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CFP Items To Learn > Estate Planning > Flashcards

Estate Planning Flashcards

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1
Q

What are types of property ownership

A

SO
TIC
JTWROS—no probate
TE (tenancy by entirety) souses. No probate
CP (community property)—spouses

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2
Q

What is amount included in gross estate for each property type

A

SO 100%
TIC. % owned by dead person
JTWROS. Sam as TIC except if spouse. Then 50%
TE and CP: 50%

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3
Q

For which property type: is the gross estate amount included in probable

A

SO
TIC
CP

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4
Q

Survivorship feature of fee simple

A

None so goes through probate

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5
Q

Do assets not movable go through probate

A

Yes

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6
Q

How long does durable POA last

A

Till death but good if someone is incapacitated or disabled (non-durable does not survivor incapacitaty)

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7
Q

What does a codicil do

A

Amends a will

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8
Q

Springing provision in a will does what

A

Springs into force at a certain time or event

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9
Q

Gifted property is separate or common property for a married couple

A

Separate

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10
Q

Gift tax exclusion

A

18k per donee per year (also means Sami can give 18k and I can give 18k to that donee

Don’t forget to reduce per person gifts by this amount when calc the total taxable gifts

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11
Q

Lifetime gift tax credit

A

13.61M approx

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12
Q

Do Future interest gifts qualify for 18k annual exclusion

A

No

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13
Q

What is Crummy provision and how it is used

A

Let’s a beneficiary withdraw some or all of a contribution to a trust for a limited period (usually 30 days) after contribution. Turns a future gift to a present gift so can get 18k gift tax allowance. (think of the life insurance example)

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14
Q

How to exclude gifts taxes from the gross estate

A

Give them more than 3 years before death

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15
Q

How do you get from gross estate to adjusted gross estate?

A

Deduct last medical, admin exp, funeral exp, debts

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16
Q

How to get from adjusted estate to taxable estate

A

Subtract state death tax deduction, charitable deduction, unlimited marital desuction

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17
Q

How to get from gross estate to federal tax liability ?

A

gross estate
- A, B, C, D EXPENSES
=Adjusted gross estate
- deductions (charity, marital, state death)
=Taxable estate
+ALL time previous taxable gifts
=TENTATIVE TAX BASS
- credits (unified credit, credit for previous gift taxes paid,
= FEDERAL ESTATE TAX LIABILITY

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18
Q

What is the threshold for a retained or reversionary interest in a trust gifted to someone else for it to come back to the gross estate if they die

A

5% or more

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19
Q

How are assets valued at death for inclusion in the gross estate

A

Fair market value (FMV)

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20
Q

What is a survivorship annuity

A

Provides payment to a first person and when they die, provides that payment stream to the second person. When the first person dies the value of the annuity is included in their gross estate

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21
Q

If Mario pays for a building outright, and gifts joint ownership to his son 6years ago, what portion will be included in Mario’s gross estate when he dies

A

The full portion since his son paid nothing (and is son is not a spouse which is 50% sharing). If his son paid a %, only Mario’s % of the FMV will be included in his estate

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22
Q

What is a general power of appointment and when is it included in the gross estate

A

The power to name who will enjoy or own the property and will be included in that persons estate. General means full power with no caveats. If there is a caveat like the ability to change (or use for a very specific purpose like education) or revert and more than 5% of value or $5k (5&5 rule), then it is not a general power and is not included in the persons estate

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23
Q

When is life insurance included in the gross estate

A

When the policy is owned by the dead person for themselves, unless it is designated as community property ownership, then only 50% is included in the gross estate (other 50% goes to wife)

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24
Q

gift taxes (for gifts) within X years of death are included in a gross estate or life insurance transferred with X years are included in a gross estate

A

3 years

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25
Q

how do you value financial securities at death if died in the middle of the day

A

average of the high and low trading prices on the day of death (if on weekend average of the averages on the last open trading day and next open trading day). Use this logic broadly for other situations and do not include weekends in counting days

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26
Q

How should wasting assets be valued and what is a wasting asset

A

A wasting asset is a asset that with certainty goes down in value over time. All wasting assests must be valued at date of death (not alternate valuation date which is the value 6 months later)

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27
Q

What is the tax due on a$1M gift

A

345k

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28
Q

what is the estate tax credit

A

It will exclude $13.61M cumulative over an individuals lifetime.

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29
Q

Does life insurance with named beneficiaries go through probate?

A

If the insurance was for the deceased and taken out by the deceased. Yes

If policy was paid for by the deceased to cover someone else, then no because it has a named beneficiary.

