removes asset from gross estate for estate tax purposes
  • Used when seller is in ill health relative to actuarial life expectancy
  • For a specific term
  • No step-up to FMV at death of seller (buyer’s basis is sum of payments to seller)
  • Risk to transferee of paying more than fair value (if seller lives the full term)
  • Purchasing power risk to seller
  • Interest rate risk to seller
  • Reinvestment risk to seller
  • Indebtedness may be collateralized (secured by collateral)
  • Does not use minority discounts
  • Does not use the annual exclusion (not a gift)
  • Does not use the applicable credit amount
  • Requires sophisticated valuation only at the time of sale
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29
Q

Private Annuity Features

A
  • Used between family members
  • Transaction is a sale—seller will have capital gain, ordinary income (if depreciable property), and return of capital
  • Sale is for the full FMV of the property, and the buyer pays a risk premium
  • Removes asset from gross estate for estate tax purposes
  • Used when seller is in ill health relative to actuarial life expectancy
  • For a specific term
  • No step-up to FMV at death of seller (buyer’s basis is sum of payments to seller)
  • Risk to transferee of paying more than fair value (if seller lives the full term)
  • Purchasing power risk to seller
  • Interest rate risk to seller
  • Reinvestment risk to seller
  • Indebtedness may be collateralized (secured by collateral)
  • Does not use minority discounts
  • Does not use the annual exclusion (not a gift)
  • Does not use the applicable credit amount
  • Requires sophisticated valuation only at the time of sale
30
Q

What is a skip person?

A

SOMEONE WHO IS SUBJECT TO GSTT

  • A related individual two or more generations below the transferor (i.e., grandchild)
  • A trust, when all (not just some) beneficiaries are two or more generations below the donor
  • An unrelated individual younger than the transferor by 37 1⁄2 years or more
  • A spouse or former spouse of transferor’s lineal descendant is assigned to the same generation as the lineal descendant
31
Q

What is a non-skip person?

A

Someone not subject to GSTT

For example:

  • The transferor’s spouse or former spouse, regardless of age
  • A grandchild of the transferor, if the transferor’s child is deceased (predeceased parent rule)
    • The grandchild effectively moves up one generation.
    • The parent may be the transferor’s child or spouse’s child.
    • The grandchild may be any grandchild.
    • An exception extends to collateral heirs if a decedent has no living lineal descendants. In other words, a grandparent who has no grandchildren can make a gift to a grandnephew or grandniece without incurring the GSTT.
  • Effect of marriage:
    • A spouse or former spouse of transferor’s lineal descendant is assigned to the same generation as the lineal descendant
32
Q

At what dollar amount is loan interest calculated?

A

When net interest income > $1000

33
Q

What are the key components of a Power of Appointment Trust?

A

A TRUST

  • Allows a terminable interest to be passed to the surviving spouse and the property to still qualify for the marital deduction
  • No election required, as with QTIP
  • Requirements:
    • Income from the trust must be payable to the surviving spouse at least annually for life.
    • The surviving spouse is given a general POA over the property during life or at death.
    • The assets remaining in the trust will be included in the gross estate of the surviving spouse when he dies.
  • First spouse to die does not control the ultimate disposition of the property because the surviving spouse has a general POA and can designate who will receive the remainder interest in the trust
34
Q

What are the key components of a Bypass Trust?

A

B TRUST

  • The purpose of a bypass trust is to take advantage of the applicable credit amount when the first spouse dies.
  • The property transferred to the bypass trust does not qualify for the marital deduction in the estate of the first spouse to die.
  • A common scenario is for the first spouse to leave at death everything to the surviving spouse except for the applicable exclusion amount, which is transferred into a bypass trust.
    • The trust can be designed to allow the surviving spouse to invade the trust for health, education, maintenance, and support (HEMS).
    • When the surviving spouse dies, the trust is not included in her gross estate, and the property passes to the remainder beneficiaries.
  • A bypass trust can be used instead of an outright bequest to nonspouse heirs who are not sophisticated or mature enough to handle the property. The choice of the trust over the outright bequest does not save any tax dollars; it simply provides the transferor with some peace of mind.
  • Often, highly appreciating assets are placed in a bypass trust to freeze the value for estate tax purposes at the death of the first spouse.
  • A bypass trust is also called a credit equivalency trust, a credit shelter trust, a family trust, or a B trust.
  • The appeal of bypass trusts may be reduced because of the portability of the estate tax exemption. a. A portion of estate exemption not used by the estate of the first spouse to die may be available to the surviving spouse.
35
Q

What are the key components of a QTIP trust?

