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Estate Planning > Estate Planning > Flashcards

Estate Planning Flashcards

1
Q

Estate planning team (Qualified)

A

○ Attorneys
○ CPA
○ Financial planner
○ NOT a Trustee :
§ Trustee will carry out terms of the trust. Not needed in planning
Trustee holds legal title of property for the trust

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2
Q

Estate Planning Process

A
  1. Establish Client/Planner Relationship
  2. Client profile and objectives
  3. Determine clients financial status
  4. Develop plan: Transfer objectives/beneficiaries
  5. Implement plan: Attorney Draft
    Review and update
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3
Q

Statutory Will

A

Drafted by Attorney w/ statutes of domicile stat, Must be witnessed

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4
Q

Holographic Will

A

Handwritten by testator, Must be signed and dated

No witness

Must be in testators handwriting

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5
Q

Nuncupative Will

A

Oral dying declarations made before numerous witnesses, Not valid in most states, only applies to tangible property

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6
Q

Intestate

A

When someone dies without a Will or a will that was not signed or dated

			§ Benefits:
				® Distributes most or all Estate to surviving Spouse and children

Spouse and Minor children get priority with distributions

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7
Q

Statement of domicile of Testator

A

First thing to confirm when using an online will service

Provision in a will

Very Important

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8
Q

Durable PoA

A

Remains in power even if principle becomes incapacitated (NOT DEATH)

Appoints a surrogate Decision maker for health care concerns

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9
Q

Springing PoA

A

Power springs into existence after an event

Allows the principle to choose an agent to make decisions on your behalf if principle is unable to do so

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10
Q

Power of Property

A

Only for property management

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11
Q

Broad Power

A

Agent acts with no limitations

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12
Q

General power of appointment

A

:Has full control of asset appointment. Not limited by an ascertainable standard such as health, education, maintenance, or support.

○ Ex. Uses the Incapacitated Assets to pay powerholders own creditors.

○ If powerholder predeceases the incapacitated the assets will be included in powerholders estate

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13
Q

Limited or Special power of appointment

A

Restricts agent on who can transfer property too .

Limited by an Ascertainable standard

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14
Q

Tenancy by Entirety:

A

Spousal ownership ONLY

Neither can sever without both consent

Right of survivorship implied

Transfer outside of probate after death (NO PROBATE)

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15
Q

Joint Tenants with Rights of Survivorship (JTWROS)

A

Equal interest held by 2 or more tenants with rights of survivorship

Undivided interest in property

Priced at fair market value

Property transfer automatically at time of first death (NO PROBATE)

Contribution Rule is followed for gross estate calculations

Ex. Originally you contribute 60% of the cost your gross estate will include 60% of FMV at time of your death

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16
Q

Community Property:

A

marital property (community) is owned jointly. Community Property includes all assets and earnings acquired by either spouse during the marriage.

No Survivor rights

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17
Q

Life Estate

A

A interest in property that ceases upon death of an individual

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18
Q

Gift Splitting

A

Only available to spouses

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19
Q

Inheritance

A
  • Automatic Step up basis
  • Automatic Long Term holding period
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20
Q

Buy-Sell Agreement

A

A stock redemption plan must have a corporation as a party to the contractual agreement

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21
Q

Crummy Provisions

A
  • Allows trust beneficiary to withdraw some trust assets for a limited period each year.
  • Considered present interest gift
  • Crummy allows annual exclusion to offset annual contribution
    ○ Bene cannot request an amount greater than the contribution
  • The right to exercise the Crummey powers must exist for a reasonable amount of time each year
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22
Q

5/5 Lapse Rule

A
  • Considered a taxable gift if
    ○ 1 of the Beneficiary has the power to withdraw $5000 or 5% but doesn’t leaving more for other beneficiaries

○ Taxable to Powerholder

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23
Q

SCIN (Self Canceling Installment Sale) -

A
  • Purchaser is liable for full cost taxation if Seller dies without paying full amount
  • Great Strategy for rapidly appreciating property with lower cost basis
    ○ Allows property to be removed from the estate at current cost
    ○ Recipients Receive property with a basis equal to current sale price
  • Gives the seller collateral interest in property sold
  • Only makes payments until the earlier of the sellers death or terms set forth in SCIN

○ Payments are considered
* Interest Income
* Capital Gains
* Return of Adjusted
basis

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24
Q

Marital Deduction

A
  • Allows assets to pass to spouse tax free
    ○ Defers tax to death of surviving spouse
  • Unlimited deduction to Adjusted gross estate
  • Can preserve more applicable estate tax credit for use from the surviving spouse
  • Surviving spouse has full control of assets unless a QTIP is used
    ○ QTIP would state spouse is only allowed to draw income
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25
Q

