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CFP > Estate Planning > Flashcards

Estate Planning Flashcards

1
Q

Reverse QTIP

A

A trust that’s very effective for reducing generational skipping transfer tax (GSTT). Can be done after death unlike a Dynasty Trust.

THIS IS FOR GETTING MONEY TO GRANDKIDS

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2
Q

What should be used in estate planning for community states

A

A will (assets don’t have survivorship)

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3
Q

What property can be excluded for non-community property?

A

income prior to marriage
assets prior to marriage
gift received by a spouse
inheritance received by a spouse

(these assets are completely excludable for deceased spouse estate)

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4
Q

Community property gets how much step up for basis at death and how much is included for estate

A

full step up for basis

half included for estate

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5
Q

Guardian of the person does what?

Guardian of the property does what?

A

Person - for health decisions

Property - assets and finances

Both are court appointed

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6
Q

Which is more enforceable for direction on assets upon death: Revocable Trust or POA?

A

The trust because it is a legal entity

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7
Q

JTWROS avoids ___ and superiority compared to a ___

A

avoids probate and has superiority compared to a will

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8
Q

For a non-spouse JTWROS account, can a wealthy person gift all of their money through there?

A

No, if one person is the sole contributor, then assets of the account would not be considered gifts (keep receipts)

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9
Q

Tenancy by Entity (TBE)

A

Just like a JTWROS, but only for spouses. Can be creditor protected for each spouse, but not for Joint creditors (would be appropriate for a doctor and homestead wife)

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10
Q

Tenants in Common

A

Interest is undivided and owned on a percentage basis

subject to probate

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11
Q

Mr. A and Mrs. A own $4 of land. Mr. A paid $3 and Mrs. A paid $1. How much will the be included in probate estate for Mr. A if he dies if owned JTWROS vs. TIC?

A

JTWROS - $2

TIC - $3

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12
Q

Intestate succession

Testate

A

if no will, then the decedent has died inestate

There’s a valid will, so will avoid probate

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13
Q

Ancillary probate

A

property owned in-and-out of state

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14
Q

Assets subject to probate?

A

Single owned assets
TIC property
when the beneficiary is that estate
community property (ex. Sam’s car that I own)

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15
Q

After probate, assets go into a ___?

A

testamentary trust

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16
Q

Methods to avoid probate

A

JTWROS, TBE, TOD, named beneficiaries, Totten Trust, Revocable and Irrevocable Trust

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17
Q

Totten Trust

A

a bank account that has a TOD provision on the account

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18
Q

Calculating gross estate for a couples assets?

A

All probate assets divided in half, and all non probate assets also

(individually owned asses are counted as 100% included)

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19
Q

Revocable Trust are sometimes set up as an alternative to a ____ in case of incapacitated?

A

Durable power of attorney (will continue in case of deceased durable POA)

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20
Q

Testamentary Trust is created by ___?

A

A Will and the trust only becomes effective if the Will has been subjected to probate

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21
Q

Non community property is aka

A

Common Law

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22
Q

How is an IRA (no named beneficiary)considered for surviving spouse in a community property state vs. non community (common law) property state?

A

Half is included in estate for community property state

None is included in estate for non community (common law) property state

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23
Q

Stock bought for $10 and worth $100 at death of one spouse. How is basis calculated for community vs non community (common law)?

A

Basis now $100 for community property state

Basis now $55 for non community (common law) property state

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24
Q

Types of accounts that can be disclaimed vs not be disclaimed?

A

Disclaimed - Sole ownership & JTWROS

Not Disclaimed - TBE & TIC

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25
Q

Calculate estate tax

A

Gross - final expenses = AGE - deductions (marital and charitable, both unlimited) = Taxable Estate +/- $15K for annual gift amount (subtracted from taxes if not used) - $11.7 Million exemption + gif tax not paid

Final number x 40%

(gross estate will have the 3 year add back items in there and additional used as a credit for estate tax, but if gift tax was paid over 3 years ago then is only a credit and doesn’t have to be added into gross estate)

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26
Q

What 3 year items might be added back into gross estate?

A

Gift tax paid or life insurance owned then transferred (paying premiums doesn’t mean ownership; crummy trust annual gift provision)

(insurance sold is excluded from the 3 year rule)

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27
Q

In general, what happens to the cash value of life insurance upon death?

A

Stays with insurance company (unless option B / coverage 2)

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28
Q

Special power vs General Power vs Ascertainable standard

A

Powers granted to a trustee or executor

General - person can execute powers without any conditions (any payouts to general power person are included in gross estate)

Special - person can execute powers usually determinable by a will, for beneficiaries, or for a certain period of time

Ascertainable standard - power to direct HEMS

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29
Q

5 or 5 Power

A

Property subject to a General Power will be included in a donee decedent’s Estate of amounts over:

$5,000, or 5% of fund that did / would have been directed as the beneficiary of a trust (if not exercised in that year, then the 5 or 5 is included in the beneficiaries estate)

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30
Q

Gifting for inter-vivos purposes must be ___ by donee and ____ by the donor

A

gift must be cashed by the donee and irrevocable by the donor

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31
Q

For appreciated property when donor pays the gift tax, the new basis is calculated by

A

(FMV of gift x 40%) + gift tax paid by donor

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32
Q

Deductible gifts for estate taxes

A

gift to educational, medical spouse, charity, or political

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33
Q

Capital gain status for inherited stock is always considered?

