Estate Planning

Question 1

How long does a survivorship period last and why would you use a survivorship clause?

Answer 1

If you don’t want your estate passing through probate twice in a short period of time, and it ranges from 5 to 60 days.

Question 2

What are the 4 invalid will provisions?

Answer 2

1) Fraud
2) The testator is being subject to undue influences by someone benefitting from the will
3) Mistakes in will clauses
4) The will is not properly executed/signed/witnessed according to state law

Question 3

What is testamentary capacity?

Answer 3

It means anyone over the age of 18 can make a will. To execute it, you need to 1) know that you are executing a will
2) must be aware of the assets you own 3) You must know and remember your relationship to beneficiaries

Question 4

What are the advantages of probate?

Answer 4

• A court-supervised distribution of property to heirs
  -Protects creditors by ensuring that estate debts are paid
  -Bars future creditor claims against the estate
  -Documents the title and the transfer of property to others

Question 5

Disadvantages of probate

Answer 5

-Time: Delay in probating the estate typically ranges from 9 months to 2 years
-CostS: attorney and court fees, and the executor fee if not waived
-Privacy: Probate is a public proceeding

Question 6

Name 3 of the following types of property transferred via a will that is subject to probate:

Answer 6

-Solely owned personal or real property
-Tenancy-in-common
-Community property
-Property passing from the will into a testamentary trust
-Property transferred by a pour-over-will into a trust
-Life insurance policy owned by the decedent who was not the insured

Question 7

What are 3 types of property not transferred by will that is subject to probate

Answer 7

-Intestate property
-Life insurance policy proceeds or annuities payable to the decedent’s estate
-Homestead and exempt property allowances

Question 8

If the AVD is made, ALL assets must be valued as of the AVD date even if they have increased. What the the 4 exceptions?

Answer 8

1) Cars
2) Patents
3) Life estates
4) Remainder interests

Question 9

What are the three signs when to use a qualified disclaimer?

Answer 9

1) Transfer involving large gifts
2) tax-free gift to a contingent beneficiary
3) Spouse is the donee, but does not need/want the gift

Question 10

What are the 4 requirements for a qualified disclaimer?

Answer 10

1) Refusal or rejection must be in writing
2) The writing must be received no later than 9 months after the later of a) the date on which the transfer creating the interest is made or b) the date the person disclaiming reaches age 21
3) The Person disclaiming must not have accepted the property interest or any benefits of the property
4) Someone other than the disclaimant receives the disclaimed property interest. The person making the disclaimer cannot in any way influence the potential recipient of the property.

Question 11

Property gifted within 3 years of the death of the donor is generally NOT included in the gross estate. What are the 4 exceptions?

Answer 11

1) Transfers with retained life estates
2) Reversionary interests
3) Revocable life estates (gifts into revocable trusts that are made irrevocable)
4) Life insurance policies in which the decedent was the insured

Question 12

Gross estate minus what 4 elements make up adjusted gross estate?
hint: these are all deductions

Answer 12

Expenses, debts, taxes, and losses

Question 13

What is the 65 day rule?

Answer 13

It allows fiduciaries to make distributions within 65 days of the new tax year (or between January 1st and March 6th) and that distribution will count for the previous year.

Question 14

What is the section 645 election?

Answer 14

The section 645 election allows the trust to have an extended payment deadline

Question 15

What are 3 other words for grantor?

Answer 15

Settlor, trustmaker, or trustor

Question 16

In an irrevocable trust, is the beneficiary taxed on income or on principle?

Answer 16

Income

Question 17

Gift-tax exposure is reduced in a GRAT if the value of the retained annuity is _ and the value of the remainder interest is_.

Answer 17

increased and decreased

Question 18

Explain the purpose of a GRAT

Answer 18

• Transfer property in a trust at a reduced (or zero) gift tax value
• Pass appreciation in the GRAT to beneficiaries without incurring additional gift tax
• Reduce the value of the grantor’s gross estate

Question 19

What are the ways to reduce a remainder interest in a GRAT?

Answer 19

• Increase the value of the retained annuity
• Extend the trust term
  -Use a lower interest rate to make the PV calculation of the retained annuity

Question 20

When beneficiaries receive property in a QPRT, do they take over the original basis or the FMV? What does this mean if they go to sell the house?

Answer 20

They take the basis, increased by any gift taxes paid. Therefore, it is probably not best to set up a QPRT because the beneficiary doesn’t get the. step up in basis.

Question 21

A marital deduction is not available for TIP unless there is an exception. What are the 2 exceptions?

Answer 21

1. Spouse is given general power of appointment 2. The donor spouse qualifies the terminable interest property (QTIP election)

Question 22

What are 3 example of terminable interest property going to a spouse?

Answer 22

1. Spouse receives an income interest in trust for life
2. Spouse receives trust income for a term of years
3. Spouse receives a life estate in real property

Question 23

When a decedent receives a charitable deduction for property passing to a qualified charity, what form is used in the calculation?

Answer 23

Form 706

Question 24

What are the gifting limits to a private foundation and how much must the foundation pay out to public charities each year?

Answer 24

Family members who make gifts to the foundation may make gifts of 30% for cash and 20% for LTCG property. The foundation must distribute 5% of the assets to public charities every year.

Question 25

What is the annual exclusion for a gift to a non-citizen spouse? Does it apply to gifts after death?

Answer 25

185,000 and it ONLY applies to lifetime gifting

Question 26

Corpus refers to _ in a trust

Answer 26

principal

Question 27

What is the withdrawal amount for crummey powers limited to?

Answer 27

The lesser of:
- Annual exclusion
-Annual contribution made to the trust
-The greater of $5,000 or 5% of the amount transferred into the trust

Question 28

What is the purpose of a special needs trust?

Answer 28

The purpose is to preserve eligibility for government benefits and pay for extra services NOT covered by gov’t programs. Also piece of mind.

Question 29

What are the 3 ways a special needs trust can be designed?

Answer 29

1) Pooled - Managed by a non-profit organization instead of a single trust.
2) First-party - Designed to help individuals who are dealing with a disability caused by some type of injury. Funded by the person with special needs.
3) Third-party - Often set up as part of a donor’s estate plan to aid the special needs individual during life and after the donor dies.

Question 30

What do special needs trusts cover and pay for?

Answer 30

They can cover extra services like medical expenses not covered by Medicaid, supplemental attendant and custodial care, additional therapies, and respite care for family caregivers. They can pay for phones, computers, cable TV, household furnishings, and travel and a companion.

Question 31

What is another word for the unified credit?

Answer 31

The applicable credit or applicable exclusion

Question 32

When a spouse dies in a community property state, surviving spouse receives a step up in basis of what amount?

Answer 32

The spouse receives a step up in basis to the FULL amount of the property, not just half. This is different than JTWROS.