Estate Planning Flashcards
Non-community property interest
- 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
(JTWROS) Joint tenancy with right to survivorship
- 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
Tenancy by the entirety
- 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 spouses separate creditors, But not protected from the claims of both spouses joint creditors
Assets Not subject to probate
- property conveyed by deeds of title (IRA)
- Property held by JTWROS
- Government savings bonds
- Revocable living trusts
- payable on death accounts PODs
- Totten trust
Assets subject to probate
- singly owned assets
- property held by tenancy in common
- assets where the beneficiary is the “estate of the insured”
- Community property
Assets included in gross estate
- singly owned assets
- Tenancy in common
- bene is the estate
- community property
- JTWROS/Entirety
- Life Insurance
- General powers
- 3 ear gross-up on gift taxes paid (not GST taxes paid)
Life Insurance added to the estate
- proceeds are paid to the executor of the decedents estate
- Decedent at death possesses can incident of ownership in the policy
- Descendent xfered a policy with an incident of ownership within 3 years of death
Valuation of a gift
the value of a gift for gift tax purposes is its fair market value (FMV) at the date of gift
Basis of a gift
- if FMV on the date of gift is greater than the donors adjusted bass, use the donors adjusted basis
- if the FMV of the gift is less than the donors adjusted basis, use the chart below
if above basis gain if below FMV at date of sale then a loss if between basis and FMV there is no gain or loss
Deductible gifts (not taxable gifts) also called exempt gifts or qualified transfer
- gifts to a spouse, provided they are not a terminal interest
- gifts to qualified charities
- qualified payments in any amount made directly to an educational institution for tuition
- qualified payments in any amount made directly to a medical provider on behalf of any individual
- gifts to political parties
Summary of rules regarding gifts and the donors estate
- generally, gifts are given are simply “taxable gifts” to the extent such gifts exceed the annual exclusion
- taxable gifts paid (or payable) are generally allowed as a credit against tentative tax
- Gift taxes paid on any gifts within three years of death are generally added to the gross estate
Powers of Attorney
traditional non durable power of attorney- power ceases when the principle is no longer legally competent
Durable power of attorney- authority of agent continues when the principal becomes incompetent
Springing durable power of attorney- main strength is the agent has no authority over the principals assets until incompetency
Powers of appointment
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
Gift and estate tax implications (general power)
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 5 or 5 power - greater of the “5 or 5” is taxed
“5 or 5” power
Property subject to a general power will be included in a donee decedents 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 the lapse