Estate Planning Flashcards
A will made in agreement with another person to dispose of certain property interests
mutual will
Each person’s will designates that all property be distributed to the other person (common with spouses)
reciprocal will
A hand-written will
holographic will
An oral will
nuncupative will
Is JTWROS included in probate?
no
A specialized form of JTWROS existing between spouses. The spouses own the whole interest collectively, with no undivided individual share
Tenants by Entirety (TBE)
For a will to be valid, you need testamentary capacity. List the 3 things needed for testamentary capacity:
- Testator must know they are creating a will
- Testator must be AWARE of what assets they own
- Testator must know and remember their relationships with the beneficiaries
When dying intestate, minor children will receive:
equal shares of their parent’s property (and will take ownership at their state’s age of majority)
In community property states, all property in intestacy passes to:
the surviving spouse
Within what time frame is AVD elected?
within one year of estate tax return filing
What are the exceptions to electing AVD?
depreciating assets whose value declines over time (ex: cars, patents, life estates, remainder interests)
This grants an agent the authority to make a broad array of decisions including legal, financial, or business.
Lapses as disability or incapacitation.
General Power of Attorney
This grants an agent the ability to act on behalf of the principal for a specific matter.
Once the task or action is completed, or a period has passed, the authority expires.
Special Power of Attorney
For gift splitting, if the total amount of the gift is less than $18,000, what are the filing requirements?
no filing required
For gift splitting, if the total amount of the gift is between $18,000 and $36,000, what are the filing requirements?
the donor spouse files Form 709
the other spouse shows consent on Form 709
For gift splitting, if the total amount of the gift is more than $36,000, what are the filing requirements?
both spouses file Form 709
The step-up for Community Property is:
100%
a full step up to FMV for the surviving spouse
Any distribution of income or corpus from a trust to a skip person that is not otherwise subject to estate or gift tax
taxable distribution
The termination by death, the lapse of time, release of power, or otherwise of an interest in property held in a trust resulting in skip persons holding all the interests in the trust
taxable termination
A transfer subject to estate or gift tax made to a skip person
direct skip
How do you identify a non-related skip person?
between 37 1/2 and 62 1/2 years younger than the transferor
How do you identify related skip persons?
2 or more generations below, identified by a family tree
What is the GST tax rate?
40%
The GSTT annual exclusion is:
$18,000
The GSTT separate lifetime exemption is:
$13,610,000
Property gifted within 3 years of the death of a donor is generally not included in the gross estate, with the exceptions of:
1)
2)
3)
4)
1) retained life estates
2) reversionary interestes
3) revocable trusts
4) life insurance policies owned by the insured
A trustee can make distributions from a trust within how many days of a new tax year?
65
Allows an executor of an estate and the trustee of a revocable trust to elect to treat the estate and trust as one for estate tax purposes
Section 645 Election
Used to manage a person’s assets if they become incapacitated
standby trust
When a person dies, you get a step-up in basis and what holding period?
long-term, no matter how long the decedent held the property for
What is the “appreciation factor” when calculating the new basis for gift taxes paid?
(FMV - Basis) / (FMV - Annual Exclusion)
When is Form 706 due?
within 9 months of the decedent’s death
Can a Simple Trust distribute principal during the tax year?
no
Can a Simple Trust distribute income during the tax year?
yes, it is required to distribute all accounting income to the beneficiaries in the year earned
Can a Simple Trust have a charitable beneficiary?
no
What is the Simple Trust personal exemption?
$300
Can a Complex Trust distribute principal during the tax year?
yes
Can a Complex Trust distribute income during the tax year?
there is no requirement to distribute income each year
Can a Complex Trust have a charitable beneficiary?
yes
What is the Complex Trust personal exemption?