A

Long term

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34
Q

If a question doesn’t specify community property or non community property state, then consider the question as

A

Common law, aka non community property state

35
Q

Present Interest Gift that get the $15K exclusion

A

UTMA/UGMA, 529s, Crummy, and 2503(c)

think that only good kids get the $15K exclusion above

36
Q

Basis of a Gift: gain and/or loss scenarios?

Basis of $2,015,000
FMV of $1,515,000

A

Client’s Substituted Basis/Dual/Double Basis

Above $2,015,000 Gain

Between $2,015,000 and $1,515,000 NO Gain or Loss

Below $1,515,000 Loss

37
Q

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)

> Reversionary Interest exceeding 5% (Retained Interest)

(this is okay because grantor may want to pay tax at personal income level instead of estate tax)

38
Q

Elements of a Trust

A

There must be a Grantor (person who dictates the terms & assets of the trust)

There must be a Trustee (manages and distributes income according to the terms of a the trust, usually upon death)

There must be a Beneficiary

(The Grantor must be competent at time of inception, and Trustee must be competent at all times)

39
Q

Benefits to special needs trusts

A

can receive government benefits

creditor protected

beneficiary is usually a family member (which gets to retain government benefits that were paid out to the deceased disabled)

40
Q

Simple Trust vs Complex Trust

A

Simple Trusts (2503(b), Marital, QTIP) are considered merely a “conduit” for forwarding income (not gains) to the Beneficiaries (Pass-Through). No charitable gifts from this trust and corpus is distributed at death.

Complex Trusts (2503(c)), are separate Tax Entities and taxed as such if irrevocable, and income is accumulated. Charitable gifts are allowed from this trust and corpus is distributed at terms of the trust.

(the trust can change nature between simple and complex throughout its lifetime)

41
Q

Crummey Provisions

A

Beneficiary has 30 days right to withdrawal from the Trust; either the amount of the Annual Gift Exclusion or the value of the gift

(usually the gift to the Trust is used to pay the life insurance premium)

42
Q

3 main Tax free withdraws from Trust

A

Ascertainable Standard (HEMS), Crummy, 5 or 5%

43
Q

Which type of A, B, or C trust doesn’t allow for “5 or 5” OR “HEMS”?

A

A Trust (marital trust)

44
Q

Order of ABC provisions for Trusts

A

BeCAuse

45
Q

B trust name?

A trust name?

C trust name?

Which spouse controls each?

A

B - Bypass; first spouse

A - Martial; second spouse

C - QTIP (qualified terminal interest property); first spouse

46
Q

What is the difference between the B trust and the C/A trust?

A

B trust pass by estate lifetime exemption of $11,700 AND beneficiaries can be spouse and kids.

C and A trust pass by martial deduction AND only passed down to spouse (“A Trust” is initially passed to wife, and then she can dictate funds as wanted there after)

(all of these have no estate income upon the passing of the transfer for being within limits of lifetime estate and marital deduction)

47
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 to provide a income to surviving spouse or others. Decedent has post-mortem control and uses the lifetime estate exemption.

48
Q

QTIP “C” Trust (Current Income Trust)

A

Provides spouse with Income, and decedent has post-mortem control. (income must be LAME: lifetime, annual, mandatory, and exclusively for the surviving spouse)

Qualifies for Marital Deduction and mainly used for second marriages.

Is included in the surviving spouse estate.

49
Q

A Trusts “Marital Trusts”

A

Uses marital deduction and is subject to estate tax. Surviving spouse controls the assets unlike the B and C trusts

50
Q

Which type of trust does the first spouse loses control over assets contributed upon death?

A

A Trust (that’s the reason being for no 5 or 5 OR HEMS provisions, because the second spouse then has control of the assets)

51
Q

Qualified Domestic Trust (QDT / QDOT)

A

No Unlimited Marital Deduction (so limited to the $11.7 Million deduction if using a QDT)

Jointly held property between spouses is not considered one-half owned

Limited GIFT between spouses of only $159K per year while alive

(estate tax won’t matter for a non-US person leaving assets to a US citizen, think about it that the US wants all of that money to come into the US and to be spent)

52
Q

2503(b) Trust normally don’t get the $15K gift limit exclusion because it’s considered a future interest gift. What provision would allow for a present interest gift to exclude the $15K annual gift?

A

Crummy Provision

53
Q

Dynasty Trust

A

A “B Trust” that benefits multiple generations using the lifetime exclusion to be passed down at the death of each owner. Marriages can both fund with their lifetime exclusions.

Used as a simple Trust and distributes income along the way to each generation.

54
Q

Can a charity be the beneficiary of a Simple Trust?

