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CFP Extra > Estate Planning > Flashcards

Estate Planning Flashcards

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1
Q

Non. Community Property

A

Income earned by spouses prior to marriage
Assets owned by either spouse prior to marriage
Property received as a gift by one spouse
Property inherited by one spouse

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2
Q

Community property

A

All property acquired after marriage as well as 1/2 of spouse’s IRA retirement account

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3
Q

Section 121 exemption

A

Gains for home sales exempt up to $250k for single $500k married if widowed and sold house 2 years of spouses death still get the $500k

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4
Q

Never step up basis in the following cases

A

Annuities
Qualified plans
IRAs

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5
Q

Assets subject to probate

A

Singly owned assets
Property held in TIC
assets where beneficiary is the estate
Half of community property

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6
Q

Form 706

A

Estate tax form

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7
Q

Gross estate

A

All pro at assets and non probate assets
Includes insurance if owned and gift taxes paid within 3 years of death (doesn’t include GSTT)

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8
Q

Adjusted gross estate

A

Gross income minus:
Funeral expenses, admin expenses, debts, taxes, and casualty losses

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9
Q

Taxable estate

A

AGE less marital and charitable deductions

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10
Q

Tax base

A

Taxable estate plus taxable gifts

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11
Q

Tentative tax

A

Tax base minus estate tax deduction times 40%

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12
Q

Net estate tax

A

Tentative tax less gift taxes paid

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13
Q

Estate gift and GST tax

A

Separate and not additive

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14
Q

3 year rule when added to estate

A

Gift taxes our
Incident of ownership within 3 years of your life

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15
Q

Value of gift special rule

A

If the fmv of the gift is less than the basis:

When you sell it and it is below fmv on the date of the gift use fmv at the date

When you sell it and it is above the original basis use the basis

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16
Q

Crummy powers

A

Annual right of withdrawal is the lesser of the amount of AEG or value of gift transferred

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17
Q

Ascertainable standard

A

Hems
Not subject to estate or gift tax implications

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18
Q

Five by five

A

Take the greater of $5,000 or 5% of trust

If someone only took 2% and then died then 3% would be included in their estate

If they took 5% and didn’t spend it it’s still in their estate

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19
Q

2503 (b)

A

Gift of future interest no AEG
Income distributions only
Must use lifetime exemption to fund
Income payout can be subject to kiddie tax

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20
Q

UGMA

A

Can be funded with various investments EXCEPT real estate
Normally distributed at 18
Can be included in custodians estate

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21
Q

UTMA

A

T for townhouse
Can include real estate and any other investment
Normally distributed at 21
Can be included in custodians estate

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22
Q

2503 (c) Trust

A

Funded with any type of waste
Normally distributed at 21
Can be included in grantors estate

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23
Q

Dynasty Trust

A

Form of B trust
Free of estate and gift taxes
NO CRUMMEY provisions means it is a gift of future interest no AEGs

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24
Q

Charitable transfers if donor wants income

A

CRAT - No additions, payments are fixed the same each year, payable to any charity, must end with 10% of original value

CRUT - additions allowed, payments are variable and recalculated each year the rest like above

Pooled income fund - additions allowed, variable payments, payable to one specific charity, no munis allowed

Charitable gift annuity - No additions, fixed lifetime income, payable to one specific charity

There is an income tax deduction on the PV of what remains

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25
Q

Charitable transfer income to charity

A

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

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26
Q

Intrafamily transfers

A

Property owner needs income use
PIGS need income

Another option is to gift assets or income to family

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27
Q

Private annuity

A

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

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28
Q

Installment sale

A

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

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29
Q

GRAT/GRUT

A

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.

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30
Q

Self canceling installment sale

A

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

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31
Q

Partnership/S corp

A

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

32
Q

Family limited partnership (FLP)

A

Gifts interests to limited partners to reduce the estate

Qualified for various valuation discounts allowing for a lower gift tax

General partner maintains control

33
Q

Gift lease back

A

Gift fully appreciated property

Lease payments are a business deduction

Do NOT use if child is under 24

34
Q

Qualified personal residence trust

A

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

35
Q

Skip person

A

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

36
Q

Direct skip

A

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

37
Q

Taxable termination

A

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%

38
Q

Taxable distribution

A

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

39
Q

Property that can’t be transferred to disclaimer trust

A

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

40
Q

Section 303 stock redemption

A

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

41
Q

Installment payment of estate taxes 6166

A

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

42
Q

Special use valuation 2032 A

A

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.

43
Q

Intestate

A

When a person dies without a will

44
Q

Testate

A

When a person dies with a will

45
Q

Ancillary probate

A

Separate procedure if descendent owns property outside state

46
Q

Elective share

A

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

47
Q

Totten Trust

A

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

48
Q

Holographic will

A

Testators handwriting and signed - court allowed

49
Q

Noncupative will

A

Oral will Must be made in presence of a witness

50
Q

Highly appreciated assets

A

Best for charities or donee is in Lower tax bracket

May want to keep it for step up at death

51
Q

Property likely to appreciate

A

Remove future value from donors estate

52
Q

Income producing

A

To donee in a lower tax bracket

53
Q

Property subject to depreciation

A

Keep

54
Q

Out of state property

A

Gift to avoid ancillary probate

55
Q

Gifts to non citizen spouses

A

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

56
Q

Increasing basis in appreciated property

A

Can be done if property is appreciated and gift tax was paid

((Fmv - basis) * .4) + basis

57
Q

Life insurance gift

A

Gift is limited to lessor of cash value or basis

58
Q

Per capita

A

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

59
Q

Per stripes

A

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

60
Q

CRUMMEY trusts

A

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

61
Q

Trust provisions

A

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

62
Q

Trusts created after death

A

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

63
Q

Charity bargain sale basis

A

Sold asset to charity under fmv

(Sale price/FMV) * basis

Gain = sale price - adjusted basis

64
Q

Income in respect to a decedent (IRD)

A

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

65
Q

AVD

A

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

66
Q

Reverse gift

A

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.

67
Q

GSTT Tax paid in regards to a taxable termination

A

Donor pays gift tax:
Gift - exemption = x
Tax = X * 40%

Trust pays GSTT tax:
(X - tax)* 40%

68
Q

Elements of 706

A
69
Q

Reverse QTIP

A

Select this to reduce GSTT

70
Q

QDT

A

Anything above the exemption amount goes into this trust

Foreign spouse receives exemption tax free

71
Q

NimCRUT

A

CRUT for working people allows money to grow

72
Q

When is life insurance included in your estate

A

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

73
Q

CLAT/CLUT

A

No minimum percentage needs to be distributed

74
Q

AVD

A

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

75
Q

Divorce decree payments and gift taxation

A

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

76
Q

Special needs trust

A

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

77
Q

2503 (c) Trust and trustees

A

Parents should not be trustees as it makes the trust tainted

CFP Extra (8 decks)

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