Estate Planning Flashcards

Question

Valuation of a gift

Answer 1

For gift tax purposes, the value of the gift is its FMV on the date of the gift.

Answer 2

- If FMV on the date of the gift is GREATER than the donor's adjusted basis, use the donor's adjusted basis. - If the FMV of the gift is less than the donor's adjusted use the chart: If sale price is above basis, use the donors carry-over basis, and accept a gain. If FMV on the date of gift is less than basis, but the sale price is in between donors basis and fmv, there is no gain or loss. If FMV on the date of gift is less than basis, and the sale price is less than that FMV, you use the FMV at the date of gift as your "adjusted basis" and accept a loss.

Answer 3

- 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 care provider on behalf of ANY individual. - Gifts to a political organization. - Gifts to the President of the US.

Answer 4

Trust may be defective / tainted for Income Tax and Estate Tax purposes if the grantor retains: 1. A right to income or the right to use or enjoy trust property (beneficial enjoyment). 2. A reversionary interest exceeding 5% (retained interest).

Answer 5

- Irrevocable trust with demand rights. - Demand right given to a minor through their guardian. - Beneficiary has temporary right to demand a withdrawal from the trust that is the lesser of the amount of the annual gift exclusion or the value of the gift transferred.

Answer 6

- No unlimited marital deduction, however, no estate tax due. - Jointly held property between spouses is not considered on-half owned. - Limited gift between spouses of only 100k (indexed) per year.

Answer 7

- It is the process for the orderly distribution of property from a decedent to one or more beneficiaries. - Court supervision, filing of claims against the estate by creditors, and publication of a last will and testament.

Answer 8

- The person making the will is the testator. - The will creates testamentary transfers. - Probate is the process by which the transfer is accomplished. - A testamentary trust does not go through probate, but the property passing through the will does.

Answer 9

The person is said to died INtestate.

Answer 10

Court supervision, marshaling of all the assets, paying of bills and resolving credit issues, overseeing distribution of the estate as directed by Will or by intestacy law.

Answer 11

Loss of privacy, possible will contest, cost and delays, ancillary probate.

Answer 12

- Singly owned assets. Fee simple. - Property held by TIC - Community property (half at first death) - Assets where the beneficiary is the estate of the insured.

Answer 13

- Revocable or inter vivos trusts (Totten also because it’s a revocable trust) - Transfer by operation of law (joint tenancy with rights of survivorship). - Transfers by contract (beneficiary arrangements in life insurance policies, annuity contracts, and retirement accounts.) - Titling TOD/POD. Accomplish the same result as Totten trust. Controlled by depositor and probate avoidance at death. Revocable trust, JTWROS, beneficiaries, TOD/POD.

Answer 14

Any persons who die within 120 hours of each other, by law, are deemed to predecease each other. This rule keeps the property of one deceased person from passing through the estate of another deceased person before ultimately passing to those who survive both.

Answer 15

This is a revocable trust in a bank account in which the depositor is named as trustee for another’s benefit. The depositor retains the rate of withdrawal until death. When the depositor dies, the balance passes to the beneficiary. Avoid probate.

Answer 16

Real property

Answer 17

- Form of ownership held by spouses. - Both spouses own a separate, undivided, and equal interest in the property. Each spouse owns a one-half interest. - All property acquired by the spouses during the marriage is generally presumed to be a community property. - there are no survivorship rights, thus, a will is needed, and the property will be subject to probate.

Answer 18

- Income earned by spouses, or only one spouse during marriage. - Appreciation on solely on property that is a attributable to the contributions of the non-owner spouse. - Commingled assets.

Answer 19

- property received as a gift by one spouse. - Property inherited by one spouse. - Income earned by spouses prior to marriage that is not commingled. - Interest earned on separate assets held by one spouse as sole owner. If a house or condo is purchased with gift/inheritance money by one spouse, it is not community property.

Answer 20

- Community property gets a full, 100% step up in basis on long-term capital gain property if at least one-half of the whole property is includable in the deceased spouses gross estate. - Common law (NY is common to me) property only receives a half step-up in basis on the deceased spouses half, and the living spouses basis remains the same. Add the two basis’ together and that’s the new basis.

Answer 21

The property will go through probate in her estate, and it will go through ancillary probate. The property bought in the common law state will be classified as community property since she paid for it with their earned income (while living in a community property state).

Answer 22

Not subject to probate, can be disclaimed. Not controlled by the terms of the will.

