Estate Planning

Question 1

Grantor Trust Basic Rules

Answer 1

Follow the grantor ; irrevocable trust into which grantor places assets and RETAINs interest for a fixed number of years.

Grantor may revoke or modify the trust
Retains administrative powers
retains control
income is (can be) used to pay premiums on a life insurance policy for the grantor or grantor’s spouse
Income is distributed to the grantor for the support of the grantor’s childners

Question 2

Grantor Trust rights and taxation

Answer 2

ALL Income is taxed to the grantor
No trust taxation
No form 1041
Any trust that allows the grantor and grantor’s spouse or 3rd party without a beneficial interest in the trust
Any rights or powers will be taxed as a grantor trust

Question 3

CLT - Taxation

Answer 3

Charitable Lead Trusts (CLT)

Charitable Lead Trusts are considered ‘non-tax-exempt entities.’

Income earned by the trusts is TAXED to the GRANTOR. Interest income would be included in GRNTOR’s gross income for the year.

The grantor CLT typically allows a large up-front income tax deduction in the year it is funded.

With a non-grantor CLT, there is no deduction at the time the CLT is funded.

Question 4

CRT - Taxation

Answer 4

Charitable Remainder Trusts

vehicle for gift tax charitable deductions

Provide the grantor with a tax deduction during the year in which assets are transferred irrevocably into the trust.

Tax deduction pool can be carry forward for 5 years

The amount of the tax deductions that the grantor receives = FMV – PV of income stream to grantor.

Question 5

Grantor Trust - What happens if grantor dies before the trust TERM ENDS

Answer 5

FMV on DOD or FMV on ADV is included in the gross estate of the grantor

Question 6

Grantor Trust - What happens to corpus/principle at the end of the trust term?

Answer 6

Corpus/principle will pass to non-charitable beneficiaries ( and this can be grantor as well)

Benefit of this trust is that it passes on high value property to benes with low valuation method that limits the amount of gift or estate tax payable on these gifts

Question 7

GRAT and Client Suitability

Answer 7

Clients who have conservative tolerance and desire fixed income for a trust term

Question 8

GRUT and Client Suitability

Answer 8

Clients who have moderate to aggressive tolerance and desire for income to out pace inflation

Question 9

QPRT - Basis and Taxation

Answer 9

NO Step-up in basis to the beneficiaries

if grantor paid gift taxes upon transfer to the trust, however, there may be “tacking-on” the basis

If you survive the trust term - REMOVED from gross estate
If you die within trust term - FMV on DOD is INCLUDED in the gross estate

Question 10

Taxation of Non-grantor trust

Answer 10

Any retained earnings/income in non-grantor trust is taxed at the trust level , using CFP Provided tax tables (page 3)

Question 11

What happens when non-grantor trust distributes income to beneficiaries

Answer 11

Non-grantor trust gets to take deduction for the amount it distributed to beneficiary.

Beneficiary has to pay the tax

Question 12

DNI - Distributable Net Income

Answer 12

Maximum amount that can be taxed to the beneficiaries

Question 13

What happens when non-grantor trust distributes more to the beneficiary than earned income?

Answer 13

Trust only pays taxes on income retained. If more is distributed to beneficiary than earned income, it means that all of the income was distributed (plus some of the corpus) and deducted leavening $0 taxable amount = no taxes due

Question 14

What happens when beneficiary receives more distribution than DNI?

Answer 14

DNI represents the MAX amount that can be taxed to the bene. If Bene receives more than DNI, he/she is taxed for DNI at the highest marginal tax brackets

Remaining amount is tax free distribution of trust corpus.

Question 15

Estate Tax Formula

Answer 15

Gross Estate
Minus: Expenses, debts, taxes, losses
Adjusted Gross Estate
Minus: Marital deduction
Minus: Charitable deduction
Taxable Estate

Question 16

Donor Deductions for a gift to a spouse

Answer 16

Donor can take an unlimited marital deduction for most gifts made to a US Citizen donee spouse.