A

C TRUST

  • Allows a terminable interest to be passed to a surviving spouse and the property to still qualify for the marital deduction
  • Election is made on Form 706
  • Requirements:
    • Income from the trust must be payable to the surviving spouse at least annually for life.
    • The value of the trust assets must be included in the gross estate of the surviving spouse when she dies, valued on the DOD of the second spouse.
    • The surviving spouse is not usually given a general POA.
  • Usually, first spouse to die has specified the ultimate recipient of the property (the remainderman) in the trust document
  • Sometimes called a C trust or a Q trust; often used in second marriages to protect assets for the children of the first marriage
36
Q

What does Section 303 cover?

A
  • This permits the estate of a decedent shareholder to redeem the decedent’s shares with favorable income tax treatment.
  • The transaction will be treated as a disposition of an asset (capital gain) rather than receipt of a dividend (ordinary income). This is especially advantageous because the shares received a stepped-up basis at death, and thus, the capital gain or loss is only measured from the DOD instead of the predeath basis
37
Q

What three conditions must be met for Section 303?

A
  • The stock must be included in the decedent’s estate.
  • The value of the stock must be more than 35% of the AGE.
  • Redemption proceeds eligible for capital gain treatment cannot exceed federal and state death taxes plus deductible funeral and administrative expenses
38
Q

What conditions must be met with Section 2032A?

A

SPECIAL USE VALUATION

  • Value of the property (real and personal) used in the farm or closely held business must be at least 50% of the adjusted value of the gross estate
  • Value of the real property alone must be at least 25% of the adjusted value of the gross estate
  • Decedent or family member must have been a material participant in the business for at least five of the last eight years
  • If the special use property is disposed of to a nonfamily member or if the property discontinues its qualified use within 10 years of the decedent’s death, all or part of the estate tax savings may be recaptured (there are exceptions if the qualified heir dies or goes bankrupt).
39
Q

What is Section 6166?

A

DEFFERED PAYMENT OF ESTATE TAX

  • Available to owners of farms or closely held businesses.
    • The value of the closely held business must exceed 35% of the value of the adjusted gross estate (AGE).
    • For proprietorships, partnerships, and corporations only
  • The executor may elect to defer for five years any estate tax payment relating to the closely held business. The estate tax can then be paid in 10 annual installments beginning after the five-year deferral period. Interest is paid during the deferral period.
  • A 2% interest rate applies to the taxes attributable to a portion of the taxable value. Any value over that has a rate equal to 45% of the regular underpayment interest rate.
  • Unpaid installments will be accelerated if the total dispositions of property from the business are equal to or more than 50% of the estate tax valuation.
40
Q

What are the key points of a 2503(b) Mandatory Income Trust?

A
  • Purpose: Set up for a beneficiary composed of an income interest and a remainder interest
  • Characteristics:
    • Annual exclusion available for income interst
    • Income MUST BE DISTRIBUTED
  • Planning Opportunities: Often used for gifts to minors
  • Income/Gift Tax Consequences:
    • Income is taxable to beneficiary
    • Kiddie tax may apply
41
Q

What are the key points of a 2503(c) trust?

A
  • Purpose:
    • Set up for a minor that is a gift of future interest interest
    • Qualifies for annual exclusion
  • Characteristics:
    • Income distribution is DISCRETIONARY
    • Must be given to beneficiary at age 21
  • Planning Opportunities
    • ​Created to discourage income payouts to immature minors solely to take advantage of annual exclusion
  • Income/Gift Tax Consequences:
    • If beneficiary dies before age 21, property goes to estate
42
Q

What are the key points of a Crummey Trust?

A
  • Purpose:
    • Allows right to withdrawal for brief period, generally 30 days
    • Creates present interest that qualifies for annual exclusion
  • Characteristics:
    • ​Beneficiary is usually allowed to withdrawa the lesser of the amount of the available annual exclusion or the value of the gift property transferred
  • Planning Opportunities:
    • If trust has more than one beneficiary, demand right should not exceed greater of $5,000 or 5% of value of property to avoid taxable gift to remainderman
  • Income/Gift Tax Consequences:
    • Present interest is created by the right to withdrawal
43
Q

What are the Purpose, Characteristics, Planning Opportunities, and Income/Estate/Gift Tax Consequences of an A Trust?