Answer 23

The full value of jointly held property is included in the gross estate of the first tenant to die, unless the survivor can establish ownership or consideration, of some portion of the property before joint tenancy was created. A gift of property is not a contribution or consideration. Income generated by a gift can be applied as bona fide consideration, but not the amount of the gift itself.

Answer 24

When the first spouse dies, his or her gross estate must include one half of the properties fair market value as of the date of death

Answer 25

Entirely for spouses. Not subject to probate, cannot be disclaimed. Only one that cannot be disclaimed. can only occur with mutual consent of both parties. TBE property can be attached by joint creditors.

Answer 26

By mutual agreement by both spouses, at the death of either spouse, upon divorce settlement.

Answer 27

Subject to probate, can be disclaimed. Property can be owned unequally by several owners simultaneously. Undivided interest. There is a division of income and tenants are free to transfer to their respective shares to other parties. For estate tax purposes, there are no survivorship rights in property held in TIC. Upon the death of the holder, their respective share will go through the probate process and included in their gross estate.

Answer 28

A trust is a fiduciary arrangement which one person (the trustee) holds the title to property (trust corpus), subject to the obligation to accumulate or distribute income or principal for the benefit of another (the beneficiary). The trustee holds legal title, the beneficiary holds

Answer 29

Must be in writing (handwritten or typed) and I must be witnessed. Some states require an attestation clause to validate a will. It just makes sure that the will was validly executed according to the states statutory execution requirements, and has actually been witnessed.

Answer 30

A written document which one person (the principal) uses to empower another person (the attorney in fact or holder of the power) to act on his or her behalf.

Answer 31

A trustees authority to act in managing assets may be recognized in virtually all states, and can be enforced while a durable power of attorney may not be. The trust continues after death, while a durable power expires at death.

Answer 32

A trust that is created by Will. It becomes effective only if the will creating a testamentary trust is admitted to probate. A testamentary trust itself does not go through probate. It designates a person to serve as trustee, names the beneficiaries of the trust, and includes directions on how trust assets are to be administered.

Answer 33

706 Gross estate plus adjustable taxable gifts

Answer 34

GROSS ESTATE - Funeral expenses, admin expenses, debts, taxes and casualty losses. = ADJUSTABLE GROSS ESTATE - Marital and Charitable deductions = TAXABLE ESTATE + Adjusted taxable gifts (amounts exceeding annual gift tax exclusion) = TAX BASE - Estate tax deduction x Remainder at 40% tax = TENTATIVE TAX - Gift taxes paid = NET ESTATE TAX

Answer 35

At the Tax Base, before the estate tax deduction.

Answer 36

Joint tenancy property with a spouse would be one half includable. Joint tenancy property with a non-spouse would be subject to the contribution/consideration test.

Answer 37

No, but gift tax paid out of pocket on gifts within three years is includable.

Answer 38

A lump sum. If a survivor is to receive periodic payments, the present value of the future payments is included in the gross state.

Answer 39

Life insurance owned by others, even when the decedent is the insured. Completed gifts. Life estate for the decedents own life only. A life estate gives the owner the absolute right to possess, enjoy, or derive income from the property for life, after which the interest terminates.

Answer 40

To get the appreciation out of their Estates.

Answer 41

- Power of appointment is an interest held by a person providing the holder with the ability to determine who shall enjoy, use, and possess the property subject to the power. - General (outright ownership), Special (Limited). - General power entitles the holder to transfer property to anyone, power to invade or consume corpus, and power to affect the beneficial enjoyment of a trust. Special power allows the holder to have limited powers, such as transferring property only to specific individuals, or only under specific circumstances.

Answer 42

A technique used by estate planners to provide flexibility and financial security for a beneficiary with minimal tax consequences. Property subject to a general power will be included in a donee-decedents estate only to the extent that the property exceeds the greater of $5000 or 5% of the total value of the fund subject to the power as measured at the time of lapse.

Answer 43

HEMS = health, education, maintenance, and support. It is not a general power or a limited power. It is its own category. An ascertainable standard is a power limited by some unit of measure relating to HEMS

Answer 44

If power is exercised, released, or lapsed, with a 5 or 5 power there are NO gift tax implications but for estate tax purposes, the greater of 5% or $5000 is taxed. Again, a five or five power provides the holder with flexibility and financial security with minimal tax consequences. In comparison, a general power that is exercised, released, or lapsed without a five or five power will have gift tax AND estate tax implications.

Answer 45

T. If gifts don’t exceed the $12,920,000 gift tax exclusion, there is never any gift taxes paid.

Answer 46

Completed gift. A transfer to an irrevocable trust is a completed gift. A transfer to a revocable trust is not a completed gift.

