Estate Planning Flashcards
Requirements for a valid will
must be 18 years old
be of sound mind
absence of undue influence
absence of fraud
General provisions of a will are
introductory clause to identify testator testator's domicile revocation of prior wills ID of executor/successor payment of debts payment of taxes disposition of tangible property disposition of real estate specific bequests residuary clause appointments and powers clause testotor's siganture clause witness clause
Can a living will assign POA or appoint a surrogate decision maker for health care choices?
NO - living will makes those decisions clear in the document, no decision makers or POA appointed
The order of information gathering for estate planning is
family information detailed list of assets, ownerships, and liabilities medical and disability insurance life insurance , ownership, insured, benes annuities wills trust or gifts powers of appointment FMV of assest and estimated growth rate tax returns and mortgage info POAs
Present interest in property can be
fee simple - complete ownership with all rights
life estate - exclusive rights to the use and enjoyment until death
interest for term - like life estate bu for a defined period of time
Future interest in property can be
remainders and reversions - get a present interest after some other term or life interest passes
A reversion future interest is when a grantor transfers a life estate to another but ______
retains a future interest after the life estate expires
A remainder future interest is one that exists at the _____ of a prior interest
termination
Does a survivor holding assets tenancy in common receive the other half of the assets at death of the other owner?
NO - no rights of survivorship
For non-married JTWROS, if they own an unequitable amount of the assets, is a gift incurred?
YES, considered that the majority contributor has made a gift to the minority contributor
Creation of a joint bank account does not result in a gift until the noncontributing party _____
withdraws money for their own benefit
If JTWROS owners are non-married, what determines amount of property to be included in the decedents estate?
percentage of contribution
If JTWROS are married, how much of property is included in decedent’s gross estate?
50%
In a community property state, married people own an ________ in all property
equal and undivided interest
Exceptions to community property are
acquired before marriage
acquired through gift and held separately
acquired by inheritance and held separately
acquired by court award and held separately
If you move from a community property to a common property state, does the nature of your property change? And vice versa?
NO - must choose to divide upon arrival; same principal if you move the other way
If you die testate, do your assets go through probate?
YES
Assets that pass by contract avoid probate and include:
life insurance proceeds with named bene retirement plans with named bene annuity with named joint annuitants POD and TOD named bene is living at time of death
Assets that pass by operation of law avoid probate and include
JTWROS
Tenants by entirety
Trust property
Does gift tax apply to incomplete transfers?
NO
A revocable trust becomes a gift when the grantor releases the _____
power of revocation
Transfers that are NOT subject to gift tax
- medical payments and tuition paid directly to the provider
- property settlements between divorcing spouses
- interest on gift loans
- payments made under obligation of support
- donations to political orgs
Transfers that are deductible for determining taxable gifts:
- gifts to qualifying charities
- gifts and transfers b/t spouses
- exemption for non US spouses
- gifts of future interest to non citizen spouses are subject to gift tax
Net gifts are when the donor and donee agree that ____
the donee will pay the gift tax
Does UGMA cover real property gifts to minors?
NO
Does UTMA cover real property gifts to minors?
YES - more flexible than UGMA
A section 2503(b) trust requires that all ____ be distributed (also called a _____ trust)
all income be distributed to child/bene; also called a mandatory income trust
Does the calculated future interest value of a Section 2503(b) trust (mandatory income trust) qualify for the annual exclusion?
NO - only the present income interest
A section 2503(c) trust is like a 2503(b), but income distribution is ______, until child is ____
discretionary until child is 21 years old
A Crummey minor’s trust is like a 2503(b) and 2503(c) trust, but at age 21, income and corpus distributions are not _____
mandatory (like in the others)
Holding periods for disposing of gifts received is ____ for gain basis and ____ for loss basis
date the DONOR acquired the property for gain, date of the gift for loss
Property included in the gross estate is:
property owned by the decedent or had an interest
- dower and curtesy interests
- gift tax on gifts made within three years
- transfers with a retained life interest
- transfers taking effect at death
- revocable transfers
- anniuties
- jointly owned property
- powers of appointment
- proceeds of life insurance
Property excluded from a gross estate is a court award for ____ paid to the decedent’s family
wrongful death
Are dower and curtesy interests fully deductible under the marital deductions?
