Estate Planning Flashcards
What’s included in the gross estate?
Property owned by decdent
General POApointment!
Life insurance DB when policy transferred w/in 3 years
Joint Tenancy property (half or percentage depending)
Joint and survivor annuities
Retained life interests
Retained power to amend or revoke
Revisionary interest
Gift taxes paid within 3 years of death
Are proceeds of life insurance included in the estate?
Proceeds that are a result of your death and received by the executor ARE included
If any incidents of ownership of the policy. Any rights
Is QTIP property included in gross estate?
Yes
What is at the alternate valuation date?
Executor must make this election
Either Date of death or alternate date
Can only use it if the election lowers the gross estate and the estate tax due
Election applies to all assets in the gross estate except for
- wasting assets
- assets disposed of between death and AVD
What is a wasting asset?
Annuity
Patent
What are deductions from the gross estate?
A Admin (lawyer fees, court costs, etc)
B Burial (funeral expense)
C Causalty losses during administration
D Debts (mortgage, cc, etc)
E Last medical expenses
What is the estate tax formula?
Gross estate
less deduction
Equals adjusted gross estate
less marital deduction
less charitable deduction
equals taxable estate
Plus post ‘76 gifts - added back to gross up
equals tentative tax base
What are tax credits for estate tax?
Prior transfer credit
Estate tax credit
Foreign death taxes credit
What happens to holding period for inheritance?
Always goes to long term
What are requirements for a donor to make a gift?
Competent
Must have the intent to make a voluntary transferred
ex: not a gift if sold a jewelry box and there was accidentally a ring in it
What are requirements for a person to receive a gift?
Competent
Take the delivery
Accept the property
What are types of gifts?
Direct
Indirect (paying someone’s med expenses)
Complete
Incomplete (trust)
Reversionary interests
Net gift - when the donee agrees to pay the gift tax
How are gifts valued?
ON the date of the gift
Real estate - appraisal
securities - valued at the average high and low trading price for the day
Bonds - PV of expected future payments
Your gift may be discounted if there is a lack of marketability, liquidity, or control (ex: closely held business)
What is the super annual exclusion?
Specifically for a non-US spouse
What are the rules for split gifts?
Requires gift tax (form 709)
married spouses can elect to split gifts
Must be elected for all gifts that year
Only counts for the time they were married
What is a future interest gift?
What is a crummy provision?
Allows the trust beneficiary to withdraw some o any contribution to a trust for a limited period to create a present interest
Typically 30 days
What is a qualified transfer?
a payment for someone else paid directly to qualified educational institution or medical care
Must be paid directly
DOES NOT count toward annual exclusion
What are not gifts?
Alinomy
Support payments
Transfers in a business setting (these are compensation)
What is the marital deduction for gift tax?
unlimited as long as a US citizen
How are charitable gift
What is the amount of imputed interest on a below-market loan?
0-$10k — none
$10,001- $100k — Lesser of net investment income or interest calculated using AFT less interest student loan
-> if the NII is < $10k, $0 imputed interest
> $100k interest calculated using AFR less interest
What is a crummey provision?
The trust bene can withdraw from the trust for 30 days after the contribution
Used so that the gift to a trust is considered a present interest
What transfers don’t result in gift tax?
Gifts to political organization
Qualified transfer payment to education or medical
Payments for legal support
Payments as a result of divorce decrees
Transfers within a business setting
Unlimited marital deduction
Transfers to charities
When is a payment to education a qualified transfer for gift tax purposes?
If it’s made directly to the institution for tuition
does not include room and board, books, supplies, etc
What is the allowable transfer for non-us spouse to avoid gift tax?
$164,000 annually
“Spousal super annual exclusion”
When must the gift tax return be filed in the event that the donor dies in the year that he made the gift?
No laster than the due date, including extensions, of the estate tax return
When is a life insurance policy included in the gross estate?
When they own the policy
When their estate is the bene of the policy
If someone transfers their policy, then dies within 3 years, the proceeds are included in the gross estate..
When are annuities included in the gross estate?
Not when it is a straight single life annuity
When it’s a survivorship annuity, the value of a comparable policy on the second annuitant is included in the first annuitants gross estate
Note if both annuitants contributed to the annuity, then the gross estate of the first to die will only include the proportion of what he initially invested in the annuity
What is a available discounts for closely held businesses in terms of their valuation on date of death?
minority discount (your client owns minority share)
lack of marketability discount
blockage discount (If you own the majority of shares)
key person discount
What is the FMV of a security at a decedents death?
the average of the high and low trading price on that day
if the valuation date is a weekend, the valuation of the financial security is the average of the applicable values for the trading day before and the trading day after
What is deductible from the gross estate?