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30
Q

What do you need to consider with interest free loans

A
  • Imputed interest from below market loans (if $100k+ loan, then Applicable fed rate; if 10-100k lesser of AFR or borrows net investment income if over $1k. If less than 1k, then 0 imputed interest
    2) If interest is imputed it is considered a taxable gift and taxable on income tax return (and can deduct)
    3)
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31
Q

When calculating total gross gifts what basis do you use for securities

A

FMV

32
Q

what is the max gift a couple can give in a single year without paying any tax (if never gave historical gifts) to asingle person

A

13.61 (lifetime gift tax exception per parent) + 36k annual exemption per donee

33
Q

What is a good gifting strategy

A

1) highest income produced to lowest earner; 2) biggest future capital gains to the 501c3, 3) keep anything that could sell for a loss; 4) highest potential for appreciation to youngest person

34
Q

What is the basis of donated stock (assets?) at death

A

goes to FMV unless it is given within the last year of death. Then it is at original owners basis

35
Q

What is a bargin sale

A

When a selller sells at a discounted price (done typically between family members) and reduces the amount that was included in the gross estate (because the FMV is revalued to what it was sold at). The discount from FMV is considered a taxable gift made by the seller

36
Q

What is GSTT

A

Generation skipping transfer tax

37
Q

What is the unifed credit

A

Estate tax exemption (13.61) and annual exemption (18k)

38
Q

What is a CRAT

A

A charitable remainder annuity trust (CRAT) is a type of gift transaction that pays a fixed amount of money annually to a designated beneficiary. The amount paid is at least 5% and no more than 50% of the value of the trust’s corpus when it’s established.

You cannot add more to a CRAT after established (but you can for a CRUT)

39
Q

How do you treat gifts with respect to calculating gross estate?

A

Completed gifts do not get pulled back into the estate. Any gift taxes paid on gifts within 3 years of death, do get pulled back into the estate

40
Q

What are forms 1040, 1041and 706

A

The 1040 is the decedent’s file Federal tax filing.

The 1041 is the estate tax return.

The 706 the estate tax is used to figure the estate tax due.

41
Q

What is a GRAT

A

Grantor retained annuity trust: Irrevocable trust that pays a fixed annuity to the grantor for a defined term and pays the remainder to a non-charitable beneficiary at the end of the term. If the grantor dies before the GRAT term is up, the property is included in their gross estate at FMV

42
Q

What is a GRUT

A

Grantor retained unitrust. Similar to a GRAT that pays a fixed annuity, this pays a fixed % of the trusts assets each year (and revalued on an annual basis).. Not ideal for things that are cumbersome to revalue annually

43
Q

What is a QPRT?

A

Qualified personal residence trust: A type of GRAT, but instead of using an annuity the grantor gets use of the residence

44
Q

What is a TPPT?

A

Tangible Personal Property Trust: Similar to QPRT, but with personal property (art, antiques) not real property

45
Q

What is a FLP?

A

Family Limited Partnership: Limited partnership created under state law to transfer assets to younger generations using valuation discounts. The highly appreciating property is put in a LP and that person gets 1% general and 99% limited interest. This is then slowly transferred over years to the younger generation (using all the gift credits/exemptions)

46
Q

What does Medicaid pay for?

A

Long term care in a nursing home for persons who meet the qualifications.

47
Q

What are the 7 ways to transfer assets at death by contract

A

can be done with 1) life insurance, 2) annuities, 3) qualified plans, 4) IRAs, 5) TOD accounts, 6) Totten trusts, 7) Payable on death bank accounts (PODs)

48
Q

What is the charitable tax deduction of a Split interest CRT established at death

A

Charitable remainder trust: charitable estate tax deduction is equal to the FMV of the property transferred to the CRT minus the present value of the retained interest

49
Q

3 ways trusts generate tax savings?

A

1) Transfer future appreciation to the grantor’s heir, 2) minimize transfer taxes on subsequent generations, 3) reduce the size of the grantors gross estate (by paying income tax when granting it, they reduce the size of their own estate)

50
Q

What is the 3 year rule

A

when you make a transaction within 3 years of death that revokes your interest (like life insurance or revoke interest in a trust), it still is included in the gross estate

51
Q

What are 3 types of marital deduction trusts (created after the death of a grantor–testamentary)

A

QTIP trust (Qualified Terminable Interest Property),

General Power of Appointment Trusts (appointed person can do whatever they want with the money in trust),

estate trusts (GRAT, etc)

A QTIP enables the grantor to provide for a surviving spouse and maintain control of how the trust’s assets are distributed once the surviving spouse dies

52
Q

Key 12 acronyms in estate planning

A

1)QPRT (qualified personal residence trust)
2) TPPT (Tangible property trust),
3) QTIP (qualified terminal interest property trust),
4) CRT (charitable remainder trust),
5) CRAT, CRUT, GRAT, GRUT, FLP, SCIN, GSTT

53
Q

How are gifts added back to gross estate

A

As long as gifts do not have a retained interest they are never included.