YES
If you own a straight life annuity, is it included in your gross estate when you die?
NO - because it ends at that point
If you own a survivorship annuity (one owner), is it included in your gross estate when you die?
YES - the cost of a comparable policy, based on the survivor’s life, is included
As a general rule, the gross estate will include the ______ of property held jointly with others
entire value
If you transfer a life insurance policy to an irrevocable trust and die within 3 years or doing so, are the proceeds included in your gross estate?
YES because less than 3 years
Assets for an estate are valued at the ____
date of death
You can only use an alternate valuation date for an estate if the gross estate and estate tax liability would be _____ than if valued at the DOD
LESS
If you choose an AVD, then wasting assets are still valued at _____
DOD
Wasting assets in a gross estate include:
copyrights, patents, annuitized annuities, installment notes, and cash accounts)
The value included in a gross estate from a grantor retained interest trust is the IRS determined value of the amount of _____ needed to yield the annual annuity payment
CORPUS
Deductions from the gross estate include:
- funeral expenses
- admin expenses
- unpaid mortgages
- claims against estate
- losses incurred in administering estate
- charitable contributins
- transfers to surviving spouse
- state death taxes
Form 706 estate taxes is generally due ____ after the DOD
nine months
The holding period of property acquired from a decedent is deemed to be _____
long term
Crummey power is a ____ power of _____ that allows a trust bene to withdraw assets from a trust for a _____
lapsing power of appointment that gives power to withdraw for limited amount of time
Crummey powers are used to take advantage of the _____ exclusion
annual gift exclusion
To avoid gift tax on a lapsed power to withdraw, the 5/5 rule with Crummey powers states that the withdrawal amount must be limited to the greater of ____ of the value of the trust or _____
5% or $5,000
A decedent’s gross estate will include any assets under a _____ of appointment held by a decedent at the time of death (whether exercised or not)
general power of appointment
To qualify for the marital deduction, the property transferred must be in the decedent’s ______ and must pass to the decedent’s _____
in the gross estate and pass to the spouse
When a spouse receives a life estate coupled with a POA, does it qualify for the marital deduction?
YES
A QTIP (qualified terminable interest property trust) allows for a _____ interest to be passed to a surviving spouse and the property to still qualify for the ______
terminable interest and still qualifies for marital deduction
For a QTIP to be valid, must include:
- income for life to the spouse
- value of trust assets must be included in gross estate of surviving spouse and valued at their DOD
- usually not given POA
- typically the remainderman has been identified
- called C or Q trust, often used to protect assets in a second marriage from children of the first marriage
A POA Trust (or A Trust) allows a _____ interest to be passed to the surviving spouse and the property still qualified for the _____
terminable, still qualifies for marital deduction
For a POA trust, the requirements are:
- interest payable for life
- surviving spouse gets POA
- assets remaining in trust included in gross estate of the surviving spouse
A bypass trust (B trust) is useful when you want to leave property to nonspouse heirs who are not
mature or sophisticated enough to handle the property
Is the unlimited marital deduction allowed for an alien surviving spouse?
NO - unless they become a citizen before the form 706 due date
When is the marital deduction allowed for a non-US surviving spouse?
