Estate Planning 10% Flashcards
Gifts Made Within 3 Years of Death IRC Section 2035
Requires a decedent’s gross estate to include:
1. any gift tax paid on gifts made within 3 years of the decedent’s date of death,
2.the value of any property gifted within three years of the decedent’s date of death if the decedent retained an interest
3. the death proceeds of any life insurance policy insuring the decedent’s life was gifted within 3 years of death
Dower and Curtesy Interest IRC Section 2034
Require that a surviving spouse receive a statutory share of their deceased spouse’s estate - FMV of any property subject to dower, curtesy, or elective share rights in a decedent’s gross estate
Transfers with a Retained Life Estate Section 2036
A decedent’s gross estate includes the value of any interest in property transferred by the decedent in which he retained some interest in the property during his life
Transfers Taking Effect at Death Section 2037
A decedent’s gross estate includes the fair market value at the decedent’s date of death of any interest in property transferred by the decedent if the transfer was conditioned on all of the following:
- Possession or enjoyment can be obtained only by surviving decedent
- Decedent has retained a reversionary interest in the property
- the value of such reversionary interest immediately before the death of the decedent exceeds 5% of value of such property
Revocable Transfers IRC Section 2038
A decedent’s gross estate includes the FMV at the decedent’s date of death, to any change through the exercise of a power by the decedent to alter, amend revoke or terminate, or if the decedent relinquished such a power in contemplation of death
Annuities (IRC Section 2039)
A straight single life annuity is an annuity paid to the annuitant until his death. A decedent who owned a straight life annuity before his death will not include any amount related the annuity in his gross estate since the annuitant’s interest in the contract terminated at his death
Joint Interests (IRC Section 2040)
A decedent’s gross estate includes the FMV at a decedent’s date of death of any property jointly held by the decedent and another person with a right of survivorship. Executor must submit facts sufficient to show the property was not acquired entirely with consideration of decedent.
Powers of Appointment IRC Section 2041 and 2514
A power of appointment to name who will enjoy or own property, the gross estate of a decedent includes any assets over which the decedent held a general power of appointment at the time of his death
5-and-5 power rule - Power of Appointment
if the right to exercise is limited to the greater of $5,000 or 5% of the aggregate value of the property each year, the power of appointment isn’t included in the decedent’s gross estate
Proceeds of Life Insurance (Section 2042)
Includes the death benefit proceeds of a life insurance policy on the life of the decedent in the decedent’s gross estate if, at the decedent’s death, either the proceeds were recievable by the decedent’s estate or the decedent possessed any incident of ownership in the policy
Incidents of Owner
the right of the insured, or his estate, to enjoy economic benefits of the policy and includes the power to change beneficiary, surrender or cancel the life insurance policy assign the life insurance policy, revoke an assignment, pledge the life insurnace policy for a loan, or obtain from the insurer a loan against the surrender value of the policy
Value Financial Securities for Estate Tax purposes
the FMV of security is the average of high and low trading price for the decedent’s date of death or the alternative valuation date
Applicable Estate Tax Credit
Exclude up to 13,610,000 of cumulative taxable transfers during an individual’s lifetime or at death from gift or estate transfer tax ($5,389,800 in tax)
per stirpes
by the root
per capita
by the head
Survivorship Clause
Will provision that is superior t o a simultaneous death clause but should not exceed 6 months in the case of a spouse or it will be considered terminable interest and not qualify for unlimited marital deduction
Actual Contribution Rule - JWROS
property is included in the decedent’s gross estate to the extent of the decedent’s original contribution percentage, each owns an undivided equal interest in whole, qualifies for unlimited marital deduction
Tenancy in Common
each person holds an undivided but not necessarily equal interest in the whole property, FMV of ownership included in estate
Tenancy by the Entirety
at the death of the first spouse, the property automatically transfers to the surviving spouse and doesn’t go through probate, 50% included in decedent’s gross estate
Community Property
No automatic right of survivorship to surviving spouse, but, if transferred to the surviving spouse, value is eligible for unlimited marital deduction, no gift splitting for community assets, when one spouse dies both halves of community property increase in basis to FMV
What assets (types) go through probate process
Sole ownership, tenants in common, 1/2 community property, movables
Gift tax return Form
Form 709
Ancillary Probate
If the decedent is a resident of one state and owns real property in another state
Duties of Court-Appointed Executor or Administrator
-Identify and produce a detailed list of decedent’s property/assets
-Safeguard, manage, and invest assets
-give legal notice to creditors and heirs/legatees
-Pay the debts and taxes of the decedent
-Collect revenues, interest, rents, etc. during the estate
-File all federal, state, and local tax returns timely
-Make appropriate tax filing elections
-Distribute assets to heirs/legatees as appropriate
Close the estate with the court
Specific Duties of Administrator
- Petition court for appointment
- Put up security bond
- Court selects
- Court issues letter of administration
Specific Duties of Executor
Locate will, submit will to court, prove will with witnesses/notary, recieves letters of testamentary
Below Market Loan
$0-10,000 - $0
$10-100k - lesser of net investment income or interest calculated using AFR less interest calculated using stated rate of the loan, if borrower’s net investment income < $1,000, $0 imputed interest
>$100k - interest calculated using AFR less interest calculated using stated rate of the loan
Form 706
Is due 9 months from the date of death and can get 6 month extension does not apply to payment of tax
Pooled Income Funds
Similar to a pooled CRT maintained by a charity. Funds are managed by the charity with income paid to the donor and the remainder passing to the charity at the donor’s death.
Charitable Remainder Trust (CRT)
Trust established by transferring assets (often appreciated) with income paid to the donor (and or donor’s spouse or family) and a charity receiving remainder interest
Charitable Lead Trusts (CLT)
Same as a CRT except charity receives income or use interest and generally a family member (non-donor) receives remainder interest
-generally, no income tax deduction for the donor with a CLT as income is received by charity
CRUT
must have a unitrust payment >=5%, but may have a provision limiting the payout to earnings and may have a provision for making up prior payments when future income is sufficient.
Remainder interest mut be >= 10% at inception of trust, usually single or joint life term <=20 years
REQUIRES annual valuation, fixed percentage, amounts can be added after inception