Answer 47

The forgiveness of debt, below market rate loans, the assignment of the benefits of a life insurance policy, or the transfer of property to a trust.

Answer 48

Business owners may gift business interest to family members using FLP, LLCs, preferred stock recapitalization, or by gifting closely held stock. These transfers will reduce the value of the business interest in the donors estate. Another strategy is to gift fully depreciated property to family members, then lease it back. Lease payments by the business to the family member are an income tax deduction.

Answer 49

The first $17,000 of the total annual value of gifts of present interest to EACH DONEE is excluded from the donors taxable gifts. Gifts of present interest qualify for the annual gift exclusion, but gifts of future interest do not.

Answer 50

Gifts in trust of future interests on behalf of minors, 2503C trusts, crummey trust, 529 plans.

Answer 51

There is a super annual gift tax exclusion from a US citizen spouse to a non-citizen spouse of $175,000

Answer 52

The value of the gift for gift tax purposes is it’s FMV at the date of gift. If the FMV on the date of the gift is greater than the donors adjusted basis then the donee will use the donors adjusted basis in determining future gains and losses. If the FMV on the date of the gift is less than the donors adjusted basis in the gift, then a loss is measured using the FMV on the date of the gift, but a gain is measured using the donors basis. If the sale price of the gift is between the donors basis and the FMV on the date of the gift, neither gain nor loss is recognized.

Answer 53

Gift tax 1. It must be appreciated property. 2. Gift tax must have been paid by the donor.

Answer 54

When gifted property is subject to indebtedness, only the net value of the gift is subject to gift tax. If the indebtedness is greater than its cost (basis) to the donor, the donor will realize a taxable gain. A gift of such property causes the donor to realize a capital gain on the excess of the debt over basis.

Answer 55

Taxable estate Tentative estate tax 3 years. Gross estate. $12,920,000 (2023)

Answer 56

Form 709 must be filed by any individual donor who in any calendar year, gives any of the following: More than $17,000 to any non-spouse donee A gift of a future interest in any amount A gift for which spouses elect gift splitting it

Answer 57

To make the split gift election, the consent of the non-donor spouse is required. Only the donor spouse needs to file a gift tax return if the split brings the gift below the annual exclusion. However, there is a line on the donor spouses tax return for the non-donor to sign, affirming consent to the election. Two gift tax returns, one by each spouse, must be filed by the spouses if after the split, the values of a gift to an individual donee exceed the annual exclusion. Both spouses need to consent on each others. No gift tax return would have to be filed if the gift was community or jointly held property and was $34,000 or under. It is automatically considered 1/2 by each spouse.

Answer 58

No, it is an ordinary income type of asset. The charitable contribution is the cash value of the policy, or the cost basis, whichever is less. The deduction is further limited to 50% of AGI.

Answer 59

A written document, under which one person executes to empower another person to act on their behalf.

Answer 60

Appoints a person as attorney-in-fact to make decisions on behalf of the principal. It concerns medical decision only. It is always a springing power. When the patient can communicate his or her own wishes, they are generally granted. The DPOAHC is drafted separately from the DPOA

Answer 61

DPOA are not affected by the principles later incompetency. The document can be drafted to empower the holder currently, in order to become effective, only when the principal becomes incompetent. THE DEATH OF THE PRINCIPAL TERMINATES A POA WHETHER OR NOT IT IS DURABLE.

Answer 62

Durable POA: authority of agent continues when principle becomes incompetent. Traditional, non-durable POA: power ceases when the principal is no longer legally competent.

Answer 63

Agent has no authority over the principals assets UNTIL incompetency

Answer 64

General power grants the agent the power to deal with all of the principals assets, and to take any action on the principles behalf. Limited, or special power, grants the agent the ability per perform only certain acts, or to control only specific property.

Answer 65

A living will. It is a legal document which directs the clients physician to discontinue life sustaining procedures if the client is in a terminal condition or permanently unconscious.

Answer 66

The trust is funded (either before incompetency or later by the attorney in fact), the grantor can also include provisions that specify management by the trustee, in the event of the grantor’s incompetency. Two advantages are that a trustees authority to act in managing assets is generally universally recognized, while a DPOA authority may not be in particular states. In addition, the revocable trust continues after death while a DPOA does not.

Answer 67

T. Be careful of five-year rule, and home equity limits. Medicaid recipients who have annuities and wish to remain Medicaid eligible, must name the state as a remainder beneficiary to cover the state incurred expenses.

