Estate Planning Flashcards
Lifetime Exclusion amount
2023: $12,920,000
Taxable Estate over $1M
Tax: $354,800 + 40% on amount over $1M
Discretionary Power of Appointment
Trustee has discretion to give to beneficiaries for purpose of:
Health, Education, Maintenance and Support
Alternate Valuation Date
can use valuations 6 months after death
Must lower total gross estate and estate tax due
Applies to all Assets EXCEPT: wasting assets & assets disposed of between death and alt date
IRD Assets
Income in respect of a descendent
-income dependent was entitled to, but did not receive before death
- no step up in basis
Ex: IRAs, annuity payments, income earned not paid
Inter Vivos Trusts
trust created during life
avoids probate
testamentary Trust
trust created at death (per will)
does not avoid probate
GRAT
Grantor Retained Annuity Trust
pays fixed annuity to grantor for defined term, remainder to non charitable beneficiary(ies)
if grantor dies before term, included in estate
GRUT
Grantor Retained Unitrust
Pays fixed percent of assets each year that is revalued annually
not suitable for hard to value assets
QPRT
Qualified Personal Resident Trust
- transfers house to trust, ability to use home (rent after time)
Included in estate if dies before term ends
Only 1 residence per QPRT, person can have 2 QPRTs
Sec 2503 (b) and Sec 2503 (c) Trusts
trusts for minors
B: can hold assets for lifetime, income annually
C: Distrubute by age 21 (no income required)
ABC Trusts
A Trust: Power of Appointment Trust
B Trust: Credit Shelter/ Bypass Trust
C trust: QTIP Trusts
Pooled Income Funds (PIF)
charitable contributions pooled in a trust maintained by the charity
Income for life of donor, remainder to charity
can add contributions after established
Tax Deduction: property value less FMV of retained income
CRAT
Charitable Remainder Annuity trust
provides fixed income to donor and remainder gets paid to charity
- min 5% income, no more than 50% initial value
- life or up to 20 year term annuity
no additional contributions, invades corpus if insufficient assets
Deduction: value less retained annuity payments
CRUT
Charitable Remainder Unitrust
provides income to donor and remainder gets paid to charity
tax ded: value of property less interest retained payments
- income more flexible than CRAT
-income at least 5% of CURRENT FMV
- life or up to 20 year term annuity
additional contributions permissible
Life Insurance Objectives
Protect Income Stream
Source of Funds for Education
Liquidity at Death
Retirement Income
create or sustain family wealth
IRC Section 303
the estate of a deceased shareholder may redeem enough shares to cover the death taxes (federal and state estate, inheritance, and generation-skipping transfer taxes), funeral expenses, and administrative expenses of the decedent, and the shares redeemed for this purpose will qualify for capital gains tax treatment.
Disclaimer Clause
- heir may disclaim and will go to other listed in disclaimer clause
- disclaiming party cannot benefit
- disclaiming cannot direct disclaimer
- Spouse may disclaim so more assets go to kids and applicable estate tax credit is utilized
- kids may disclaim so that surviving spouse may inherit to utilize marital deduction
survivorship clause
- requires beneficiary to survive the decendent for a specific period of time it inherit
- cannot be longer than 6 months to qualify for marital deduction
Crummy Provision
- right of a trust beneficiary to withdraw some or all of any contribution to a trust for a amount of time (30 days)
- may limit withdrawal right to an amount equal or less than annual exclusion
GRIT (Grantor Retained Income Trusts)
- created by a person who keeps an income interest in the trust
- grantor will transfer property to the trust, retain income for period of time, and remainder is transferred to beneficiaries at end of term
NonDurable / Limited Power of Attorney
Power ends when principal is no longer legally competent
Durable Power of Attorney
authority continues after incompetence
Springing Power of Attorney
Agent has no power until incompetency
QTIP trust
Current Income trust
- Provides surviving spouse with income for life but deceased controls trust property after spouse dies
LAME
L- lifetime income for spouse
A- Annual payments to spouse
M- Mandatory payments
E- Exclusively for spouse
Special use Valuation (Sec 2032A)
can elect to use current use value of property instead of FMV - cannot be reduced more than $1.31M
- Must be used in Farming or trade or business actively managed by decedent or family 5 out of 8 years before death