Requirements for general power and appointment

A

○ Must be married at time of death

○ Must be us Citizen

○ Must receive property through estate

Net Value of qualifying property left to surviving spouse is included in marital deduction

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26
Q

Alternative Valuation Date

A
  • Election is optional, irrevocable and applies to all estate assets (Except Annuities)
  • To Qualify
    ○ AVD must reduce estate tax liability
    ○ AVD must reduce gross estate

When election is made Heir will receive assets at a higher basis

27
Q

Generation Skipping Transfer Tax (GSTT)

A

○ Applies to transfer 2 or more generations lower than transferor\

○ Life time exemption for GSTT equal to federal exemption

○ Transfer that qualify for gift tax exclusion also excluded from GSTT

○ Must report for 706

28
Q

Skipped Persons

A
  • 3rd generation below while 2nd Generation is still alive
  • Ex. Granddaughter (3rd gen) and father (2md gen) is still alive
29
Q

Simple Trust

A

○ Mandates distribution of income

○ Beneficiaries pay the income tax

○ Prohibits:
* distribution of principal
* Distribution of any charitable beneficiaries

30
Q

Complex Trust

A

○ Permits:
Accumulation of income
Distribution of principal and charitable donations

31
Q

○ Irrevocable

A
  • Excludes from grantors gross estate
  • Ex. Client transfer assets into Irrevocable trust and does not retain any rights on property or retained interest in assets when grantor dies $0 is included in gross estate
32
Q

Revocable

A
  • Fast Distribution of assets
  • Included In gross estate does not reduce taxes
  • Retained interest
  • When grantor dies Trust becomes Irrevocable
  • Grantor is liable for income tax
  • Avoids Probate
33
Q

Irrevocable Life Insurance Trust (ILIT)

A
  • DB of Life insurance transfer WITHIN 3 years are included in gross estate

Trust is Bene of the life insurance policy

34
Q

Dynasty Trust

A
  • The structure of the dynasty trust allows family to avoid transfer taxes at the passing of each family generation
    • A vehicle avoids transfer taxes at the passing of each generation
      • Avoids gift and estate taxes

Does not allow family members to participate in the family business but does allow to them to benefit from dividends

35
Q

Bypass Trust

A
  • AKA Credit Shelter Trust
  • Used by Wealthy married people to maximize tax exemptions.

Ex. Newly married wants to use investments to provide for new husband and pass to kids if he ever remarries.

36
Q

Qualified personal Resident Trust (QPRT)

A
  • Must be funded by personal residence or vacation home
  • Cannot include furnishings
  • At the end of the QPRT the grantor must begin paying rent to the remainder beneficiaries if he continues to live in residence.

Can result in lowering value of individuals gross estate

37
Q

QTIP

A
  • Trust assets will be included in surviving spouses gross estate

Instruction of the trust say surviving spouse may collect specified income

  • Income from Trust must be paid to spouse
  • Must give the surviving spouse the right to require only income producing assets to be in the trust

Remainder Beneficiaries are determined by grantor

38
Q

Grantor Retained Annuity Trust (GRAT)

A
  • Irrevocable
    - Unable to remove
    assets
  • Interest and dividends earned by the trust are taxed to Grantor
  • Taxable gifts will occur when GRAT is established, not at the end.
  • IF Grantor Survives Term of trust none is include in gross Estate
    • However taxable gifts (which occurred at beginning of GRAT) will be added back to taxable estate

If Grantor Dies during Term, Entire value of trust assets will be included in grantors estate (NOT PRO RATA)

39
Q

General Power of Appointment Trust (GPOA)

A
  • Qualifies for Unlimited marital Deduction
  • Allows spouse to utilize trust assets for their own benefit
  • Does not allow beneficiaries to have discretion
40
Q

○ Testamentary Trust

A
  • Funded upon grantors death
  • Inclusion of gross estate
  • Assets come from estate Assets
  • Grantor establishes limitation on Distribution of Assets

Can have multiple beneficiaries

Part of Probate Assets

41
Q

CRAT:

A
  • Made for wealthy individuals that want to remove appreciating assets from Estate
    • Freezes assets at time of charitable donation
  • Allows Term Certain
  • No additional Contributions
42
Q

CRUT:

A

Allows Term Certain

Allows from additional contributions

43
Q

Intentionally Defective Grantor Trusts (IDGT)

A
  • Irrevocable Trust
  • Grantor has power to substitute Assets or control Investments
  • Grantor Revisionary Interest must be greater than 5% of Trust value to Qualify
  • Trust income can be payable to grantors spouse
  • Power to borrow from trust
  • Advantages:
    ○ Allows Transfer Free of taxation
    Even if asset appreciates in value
    ○ Allows income to be taxed to Grantors Lower bracket compared to Trust Income rates
    ○ Enables grantor to remove assets from taxable estate
    ○ May sell an appreciating asset to IDGT without owing capital gains tax

Unable to reclaim assets

44
Q

○ Tangible Personal Property Trust (TPPT)

A

Will Transfer ownership of property while having remaining In possession of the property for a while.