A
  • Purpose:
    • Marital trust that creates a terminable interest for spouse but that does qualify for the unlimited marital deduction and gives surviving spouse general power to appoint remainderman
  • Characteristics:
    • ​All income must be payable to surviving spouse at least annually for life.
    • Surviving spouse has general POA.
    • No election required
  • Planning Opportunities:
    • ​Place assets in trust, income to spouse.
    • Spouse is given general POA over property exercisable during life or at death
  • Income/Estate/Gift Tax Consequences:
    • ​Included in the gross estate of the surviving spouse (as long as surviving spouse has not gifted or consumed trust corpus during life).
    • If surviving spouse gives the property away (exercises her unlimited POA during life), surviving spouse has made a taxable gift.
44
Q

What are the Purpose, Characteristics, Planning Opportunities, and Income/Estate/Gift Tax Consequences of a B Trust?

A
  • Purpose:
    • Purpose is to take advantage of the applicable credit amount afforded first decedent spouse.
    • A trust that is sometimes used to pass property to surviving spouse but can be used to give any beneficiary an income interest, with a different remainderman.
    • Does not qualify for the marital deduction
  • Characteristics:
    • An alternative to an outright transfer.
    • Takes advantage of the applicable credit of decedent.
    • Useful when a split investment exists between income and remainder.
  • Planning Opportunities:
    • Instead of leaving an outright bequest to children, decedent spouse puts property into a bypass trust, income to surviving spouse for life, and remainder to children upon surviving spouse’s death.
  • Income/Estate/Gift Tax Consequences:
    • Assets included in first decedent spouse’s gross estate
    • bypasses surviving spouse’s gross estate.
45
Q

What are the Purpose, Characteristics, Planning Opportunities, and Income/Estate/Gift Tax Consequences of a C Trust (QTIP Trust)?

A
  • Purpose:
    • Marital trust that creates a terminable interest for spouse but that does qualify for the unlimited marital deduction and gives power to settlor to name remainderman.
  • Characteristics:
    • ​All income must be payable to surviving spouse at least annually for life.
    • Surviving spouse is usually not given POA.
    • QTIP election made on Form 706 by executor.
  • Planning Opportunities:
    • Place assets in QTIP, income to spouse for life, remainder to children.
  • Income/Estate/Gift Tax Consequences:
    • Included in the surviving spouse’s gross estate.
    • Trust pays its pro rata share of estate tax for surviving spouse.
    • Percentage not receiving the marital deduction for first spouse is like a B trust when surviving spouse dies.
46
Q

What are the Purpose, Characteristics, Planning Opportunities, and Income/Estate/Gift Tax Consequences of a Grantor Retained Trust (GRAT or GRUT)?

A
  • Purpose:
    • ​Grantor transfers property but retains right to annual income payments.
  • Characteristics:
    • ​Grantor transfers property to irrevocable trust and retains qualified income interest for term of trust (usually two to five years).
    • Remainder passes to family members at end of trust term.
  • Planning Opportunities:
    • ​Transfer appreciating assets to family members while retaining an income interest
  • Income/Gift Tax Consequences:
    • ​Income is taxed to
      grantor during trust term for income tax purposes.
    • Value of gift at trust creation is FMV of property minus value of grantor’s retained interest
    • Gift is future interest and does not qualify for annual exclusion
47
Q

What are the Purpose, Characteristics, Planning Opportunities, and Income/Gift Tax Consequences of a Qualified Personal Residence Trust (QPRT)?

A
  • Purpose:
    • Grantor transfers personal residence to trust and retains the right to live in the residence during the trust term.
  • Characteristics:
    • Residence passes to family members at end of trust term.
  • Planning Opportunities:
    • Transfer appreciating residence to family members while retaining right to live in residence for specified trust term.
    • Grantor may repurchase or rent residence if grantor outlives trust term.
  • Income/Gift Tax Consequences:
    • Income is taxed to grantor during trust term for income tax purposes.
    • Value of gift at trust creation is FMV of residence discounted for number of years of the trust term at applicable Section 7520 rate.
    • Gift is future interest and does not qualify for annual exclusion.
48
Q

What are the Purpose, Characteristics, Planning Opportunities, and Income/Gift Tax Consequences of a CRAT?