Annual exclusions for a gift to non-citizen spouse is $185K

Question 17

Donor Deductions for a gift to charity

Answer 17

A decedent may receive a charitable estate tax deduction for property passing to a qualified charity. Calculated on Form 706: Estate Tax Return.

Question 18

Charitable Gift Annuities

Answer 18

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.

Gift tax charitable deduction is the PV of the charity’s remainder interest.

Gift annuity payments to a spouse: a marital deduction is available if the spouse receives all annuity payments and has general POA over payments after the donor’s death.

Gift annuity payments to others: gift tax is the PV of the annuity payments.

Question 19

Pooled Income Funds

Answer 19

A donor gifts property to a charity and receives an annual pro-rata share of income from the charity’s commingled funds, for life.

Additional gifts can be made to the fund to increase the donor’s income stream.

The charity manages the fund which cannot invest in tax-exempt securities and receives the remainder when the donor’s income interest ends.

Donor takes an income tax deduction for the PV of the charity’s remainder interest.

The donor pays income taxes on the income received from the fund.

Question 20

Private Foundation

Answer 20

A separate legal entity, either a not-for-profit corporation or a tax-exempt trust.

Most are funded and controlled by family members.
High set-up and maintenance fees.

Family members who make gifts to the foundation may take an income tax deduction limited to 30% for cash and 20% for LTCG property.

must distribute a minimum of 5% of the assets to public charities every year.

Question 21

Donor-Advised Funds

Answer 21

Maintained by charities, community foundations, or mutual fund companies.

Donors may contribute cash, stock, or other property to their individual fund accounts and select the charities they want to receive their grants.

Donors are entitled to a charitable income tax deduction based on the type of property contributed, subject to AGI limitations.

Question 22

When is CLAT a best choice?

Answer 22

A CLAT is the best Charitable Lead Trust (CLT) choice when interest rates are lower, since smaller annuity payments to a charity result in a greater value of the trust corpus for the remaindermen.

Question 23

CLAT Advantages

Answer 23

Qualify for income tax, gift tax, and estate tax deductions.

If using a ‘grantor-CLT,’ there is a large, front-loaded tax deduction that can offset taxation.

Flexibilty: can be either inter-vivos or testamentary.

Means to support philanthropic goals and support beneficiaries.

Question 24

CLAT Disadvantages

Answer 24

Trust principal is invaded if income is insufficient to make payments to charity, which ultimately leaves less for the trust beneficiaries.

An income tax deduction is only available for ‘grantor-CLTs.’ Non-grantor CLTs do not qualify.

Lead trusts are ‘non tax-exempt entities.’ Income earned by the trust is taxed to the grantor.

Question 25

CLUT Advantages

Answer 25

Advantages: Qualify for income tax, gift tax, and estate tax deductions. If using a ‘grantor-CLT,’ there is a large, front-loaded tax deduction that can offset taxation. Flexibility: can be either inter-vivos or testamentary. Means to support philanthropic goals and support beneficiaries. Additional assets permitted. Income stream serves as an ‘inflation hedge.’

Question 26

CLUT Disadvantages

Answer 26

Trust principal is invaded if income is insufficient to make payments to charity, which ultimately leaves less for the trust beneficiaries. An income tax deduction is only available for ‘grantor-CLTs.’ Non-grantor CLTs do not qualify. Lead trusts are ‘non tax-exempt entities.’ Income earned by the trust is taxed to the grantor.

Question 27

CRAT - Income Payments, Term & Taxation

Answer 27

Income payments: Between 5% - 50% of trust value. If the income of the trust is insufficient to meet the required annual payment, the difference is paid from capital gains or principal. If the income is greater than the amount required in any given year, the excess income is reinvested in the trust. Trust term: Not to exceed 20 years or life. Tax deduction CANE BE carried forward a maximum of 5 years following the initial contribution.