Answer 68

Enables the client to make private sources of funding available for a disabled individual while preserving the individuals public benefits. It protects a disabled person from being exploited. The trust allows the beneficiary to continue receiving public benefits, such as Medicaid, section 8 housing assistance, and supplemental security income . However, the trust can her pay only for supplemental needs not covered by those programs.

Answer 69

This allows a disabled individual who is under the age of 65 to remain eligible for Medicaid by transferring his or her assets to an irrevocable OBRA “Payback trust”. This is used when the person has assets, in comparison to an SNT where the person usually does not. In a pay back, trust, if there are any assets remaining when the disabled beneficiary dies, the state is paid back any of the funds Medicaid paid on behalf of the now deceased beneficiary.

Answer 70

Trust property (corpus, or principal) Grantor (truster, or settlor) Trustee. Holds legal title. Beneficiaries. Holds equitable title.

Answer 71

Per capita (per cap, per head) leaves equal shares for either all descendants who survive, or equal shares per the children who survive. Big difference. Per stirpes leaves equal shares to descendants who survive. If you have a child who pass before you, that childs share is split equally amongst their children this is different from per capita. Essentially equal shares per immediate descendant whether alive or not.

Answer 72

It is a conduit for forwarding income to the beneficiaries. When income is passed to the beneficiaries, the character of the distribution remains the same, and the beneficiaries are taxed on the income at their own marginal tax brackets. DNI limits the amount that the beneficiaries must report as gross income for income tax purposes.

Answer 73

Provides the trust or a state with a deduction for the amount distributed to beneficiaries. Limits the portion of the distribution that is taxable to the beneficiaries. Ensures the character of the distribution stays the same. There is no double taxation, because the trust receives a deduction on the income that is distributed to the beneficiaries. This deduction is equal to the lesser of the amount that is actually distributed to the beneficiaries or the DNI.

Answer 74

A trust that is a separate entity, that is taxed as a separate entity on its income earned. For a trust to be taxed as a separate entity, it must be both irrevocable, where the grantor has no retained control, and income is accumulated.

Answer 75

A revocable trust is created during life when the grantor transfers the property to the trustee but reserves the power to alter, or terminate the arrangement and reclaim the property. Usually becomes irrevocable at death of the grantor. This is also considered a grantor trust and includable in the gross estate of the grantor. An irrevocable trust cannot be altered or amended without approval of the court. It is rarely includable in the grantors estate. The grantor cannot terminate the trust, and reclaim the property.

Answer 76

Crummey trust is an irrevocable trust (or provision in an irrevocable trust) with demand rights. It allows gifts of future interest to be eligible for the annual exclusion. In other words, it makes a future interest a present interest. If the trust is properly structured, it can be used for a minor beneficiary. With a crummey withdrawal right, each time a new contribution is made to the trust, the beneficiary has a temporary right to demand a withdrawal from the trust, typically 30 days. The right of the withdrawal amount is equal to the lesser of the amount of the annual exclusion, or the value of the current year contribution. Most frequently will see this in an ILIT. Without this provision, the contribution to the trust would be a future interest gift, and not qualify for annual exclusion.

Answer 77

No. Income generated does not matter. Only funds deposited in that year may be withdrawn up to the annual gift exclusion or lesser.

Answer 78

It is a popular alternative to probate, and is also known as a revocable living trust. It is a grantor trust that is taxable to the grantor, and at death becomes irrevocable, and either terminates with the corpus distributed to the remaindermen or continues until a later date. These trusts avoid probate.

Answer 79

A trust that is created through instructions in a persons will. The trust can protect the trust property from successive estate tax levies as it passes money or property from one beneficiary to another.

Answer 80

B trust, non-marital B trust, family trust. The first spouse to die controls the property of the trust. The bypass trust will contain property transferred to the trust at the time of the decedents death. The amount of property transferred to the trust equals the federal estate tax exemption, and can be structured to provide a stream of income to the surviving spouse only. Unlike the Q-tip, the income stream can also be split among the spouse and other individuals if the decedent chooses. The bypass trust property will not be included in the surviving spouses estate.

Answer 81

A trust or marital A trust. Second spouse to die controls the property of the trust. The marital trust is funded with property transferred to the surviving spouse at the decedents death. The property passes estate tax free under the unlimited marital estate tax deduction. The surviving spouse has complete postmortem control over the property in this trust. The property must be included in the gross estate of the surviving spouse.

Answer 82

C trust, or current income interest trust. The first spouse to die controls the property of the trust. It can provide the surviving spouse with a stream of income (only) for life, and allows the decedent to determine who ultimately receives the property when the surviving spouse dies. The property can qualify for the marital deduction in the estate of the decedent, but must be included as an asset in the gross estate of the surviving spouse.