A
  • Purpose:
    • ​Split interest gift where part of interest is given to charity.
    • Donor receives a fixed annuity and remainder goes to charity.
    • Usually created during life.
  • Characteristics:
    • ​Contributions at setup only.
    • Must receive an annuity income of at least 5% of the original value of assets transferred into trust. Can be for life or term up to 20 years.
    • PV of remainder interest must be at least 10% of the initial FMV of assets transferred to trust at inception.
  • Planning Opportunities:
    • Good for clients who desire certainty of fixed income.
    • As IRS interest rates go up, the deductible charitable remainder interest goes up.
  • Income/Gift Tax Consequences:
    • Donor is eligible for an immediate charitable contribution deduction for income tax purposes if created during life, subject to limitations on the type of charity and AGI limitations
49
Q

What are the Purpose, Characteristics, Planning Opportunities, and Income/Gift Tax Consequences of a CRUT?

A
  • Purpose:
    • ​Split interest gift where part of an interest is given to charity.
    • Donor receives a variable annuity and remainder goes to charity.
  • Characteristics:
    • ​Contributions after initial setup are permitted. Must receive a payment of at least 5% of the current FMV of assets.
    • Can be for life or term up to 20 years.
    • PV of remainder interest must be at least 10% of the initial FMV of assets transferred to trust at inception.
  • Planning Opportunities:
    • ​Appeals to clients who want to hedge against inflation.
    • Can provide for income on lesser of unitrust amount or amount actually earned on property, with makeup.
  • Income/Gift Tax Consequences:
    • ​Donor is eligible for an immediate charitable contribution deduction for income tax purposes if created during life, subject to limitations on the type of charity and AGI limitations.
50
Q

What are the Purpose, Characteristics, Planning Opportunities, and Income/Gift Tax Consequences of a PIF?

A
  • Purpose:
    • ​Investment fund created and maintained by target charity.
    • Pools property from all contributors and pays a return based on earnings of fund.
  • Characteristics:
    • ​No tax-free securities
      may be held by the PIF.
    • Sometimes limits donations to cash and cash equivalents.
      Opportunities
  • Planning Opportunities:
    • ​Preferred by those who want to avoid having to establish and maintain a trust.
    • Frequently maintained by colleges and universities.
  • Income/Gift Tax Consequences:
    • ​Donor is eligible for an immediate charitable contribution deduction for income tax purposes if created during life, subject to limitations on the type of charity and AGI limitations.
51
Q

What are the Purpose, Characteristics, Planning Opportunities, and Income/Gift Tax Consequences of a CLAT or CLUT?

A
  • Purpose:
    • ​Property is transferred to a trust that
      distributes income to a charitable beneficiary for a specific term with the remainder reverting to a noncharitable beneficiary (may be grantor or other remainderman).
  • Characteristics:
    • ​Noncharitable beneficiary can be grantor, spouse, child, or other.
  • Planning Opportunities:
    • ​Good for clients who have a large amount of highly appreciating assets and can forego the income from these assets.
    • When interest rates are low, this increases the valuation of the deductible interest donation because of the lower valuation of the remainder.
  • Income/Gift Tax Consequences:
    • ​If it is a grantor trust, the grantor is taxed on the income and is eligible for the charitable deduction equal to the amount the trust pays to the charity subject to limitations on the type of charity and AGI limitations.
    • However, if the trust is a nongrantor trust in which the remainderman is someone other than the grantor, the grantor does not claim the income and cannot receive an income tax charitable deduction.
52
Q

What are the following of a CRAT:

  • Value of charitable gift?
  • Recipient of payment?
  • Payment?
  • Remainder beneficiary?
  • Additional contributions possible?
  • Hold tax-exempt securities?
A
  • Value of charitable gift:
    • ​Total value of property minus PV of retained interest
  • Recipient of payment:
    • ​Noncharitable beneficiary (usually donor)
  • Payment:
    • ​At least 5% and no greater than 50% of initial FMV of assets paid at least annually for life or term up to 20 years (similar to fixed annuity)
  • Remainder beneficiary:
    • ​Charity
  • Additional contributions possible:
    • ​No
  • Hold tax-exempt securities:
    • ​Yes
53
Q

What are the following of a CRUT:

  • Value of charitable gift?
  • Recipient of payment?
  • Payment?
  • Remainder beneficiary?
  • Additional contributions possible?
  • Hold tax-exempt securities?
A
  • Value of charitable gift:​
    • Total value of property minus PV of retained interest
  • Recipient of payment:
    • ​Noncharitable beneficiary (usually donor)
  • Payment:
    • At least 5% and no greater than 50% of current FMV of assets (revalued annually) paid at least annually for life or term up to 20 years (similar to variable annuity)
  • Remainder beneficiary:
    • ​Charity
  • Additional contributions possible:​
    • Yes
  • Hold tax-exempt securities:
    • ​Yes
54
Q