Question 28

CRAT Advantages

Answer 28

Current income tax deduction. Amount = PV of the remainder interest. Income to the grantor or non-charity beneficiaries. Support for grantor or beneficiaries. Giving to charity. Assets within trust accumulate free of taxation.

Question 29

CRAT Disadvantages

Answer 29

Contributions to the trust are irrevocable. Grantor loses control over the property. Purchasing power of the income stream may be reduced due to inflationary pressures. Income received may be subject to ordinary income or capital gains taxes.

Question 30

CRUT - Income, term and taxation

Answer 30

Income payments: Between 5% - 50% of trust value. Trust term: Not to exceed 20 years or life. Charity receives all trust assets upon the death of the income beneficiary or at the end of the trust term. Tax deduction can be carried forward a maximum of 5 years following the initial contribution.

Question 31

CRUT Advantages

Answer 31

Current income tax deduction. Amount = PV of the remainder interest. Income to the grantor or non-charity beneficiaries. Support for grantor or beneficiaries. Giving to charity. Assets within trust accumulate free of taxation.

Question 32

CRUT Disadvantages

Answer 32

Contributions to the trust are irrevocable. Grantor loses control over the property. Annual revaluation of trust assets may result in lower payments if investments under perform. Income received may be subject to ordinary income or capital gains taxes.

Question 33

TAX deduction from a CRUT

Answer 33

Total available tax deduction = present value (PV) of the remainder interest CRUT deductions are eligible for a carry forward for 5 years after the initial contribution. Deduction pool = PV of the remainder interest - current year deduction (available for 5 years to exhaust)

Question 34

Step-up in Basis

Answer 34

Basis = cost of the asset = inherited assets receive decedent's new basis + the owner's current basis int he property (0 if you inherit the asset fully) Any gain after the step-up in basis are considered LONG-TERM GAINS (FED taxes only, state taxes may be different) (Step-up in basis doesn't apply to assets in qualified accounts)

Question 35

Q-TIP Trust and Marital Deductions

Answer 35

can be subject to the marital deduction in the decedent's estate if the executor qualifies the terminable interest property "QTIP" for the marital deduction.

Question 36

When are QTIP Trust established?

Answer 36

Q-TIP trusts are established when the decedent spouse wants to: Provide the beneficiary spouse with income for life. Receive an estate tax marital deduction. Give trust corpus to children from a previous marriage.

Question 37

How do QTIPs Work?

Answer 37

The surviving spouse must receive all trust income annually. The spouse may receive distributions of corpus at the trustee’s discretion. Corpus passes to remainder beneficiaries designated by the decedent, at the beneficiary spouse’s death. Note: This is a terminable interest trust. Qualifies the decedent’s estate for the marital deduction. Executor elects Q-TIP treatment on Form 706.

Question 38

QTIP - Taxation

Answer 38

Property passes (Gift & Estate) tax-free under marital deductions. All trust income goes to surviving spouse distributed at annually for life. Upon Surviving spouses death, the assets pass tax-free to children from previous marriages. Surviving spouses estate will pay taxes on the corpus passed to the beneficiaries. (Assets are included in the surviving spouses's estate for tax purposes. )

Question 39

Bypass Trusts - Purpose

Answer 39

B-Trusts For Spousal Transfers AKA credit shelter trust; family trust Avoids “over-qualifying” the decedent spouse’s estate for the marital deduction, by utilizing the decedent’s maximum unified credit ($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.

Question 40

Spousal Income from a B-Trust

Answer 40

The surviving spouse can obtain income “as needed” from the trustee. The income interest is terminable interest property (TIP). The decedent spouse cannot receive a marital deduction on their estate tax return.

Question 41

B-Trust Funding

Answer 41

Established during life: Inter-Vivos revocable trust Established at death: Testamentary Bypass trust

Question 42

B-Trust Creation

Answer 42

The decedent spouse determines the trust beneficiaries when the trust is created (e.g., Surviving Spouse; Children). Trust is funded with property solely owned by the decedent. First to die spouse: 1. Sets Trust Terms 2. General POA 3. Is taxed upon transfer of $ to trust 4. Uses exemption to offset actual tax escapes Estate Tax at death on B-Trust assets

Question 43

What happens to surviving spouses estate in B-Trust?