A

Yes, but no charitable gifts of corpus are allowed

55
Q

Revocable Trust usually have the grantor and the trustee as the same person which would be considered?

A

beneficial enjoyment

56
Q

Irrevocable Trust need approval from who to alter the trust?

A

Court

57
Q

Inter-vivos Trust is a revocable trust or irrevocable trust

A

Revocable (becomes irrevocable at death of grantor)

58
Q

QTIP Trust allows for the descendant to control trust for surviving spouse and ultimately?

A

Beneficiary that receives assets after death of surviving spouse

59
Q

2503(c) corpus must be distributed to the donee by age ___ and may be distributed by ___?

A

must be distributed 21 and may be distributed before 21 in accordance to the terms of the trust

60
Q

Complex trust (distributable income) has a standard deduction of ?

A

$100

61
Q

Form 709

Form 706

A

709 - gifts above the annual exclusion ($30K gifts from a JTWROS don’t require 709)

706 - tax return for an estate

62
Q

Explain these provisions:

Sprinkle / spray

Discretionary

Support

A

Sprinkle / Spray - only income distributable; up to discretion of trustee

Discretionary - income and principal distributable; up to discretion of trustee

Support - support for HEMS items; up to discretion of trustee

63
Q

Rule against perpetuity defines no longer interest if no new family member with in how long? and applies to what type of trust?

A

21 years and 9 months

Dynasty Trust

64
Q

CRAT

A

charitable remainder annuity trust

no new additions; fixed income amount (initial at least 5%; ending value of at least 10%

(Annuity in CRAT represents a fixed $ amount each year; variable %)

65
Q

CRUT

A

charitable remainder Unitrust

new additions allowable; fixed of at least 5% each year (amounts will vary each year); ending value of at least 10%

(Unitrust is like universal that has a variable premium. This it like a variable( amount each year)

66
Q

CRATs and CRUTs distribution income to who during their lifetime? And give final gift to who after 20 year max?

What tax deduction?

Who can change charity purpose of the trust?

A

income to anyone and must be paid out to charity within 20 years

deduction of initial PV of trust

only person that can change provisions is the Trustee

67
Q

Pooled Income

A

A pool of multiple investors that has allowable additions. Variable payments out to investor and paid to specific charity that cannot change. No municipal bonds

68
Q

Charitable Gift Annuity

A

One time gift to a charity that pays out a fixed dollar amount. The difference between the gift and the total payout back to the donor is consider the deductible charitable gift

(Mr. X gives $10 to XYZ charity and in return gets 8 year annuity of total of $8. So $2 charitable gift)

69
Q

Private Foundations

A

30% income tax deduction for a controlled investment by the donor. Income producing investment stays with charity and so does the investment upon donor’s death

70
Q

What CRTs produce income for donor and corpus death benefit is paid to charity?

What CRTs produce income for charity and death benefit of corpus is back to the donor?

A

CRUT, CRAT, Pooled Income, and Charitable Gift Annuity

CLAT / CLUT (just the opposite of a CRAT/CRUT, the corpus is paid to beneficiaries and the income is paid to a charity, no estate tax on corpus)

71
Q

Net Income with Make-Up UniTrust

A

like a CRUT, but can chose to defer income instead of take the stated percentage

72
Q

A Wealth replacement Trust is a ____?

A

CRUT with the income going into an ILIT (Irrevocable Life Insurance Trust)

73
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)

74
Q

Intrafamily Transfers

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

A

Partnership / S-Corp
Family Limited Partnership (FLP) (gifts up to the annual exclusion)
Gift Leaseback
Qualified Personal Residence Trust (QPRT)

75
Q

Guardianship vs Conservatorship

A

Guardianship - guarding interest of minors

Conservatorship - conserving assets of adult

76
Q

Disclaimers

A

Refusal must be in writing within 9 months

Inheritance will pass to someone else and disclaimant will avoid gift, estate, and GST tax

77
Q

When gift tax is paid by the donor, how does it affect the donees basis?

A

gift tax paid is added to basis

78
Q

Form 706

Form 709

A

706 - estate tax gift calculation at death

709 - gift tax filing while alive

79
Q

A wealth replacement trust is aka

A

ILIT

80
Q

Generation Skipping Trust (GSTT)

Who do the assets ultimately go to? Who receives income first and last? Who pays taxes?

A

Assets ultimately go to grandkids

Once donor dies, then income to kid(s), then once kid(s) die, corpus to the grandkids

Kid(s) will pay the tax acting as the Trustee upon his/her/their death

81
Q

A SCIN (self-cancelling installment note)

A

Installments of gifts for a property made back to the donor up to the $11.7 limit, the gift is excluded from their estate

82
Q

If a non US citizen is married to a US citizen and the foreign one dies, is US property or stock taxable to their estate?

A

Yes, but not for any non-US assets

83
Q

Irrevocable Life Insurance Trust (ILIT) will avoid what to the beneficiary?

A

taxable estate

84
Q

For a gift to be complete, what must happen?

A

Gift must be accepted

CFP (4 decks)

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