Answer 83

Lifetime income interest for the spouse. Annual payments to the spouse. Mandatory payments to the spouse. Exclusively for the spouse.

Answer 84

Subject to kiddie tax rules. Must be funded with cash type assets. Normally distributed at age 18. Cannot be testamentary.

Answer 85

Subject to kiddie tax rules. Can be funded with any type of assets, including real estate. Normally distributed at age 21. Can be testamentary. The T in UTMA, stands for testamentary and Trump.

Answer 86

The custodial gift may be created for only one person. The Minor. A custodianship is not a separate legal entity. Income is taxable to the minor. Kiddy tax. The law enables the custodian to distribute income and principal at any time. If the donor is named custodian and predeceases the minor, the custodial property must be included in the donor/custodians gross estate. A donee must receive the property outright when they reach the age specified in the minors state, generally 18 or 21.

Answer 87

Bad boy trust Often established for the benefit of adult children. When the minor is younger than age 24, kiddie tax can be a problem. The gift has two parts: the income interest, and the remainder or reversionary interest. The income is a gift of present interest qualifying for the annual exclusion, and the remainder interest (corpus) is a gift of future interest. Only income needs to be distributed, no principal or corpus.

Answer 88

Minors trust (C for children) This enables a grantor to make a gift to a minor in trust, and still obtain the annual gift tax exclusion. To qualify as a present interest gift (annual gift tax exclusion) the following must be met: - The trust must provide that the property and income may be expended by or for the benefit of the donee before the donee attains age 21. - Any portion of the property not expended will pass to donee at age 21. - If the donee dies before age 21, the property must be payable to the donees estate, or the donee must hold a general power of appointment over the property. For kiddie tax purposes, a complex trust only gets a $100 standard deduction in step one.

Answer 89

$400, step one.

Answer 90

Marital A trust

Answer 91

The donor can make present interest gifts that qualify for the annual gift, tax exclusion, and maintain full control of the plan. The beneficiary does not get control, and the donor has the option of taking the money back at any time. 17 x 5 = 85. Limited investment options.

Answer 92

The power to direct (distribute) INCOME at the discretion of the trustee for the benefit of the beneficiary. Income only.

Answer 93

provision in a trust document that provides the beneficiary with only as much trust INCOME OR PRINCIPAL as the trustee alone sees fit to distribute. Income or principal.

Answer 94

A trust that distributes only the amount of INCOME AND PRINCIPAL the trustee deems necessary for the support or education of the beneficiary.

Answer 95

requires that future trust interests must be certain to vest within 21 years and 9 months after the youngest life or lives in being when the interests was created.

Answer 96

Essentially a B trust that benefits multiple generations. Free of estate, gift, and GSTT, can last for the lives in being PLUS 21 years and 9 months or as long as the local law allows. Usually continues for the lives in being at the time the trust was established, plus 21 and 9, then distributed.

Answer 97

Income to donor. Donor wishes to provide a non-charitable beneficiary with a stream of income either for life or a stated term, with the remainder interest passing to one or more qualified charities. Donor receives income tax deduction for PV of remainder interest. If term of years is used, it cannot exceed 20 years. The remainder interest must be at least 10% of initially contributed amount, and once the trust is established, the corpus must pay out a specific amount of income each year of at least 5%. 10%, 5%, no additions, 20 year max term.

Answer 98

U = unequal. Similar to the CRAT with 20 year max term and 5% rule, but can make additions. One advantage over the CRAT is that CRUT distributions may provide a level of inflation protection. The corpus must pay out a specified percentage of income, each year of at least 5% of the reappraised value of the corpus. The amount of income may vary. 10%, 5%, Additions allowed, 20 year max term

Answer 99

The unitrusts non-charitable beneficiary will receive the lesser percentage of the trust value, or the net income earned by the trust during that year. The account accrues in those years when the net income is less than the fix percentage of the trust value.

Answer 100

Grantor lead trusts can claim an upfront income tax deduction for the present value of the payment stream distributed to charities. Future income and gains generated will be taxable to the grantor, and the grantor will not be entitled to any additional charitable deductions for the annual distributions.

Answer 101

Donor transfers cash or other property to a qualified charitable organization (universities) in exchange for a commitment by the organization to pay the donor a specified amount each year during the remainder of the donors life. Basically overpaying for an annuity. It is the excess cost that creates the charitable deduction. No additions, fixed income stream, charitable deduction based on gift less annuity. No 5%.