Answer 43

Property “by-passes” inclusion in the surviving spouse’s estate. The spouse can be given a limited power of appointment with an ascertainable standard (HEMS) to receive distributions from trust income and corpus. The spouse can exercise a limited power of appointment to distribute assets to the beneficiaries. The spouse can be given a 5 x 5 power of appointment over the trust corpus.

Question 44

5 x 5 power of appointment

Answer 44

an optional provision of some trusts that allows the beneficiary to withdraw $5,000 or 5% of the total value of the trust, whichever is greater.

Question 45

For B-Trust, Whose estate are the assets included?

Answer 45

Bypass Trusts are designed to have assets included in the DECEDENT'S estate, due to the retention of general powers of appointment. Maximum Lifetime Gift Exclusion Amounts apply - $13.61MM

Question 46

B-Trust and Spouse's Estate at Death

Answer 46

B-Trust assets are NOT INCLUDED in the surviving spouse’s estate at death.

Question 47

A-Trust Purpose

Answer 47

The surviving spouse has access to income and corpus for life.

Question 48

A-Trust Features

Answer 48

Surviving spouse has a general power of appointment over trust corpus, exercisable during life and/or at death. Surviving spouse must receive all income which is paid at least annually; no accumulation of income in the trust. Surviving spouse determines the beneficiaries of the trust assets at death via general power of appointment in the will. Trust property is included in the surviving spouse’s estate.

Question 49

How does A-B Trust maximizes economic wealth?

Answer 49

Avoids "overqualification" of the estate for the marital deduction because of "underutilization" of the lifetime exemption amount/unified credit in the estate of the first-to-die spouse.

Question 50

What right does Surviving Spouse have in A-B Trust?

Answer 50

Has the right to all income and corpus from the A-trust and income if needed from the B-trust. Only the property from the A-trust is included in the surviving spouse’s estate.

Question 51

What right does Decedent Spouse have in A-B Trust?

Answer 51

A marital deduction is available for the A-trust. The lifetime exemption amount/unified credit is used for the B-trust. The estate tax liability is zero.

Question 52

A-Trust and Marital Deductions

Answer 52

A-Trust consists of property that qualifies for the UNLIMITED federal MARITAL deduction As a result, during the lifetime of the surviving spouse, he or she MUST be the ONLY BENE of this trust to qualify for the unlimited marital deduction.

Question 53

Estate Equalization

Answer 53

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.

Question 54

Ascertainable Standard

Answer 54

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).

Question 55

EP Strategy to minimize their total estate tax liability for their combined estates

Answer 55

Estate Equalization

Question 56

EP Strategy for Surviving spouse to receive all income annually

Answer 56

A-Trust or Q-TIP

Question 57

EP Strategy for Surviving spouse to receive income as needed

Answer 57

B-Trust or Estate Trust

Question 58

EP Strategy For Decedent spouse to receive a marital deduction

Answer 58

A-Trust or Q-TIP or Estate Trust or an outright gift to the spouse.

Question 59

EP Strategy for Surviving spouse to choose trust beneficiaries:

Answer 59

A-Trust or Estate Trust

Question 60

EP Strategy for Surviving spouse to determine what portion of the decedent’s estate to transfer into a trust to use the decedent’s unified credit

Answer 60

Disclaimer trust

Question 61

EP Strategy for Surviving spouse to access trust income for HEMS without including the assets in their estate

Answer 61

Ascertainable standard

Question 62

a specialized form of joint tenancy with right of survivorship existing between CO-TENENTS who are MARRIED. The estate is based on the common law concept of "spousal unity" - that married couple are treated as one person.

