Estate Planning Flashcards

Question

Charitable transfer income to charity

Answer 1

CLAT or CLUT - period of time to charity remainder to beneficiaries of your choosing Private foundation - 30% income tax deduction Payable to any charity must distribute 5% Contribute for indefinite time

Answer 2

Property owner needs income use PIGS need income Another option is to gift assets or income to family

Answer 3

Sale of property in exchange for periodic payments No value included in estate Property exchanged for a promise Gain is taxed in year annuity was established

Answer 4

Sale of property at FMV in exchange for payments PV of remaining payments is included in owners estate Property is secured Gain is a capital gain. DONT use if property is subject to recapture. Don’t use with an estate issue or with fully depreciated assets If property sold to family and that member sells within 2 years must capture total gain

Answer 5

Irrevocable trusts that allow the grantor to make gifts of property while retaining some interest At the end of term corpus is distributed to remainder person Value of gift is discounted Owner must outlive term or asset is brought back into estate - date of death vale GRUT is a payout percentage which is fixed based on annual assets each year.

Answer 6

Use when there is an estate issue No value included in estate Gain is capital gain Assets can be depreciated Interest can be deducted Higher payout than installment

Answer 7

Gifting shares Family member receives conduit income but ineffective if child is under 24 because of kiddie tax Business entity must be capital sensitive not available if the business is serve related

Answer 8

Gifts interests to limited partners to reduce the estate Qualified for various valuation discounts allowing for a lower gift tax General partner maintains control

Answer 9

Gift fully appreciated property Lease payments are a business deduction Do NOT use if child is under 24

Answer 10

An irrevocable transfer of a personal residence At the end of a terms the residence is eliminated from the grantors estate The value of gift is discounted Owner must outlive term or asset is brought back into grantors estate

Answer 11

Related person who is at least two generations younger typically a grandchild. If your child dies, that your grandchildren move up a generation and are no longer skip. Unrelated person are considered skip is they are more that 37.5 years younger does not include spouse

Answer 12

Payment directly to grandchild or skip person The transferor or donor pays the GSTT

Answer 13

Gift made to a non skip person like your child in trust and your grandchildren are remaining beneficiaries No AEG for the transfer GSTT is paid by the trustee Tax paid would be amount gifted - remaining exemption multipled by 40%

Answer 14

Any distribution of property out of a trust to a skip person when a trust has beneficiaries with 2 or more generations No AEG is allowed Skip person distributions are taxable The skip person pays the the tax

Answer 15

Anything in tenancy by entirety Any beneficiary asset like retirement or life insurance (can be disclaimed but not in the trust)

Answer 16

Postmortem for estate liquidity Corporation elects to make a distribution for a persons stock that will NOT be taxed as a divided Long term capital gain with step up in basis Business entity must be incorporated (closely held stock) so regular corp or scorp Value of stock must exceed 35% of decedent adjusted gross estate Amount of stock redeemed as capital gain cannot exceed the sum of the estate taxes plus admin expenses Tax free distribution

Answer 17

Postmortem election for estate liquidity Safe answer Property must be in a sole proprietorship, partnership or corporation Aggregation of various business interests is allowed if more than 20% interest in each business Interest carried must be date of death Value of business must exceed 35% of descends adjusted gross estate During first 4 years (of 14 years) can pay interest only on taxes due so tax is deferred until 4 years after death in 10 equal payments Interest rate will be 2% on the first 1.64 million - Interest is not deductible

Answer 18

Postmortem election estate tax reduction Real estate used for farming or a closely held business Rules to qualify 1. 50% of gross estate must consist of real and personal property 2. 25% of the gross estate must consist of real property $750k reduction in decedents gross estate (1.23 million in 2022) Must be qualified use 5 out of 8 years before death and ran by family 10 years after death Allows executor to elect to value a farm for federal estate tax purposes based on actual current use as opposed to FMV if sold.

Answer 19

When a person dies without a will

Answer 20

When a person dies with a will

Answer 21

Separate procedure if descendent owns property outside state

Answer 22

Surviving spouse is entitled to a specific minimum of deceased spouses estate

Answer 23

Revocable trust in a bank account deposit structure for another’s benefit. Only operate in a few states.

Answer 24

Testators handwriting and signed - court allowed

Answer 25

Oral will Must be made in presence of a witness

Answer 26

Best for charities or donee is in Lower tax bracket May want to keep it for step up at death

Answer 27

Remove future value from donors estate

Answer 28

To donee in a lower tax bracket

Answer 29

Gift to avoid ancillary probate

Answer 30

Don’t get unlimited marital gift $164k annual exclusion

Answer 31

Can be done if property is appreciated and gift tax was paid ((Fmv - basis) * .4) + basis

Answer 32

Gift is limited to lessor of cash value or basis

Answer 33

To descendants who survive equally so if you have three kids and one kid passes away (deceased child leaves 2 kids) your assets would then be spilt evenly 1/4 to each

Answer 34

To descendants who survive Your assets would be spilt as follows Three kids one kid dies (the descended child has two kids) Living kids get 1/3 each Grandchildren get 1/6 each

Answer 35

Irrevocable trust Withdrawal rights amount is lessor of AEG or the value of the contribution

Answer 36

Spendthrift: prohibits beneficiaries interest to be transferred and protected against creditors Sprinkling/spray: distribute income at the discretion of the trustee fbo the beneficiary Discretionary: income principal as trustee determines Support: only amount trustee sees fit for support or education

Answer 37

Marital trust: trust A surviving spouse has control and lower over all assets subject to estate tax Bypass trust: trust b funded with remaining exemption; spouse and descendants pass estate tax free, have HEMS or 5 by 5 power Qtip: trust c only created for second marriages with kids from previous marriage Surviving spouse gets mandatory income and remaining assets are transferred to beneficiaries

Answer 38

Sold asset to charity under fmv (Sale price/FMV) * basis Gain = sale price - adjusted basis

Answer 39

Person who died had a right to receive income but didn’t; like cap gains, unpaid salary, comission It is included in gross income but deductions are available if estate tax is paid on income Calculate tax with IRD then without and take the difference between the two

Answer 40

6 months after death To elect this it must reduce value of total estate tax liability and must be elected for ALL property Can’t be elected for property that depreciated over time like an annuity Can’t select if no estate tax is due Assets sold or distributed before then and this is selected you use FMV of date sold/distributed

Answer 41

If one spouse is richer then the other and is dying then you can gift property to them to get a step up in basis when they die. They need to live for a year after the transfer is made.

Answer 42

Donor pays gift tax: Gift - exemption = x Tax = X * 40% Trust pays GSTT tax: (X - tax)* 40%

Answer 43

Select this to reduce GSTT

Answer 44

Anything above the exemption amount goes into this trust Foreign spouse receives exemption tax free

Answer 45

CRUT for working people allows money to grow

Answer 46

You own Life insurance on someone’s else’s life and you gift within three years of your death 1. Term: value of unused premium 2. Whole: unused premium plus cash value on that date

Answer 47

No minimum percentage needs to be distributed

Answer 48

ONLY available if decline in value, if they don’t mention it don’t select it

Answer 49

Aren’t subject to federal gift taxes if the payment is made within 3 years of the date of divorce decree

Answer 50

Can hold life insurance Needs independent trustee (family member other than parent can be co trustee) The trustee can reposition the assets in the trust

Answer 51

Parents should not be trustees as it makes the trust tainted