Estate Planning Flashcards
Types of Ownership Titling
Individual/Separate ownership
Joint tenancy with right to survivorship (JWTROS)
Tenancy by the Entirety
Tenancy In Common
Community Property
Titling- Separate ownership
1 owner
fully transferable
no automatic survivorship- transfers by will or state law
100% probate inclusion
100% gross estate inclusion
Titling- JTWROS
2 or more owners
transferable without the approval of the joint tenant
Auntomatic survivorship at death of joint tenant
Not included in probate estate
included in gross estate
- if spousal- 50% is included
- if non-spousal - FMV * % of purchase contribution = inclusion in gross estate
Titling: Tenancy by the entirety
2 owners- spouses
transferable with approval from joint spouse
automatic survivorship at death of spouse
not incomed in probate estate
50% included in gross estate
Titling- Tenancy in Common
Several owners
Each owner may sell their own interest
No Automatic Survivorship
FMV of interest included in probate estate
FMV of ownership included in gross estate
Titling: Community Property
Two owners- Spouses
Transferable with both spouses approval
Automatic survivorship if wither titled in a joint trust or as “S1 and S2”
Not included in probate if full ownership is transferred to spouse
50% of the value is included in gross estate
What makes a will Invalid
Fraud
The testator being subject to “undue influences” by someone benefiting from the will
Mistakes in will Clauses
The will is not properly executed, signed or witnesses according to state law
Types of wills
Mutual Will- A will made in agreement with another person to dispose of certain property interests
Reciprocal Will- Each person’s will designate that all property will go to the other person
Holographic Will- A hand written will
Nuncupative will- an oral will
Survivorship Clause
A named beneficiary cannot inherit unless they live for a specific amount of time after the will-marker dies
can range from 5-60 days
Ancillary Probate
Property that is owned in another state will go through probate in that state
Ways to avoid probate
TLC
Trusts
Law- Titling POD/TOD accounts, life estate
Contracts - Named beneficiaries on insurance, IRAs, Pensions etc
Advantages and Disadvantages of probate
Advantages- A court supervised distribution of property
Protects creditors by insuring estates debts are paid
Bars future creditors claims against the estate
Documents the title transfer of property to others
Disadvantages- Time- typically takes between 9 months and 2 years
Costs- Attorney and court fees
Privacy- Probate is a public proceeding
Asset Transfer at Death
Per Capita- All survivors get an equal share no matter the generation
Per Stipes - Assets split evenly through the generation, if the generation is deceased their shares is split equally among their heirs
Per Capita by generation - Split equally among next generation. If anyone in that generation is deceased then that money is pooled and split equally among the next generation
Alternative Valuation Date (AVD)
5 w’s and the exceptions
Executor makes the election
value is 6 month from death instead of at death
within 1 year of estate tax return filing
Form 706
Lowers valuation of estate and potential taxation
Can not be used on depreciable assets (cars patents, life estate or remainder interests)
Types of Power of Attorney
General- lapses at disability or incapacitation
Special- Grants for a specific task. once that action is completed, authority expires
Non-durable- Remains active until incapacitation
Durable- does not lapse at incapacitation or disability
Springing- become enforce when principal legally is incapacitated. Must be confirmed by a doctor which can lead to delays
Annual Gift Exclusion Amount
$17,000 in 2023
$85,000 to 529 plans when forward funding
no limit on money paid directly to medical provider or institutions for medical expenses and tuition (only tuition) paid directly to an educational institution
No limit for American citizen spouses
Yearly Gift Splitting
When spouse elect to gift split then gift splitting treatment must be applied to all gifts in that calendar year
Lifetime gift and estate credit exemption amounts
Unified credit amount - $5,113,800
Unified exemption amount - 12,920,000
Portability- Unused exclusion from 1 spouse can transfer to the next spouse
Qualified Disclaimer
If you reject a gift and it is given to another you do not assume any tax liability
for it to qualify you 1) must reject it in writing, 2) that letter must be received within 9 months after the date of transfer was attempted or the date the person disclaiming reaches 21 (whichever is later) 3) not have accepted the property or any benefit of it 4) Someone other then the disclaimer receives the property and the disclaimer had no influence in the decision
Gifted Property with Gains and Formula for Adjusted Basis
If property that is gifted has gains then new owner gets the old owners basis and holding period
If gift tax is PAID the new basis is
(FMV - basis)/ (FMV - annual exclusion) = Appreciation factor (A.F.)
Basis + (A.F. * Gift tax paid)= New basis
Gifted Property with Loss
If when donee sells it, it is…
Above original basis- use the original basis and holding period
Between original basis and gifted value, no gain or loss is realized
Lower then the value at the time it was gifted, use the FMV at the time of the gift and the donee’s holding period
Step up Basis: spousal vs. Non-spousal JTWROS
Spousal- You get a 1/2 step up in basis from the spouses 1/2 of the property
Non-Spousal- you take the amount you paid of the original purchase + (the % they originally paid * the current FMV)= new basis
Community Property states- there is a 100% step up in basis
Generation Skipping Transfer Tax (GSTT) types and amounts
Direct Skip
Taxable Distribution
Taxable Termination
GSTT is a flat 40% tax
Estate Tax Formula
Gross estate - (expenses, claims, taxes, casualty and theft)= Adjusted Gross Estate
AGE - (charitable donations and marital deductions = Taxable estate
TE+ Taxable gifts= Total taxable Transfer
TTT * Tax rate=tentative estate tax
TET - gift taxes paid = Gross Estate Tax
GET- (applicable credit and other credits)= Estate tax liability
Trusts
A legal entity that holds property and allows the grantor (creator of the trust) to coordinate the investments, use, and distribution of property, not only during one’s lifetime but also after death
Simple Trust
Required to distribute all the accounting income to the beneficiaries in the year earned
may not have charitable beneficiaries
Can not distribution principle during the tax year
have a personal exemption of $300
Complex Trusts
Are not required to make distributions
May have charitable beneficiaries
May distribute principle during the tax year
Have a personal exemption of $100
Revocable Trusts
The grantor has the right to terminate the trust
Transfer of asset does not constitute a completed gift
Assets in the trust are subject to estate tax at the time of the grantor’s death
Good for estate planning, avoids probate fee and are fully amendable
Irrevocable Trusts
May not be revoked once created
Transfer of assets is generally considered a completed gift and subject to gift tax
Assets in the trust are generally not subject to estate tax at the time of the grantor’s death
Good for estate planning- asset protection, avoids probate fees, medicare planning, tax deductions and they are amendable with beneficiary’s okay
Grantor Trusts
A revocable trust in which all income will be taxed to the grantor
Any trust that allows the grantor, grantor;s spouse, or a third party without beneficial interest in the trust, and rights or powers as specified in the grantor trust rules will be taxed as a grantor trust
Grantor Trust Rules
The Grantor may revoke/modify the trust, retain beneficial enjoyment, or retain administrative powers or controls of beneficial enjoyment. Income is distributed to the grantor for the support of the grantor’s children
Grantor
A person who transfers property and dictates the terms of a trust
AKA- settlor, trustmaker, or trustor
Trustee
A part to whom property is transferred by the grantor and receives legal title to the property placed in the trust
Must follow a formal written agreement (terms of the trust) for the benefit of the beneficiaries
Serves as a fiduciary
65 Day Rules
Allows fiduciaries to make distributions within 65 days of the new tax year but still have them count as distributions during the previous tax year