Answer 62

tenancy by the entirety

Question 63

2503(B) Annual Exclusion Amount

Answer 63

Annual exclusions amounts are limited to INCOME INTEREST exclusions not used for corpus/principle

Question 64

2503(b) Corpus

Answer 64

Need not be distributed to the beneficiary when the beneficiary reaches the age of majority. Will be excluded from the gross estate of the donor who is not a trustee. Will also be excluded from the gross estate of the income beneficiary if the income interest terminates at the beneficiary's death.

Question 65

2503(b) Timeframe

Answer 65

Section 2503(b) trust can last for the lifetime of the beneficiary or for any lesser period.

Question 66

Gift through 2503(c) trust

Answer 66

will be considered a gift of a present interest (so the gift will qualify for the annual gift tax exclusion). To qualify, the income and principal must be available for distribution to or on behalf of the beneficiary at any time before the time the beneficiary reaches age 21.

Question 67

2503(c) Taxation

Answer 67

Income that is accumulated in the trust is taxed to the trust and not to the beneficiary. Unexpended income and principal must be distributable to the beneficiary at age 21.

Question 68

Legal Age for 2503(c) qualification

Answer 68

21

Question 69

2503(c) - what happens if beneficiary dies before 21

Answer 69

If the beneficiary dies before age 21, accumulated trust income and corpus must go to the minor's estate or appointee under a general power of appointment.

Question 70

A gift to a minor through a Section 2503(c) trust will be considered

Answer 70

a gift of present interest

Question 71

Which trust must distribute all income to a minor beneficiary on at least an annual basis

Answer 71

2503(b)

Question 72

What type of trust is set up for QDOT

Answer 72

A QDOT must be set up as a QTIP trust or an estate trust.

Question 73

General Power of Appointment

Answer 73

BELOW GROUND Power = TAX

Question 74

B-Trust Taxation

Answer 74

B-Trust property can APPRECIATE and that passes beneficiaries TAX-FREE B-Trust INCOME can be received, AS-NEEDED, by the survive spouse for HEMS and is TAXABLE to the SURVIVING SPOUSE Distribution of PRINCIPLE/CORPUS are NON-TAXABLE

Question 75

A QTIP trust qualifies the grantor to receive which of the following?

Answer 75

Marital Deductions

Question 76

Which trust qualifies transfers to non-US citizen spouse for the UNLIMITED MARITAL Deductions

Answer 76

QDOT Trust

Question 77

What marital deductions are available for transfers to non-US citizens

Answer 77

NO Marital Deductions are available for transfers to non-US Citizen spouse

Question 78

Lifetime Annual exclusions for gifts to non-US Citizen spouse

Answer 78

annual exclusion of $185K in lifetime

Question 79

Property subject to probate

Answer 79

property transferred via a will is subject to probate solely owned personal or real property Tenancy-in-common Community property property passing from the will into a testamentary trust life insurance policy owned by the decedent who was not insured life insurance proceeds or annuities payable to the decedent's estate

Question 80

What are Will Substitues

Answer 80

**TLC - Trusts, Operation of Law, Contracts** * Funded revocable trust * Irrevocable trusts * Property in a trust * JTWROS * TBE * Joint banking accounts * POD/TOD accounts * Life estates * Named beneficiaries on life insurance * Named beneficiaries on pension plans * Named beneficiaries on IRAs * Named beneficiaries on annuities

Question 81

Tenants by the entirety

Answer 81

only spouses may hold this property title property can ONLY be severed with consent of both spouses or by divorce Provides LIMITED protection from CREDITORS

Question 82

To which trust assets CANNOT be added?

Answer 82

CRAT

Question 83

How is property distributed after death?

Answer 83

State law determines the beneficiaries for property in the absence of a will or will substitutes. In community property states, all property in intestacy passes to the surviving spouse.

Question 84

Which types of trusts offer tax deductions?