Answer 102

Like a mutual fund run by a charity. Donor transfer his property into a common trust fund. It is commingled with the property of other donors. A single public charity controls and manages the trust assets. After the income distributions terminate, the public charity receives the remainder interest in the assets. A term of years certain cannot be used, and no trust needs to be set up by the donor (no 5% rule). Additions allowed, payments variable, no Munis!!

Answer 103

Fancy name for ILIT. It is an ILIT.

Answer 104

A nonprofit organization that is created and controlled by a wealthy individual for family charitable purposes. A separate legal entity that holds and invest funds, and distributes a minimum of 5% to support charitable activities, and other charitable organizations. A private foundation can distribute tax deductible gifts to non-charitable beneficiaries, with restriction. Must generally pay an excise tax of 2% of net investment income. A 15% penalty is applied if the foundation does not distribute 5% annually of the average fair market value of its assets.

Answer 105

Similar to a private foundation, but created to benefit only one public charity or multiple charities revolving around the same cause. Board must consist of at least 50% held by the charity. A donor and members of the donor's family may serve on the board of directors, but none may have veto power. No excise tax, no minimum distribution requirements.

Answer 106

A fund held by a community foundation, or other public charity, where a donor, or a committee appointed by the donor, may recommend eligible charitable recipients for grants from the fund. The public charity governing body can accept or reject. Not allowed to accept qualified, charitable distributions.

Answer 107

It is when a corporation gifts some stock to a charity. The donor should gift the stock to the charity and have the charity redeem to stock back through the corporation, or it would result in unwanted dividend treatment of the redeemed stock.

Answer 108

A trust created to own and be the beneficiary of life insurance policy on the trust maker’s life. Properly drafted, it doesn’t allow the insured to retain any incidents of ownership. This is a wealth replacement trust

Answer 109

T. Gifted, not sold!

Answer 110

Business owners may wish to reduce the value of the business interest in their estate through stock recapitalization, or by gifting closely held stock. Recaps can generate dividends .

Answer 111

Minority discounts, marketability discounts, blockage discounts, and key person discounts.

Answer 112

A terminal interest is one that might terminate on the happening of some event or contingency. Some exceptions are transfers in which the surviving spouse receives a life estate income, QTIP, or QDOT

Answer 113

Similar to QTIPS, but for noncitizen spouses. There is no unlimited, marital deduction. The $12,920,000 exemption remains available. Jointly held property between spouses is not considered one half owned. It is based on consideration. There is a limited tax free gift between spouses of $175,000 (for foreign spouse) The intent is to ensure the collection of estate taxes on marital deduction property intended for the benefit of a foreign citizen spouse, who may have less secure ties with the US.

Answer 114

Look it up

Answer 115

Involves a gift made on the condition that the donee pays the gift tax. The limitations are as follows: The donors $12,920,000 exclusion must first be exhausted. The decedents gross estate includes the amount of gift tax paid by donees on net gifts made by the decedent within three years of death.

Answer 116

Appealing strategy when one spouse possesses most of the family wealth, and the less affluent spouse has a relatively short life expectancy. The wealthier spouse makes a gift of low basis assets to the dying spouse. This inclusion steps of the basis of the property and better utilizes the dying spouses exemption amount. The dying spouse must live more than one year after the transfer for this to work. Unless it is going to children.

Answer 117

Sale of property at FMV in exchange for payments. Spreads out the taxable gain from the sale of property. Seller can remove and appreciating asset from there a state and substitute installment payments. 1. PV of remaining payments is included in owners estate (seller dies). 2. Gain is capital gain. Do not use if property is subject to recapture. 1245 depreciation. Watch out for two-year rule when sold to a related party.

Answer 118

The note contains a provision under which the balance of any payments due at the date of the sellers death are automatically canceled. The SCIN is removed from the estate, but the seller pays more income tax by living because the buyer pays a premium. 1. No value is included in the owners estate. 2. Gain is capital gain. 3. Assets can be depreciated. 4. Interest can be deducted. 5. Higher payout than installment.

Answer 119

Sale of property in exchange for periodic payments. This is an unsecured promise of a life annuity generally by a family member, and not by a life insurance company. 1. No value is included in owners estate. 2. Property is transferred for a promise. 3. Taxation to the seller. All the gain which would’ve been recognized over the life of the annuity now will be taxed in the year in which the private annuity is established. No longer a great estate planning strategy.