Funeral expenses
last med expenses
admin expenses
debts of the decedent
losses during estate administration
What is abatement?
It’s when there is a reduction of the inheritance. Ex: If someone says they are going to leave each kid $100k, then they die and they only have $200k.. The kids will receive less than $100k each
What is ademption?
When someone leaves something in the will, then when they die they don’t have it anymore.
Ex: “Leaving antique car to kid..” Then they sold the car and forgot to update will
Donee will get nothing
What are for someone to create a valid will?
Age 18
Sound mind
What is Durable General Power of Attorney?
Durable means it survives incapacity
General means it’s broad rights
What is a holographic will?
In your own hand. Must be in handwrting
Signed and dated by testator
what is a nuncupative will?
Oral dying declarations
Not valid in most state
Must be in front of sufficient witnesses
What is the survivorship clause?
Requires the bene to survive the decedent for a certain period of time in order to inherit
typically 6 months.
What is the disclaimer clause?
If the inherited disclaims, then the assets will go to X
The decedent is defining who gets in the case of disclaiming
Disclaiming rules
Disclaiming party can’t benefit
Must be in writing within 9 months
Person disclaiming can’t direct where the property goes
What is a Power of Appointment versus Power of Attorney?
POAttorney
- Ends at death
- May be general or limited
- may be revoked
- Can include a power to appoint but does not have to
POAppointment
- Included in a trust or POAttorney to allow the holder to direct assets
- Can survive death of grantor
- General POAppoinment means you can appoint to self, creditors, your estate, estates creditors, etc
- Crummy provision is most common. You have the ability to appoint assets to yourself
-Limited POAppointment is the ability to give money to anyone but yourself
-If you die with a GENERAL POA then those assets are taxed to you
What is probate?
Retitles assets
Advantages
- clear title
- Open orderly legal process
- Limits the access creditors have (limited amount of time)
Disadvantages
- costly
- delays - 6-12 months
- Publicity
When will something be included in probate?
No survivorship feature
No beneficiary listed
- sole ownership property
- tenancy in common prop
- community property
- invalid or no named bene
What avoids probate?
Life Insurance
Annuities
IRAs, SEPS, SIMPLES, Qualified plans (w valid bene)
Pay on Death accounts
State titling law if
How are different titling options treated at death?
How is JTWROS property treated at death?
The % that you contributed is included in the gross estate (must be able to prove it)
- If spouse, it’s always 50%
Does not go through probate
Only the decedents half steps to FMV
How is community property treated at death?
NO right of survivorship
50% included in gross estate
50% include included in probate
Steps to FMV at death
How is tenancy by the entirety property treated at death?
Not included in probate, there is a survivorship feature
50% included in gross estate
FMV stepped up for the half of the decedent
How does a net gift work?
You gift an asset but and the donee must pay the tax
If the gift tax paid is more than the adjusted basis, the donor has taxable income
What are rules for split gifts?
if you elect split gifts, all gifts made that year must be split
Requires form 709 for both spouses
must be married
Can use the split gift election in the year of death and on the final tax return
Can’t split with a dead spouse if you remarry in the same year
How is a gift of future interest taxed?
NO ANNUAL EXCLUSION
Can use the crummy provision to make it a current interest. Typically 30 days
What problems could come from a Crummey provision?
Need to be careful setting it up.
Avoid multiple beneficiaries in one trust with a crummy provision
Multiple beneficiaries may cause a taxable event from one bene to another when their crummy provision lapses
Make sure there are separate trusts or sub accounts
How are gifts to a charity taxed?
For estate and gift tax - unlimited deduction
For income tax - deduction based on type of contribution and organization
What are gift tax and estate tax forms?
706 - estate (6 feet under)
709 - gift
How do you calculate gift tax?
$345,800 taxes is due on the first million gifted.
40% on any gift over $1m
So if gifting $100m – $345k + (.4*$99m)
Using the tax lifetime credit versus tax exclusion:
$12,060,0000 Lifetime credit
$4,769,800 credit
Should you gift an asset in a loss position?
NO! Sell it instead
Who should you gift property that has the greatest appreciation potential?
The youngest donneee
Who should you give income producing property?
The poorest person in the lowest marginal income tax bracket.
Who would be the best to gift property that has the highest growth?
Give a charity whichever has a lot of growth because they won’t have income tax consequences.
What can you back out of estate taxes to get the adjusted gross estate?
Admin expenses (1041 or 706)
Burial (funeral)
Casualty losses (1041 or 706)
Debts
E (last medical expenses) - you could take these on the 1040 or 706*
*better on the 706 because no AGI limits