Answer 84

Irrevocable Trusts offer tax-deductions. Revocable Trusts DO NOT offer tax deductions

Question 85

Which gifts made by the decedent will be included back in the gross estate

Answer 85

creating a revocable trust and transferring property to the trust keeping a reversionary interest in the property gifted away creating a life estate and gifting the remainder interest

Question 86

is TIP a gift?

Answer 86

No

Question 87

Can donor spouse gift-split TIP?

Answer 87

NO

Question 88

Can donor spouse take annual exclusions on TIP

Answer 88

YES

Question 89

Can donor spouse take marital deductions on TIP?

Answer 89

NO

Question 90

TIP Estate Inclusion

Answer 90

TIP NOT INCLUDED in Donee's gross estate at dealth TIP REMOVED From Donor spouses' estate

Question 91

Treatments of Principal/corpus from 2503(b) trust

Answer 91

MAY BE withheld from beneficiary until his or her death (NEED NOT distribute when bene reaches age of majority) WILL BE EXCLUDED FROM donor's gross estate if they are not the trustee WILL BE EXCLUDED from bene's gross estate at death if income interest terminates at death

Question 92

Special Needs Trust - Taxation

Answer 92

Most special needs trusts are ‘third-party’ trusts and are taxed as a pass-through entity. The income that is passed on to the beneficiary is taxable to the beneficiary at their individual income tax rates. If there is any undistributed income, the trust will pay taxes at the higher ‘non-grantor trust’ rates. The trustee is responsible for the trust tax return preparation and pays taxes owed by the trust, from the trust.

Question 93

Special Needs Trust - Services Covered

Answer 93

Cover extra services: Medical expenses not covered by Medicaid Supplemental attendant and custodial care Additional therapies Respite care for family caregivers

Question 94

Special Needs Trust - What can yo pay for?

Answer 94

Telephones Computers and internet access Cable TV Basic household furnishings Travel and a companion

Question 95

Special Needs Trust Type - Pooled

Answer 95

Pooled: A pooled special needs trust is managed by a non-profit organization instead of a single trustee.

Question 96

Special Needs Trust Type - First-Party

Answer 96

First-Party: First-party special needs trusts are specifically designed to help individuals who are dealing with a disability caused by some type of injury. A first-party trust is funded by the person with special needs.

Question 97

Special Needs Trust Type - Third-Party

Answer 97

Third-Party: A third-party special needs trust holds assets that never belonged to the trust beneficiary. Third-party special needs trusts are often set up as a part of a donor’s estate plan, to aid the special needs individual while the donor is still alive and after he or she passes on.

Question 98

Supplemental Security Income (SSI)

Answer 98

UNEARNED INCOME LIMIT: less than $943 (in 2024)/MONTH to receive SSI (individual); $1415/month for a couple) EARNED INCOME: can earn up to $1,971 a month in 2024 ($2,915 for a couple) and still get SSI.

Question 99

Special needs trusts preserve eligibility for which government programs?

Answer 99

Social Security Disability Insurance (SSDI), Supplemental Security Income (SSI) and/or Medicaid get cash benefits and medical insurance these programs provide

Question 100

Funded ILIT

Answer 100

Transfer a life insurance policy and income-producing property into the ILIT. Trust income will pay for the policy premiums. Beneficiaries are NOT given Crummey powers. The grantor is taxed on trust income (ALL INCOME, NOT Net) due to grantor trust rules.

Question 101

Unfunded ILIT

Answer 101

Includes only the grantor’s life insurance policy. The grantor must transfer money into the trust each year so the trustee can pay the life insurance premiums. The beneficiaries are given Crummey powers: The right to withdraw some, or all, of a grantor’s contribution to an irrevocable trust each year. Turn a future interest gift into a present interest gift, thus, qualifying for the annual gift exclusion amount. The withdrawal amount is usually limited to the lesser of: The annual exclusion. The annual contribution made to the trust. The greater of $5,000 or 5% of the amount transferred into the trust.