Answer 120

Irrevocable trust that allow the grantor to make gifts of property while retaining an income interest. 1. At the end of a term, corpus is distributed to a remainder person. 2. The value of the gift is discounted due to the retained interest. 3. Owner must outlive term or the asset is brought back into the estate. The gift in trust is a gift of a future interest. There is no $17,000 annual exclusion.

Answer 121

S Corp can transfer equity in a closely held family business, because income can pass through to its shareholders. 1. Family member receives conduit income. Ineffective if a child is under age 24. Kiddie tax. 2. Business entity must be capital sensitive. Not available if business is service related.

Answer 122

The FLP is a technique to shift income and ownership from parents and grandparents to children or other family members. Gift interest to limited partners to reduce the estate. 1. Qualifies for various valuation discounts, allowing for a lower gift tax. 2. General partner (the donor) maintains control.

Answer 123

Gift of fully depreciated property and leasing the asset back. Must have a legitimate business purpose for using the asset, charge a reasonable lease payment, and have a written and enforceable lease. 1. Lease payments are a business deduction, income to family member. 2. Do not use if child is under age 24. Kiddie tax.

Answer 124

In irrevocable transfer of a personal residence, while retaining an interest for personal occupancy for a period of years, after which the residence passes to the beneficiaries either outright or in trust. 1. At the end of a term, the residence is eliminated from the grantors estate. 2. The value of the gift is discounted. 3. Owner must outlive term or asset is brought back into grantor estate. Up to two residences may be transferred into the residence trust. One must be a primary residence. These make the most sense when the residence is large, life expectancy is reasonable, donor continues to live in the residence, and the estate is large.

Answer 125

Private annuity, installment sale, GRAT, SCIN.

Answer 126

Yes. This means that an owner could avoid ancillary probate associated with out-of-state real property owned by an individual.

Answer 127

There is only an adjustment to basis if it is a gift to charity.

Answer 128

GRUT is a trust where the grantor retains a qualified unitrust interest, consisting of an irrevocable right to receive a fix percentage each year of the net FMV of the trust assets, which is revalued annually. Generally, a GRAT is more convenient than a GRUT. A GRAT pays fixed income. The assets need to be valued only once upon the initial transfer. GRUT principal needs to be valued annually.

Answer 129

Grantor retained income trust. A client transfers property into an irrevocable trust, retaining a right to income for a period of years. It is not as effective as a GRAT or GRUT because the Mere rate to income does not assure that any will actually be distributed to the grantor. At the creation of the trust, the value of the property transferred into the trust is reduced by the retained interest. This is normally zero. Good for common law relationships.

Answer 130

A fundamental objective of federal wealth transfer taxation is to tax individual wealth, in excess of a certain amount, each time it passes to the next generation.

Answer 131

Someone who is at least two generations younger than the transferor (grandchildren) Someone who is more than 37.5 years younger AND unrelated.

Answer 132

If an individuals parent who is a lineal descendent of the transfer is deceased, then the individual and all succeeding generations move upon generation.

Answer 133

For each individual donor, the first $12,920,000 of property being transferred by direct or indirect lifetime transfer, or death time transfer, to all Skip persons combined is exempt from the GSTT. This means that once the GSTT exemption is surpassed, anything over will be taxed at a flat 40%

Answer 134

No. But gift tax is paid within three years of death will be brought back into the estate. The three-year rule only applies to gifts.

Answer 135

Similar to gifts, there is a lifetime exemption for GSTT of $12,920,000 before taxes must actually be paid on GST. Gift, GST, and Estate are all separate exemptions and come into play at different times

Answer 136

Termination of a non-skip persons interest, in income or principal, of a trust with the result that Skip persons become the only remaining trust beneficiaries. This is a gift of future interest, and no $17,000 annual gift exclusion applies.

Answer 137

D for double. This is any distribution of property out of a trust to a skip person (other than a direction skip or taxable termination). Because this is a gift of future interest, no $17,000 annual gift exclusion applies.

Answer 138

- Donor/transferor - Trustee - Recipient/transferee

Answer 139

Someone who holds a position of special trust in relation to another person.

Answer 140

T. They may also have to obtain court approval for certain expenditures or to sell the wards assets.

Answer 141

1. Loyalty to beneficiaries. 2. Duty to not self deal. 3. Duty to preserve property, and make it productive. 4. Duty to be impartial toward all beneficiaries.

Answer 142

Income the decedent had a right to receive, but that wasn’t actually received. Normal business deductions are allowed. The include items of expense, interest, taxes, and depletion. IRD must be included in the gross income of the recipient, however, a deduction is normally permitted for estate and GST taxes paid on the income.