45
Q

○ 2503 C Trust

A
  • C stands for Custodial
  • Assets must be distributed at Age 21
46
Q

○ Family Limited Partnerships (FLPs)

A
  • Have general and limited partnerships
    ○ Only general partners have management authority
  • FLPs are owned by the partnership
  • Senior generation maintain controls
  • Assets are somewhat protected from creditors claims
  • Advantages
    ○ Significant Discounts in Valuation transferring of partnership interest
    ○ Convenient way to transfer assets
    ○ A means of gifting assets while still maintaining control
    ○ Shifts future appreciation in the value of assets to next generation on a lower tax bracket
    ○ Can result in lowering value of individuals gross estate
  • Special Valuation Discounts
    ○ Lack of Marketability
    Minority Interest
47
Q

○ Installment Sale

A
  • Allows to transfer business ownership to a non-relative

Can set up periodic payments with interest so buyer doesn’t need to pay full

48
Q

Qualified Disclaiming Assets

A
  • Disclaimer must be in writing
  • Must be disclaimed 9 month of date of death
    ○ Executor may disclaim assets on behalf of the decedent
  • Cannot benefit from disclaiming assets
  • Disclaiming party cannot direct the interest to any other specific interest

Can disclaim any % or fraction of assets

49
Q
  • Incidental ownership that will include life insurance proceeds to Gross Estate
A

○ The Right to change ownership

○ The right to borrow against policy

○ The right to convert group to individual

○ Gifts or transfer of polices under 3 years
* Even into irrevocable trust

○ Descendant Policies owned on other people
Right to Cancel the policy

50
Q

Viatical Settlement

A

Proceeds from settlement are excluded from gross estate

51
Q

Section 303 Redemption

A
  • Qualifying redemption amounts are Limited by payment of death taxes and estate admin cost
  • Estate must meet 35% rule
  • Apply to closely held stock only
    Common or preferred
52
Q

Life Insurance Death Benefit Transfer within 3 Years of Decedents death

A

Death Bene Is included is in decedents gross estate

Even in ILIT

53
Q

Adjusted Gross Estate Formula

A

Gross Estate - (Administrative cost, Burial, Debt, Casualty/property Loss after death)

54
Q

2503 (b) trust

A

Must Distribute assets Annually on behalf of the child. Can hold the assets in trust past age of maturity.

55
Q

Gift Tax Return

A

Must be filed by april 15th

No need to File:
- For qualified Gifts
- Gift under annual exclusion
- Marital gifts

56
Q

Which of the following techniques can be used to lower the value of an individual’s gross estate?

I. A Totten Trust
II. A Qualified Personal Residence Trust
III. A Family Limited Partnership
IV. An Irrevocable Life Insurance Trust

A

Qualified Personal Residence Trust

Family Limited Partnership

Irrevocable Life Insurance Trust

Not Totten
- Used to avoid probate not lower value of gross estate not

57
Q

Which type of trusts permit additional contributions to the trust after its inception?

A

CRUT

GRUT

U stands for additional contributions

58
Q

Donations of $250 or more

A

Receiver of donation is required to send confirmation of contributions

58
Q

Donations of $500 or more

A

form 8283 is required

59
Q

Ex. of Terminable Interest

A

Life Estate
- Interest in property terminates upon death

Interest on Patent
- Patent terminates after a certain period of time

Term interest in property of 10 Yrs
- Interest end after 10 yrs

60
Q

Selling Assets of Estate to Generate cash

A

○ This may cause income tax consequences

○ Assets may not be sold at full, Realized FMV

Selling expenses are deductible

61
Q

Skipped Person in GSTT

A

3rd Generation (2 or more Gens lower than transferor)
- Grandmother 1st Gen
- Mother 2nd Gen
- Grandson 3rd Gen!!!!

Non relative 37.5 years younger then transferor

62
Q

Which form is used to report a testamentary transfer subject to GSTT?

A

Form 706

63
Q

Gifts included in Gross Estate
○ Only Life insurance gifted within 3 years of death is included in gross estate.
Gifts of cash is not!

A

○ Only Life insurance gifted within 3 years of death is included in gross estate.

Gifts of cash is not!

Estate Planning (1 decks)

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