Question 102

3-Year Rule

Answer 102

Certain property interests that were previously transferred within 3 years of the owner’s death are included in the OWNER's gross estate. Transfer of a life insurance policy or any incidents of ownership in the policy in which the decedent was the owner and the insured. An owner who is not the insured: A policy gifted within 3 years of the owner’s death will not be brought back into the owner’s estate.

Question 103

ILIT - New Policy Purchased by ILIT

Answer 103

When a new life insurance policy is purchased by the ILIT within the ILIT, Policy Owner = ILIT Policy Beneficiary = ILIT Insured = Grantor the face value of the insurance is removed from the owner’s estate.

Question 104

ILIT - Existing Policy Transfer

Answer 104

NOT the best approach ; 3-year rule applies The grantor transfers an existing life insurance policy into the ILIT. Assuming the owner survives the transfer of the policy by at least three years, no portion of the death benefit proceeds will be included in the owner's estate.

Question 105

Family Limited Partership - Age and Share Ownership

Answer 105

The assets placed into the FLP are exchanged for general partnership shares and limited partnership shares. Older family members retain the general partnership shares and continue to have control of the trust. Younger family members receive limited partnership shares over time and gradually assume greater ownership of the business/assets. Although the general partners have unlimited liability, the recipient limited partnership shares have the protection of limited liability.

Question 106

FLP - Advantages

Answer 106

Control: General partners (i.e., senior family members) retain control of property through the FLP. Income tax reduction: Protection from creditors. Valuation discounts: range from 30%-70% for a more efficient transfer of wealth. (Lack of Marketability Discount and Minority Interest Discount) Gifting: Transfers qualify for the annual exclusion ($18,000 in 2024).

Question 107

FLP Disadvantages

Answer 107

Income shifting to younger family members may be limited by “Kiddie Tax.” Additional filing, fees, and informational tax returns are due when setting up and accounting for an FLP. Gifts do not receive a step-up in basis. Retained partnership interests continue to appreciate in senior family member’s estate.

Question 108

Sale-Leasebacks - What is it? and Steps Involved?

Answer 108

A sale of business property (e.g., machinery, office items) to family members to provide them with an income stream from lease payments and remove the business property from the owner's estate. ① Business owner sells the business property to an adult child and then leases it back. ② Owner receives a lump sum payment or installment payments from the child and continues to use the property in the business. ③ Owner deducts monthly lease payments made to the child as a business expense. ④ Lease payments are taxed in the child’s lower tax bracket.

Question 109

Private Annuities

Answer 109

Duration = Life or Seller Payments Secured = N (no collateral) Impact on Seller's Gross Estate = Single life annuity: Remaining payments are not included in the seller’s estate; Joint and survivor annuity: Payments continue for two lives. The PV of the survivor’s future annuity payments is included in the seller’s estate, but a marital deduction is available to offset the tax. A seller receives a fixed annuity income stream for life and removes the business/property from their gross estate. NOTE: If the buyer dies before the seller, the buyer’s estate must make payments to the seller for life. If the seller outlives their calculated life expectancy, the buyer must continue to pay the seller.

Question 110

Installment Sales

Answer 110

Duration = Fixed Term Secured = Y; does not require a set sale price Impact on Seller's Gross Estate = PV of unpaid installment payments is included Payments = Can be skipped or spread out over several years; minimum 1 payment must be made to owner after taxable year in which sale occurs Used to sell the business to a family member or a 3rd party and provide the seller with secured income.

Question 111

Gift-Leasebacks: What is it? and Steps Involved?

Answer 111

A gift of business property (e.g., machinery, office items) to family members (via an irrevocable trust) to provide them with an income stream from lease payments and remove the business property from the owner's estate. ① Owner gifts property into an irrevocable trust and then leases the property back. ② Owner receives business deductions for the lease payments made to the trust. ③ Trustee distributes lease payments to family beneficiaries. ④ Family beneficiaries are taxed in lower tax brackets.

Question 112

When are Private Annuities based approach?

