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CFP - Review Cards > Estate Planning > Flashcards

Estate Planning Flashcards

1
Q

testator

A

the person making a will

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2
Q

testamentary trusts and probate

A

they do not go through probate, the will does and the will creates these trusts

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3
Q

assets included in the probate estate

A

Singly owned assets (fee simple)
TIC
COmmunity property
“estate of the insured” as beneficiary

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4
Q

ancillary probate (important note)

A

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

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5
Q

election against the will (elective share)

A

virtually all states
surviving spouse who has not inherited a certain min percent or amount of deceased spouse’s estate

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6
Q

USDA

A

death within 120 hours of each other = predeceased

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7
Q

Totten trust

A

revocable trust in a bank account
depositor retains the right of withdrawal until death
balance passes to the bene at death

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8
Q

community property

A

9 states
each spouse owns a separate, undivided, and equal interest in the property

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9
Q

survivorship rights with community property

A

trick question, there aren’t any
a will is needed and property is subject to probate

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10
Q

separate property interests

A

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

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11
Q

tax advantage of community property

A

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

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12
Q

JTWROS

A

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

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13
Q

non-spouse joint tenant (at death)

A

full value of jointly held property is included in the gross estate of the first tenant to die unless the survivor can establish ownership

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14
Q

spousal gross tenant (at death)

A

when the first spouse dies gross estate must include one half of the property’s fair market value as of the date of death

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15
Q

tenancy by the entirety

A

not subject to probate
cannot be disclaimed
ownership can ONLY be held by spouses

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16
Q

tenancy in common

A

subject to probate
can be disclaimed
unequal
can be several owners

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17
Q

revocable trust

A

continues after death (durable power of attorney expires at death)

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18
Q

testamentary trust

A

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

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19
Q

Form 706

A

for estates exceeding the amount of the exemption for the year of death

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20
Q

gross estate

A

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

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21
Q

three-year rules

A

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

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22
Q

exclusions from the gross estate

A

life insurance owned by others
completed gifts
life estate for the decedent’s own life only

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23
Q

taxable estate

A

adjusted gross estate less marital and charitable deductions

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24
Q

marital deduciton

A

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

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25
Q

charitable deduction

A

transfers to qualified charities are 100% deductible for both estate and gift tax purposes

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26
Q

tentative tax

A

subtract the exemption from the tax base and multiplying the excess by 40%

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27
Q

general power of appointment

A

entitles the holder to transfer the property to anyone

28
Q

five or five power

A

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

29
Q

distributions for an ascertainable standard

A

power limited by some unit of measurement
HEMS is not a general power
(Health, Education, Maintenance, and Support)

30
Q

who should you give highly appreciated property to?

A

charity or a donee in a lower tax bracket (might want to keep this property until death for a step up in basis)

31
Q

who should you give property that is likely to appreciate

A

good to gift to remove future value for donor’s estate

32
Q

who should you give income producing property

A

good to gift only if donee is in a lower tax bracket

33
Q

who should you give loss property

A

you should actually sell it to take the loss and then gift the cash proceeds from the sale

34
Q

who should you gift property subject to depreciation

A

you should keep it until it is fully depreciated

35
Q

who should you gift out of state property to

A

gift to avoid ancillary probate

36
Q

who should you gift life insurance

A

excellent to gift - tax based on replacement value; benefit based on face value

37
Q

gifts to non citizen spouses

A

$185k/year because they don’t get unlimited marital gift exclusion

38
Q

basis of appreciated gifts

A

FMV at the date of the gift

39
Q

basis of depreciated gifts

A

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

40
Q

form 709

A

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

41
Q

gift splitting

A

if married, consent of the non-donor spouse is required

42
Q

deductible gifts

A

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

43
Q

DPOAHC

A

durable power of attorney for health care

medical decisions only
springing power
separate from DPOA

44
Q

powers that cannot be given to another

A

execute or revoke a will
power to execute a living will (right to die)

45
Q

durable feature

A

enables a principal to grant powers that remain in effect throughout the principal’s incapacity

46
Q

advance medical directive (living will)

A

legal document which directs the client’s physician to discontinue life-sustaining procedures if the client is in a terminal condition or permanently unconscious

47
Q

Medicaid and annuities

A

medicaid recipients who have annuities and wish to remain eligible must name the state as a remainder beneficiary to cover the stat incurred expenses

48
Q

special needs trust (SNT)

A

allows beneficiary to continue to receive public benefits (like Medicaid), section 8, and SSI
can only pay for supplemental needs

49
Q

OBRA trust

A

omnibus budget reconciliation act of 1993
assets go into a trust
recipient qualifies for Medicaid
when they die, the funds Medicaid paid are reimbursed

50
Q

per capita

A

by the head

51
Q

simple trust

A

operates as a conduit for forwarding income to the beneficiaries
beneficiaries pay taxes on the income at their own marginal tax brackets

52
Q

complex trust

A

taxed as a separate tax entity
requires:
1. irrevocable and the grantor has not retained any control
2. income is accumulated

53
Q

property in a revocable trust

A

includible in the gross estate of the grantor

54
Q

Crummey trust

A

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

55
Q

bypass trust

A

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

56
Q

portability of unused exemption

A

the executor of a deceased spouse’s estate can transfer any amount of the unused exemption to the surviving spouse

57
Q

marital trust aka “A trust”

A

the second spouse to die controls the property of the trust
surviving spouse has postmortem control over the property in the trust

58
Q

Qualified Terminal Interest Property (QTIP)

A

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

59
Q

gifts to minors (present interest)

A

ugma
utma
2503c
529

60
Q

gifts of future interest (minors)

A

2503(b) aka bad boy trust

61
Q

2503(b) trust

A

“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

62
Q

2503(c) trust

A

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

63
Q

dynasty trust

A

essentially a B trust that benefits multiple future generations

64
Q

when is a CRAT appropriate

A

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

65
Q

CRAT key features

A

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

CFP - Review Cards (17 decks)

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