Estate Planning Flashcards
Probate Process
Court supervision of transfers, filing of claims against the estate by creditors, and publication of the last will and testament for decedent dying with a will
Form 706 Filing
- When total gross estate plus adjustable taxable gifts exceeds exemption amount
- When PORTABILITY is elected (unused spouse exemption transferred to surviving spouse)
General Power of Appointment vs. Special (Limited) Power of Appointment
General- outright ownership, subject to estate and gift tax bcuz holder can appoint property to themselves (No probate though)
Special (Limited) Power - NO estate or gift tax. Can’t appoint to themselves.
Form 709 Filing
- File when a gift of future amount
- Gift from non-community/individual acct when spouses elect gift splitting (only donater files, spouse signs)…
… if more than $36k, both sign
Future Interest Gifts
- Always file form 709
- NEVER qualify for $18k annual exclusion
- Typically delay possession and enjoyment
Examples: 2503(b), remainder interest, income accumulating trust (unless Crummey)
POA vs Revocable Trust Trustee
Revocable trust will be more widely accepted than the power of attorney and can continue beyond the death
Guardianship & Conservatorship
Appointed by the court!
Subject to court’s supervision.
Defective Grantor Trust
- Grantor holds too much control or “strings”
- GRANTOR is taxed on income (not trust)
- Could be good! Especially if grantor is in lower tax bracket
These cause defect:
- Reversionary interest exceeding 5% of trust value at time of creation
- Power to control who/when benefits
ALSO TAINTED FOR ESTATE TAX PURPOSES IF (never good!):
- Reversionary interest exceeds 5% measured AT DEATH
- Right to income or use or enjoyment of trust property
Crummey Trust
- irrevocable trust with demand rights
- typical usage of crummy provisions is an unfunded life insurance trust
- Turns a gift of a future interest into a gift of a present interest
- beneficiary has temporary right to demand a withdrawal from the trust
- annual rate of withdrawal is equal to the lesser of the amount of the annual exclusion or the value of the gift transferred
Bypass trust (can be simple or complex)
- Non-marital, B, Family, Credit Trust, Shelter Trust
- give the decedent postmortem control over the property
- usually an amount equal to the exemption ($13.6M)
- Can provide a stream of income to the surviving spouse only OR to other individuals
- Can have HEMS or 5 or 5!
- Not included in Survivors estate
-Assets pass estate tax free to decedents beneficiaries (1st spouse controls)
Marital Trust (A trust)
- 2nd spouse to die controls
- Property transferred to surviving spouse at decedent’s death
- surviving spouse has control over the property in the trust
- Right income and can invade corpus
- Qualifies for marital deduction
- included in the second spouse’s estate, but goes to their beneficiaries
QTIP (Qualified Terminal Interest), C trust
- Simple Trust
-LAME
1) lifetime income interest for the spouse
2) annual payments to the spouse
3) mandatory payments to spouse
4) exclusively for the spouse
- Decedent has postmortem control over the property when the surviving spouse dies
-must be included as an asset in the gross estate of surviving spouse
- Can have HEMS or 5 or 5.
- If reverse QTIP (assets go to grandchildren or skip person), GSTT exemption is not lost
QDT or QDOT (when dead)
- Simple Trust
- Usually, there’s an unlimited marital deduction… UNLESS THE SURVIVING SPOUSE IS NOT A US CITIZEN.. then:
1) No estate tax marital deduction
2) Exemption available if spouse is a resident alien
3) Jt assets between spouses is not considered one-half owned (based on consideration instead)
4) Limited non-tax gift between spouses of $100k per year (indexed to $185k in 2024).. to qualify.. property must pass to qualified domestic trust
Similar to QTIP but for non-citizen spouse.
2503(b)
- Income only
- Kiddie tax
- Must use $13.6M exemption to fund bcuz it’s ALWAYS a gift of future value and therefore can’t use annual exclusion
- Interest is a gift of present interest and can be used for annual exclusion
2503(c)
- Taxed at trust rate (37%)
- Funded with any asset
- Distribute at age 21
- Expensive to maintain
- Can be included in grantor trustee’s estate
Dynasty Trust
- Simple Trust
- B (Bypass) Trust that benefits
multiple generations - Lasts for lived in being PLUS 21 years and 9 months (rule against perpetuities) OR as long as local law allows
CRAT
- Provide noncharitable bene (donor, spouse, third party) with stream of income
- For life or term up to 20 years
- Anchor to 5% of original principle
- No additions
- Remainder Payable to any charity
- Can NEVER go below 10% of original basis (to charity) AND pay income. Once it reaches, stops.