What are the following of a PIF:

  • Value of charitable gift?
  • Recipient of payment?
  • Payment?
  • Remainder beneficiary?
  • Additional contributions possible?
  • Hold tax-exempt securities?
A
  • Value of charitable gift:​
    • Total value of property minus PV of retained interest
  • Recipient of payment:
    • ​Noncharitable beneficiary (usually donor)
  • Payment:
    • Fund’s rate of return for the year
  • Remainder beneficiary:
    • ​Charity
  • Additional contributions possible:​
    • Yes
  • Hold tax-exempt securities:
    • ​No
55
Q

What’s included in the gross estate?

A
  • Property owned by decedent or in which decedent had an interest
  • Dower and curtesy interests
  • Gift tax on gifts made within three years of death Gifts made within three years of death that would have been included under Section 2036, 2037, 2038, or 2042
  • Transfers with a retained life interest
  • Transfers taking effect at death
  • Revocable transfers
  • Annuities
  • Jointly owned property
  • Powers of appointment
  • Proceeds of life insurance
56
Q

Valuation notes for items in gross estate

A
  • General Rule:
    • Assets are valued at their fair market value (FMV) on the decedent’s DOD or, if the alternate valuation date (AVD) is selected, the FMV as of six months after the DOD.
      • For AVD, need gross estate must owe tax and tax must be reduced by election
  • Real Estate:
    • Appraisal is required
    • Special use valuation may be available under Section 2032A.
    • If real estate is sold within a short period after the decedent’s death to an unrelated party, the sales price will usually be accepted as its value.
  • Life Insurance Bonds & Govt. Bonds:
    • Proceeds received.
      • If settlement option is chosen by the beneficiary, the amount includable in the gross estate will be the amount that would have been payable as a lump sum.
    • Series EE bonds are valued at redemption price at DOD
57
Q

What’s the estate tax formula?

A
58
Q

What are the exceptions to the terminable interest rule?

A
  • When the only condition of the bequest is that the survivor live for a period not exceeding six months, the marital deduction is allowed if the surviving spouse actually lives for the period specified and receives the property.
  • When a spouse receives a life estate coupled with a general POA, the marital deduction is allowed.
  • When there is a bequest to the spouse of income from a charitable remainder annuity trust or a charitable remainder unitrust and the spouse is the only non-charitable beneficiary, the marital deduction is allowed.
  • Certain marital trusts by statute are also exceptions
59
Q

How does collateral affect SCINs and Private Annuities?

A

SCINs are secured by collateral, whereas Private Annuities are not

60
Q

How is a trust distribution taxed?

A

The taxable portion of the distribution is based on the taxable portion of the distributable net income (DNI).

61
Q

What is an overqualified estate?

A

An estate is described as overqualified when, due to a failure to make proper use of the marital deduction, too much of the property is subject to estate tax at the death of the first spouse. Overqualification occurs when a decedent qualifies an excessive amount of property for the marital deduction and does not fully utilize the applicable credit amount

62
Q

How does a reverse QTIP election work?

A
  • Under GSTT rules, QTIP property included in the surviving spouse’s gross estate is considered transferred by the surviving spouse, not by the decedent. Therefore, if a decedent transfers property into a QTIP trust, and the trust beneficiaries are grandchildren, the decedent will not be allowed to use his GSTT exemption. The surviving spouse would be required to use her GSTT exemption at death.
  • The reverse QTIP election is a special election available for GSTT purposes. The election treats the QTIP property as if the QTIP election was not made for GSTT purposes.
  • The marital deduction will still be available for estate tax purposes.
  • The reverse QTIP election is often made to use a decedent’s GSTT exemption
63
Q

SCINs vs. Private Annuities

A

SCINS are SECURED

64
Q

Property ownership slide

A
65
Q

Take a quick laugh break

A
66
Q

How much can you give to non-citizen spouse in a given year?

A
  • Annual exclusion for non-citizen spouse = $157,000
  • No marital deduction postmortem for non-citizen spouse
67
Q

Crummey Power example

A
68
Q

Gifting Strategies

A
69
Q

Estate Tax Cheat Sheet

A
70
Q

Marital trust cheat sheet

A
71
Q

GSTT Calculation Example

A

Danko + MJG (7 decks)

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