Answer 143

Six months after the decedents death. Electing the AVD must reduce the total value of the gross estate. The amount of federal tax liability must be reduced as a result of filing the election. It must be applied to all the properties included in the gross estate. It cannot be elected for assets that decrease in value with the mere passing of time. If you’re not paying estate taxes, you cannot use AVD!! Be careful of questions with unlimited marital/charitable deduction, and estates that don’t exceed the exclusion.

Answer 144

Wasting assets are valued at the date of death FMV, and assets sold or distributed before the AVD are valued as of the proceeds receive at sale. Neither of these disqualify the AVD election.

Answer 145

It must be an irrevocable refusal to accept the interest. Refusal must be submitted in writing. The refusal must be received within nine months after the later of the date the transfer creating the interest was made, or the day the person disclaiming reaches age 21. The intended donee cannot have accepted any interest in the benefits.

Answer 146

It is similar to a B trust. It allows for the spouse to disclaim property, and yet receive a stream of income from the disclaimed bequest. The surviving spouse generally cannot retain any power to invade the corpus. The corpus may be invaded using HEMS, but no 5 or 5 rights are allowed!!

Answer 147

Section 303 stock redemption and installment payment of estate taxes 6166

Answer 148

This allows a corporation to make a distribution of a portion of the decedents stock that will not be taxed as a dividend. It can provide the estate with cash from the corporation without resulting in dividend treatment. Instead, the distributions will generally be treated as a LTCG which, given the stepped up basis, would be eliminated or minimal. 1. Business must be incorporated (closely held stock) 2. Value of stock must exceed 35% of the receipts adjusted gross estate. 3. Amount of stock redeemed as capital gain cannot exceed the sum of the estate taxes plus administration expenses.

Answer 149

If the estate qualifies, the estate tax attributable to the closely held business interest can be paid in 10 equal installments, beginning four years after the decedents death. 1. Property must be in a sole proprietorship, partnership, or corporation. Aggregation is allowed, if more than 20% interest in each business. 2. Interest must be carried on as of the day of death. 3. Value of business(es) must exceed 35% of decedents adjusted gross estate. 4. During the first 4 years (of 14 years) can pay interest only on taxes due. 5. The interest rate will be 2% on the first $1 million (indexed to $1,750,000 in 2023). 45% rate pertains to taxes due above that threshold. 6. The 2% is not deductible.

Answer 150

This is a valuation method for eligible real estate, used in connection with a closely held business or a farming operation. 1. Real estate use for farming or a closely held business. 2. Several rules to qualify: - 50% of the gross estate must consist of real and personal property. - 25% of the gross estate must consist of real property. 3. $1,310,000 reduction in decedents gross estate 4. Must be qualified use: 5 out of 8 year rule before death, AND, 10 years after death.

Answer 151

The interest can be in a sole proprietorship, a partnership, or a corporation.

Answer 152

NO MINIMUM REQUIRED. The CRAT, CRUT, and Private Foundation require 5% distributions to the beneficiaries.

Answer 153

Allows a corporation to make a distribution of a portion of stock. They will not be taxed as a dividend. It is a partial redemption that can provide the estate with cash from a corporation without resulting in dividend treatment. Instead, the distributions will generally be treated as long-term capital gain which, given the stepped up basis, would be eliminated or minimal.

Answer 154

If the estate qualifies, the estate tax attributable to the closely held business interest can be paid in 10 equal installments beginning 4 years after the decedents death. A special 2% interest rate applies to the portion of the estate, tax on closely held businesses on which payment is deferred, up to the amount of tax that would be attributable to the closely held business interest. $1,750,000.

Answer 155

Evaluation method for eligible real estate used in connection with a closely held business or a farming operation. If elected by the executor of the estate, special use valuation can result in a maximum reduction of $1,310,000.

Answer 156

For each individual donor, there is a lifetime GSTT exemption of $12,920,000 and similar to the gift tax, a $17,000 annual exclusion per donee is available under the GSTT for lifetime generation skipping direct transfers only.

Answer 157

Gift taxes PAID, reduces the amount of gift when calculating GSTT. Think about it and don’t forget it!

Answer 158

JUST THE DIRECT SKIP!

Answer 159

Direct Skip, the transferer pays the GST. Taxable termination, the GST is paid by the trustee (trust). Taxable distribution, the GST is paid by the transferee (beneficiary/grandchild).

Answer 160

True!! One of the requirements for using AVD is that the amount of federal tax liability must be reduced as a result of filing the election. If there is no estate tax due, then this would not work. It cannot be used.

Answer 161

T!!! Think about this. You got it.