Estate Planning

Question 1

Non-community property interest

Answer 1

1. Income earned by spouses prior to marriage
2. Property received as a gift by one spouse
3. Property inherited by one spouse
4. Interest earned on separate assets held by one spouse as a sole
   owner

Question 2

Joint tenancy with
right of survivorship
(JTWROS)

Answer 2

. Property can be held by husband and wife, parent and child or
children, siblings, and business partners
. Control, ownership and enjoyment shared equally by all joint tenants
. Upon death of each tenant, property immediately passes to surviving
joint tenants in equal shares.
. Property NOT controlled by terms of the will
. NOT subject to probate

Question 3

Tenancy by the entirety

Answer 3

• Ownership can only be held by a husband and wife
• Transfer of property can only occur with the mutual consent of both
parties
• In most states, property is protected from the claims of each spouse’s
separate creditors, but NOT protected from the claims of both
spouse’s joint creditors

Question 4

Tenancy in common

Answer 4

• Two or more owners each own an undivided interest in the property
• Any income is distributed according to each owner’s respective share in the
property
• Owners are free to transfer their respective share of the property to other
individuals
• Ownership stake goes through probate upon death

Question 5

Assets NOT subject to probate

Answer 5

• Property conveyed by deeds of title (IRA)
• Property held by joint tenancy with rights of survivorship
• Government savings bonds - co-ownership
• Revocable living trusts
• Payable on death accounts (PODs)
• Totten trust

Question 6

Assets subject to probate

Answer 6

. “Singly” owned assets
• Property held by tenancy in common
. Assets where the beneficiary is the “estate of the insured”
• Community Property (CP)

Question 7

Assets Included in Gross Estate

Answer 7

• Singly owned assets
• Tenancy in common
• Beneficiary is the estate
• Community property
• JTWROS/Entirety
• Life Insurance
• General Powers
• 3-year gross-up on gift taxes paid (but NOT GST taxes paid)

Question 8

Life Insurance

added to the estate

Answer 8

• Proceeds are paid to the executor of the decedent’s estate
• Decedent at death possesses an incident of ownership in the policy
• Decedent transferred a policy with an incident of ownership within
three years of death

Question 9

Valuation of a gift

Answer 9

• The value of a gift for gift tax purposes is its fair market value (FMV)
at the date of gift.

Question 10

Basis of a gift

Answer 10

• If FMV on the date of gift is greater than the donor’s adjusted basis,
use the donor’s adjusted basis
. If the FMV of the gift is less than the donor’s adjusted basis, use the
chart below
Client’s substituted basis $2,013,000 Gain
between $2,013,000 and
no gain or loss
$1,513,000
FMV date of gift

$1,513,000 Loss

Question 11

Deductible Gifts
(not taxable gifts)
also called exempt gifts or
qualified transfer

Answer 11

• Gifts to a spouse, provided they are not a terminal interest
• Gifts to qualified charities
• Qualified payments in any amount made directly to an educational
institution for tuition
• Qualified payments in any amount made directly to a medical care
provider on behalf of any individual
• Gifts to American political parties

Question 12

Summary of rules regarding

gifts and the donor’s estate

Answer 12

• Generally, gifts are given are simply “taxable gifts” to the extent such
gifts exceed the annual exclusion
• Taxable gifts are added to the taxable estate
• Gift taxes paid (or payable) are generally allowed as a credit against
the tentative tax
• Gift taxes paid on any gifts within three years of death are added to
the gross estate

Question 13

Powers of Attorney

Answer 13

Traditional, non-durable power of attorney - Power ceases when the
principal is no longer legally competent
Durable power of attorney - Authority of agent continues when principal
becomes incompetent
Springing durable power of attorney - Main strength is the agent has no
authority over the principal’s assets until incompetency

Question 14

Powers of Appointment

Trusts

Answer 14

• Special Power: Exercisable only with the consent of the creator of
the power or a person having a substantial adverse interest
• Ascertainable standard: Relating to health, education, •
maintenance or support (HEMS)
• General Power: Holder may exercise the power in any manner
he/she wishes

Question 15

Gift & Estate Tax Implications

General Power

Answer 15

Gift Tax Implications (General Power)
• Exercised, released or lapsed - taxed
• Lapsed with a “5 or 5” power- not taxed
Estate Tax Implications (General Power)
• Exercised, released or lapsed - taxed
• Exercised, released or lapsed with a “5 or 5” power - greater of the
“5 or 5” is taxed

Question 16

“5 or 5” Power

Answer 16

• Property subject to a general power will be included in a donee
decedents estate (or considered a taxable gift) only to the extent that
the property exceeds the greater of:
1. $5,000 or
2. 5% of the total value of the fund subject to the power as measured at
the time of lapse