When assets placed in a QDOT (qualified domestic trust)
Overqualification of an estate occurs when the first decedent spouse in effect uses ______ marital deduction at death
too much
Overqualification of an estate is when the marital deduction reduces the estate below the ______ amount
applicable credit amount - wastes the applicable credit amount
To avoid overqualification, usually you leave some of the decedent’s assets in their _____ estate
taxable
Underqualification of an estate is when the decedent uses _____ marital deduction
too little
A vested remainder trust is one that is ______
nonforfeitable
A contingent remainder trust is where the interest depends on whether or not a _____ happens
certain future event
The rules against perpetuities just means that a trust can’t have an _____ life
an infinite (in most states)
For an irrevocable trust, the interest in the assets is created on the ______
date of the trust agreement
For a revocable trust, the interest is created on the _____
date the trust becomes irrevocable
Which type of trust is exempt from the rule of perpetuities?
charitable
A simple trust requires that all _____ be _____
all income be paid out to beneficiaries annually
A complex trust is any trust that isn’t ____
simple
A dynasty trust passes a _____ to grandchildren
life insurance policy
A Health and Education Exclusion Trust (HEET) is used to fund medical expenses or education for _____ and free of _____
grandchildren and skips generation skipping tax
Sprinkling (spray) provisions allows a trustee the power to _____ income to the benefit of the benes
direct income
Exemption for most simple trusts is _____, for complex is ____
$300, $100
Qualified Personal Residence Trusts (QPRTs) and Personal Residence Trusts (PRTs) are both used to transfer a _____ to a trust but retain the right to live there
personal residence
Grantor Retained Annuity Trusts (GRATs) and Grantor Retained Unitrusts (GRUTs) allow a grantor to transfer property to a trust but retain ______
rights to annual income payments
GRATs and GRUTs are useful to transfer _______ property to family members while maintaining an income interest
appreciated property
A GRAT or GRUT provides transfer tax advantages if (i) the trust property appreciates rapidly, (ii) the grantor ______ the term of the trust, and (iii) the trust property passes to a family member
SURVIVES
Charitable gift annuities is when a donor makes a ____ transfer of assets to a charity and receives an _____ from the charity in return
irrevocable transfer of assets and receives an annuity in return
A Pooled Income Fund (PIF) is an irrevocable transfer of assets to a charity in return for an _____ from the charity’s commingled assets
income stream
A charitable remainder trust (CRT - which splits into CRAT and CRUT) is an irrevocable trust in which the remainder is a _____
qualified charity
Initial PV of a remainder interest in a CRAT/CRUT must be at least ____ of FMV of the property/asset at the time of granting
10%
Annuity/unitrust payments must be at least ___ and >= ____ for CRATs/CRUTs
at least 5%, >= 50%
A charitable lead trust (CLT) is where the income from assets in the trust go to ____ and the remainder interest goes to _____
income goes to charity, remainder goes back to noncharitable bene
Private foundations are good for people who want to _____ the process, engage their _____, and their charitable inclinations are not met by ______
control the process, engage heirs, and their charitable inclinations are not met by other charities
An FLP is created to transfer assets to ______ at a reduced ______ and ____
transfer assets to the younger gen with reduced gift tax valuation and costs
The main differences between a sale leaseback and a gift leaseback are:
- sale leaseback payments are made to the older gen; gift leasebacks no payments
- most sale leasebacks involve the older gen stopping work
A SCIN is a self-cancelling installment note and the value of the notes canceled at death of the seller are _______ in the gross estate
NOT INCLUDED
For a disability buy-sell, the definition of disability should match the definition for _____
insurance
The different types of valuation discounts are:
- minority interest
- lack of marketability
- blockage discount (block trading)
- key person discount (key person has died or is disabled)
Special use valuation is available to reduce gross estate value if the decedent owned real property that was used as a _____ or in connection with a _____
farm or closely held business
A skip person for GSTT is anyone who
- related person two generations or more below (grandchild)
- trust where ALL the benes are two or more generations below
- unrelated person younger than transferor by 37.5 years
Can a grandparent with no children make a transfer to a grandniece/nephew without incurring GSTT?
YES
There a several instances where life insurance proceeds would be included in gross estate, they are:
- they gifted the policy within 3 years of death
- retained rights or reversionary rights in policy
- still had POA
- had incidents of ownership in policy at DOD
- proceeds were payable to their estate