Answer 112

Used between family members and in situations where the individual establishing the private annuity has a non-terminal medical conduction that may reduce their life expectancy

Question 113

Income in Respect of a Decedent (IRD)

Answer 113

Income earned by a decedent, but: not received by the date of death and therefore, not included in the final income tax return. However, this income, which the decedent would have included in gross income if he or she had lived, does not escape taxation. are taxed as income to the recipient of these assets.

Question 114

IRD Assets Types

Answer 114

Deffered Annuities Immediate Annuity with Period Certain Employer-Sponsored Qualified Retirement Plan (401k, TSA, Company Pension Plans) IRAs EE Bonds Salary, bonus, commission, rental income, lottery winnings, or any other income

Question 115

CORE Estate Planning Objectives

Answer 115

* Tax Reduction * Tax Avoidence * Protection * Support * Control * Philanthropy * Case * Privacy

Question 116

Which Property **transferred via a will** is **subject to probate**?

Answer 116

* 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, and * Life insurance policy **owned by the decedent who was not the insured**.

Question 117

Which Property **NOT transferred via a will** is **subject to probate**?

Answer 117

* Intestate property (no clear person for inheritence) * Life insurance policy proceeds or annuities payable to the decedent’s estate * Homestead and exempt property allowances.

Question 118

When should Per Capita be used as method of asset transfer

Answer 118

when assets are to be distributed EVENLY amongst ALL survivors. Distribution is based on the surviving family members. "BY HEAD" or "according to the # of individuals"

Question 119

When should Per Stripe be used as method of asset transfer

Answer 119

when a share of the decedent’s assets is to be transferred to a DECEASED BENE'S CHILDREN and SPLIT EVENLY. Distribution follows the family tree. Defined as either “by the trunk,” “by the roots,” or “by right of representation.”

Question 120

When should Per Stripe BY GENERATION be used as method of asset transfer

Answer 120

Used when the 2nd generation is set to receive their specified % share, with all heirs in the 3rd generation receiving an evenly-split % of the remainder.

Question 121

Crummey Power Withdrawal Amount Limit

Answer 121

Lesser of : Annual exclusion Annual contribution made to the trust The greater of $5000 or 5% of the amount transferred into the trust

Question 122

AVD Election (Who, What, When, where and why)

Answer 122

* Who? Executor makes the election. * What? A valuation date that is set 6-months from the date of death. * When? Selected within one year of estate tax return filing, including extensions. * Where? AVD election is made on Form 706 and is IRREVOCABLE * Why? To receive a lower valuation of the estate which, in turn, reduces potential taxation.

Question 123

AVD Exception

Answer 123

* If AVD election is made, all assets MUST be valued as of AVD. * EXCEPTION: Depreciating assets - cars, patents, copyright musical scores, intellectual property

Question 124

What are the advantages of titling an asset as tenancy in common

Answer 124

Control of property transfer through a will Splitting income among owners

Question 125

When should CLAT be used?

Answer 125

when you can't add additional assets when you want to maximize value of asset transferred to the non-charitable bene When interest rates are low - lower annuity payments mean greater value of trust corpus

Question 126

Grantor & Benes

Answer 126

Grantor: A person who transfers property to and dictates the terms of a trust. Bene: A party that will receive the benefit of the use of the trust property and/or income.

Question 127

Trustee Features

Answer 127

Serves as a fiduciary (for the benefit of benes) to whom property is transferred by the grantor and receives legal title to the property placed in the trust. Manages, distributes, and accumulates income + principal. Must follow a formal written agreement (i.e., terms of the trust) for the benefit of the benes

Question 128

Complex Trust

Answer 128

Are NOT required to make distributions (they can accumulate income) May have a charitable beneficiary May distribute principal during the tax year Have a personal exemption of $100 (2024)

Question 129

Advantages of JTWROS

Answer 129

Ensure that the property automatically passes to a specific individual upon the owner's death. Avoid probate. Reduce administrative costs and attorney's fees. Minimize income tax liability.