Question 17

Grantor Trust Rules
(Tainted / Defective Trusts)
Income Tax & Estate

Answer 17

• Trust may be defective / tainted for Income Tax and Estate Tax
purposes if the grantor retains:
I. A right to income or the right to use/enjoy trust property (beneficial
enjoyment).
2. A reversionary interest exceeding 5% (retained interest)

Question 18

Elements of a Trust

Answer 18

. In order for a trust to exist, there must be property (also known as
principal, re, or corpus).
. There must be a grantor. This is any person who transfers property
to and dictates the term of a trust.
. There must be a trustee, who receives legal title to the property
placed in the trust, and who generally manages and distributes
income according to the terms of a formal written agreement (trust
instrument).
. There must be a beneficiary. who has equitable title to the
property.
. The grantor and trustee must be legally competent.

Question 19

Simple vs. Complex Trusts

Answer 19

• Simple trusts (2503(b), Martial, QTIP) are considered merely a
“conduit” for forwarding income to the beneficiaries (pass-through)
• Complex trusts (2503 (c)), are separate tax entities and taxed as
such if it meets two requirements:
–> It is irrevocable, and the grantor has not retained any control
—> Income is accumulated

Question 20

Crummey Trust

Answer 20

• Irrevocable trust with demand rights
• Demand right given to a minor through his/her guardian
• Beneficiary has temporary right to demand a withdrawal from the
trust that is the lesser of the amount of the annual gift exclusion or
the value of the gift transferred

Question 21

Nonmarital “B” Trust
(Family, Bypass, Credit Shelter, Unified Credit
Shelter)

Answer 21

• Property transferred to the trust at time of decedent’s death
• Can be structured to provide a stream of income to surviving spouse
or other individuals
• Decedent has postmortem control

Question 22

QTIP “C” Trust

Current Income Trust

Answer 22

• Provides surviving spouse with a stream of income for life, but
decedent has postmortem control of trust property
• Property qualifies for marital deduction
• Mainly used for second marriages
• Key word for QT1P - LAME
Lifetime income for the spouse
Annual payments to spouse
Mandatory payments to spouse
Exclusively for spouse

Question 23

Qualified Domestic Trust

QDT/QDOT

Answer 23

• No unlimited marital deduction
• However, no estate tax due
• Jointly held property between spouses is not considered one-half
owned
• Limited gift between spouses of only 100K (indexed) per year

Question 24

Present Interest Gift Vehicles

Answer 24

•  UGMA 
•  UTMA 
•  2503(c) trust 
• Section 529 college savings plan 
Gift to a 2503(b) trust is a gift of a future interest

Question 25

Charitable

Contributions/Transfers

Answer 25

Income to donor until donor’s death:
. Charitable Remainder Annuity Trust (CRAT) - 5%
. Charitable Remainder Unitrust (CRUT) - 5%
. Pooled Income Fund - no 5% required
. Charitable Gift Annuity - no 5% required
Income to charity:
. Charitable Lead Trust (CLAT/CLUT) - no 5% required
. Private Foundation - 5% - can give money to individuals

Question 26

Intrafamily Transfers

Property owner needs income

Answer 26

PIGS need income 
• Private Annuity 
• Installment Sale 
• Grantor Annuity Trusts (GRAT/GRUT) 
• Self-canceling installment note (SCIN)

Question 27

Intrafamily Transfers
(Property owner wants to gift assets
and/or income to family members)

Answer 27

• Partnership / S-corp
• Family Limited Partnership (FLP)
• Gift Leaseback
• Qualified Personal Residence Trust (QPRT)

Question 28

Disclaimer

Answer 28

• In order to disclaim property, the following requirements must be
met:
1. Disclaimer must be an irrevocable refusal to accept the interest
2. Refusal must be in writing
3. Refusal must be received within nine months
4. Intended donee cannot have accepted any interest in the benefits
5. As a result of refusal, the interest will pass, without the disclaiming
person’s direction, to someone else

Question 29

Postmortem Planning Techniques

Estate Liquidity

Answer 29

Stock Redemption (Section 303)
I. Business must be incorporated (closely held)
2. Value of business must exceed 35% of decedent’s adjusted gross
estate
3. Redemption cannot exceed the sum of the estate taxes plus
administration expenses
Installment payment of estate taxes (Section 6166)
1. Value of business must exceed 35% of decedent’s adjusted gross
estate
2. During the first 4 years (of 14 years) can pay interest only on taxes
due

Question 30

Postmortem Planning Techniques

Estate tax Reduction

Answer 30

Special Use Valuation (Section 2032A):
1. 25% of the gross estate consists of real property
2. Must be in qualified use - 5 out-of-8 year rule before death and 10
years after death