Estate Concepts Flashcards
What assets are subject to probate?
- “Singly” owned assets (individual ownership)
- Property held by tenancy in common
- Assets where the beneficiary is the “estate of the insured”
- Community property (50% attributable to each spouse)
What are important rules regarding gifts and the donor’s estate?
- Gift taxes paid on any gifts within three years of death are added to the gross estate.
- Generally, gifts are “taxable gifts” to the extent that such gifts exceed the annual exclusion (16,000). Taxable gifts are added to the taxable estate.
- Gift taxes paid (or payable) are generally allowed as a credit against the tentative tax.
What is in the gross estate?
All probate assets: singly owned assets, tenancy in common, estate as beneficiary, community property
AND
All non-probate assets: JTWROS and tenancy by the entirety, life insurance, general powers of appointment, gift taxes paid within three years of death (but not GSTT)
Do you get the cash value of a life insurance policy upon death?
No. This does not go into probate.
What is the gross up rule?
Any gift tax paid (not the gift) out-of-pocket on gifts within three years is included in the estate of the transferor.
What types of gifts are deductible?
- Gifts to a U.S. citizen spouse
- Gifts to qualified charities
- Qualified payments made directly to an educational institution for tuition and payments made directly to a provider of medical care.
- Gifts to American political parties.
When must a gift tax return (form 709) be filed?
A gift tax return must be filed by any individual who gave:
1. More than $16,000 to any non-spouse donee
2. A gift of future interest in any amount
3. A gift for which spouses elect gift splitting
What would make an intentionally tainted trust double taxed?
- A revisionary interest that exceeds 5% measured at the time of death
- A right to income or the right to enjoy trust property (beneficial enjoyment)
What is a grantor?
The grantor is the person who transfers property to and dictates the terms of a trust. The grantor must be competent when the trust is created.
What is a trustee?
The trustee is a party to whom property is transferred by the grantor, who receives legal title to the property placed in the trust, and who manages and distributes income according to the terms of a formal written agreement. The trustee holds legal title and must be competent at all times.
What are the types of Simple trusts?
2503(b), QTIP, QDT, Dynasty
What are the differences between simple and complex trusts?
In simple trusts, all income is distributed. Income is taxed to the beneficiary, and the corpus is distributed at termination. There are no charitable gifts allowed.
In complex trusts, income must or may be accumulated. Accumulated income is taxed to the trust, while distributed income is taxed to the beneficiary. Corpus is distributed per trust terms, and charitable gifts are permitted.
What is a Crummey provision?
A Crummey provision allows the beneficiary to demand a withdrawal from a trust every time a contribution is made to the trust. The annual right of the withdrawal is equal to the LESSER of the amount of the annual exclusion (16K) or the value of the gift transferred. The typical use is in a life insurance trust.
What is ascertainable standard?
Ascertainable standard is a power for the beneficiary to withdraw funds for HEMS (Health, Education, Maintenance, and Support) - approximately 60K in living expenses. Distributions for ascertainable standards are not subject to estate tax or gift tax implications.
What is five or five power?
The five or five power provides that 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. This withdrawal is available only after Crummey right is settled.