Any gift tax paid in last 3 years (for gifts in last 3 years) is included in gross estate.

54
Q

What is a CLUT?

A

CLUT: Like a CLAT, but pays a fixed percentage of the trust assets re-valued on an annual basis.

55
Q

What is a PIF?

A

PIFs are essentially charitable trusts that “pool” together irrevocable gifts from one or more individuals, a family or a charity.

56
Q

What is the pour over (with respect to trusts)?

A

The “pour over” provision sweeps assets outside of a trust into the trust.

57
Q

If you pay for the life insurancepremium, do you have to pay taxes on the payout

A

No

58
Q

What is a will subsitute

A

avoids public scrutiny, testamentary control, and cannot be overridden by bequests. An example might be a contractual agreement as a life insurance beneficiary.

59
Q

What is a UTMA? What is a 2503b trust? What is a UGMA?

A

Uniform transfer to minors act. Like a UGMA, but allows all types of property like art, property, bonds (vs cash and securities for UGMA)

60
Q

Howard bought a house for $300,000 and transferred it to a QPRT that was to continue for a term of 12 years. At the time the QPRT was created, the house was worth $500,000. Howard died 10 years later, when the house was worth $700,000. What amount is included for the house in Howard’s estate?

A

Since Howard did not outlive the term of the QPRT, the entire value of the house on his date of death is included in his gross estate. The house will be included at the value of $700,000

61
Q

What is the tax treatment of IRDs?

A

Income in respect to the decedant (income received after someone dies)

do not step up basis at death
roth, ira,

alternatively Common stock would receive a step-up in basis after death.

62
Q

ascertainable standards of a trust

A

ascertainable standards all for income and principal for HEMS; “Health, Education, Maintenance and Support”.

63
Q

ugma

A

Uniform Gifts to Minors Account

64
Q

Power of attorney vs power of appointment

A

Power of attorney: A DOCUMENT includes with power to act, but ends at death of principal

Power of appointment: A power (usually included in a trust or power of attorney) to transfer assets and can survive the death of grantor

65
Q

For what type of property ownership steps to FMV at 100% of the property value (vs % ownership)

A

Community property

66
Q

Community property

A

does not automatically go to a surviving spouse

67
Q

Compare JTWROS and CP as it is the most tested on the exam

A
68
Q

What is estate tax to pay for any value?

A

40% on anything above $13.61M

69
Q

What is included in the gross estate

A
70
Q

Gross estate 3 year lookback applies to

A

Gift taxes paid
life insurance death benefit transfer
retained life interest

71
Q

Valuation of financial assets at death

A

Average of the high and low on the trading low (doesn’t matter what it opened or closed at on the market)

72
Q

How much of life insurance does the dead person include in their estate

A

If the insurance gives the dead person the death benefit, the death benefit is included in the estate

If the insurance is owned by the dead person, but pays out when someone else dies. Then you include the value of that life insurance plus any unearned premiums.

73
Q

What is included in the gross estate?

A

• Includes the fair market value at the date of death or alternate valuation date of the following:
Property owned by the decedent
• General powers of appointment
• Life insurance
Death benefit if policy transferred within 3 years before death (otherwise it would be a gift)
• Joint tenancy property
• Actual or deemed contribution rule applies

• Joint and survivor annuities
• Retained life interests (wife changes deed as a surprise to their kid but it was a gift).
• Retained power to amend or revoke (on trusts) so it comes back into estate.
• Reversionary interest
• Gift taxes paid within 3 years of death (because govt thinks you are trying to dramatically reduce the estate)

74
Q

What is included in the gross estate?

A

• Includes the fair market value at the date of death or alternate valuation date of the following:
Property owned by the decedent
• General powers of appointment
• Life insurance
Death benefit if policy transferred within 3 years before death (otherwise it would be a gift)
• Joint tenancy property
• Actual or deemed contribution rule applies

• Joint and survivor annuities
• Retained life interests (wife changes deed as a surprise to their kid but it was a gift).
• Retained power to amend or revoke (on trusts) so it comes back into estate.
• Reversionary interest
• Gift taxes paid within 3 years of death (because govt thinks you are trying to dramatically reduce the estate)

75
Q

What is a section 2503(b) trust?

A

Section 2503(b) is also known as a Qualifying Minor’s Trust or Mandatory Income Trust.

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