$100
Transfers to irrevocable trusts are considered completed gifts, therefore potentially being subject to what kind of tax?
gift tax
What is the main objective in having an irrevocable trust?
asset protection
What is the main objective in having a revocable trust?
flexibility and control
Irrevocable trusts are a substitute for what?
a will; they have a stated beneficiary
Both irrevocable and revocable trusts avoid what at death?
probate
What kind of trust takes effect immediately?
inter-vivos trust
What trusts are created through a will upon death?
testamentary trust
Do revocable trusts have to be funded in order to be valid?
no; they can be funded or unfunded
Are irrevocable trusts included in the gross estate?
no
What happens if you make a revocable trust irrevocable, but die within 3 years of doing so?
the trust property will be brought back in the the gross estate
In this type of grantor trust, the income stream is based on an initial valuation
GRAT
In this type of grantor trust, the income stream is based on an annual valuation
GRUT
Can you add additional assets to a GRAT?
no
Can you add additional assets to a GRUT?
yes
Is a GRAT a good inflation hedge?
no
Is a GRUT a good inflation hedge?
yes
What kind of risk tolerance best suits a GRAT?
conservative, desires fixed income
What kind of risk tolerance best suits a GRUT?
moderate to aggressive, wants income to outpace inflation
If the grantor survives the QPRT term, do they get a step-up in basis?
no
To be considered qualified, a disclaimer must be received by the transferor, his legal representative, or the holder of the legal title to the property no later than _________ after the later of the date on which the transfer creating the interest is made, or the date the person disclaiming reaches age 21
9 months
Which type of POA requires a medical professional to confirm incapacitation?
springing POA
Can the unlimited marital deduction be used for a non-citizen spouse?
no
What is the annual exclusion for a non-citizen spouse?
$185,000
The grantor receives a charitable income tax deduction for the PV of the charity’s income interest
Charitable Lead Trusts
The grantor receives a charitable income tax deduction for the PV of the charity’s remainder interest
Charitable Remainder Trusts
A donor transfers cash or property to a charity and the charity pays the donor or other donees an annuity payment each year for life
Charitable Gift Annuity
A donor gifts property to a charity and receives an annual pro-rata share of income from the charity’s commingled funds, for life
Pooled Income Fund
Can additional gifts be made to a Pooled Income Fund to increase the donor’s income stream?
yes
Can a charity that is managing a Pooled Income Fund invest in tax-exempt securities?
no
What is the best CLT to choose when interest rates are lower?
CLAT; the smaller annuity payments to a charity result in a greater value of the trust corpus to the remaindermen
Income earned within a CLAT/CLUT is taxed to:
the grantor
What is the difference between a Charitable Lead Trust and a Charitable Remainder Trust?
CLTs have remainder corpus going to a non-charitable beneficiary; CRTs have remainder corpus going to a charitable beneficiary
In a CLT, who gets annual payments?
the charity
In a CRT, who gets annual payments?
the grantor
The fiduciary must file _______ when a taxable domestic trust has any taxable income for the tax year.
Form 1041
In a B Trust, are the trust assets included in the surviving spouse’s estate?
no
In a B Trust, the surviving spouse has _______ power of appointment
limited with an ascertainable standard (HEMS)
Does a B Trust qualify for the marital deduction?
no
Is a B Trust included in the decedent’s estate?
yes (but you can avoid taxation by transferring money less than or equal to the annual exclusion)
What are B Trusts also known as?
credit shelter trust or family trust
A Trust is also known as:
power of appointment trust or marital trust
With a power of appointment trust (A Trust), the surviving spouse is given ______ to receive distributions from trust income and corpus
general power of appointment
QTIP Trust is also called:
C Trust
Upon the surviving spouse’s death, in a QTIP, the trust corpus goes to:
children from a previous marriage
An estate planning technique under which an estate is divided into two parts and taxed at a lower rate rather than remaining as a whole and taxed at a higher rate. This division may be necessary because of the progressive nature of the federal estate tax
estate equalization
A marital trust that provides the surviving spouse with a general power of appointment, access to income, and the ability to invade the trust corpus during life
A Trust
A spousal trust that avoids “over-qualifying” the decedent spouse’s estate for the marital deduction, by utilizing the decedent’s lifetime exemption amount ($13.61MM in 2024). Allows the surviving spouse to obtain income as needed. Trust assets are not included in the surviving spouse’s estate at death
B Trust
Provides the beneficiary spouse with income for life, qualifies the trust property for the marital deduction and gives trust corpus to children from a previous marriage
QTIP Trust
An estate planning technique in which a married couple incorporates an irrevocable trust in their planning, which is funded only if the surviving spouse chooses to “disclaim,” or refuse to accept, the outright distribution of certain assets following the deceased spouse’s death
disclaimer trust
Added to trusts to give the trustee guidance as far as when and how they need to make distributions to the beneficiaries. A trustee can make distributions to a beneficiary for health, education, maintenance, and support (aka, the ‘HEMS’ standard)
ascertainable standard
Qualifies property for a marital deduction in the decedent’s estate. Used if the beneficiary spouse has substantial wealth and does not need the trust income or corpus
estate trust
A QDOT qualifies assets transferred to a non-citizen spouse for the:
unlimited marital deduction
What is the annual exclusion for a non-citizen spouse?