CRUT
- Pay at least 5% but on revalued amount (not anchored to basis)
- Any charity
- Additional Contributions Allowed!
- Limit to 10% of basis (ending value)
Pooled Income
- Additions allowed!
- Payments vary.. based on investment income
- Payable to one SPECIFIC charity
- NO MUNIS
Charitable Gift Annuity
- Basically an overpay for an annuity
- No additions
- Fixed income to you for life
- Payable to one specific charity
- Deduction of gift less annuity
CLAT/CLUT
- CANT ESTABLISH WHILE LIVING (only at death)
- Can take PV of income stream at death as estate tax deduction
- NO 5% rule
- Income to Charity
- income or estate tax deduction
- after period of time, paid to non-charitable bene
Private Foundation
- 5% rule!
- 30% income tax deduction payable to charity OR an individual
- Indefinite time period
PRIVATE INDIVIDUAL IS KEY
Installment Sale
- sale of property at fair market value in exchange for payments
- present value of remaining payments is included in owners estate
- Property is secured
- gain is capital gain
SCIN
- If there’s an estate issue, these are good
- No value included in owner’s estate
- Gain is capital gain
- Assets can be depreciated
- Interest can be deducted
- Higher payout than installment
Private Annuity
- Not popular these days
- no value is included in owners estate
- Properties transferred for a promise for periodic payments
- All the gain, which would’ve been recognized over the life of the annuity now will be taxed in the year in which the private annuity is established (PAY CAP GAINS UP FRONT)
GRAT/GRUT
- irrevocable trust that allow the grand tour to make gifts of property while retaining an income interest
1) end of term corpus is distributed to a remainder person
2) value of the gift is discounted due to the retained interest
3) owner must outlive term or the acid is brought back into the estate (otherwise, nothing at all)
GRIT (retained interest trust) - use if no family members
Intrafamily Transfers (no income needed)
1) Partnership/ S Corp
- family member receives conduit income (ineffective if a child is under age 24 because of kiddie tax)
- business entity must be capital sensitive (no service)
2) family Limited partner(FLP)
- gift interests to limited partners to reduce the estate
-qualifies for evaluation discount discounts
-General partner maintains control
3) gift lease back
-a gift of fully depreciated property
-Lease payments are a business deduction, income to family member
- do not use if child is under age 24
4) QPRT
- Irrevocable transfer of personal residence
- at end of term residence is eliminated from grantors estate
- value of gift is discounted
-owner must outlive term
Skip Person
- 37.5 years younger (not related)
- related and two generations younger
- If parent deceased, doesn’t count
- 3 types of transfers:
1) Direct Skip ($18k annual exclusion), donor pays tax! GST over exemption and annual, Taxable Gift less annual
2) Taxable Termination (indirect skip) - NO annual exclusion, someone dies and skip person gets interest, trustee pays tax! GST over lifetime exemption + Gift tax entirely.
3) Taxable Distribution - NO annual exclusion, any distribution of a trust to a skip person (no one dies), GST over lifetime exemption + gift tax entirely
AVD
- FMV 6 months after decedent death
-MUST result in reduction of gross estate
-Federal tax liability must be reduced as a result of filing election
(but wasting assets is not allowed)
Disclaimer Trust
- Simple Trust
- Spouse can disclaim property but receive income ( life estate)
- Irrevocable
- cannot invade corpus unless for HEMS
- NO 5 or 5 rights allowed
Prenuptial Agreement
- In writing (not oral) signed by both parties
- Disclosure of net worth
- Willingly executed by both parties
Even if you used a QTIP, Bypass (etc), a spouse could DEMAND a minimum percentage of estate (elective share).. so a prenup is most effective
Installment payment (6166)
- DOESNT NEED TO BE A CORP (like stock redemption 303 does)
- value of biz must exceed 35% of AGE
- pay over 14 years (first 4 can be interest only)
- interest is 2% on first $1M ($1.85M)
- interest not deductible
Special Use Valuation (2032A)
- Estate tax reduction
- Real estate used for farm or closely held business
- 50% of gross estate must consist of REAL PROPERTY and PERSONAL PROPERTY
- 25% of gross estate must consist of REAL PROPERTY
- $750k reduction in decedents gross estate ($1.39M in 2024)
- must be qualified use (5 out of 8 before death / 10 years after death) both must be true
