Estate Planning Flashcards
testator
the person making a will
testamentary trusts and probate
they do not go through probate, the will does and the will creates these trusts
assets included in the probate estate
Singly owned assets (fee simple)
TIC
COmmunity property
“estate of the insured” as beneficiary
ancillary probate (important note)
the maker of a will cannot avoid a double probate procedure: one in the state of the decedent’s residence and another in the state where the real property is located
election against the will (elective share)
virtually all states
surviving spouse who has not inherited a certain min percent or amount of deceased spouse’s estate
USDA
death within 120 hours of each other = predeceased
Totten trust
revocable trust in a bank account
depositor retains the right of withdrawal until death
balance passes to the bene at death
community property
9 states
each spouse owns a separate, undivided, and equal interest in the property
survivorship rights with community property
trick question, there aren’t any
a will is needed and property is subject to probate
separate property interests
Property received as a gift by one spouse
property inherited by one spouse
income earned by spouses prior to marriage
interest earned on separate assets held by one spouse as sole owner
tax advantage of community property
full step up in basis in the entire property
one-half of the whole property must be included in the deceased spouse’s gross estate
JTWROS
can be shared by several adult owners
income is spilt equally among all joint tenants
survivorship feature
excludes property from probate estate of a decedent
non-spouse joint tenant (at death)
full value of jointly held property is included in the gross estate of the first tenant to die unless the survivor can establish ownership
spousal gross tenant (at death)
when the first spouse dies gross estate must include one half of the property’s fair market value as of the date of death
tenancy by the entirety
not subject to probate
cannot be disclaimed
ownership can ONLY be held by spouses
tenancy in common
subject to probate
can be disclaimed
unequal
can be several owners
revocable trust
continues after death (durable power of attorney expires at death)
testamentary trust
created by a will
the trust itself doesn’t go through probate
Key feature: becomes effective only if the will creating the testamentary trust is admitted to probate
Form 706
for estates exceeding the amount of the exemption for the year of death
gross estate
total fair market value of all property and interest owned or held by the decedent at the time of death before subtracting deductions, debts, admin expenses, and credits
three-year rules
if made within three years of death, the following transfers are included in the decedent’s gross estate:
-certain transfers of life insurance by the insured
-any gift tax paid out-of-pocket on gifts
exclusions from the gross estate
life insurance owned by others
completed gifts
life estate for the decedent’s own life only
taxable estate
adjusted gross estate less marital and charitable deductions
marital deduciton
an unlimited amount of property passing to the surviving spouse can pass estate tax-free if:
-the property is included in the decedent’s gross estate
-property actually passes to the surviving spouse
charitable deduction
transfers to qualified charities are 100% deductible for both estate and gift tax purposes
tentative tax
subtract the exemption from the tax base and multiplying the excess by 40%
general power of appointment
entitles the holder to transfer the property to anyone
five or five power
general power is only included in a donee-decedent’s estate only to the extent that the property exceeds the greater of:
-$5,000
-5 percent of the total value of the fund subject to the power as measured at the time of lapse
distributions for an ascertainable standard
power limited by some unit of measurement
HEMS is not a general power
(Health, Education, Maintenance, and Support)
who should you give highly appreciated property to?
charity or a donee in a lower tax bracket (might want to keep this property until death for a step up in basis)
who should you give property that is likely to appreciate
good to gift to remove future value for donor’s estate
who should you give income producing property
good to gift only if donee is in a lower tax bracket
who should you give loss property
you should actually sell it to take the loss and then gift the cash proceeds from the sale
who should you gift property subject to depreciation
you should keep it until it is fully depreciated
who should you gift out of state property to
gift to avoid ancillary probate
who should you gift life insurance
excellent to gift - tax based on replacement value; benefit based on face value
gifts to non citizen spouses
$185k/year because they don’t get unlimited marital gift exclusion
basis of appreciated gifts
FMV at the date of the gift
basis of depreciated gifts
If FMV on the date of the gift is less than the donor’s adjusted basis, then a loss is measured using the FMV on the date of the gift, but a gain is measured using the donor’s basis
form 709
filed by any individual donor who, in any calendar year, gives any more than:
-$18k to any non spouse
-gift of future interest in any amount
-a gift for which spouses elect gift splitting
gift splitting
if married, consent of the non-donor spouse is required
deductible gifts
directly to an educational institution for tuition
directly to a provider of medical care
gifts to a spouse
qualified charity
political org
president of the US
DPOAHC
durable power of attorney for health care
medical decisions only
springing power
separate from DPOA
powers that cannot be given to another
execute or revoke a will
power to execute a living will (right to die)
durable feature
enables a principal to grant powers that remain in effect throughout the principal’s incapacity
advance medical directive (living will)
legal document which directs the client’s physician to discontinue life-sustaining procedures if the client is in a terminal condition or permanently unconscious
Medicaid and annuities
medicaid recipients who have annuities and wish to remain eligible must name the state as a remainder beneficiary to cover the stat incurred expenses
special needs trust (SNT)
allows beneficiary to continue to receive public benefits (like Medicaid), section 8, and SSI
can only pay for supplemental needs
OBRA trust
omnibus budget reconciliation act of 1993
assets go into a trust
recipient qualifies for Medicaid
when they die, the funds Medicaid paid are reimbursed
per capita
by the head
simple trust
operates as a conduit for forwarding income to the beneficiaries
beneficiaries pay taxes on the income at their own marginal tax brackets
complex trust
taxed as a separate tax entity
requires:
1. irrevocable and the grantor has not retained any control
2. income is accumulated
property in a revocable trust
includible in the gross estate of the grantor
Crummey trust
irrevocable trust with demand rights
each time a new contribution is made the beneficiary can demand a withdrawal
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
bypass trust
first spouse to die controls the property
generally gives the decedent postmortem control over the transferred property
the amount of property transferred to the trust equals the federal estate tax exemption
structured to provide a stream of income to the surviving spouse only
portability of unused exemption
the executor of a deceased spouse’s estate can transfer any amount of the unused exemption to the surviving spouse
marital trust aka “A trust”
the second spouse to die controls the property of the trust
surviving spouse has postmortem control over the property in the trust
Qualified Terminal Interest Property (QTIP)
first spouse to die control the property of the trust
“c trust”
income stream for surviving spouse for life
surviving spouse may be given a limited power of invasion over the corpus and income of a QTIP trust
gifts to minors (present interest)
ugma
utma
2503c
529
gifts of future interest (minors)
2503(b) aka bad boy trust
2503(b) trust
“bad boy” trust
two parts of the gift:
1. income interest
2. remainder interest
income is a gift of present interest
corpus is a gift of future interest
only the income needs to be distributed, not the principal
2503(c) trust
allows grantor to make a gift to a minor in trust and still obtain the annual gift tax exclusion
gift will not be considered a gift of future interest if these conditions are met:
1. the trust must provide that the property and income may be expended by or for the benefit of the donee before the donee atttains age 21
2. any portion of the property not so expended will pass at age 21
3. if the donee dies before age 21, the property must be payable to the donee’s estate
dynasty trust
essentially a B trust that benefits multiple future generations
when is a CRAT appropriate
when the donor wishes to provide a noncharitable beneficiary with a stream of income to last, usually for the life of the income recipient or for a stated term of years
CRAT key features
donor receives an income tax deduction for the present value of the remainder interest
if term of years, can’t be more than 20 years
remainder interest must be at least 10% of the initially contributed amount