$185,000
In a QDOT, if trust assets exceed $2 million, the trustee must:
be a US citizen, a domestic corporation, or a US bank
What kind of trust for a minor is required to distribute income to a beneficiary on at least an annual basis?
2503(b)
A special needs trust that is managed by a non-profit organization instead of a single trustee
pooled special needs trust
A special needs trust that is specifically designed to help individuals who are dealing with a disability caused by a type of injury. It is funded by the person with special needs
first-party special needs trust
A special needs trust that holds assets that never belonged to the beneficiary. These are often set up as a part of a donor’s estate plan.
third-party special needs trust
A person must have less than $_____ a month in unearned income to receive SSI
$943
When an ILIT has Crummey powers attached, the beneficiary is given the right to withdraw the lesser of:
1) the annual exclusion
2) the annual contribution made to the trust
3) the greater of $5,000 or 5% of the amount transferred to the trust
Do IRD assets receive a step-up in basis?
no
Items that are considered to be IRD:
- IRAs
- 401(k) accounts
- salary
- deferred annuities
Section 691 is also known as:
Income in Respect to the Decedent (IRD)
Section 303 allows:
the purchase of a portion of a decedent shareholder’s stock by the shareholder’s corporation to be treated as a sale or exchange rather than as a dividend
To qualify for a Section 303 redemption, the value of the stock must exceed:
35%
The maximum reduction of the decedent’s gross estate under Section 2032A is:
$1,390,000
The value of the qualified property in the decedent’s estate under Section 2032A must equal:
at least 50% of the decedent’s gross estate
Allows a personal representative to elect that a farm and certain closely held business property included in a decedent’s gross estate be valued for estate tax purposes at its current or special valuation, limited to $1,390,000 (2024) as indexed, rather than its highest value or best-use value
Section 2032A
An interest in property that may terminate on the happening or failure of some event or contingency
Terminable Interest Property (TIP)
An estate that meets all the requirements may elect to pay the estate tax due on the decedent’s interest in a closely held business in up to 10 equal, annual installments
Section 6166
An estate qualifies for a Section 6166 election if:
- the value of the decedent’s interest in the closely held business exceeds 35% of the adjusted gross estate
- the decedent was a U.S. citizen or resident at the time of their death
- the estate made the election by attaching a full and complete notice of election with a timely filed federal estate tax return.
What is a pour-over will?
it is used in a revocable living trust. it serves to direct assets into a RLT that were either incorrectly titled, excluded from the trust, or to direct assets into the RLT after it was established
GSTT is required to be paid by who on taxable terminations?
the trustee
A person must have less than $_____ of unearned income to still qualify for Social Security supplemental income
$943
A person must have less than $______ earned income to still qualify for Social Security supplemental income
$1,971
Is a grantor trust an appropriate vehicle if the grantor has a low risk tolerance?
no, they need to have a high risk tolerance
Are beneficiaries of an ILIT given Crummey powers?
no
In an ILIT, who is taxed on trust income?
grantor
Identify the estate planning document on which a testator can name guardians, appoint an executor, and direct assets separately-owned assets and property at death.
last will
A taxable domestic trust will have to file Form 1041 if gross income within the trust exceeds $_____
$600
