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CFP TL VERSION > Estate Planning > Flashcards

Estate Planning Flashcards

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1
Q

Community property

A

Each spouse owns a separate but equal share.

No survivorship rights so a will is need and assets will go through probate.

Gets full 100% step up in basis

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2
Q

No community (separate) property interests

A

Income earned by spouse prior to marriage

Property received as gift

Property inherited

Interest earned on separate assets held by one spouse as sole owner

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3
Q

Tenancy by entirety - TBE

A

Not subject to probate

Cant be disclaimed

Only allowed between spouses

Both parties must agree to severe the tenancy by entirety

Homes held this way are protected from spouses creditors, but can be attacked by joint creditors.

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4
Q

Tenancy in common - TIC

A

Subject to probate And included in gross estate

Can be disclaimed

Can be owned by several owners at the same time.

Can have different ownership % and income is paid based on that ownership

Can transfer share to other individuals

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5
Q

Rotten trust

A

Revocable trust used for bank accounts.

Can withdraw assets until death and then they are passed to the beneficiary

Avoids probate

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6
Q

Payable on death

A

Funds are deposited for the benefit of another. Depositor has control over funds until there death.

Avoids probate

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7
Q

Gross Estate includes

A

All probate property: single owned assets, TIC, estate as bene, community property

Plus

All non probate assets: JTWROS, life ins, general powers of appointment, gift taxes paid in last 3 yrs (not GSTT TAX THOUGH)

Less

Funeral exp, admin exp, debts, taxes, casualty of loss

= AGE

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8
Q

What is the taxable estate?

A

It is adjusted gross estate (AGE) less marital and charitable deduction and state death taxes

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9
Q

What are the exclusions from the Gross Estate?

A

Life ins owned by others
Completed gift
Life estate for decedents life only.

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10
Q

What is the marital deduction

A

An unlimited amount of property can pass estate tax free to surviving spouse if:

  1. Property is included in decedent’s gross estate
  2. Must pass to surviving spouse
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11
Q

What is the Charitable deduction?

A

Outright transfers to a qualified charity are 100% deductible for both estate and gift tax purposes.

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12
Q

What type of tax rate is applied to estate, gift, and GST?

A

A FLAT tax

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13
Q

Definition of power of appointment?

A

Interest held by someone that gives them control to determine who should use and enjoy it.

Usually a trust.

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14
Q

Explain general power of appointment

A

Holder does not have any restriction. Can invade corpus of trust and change, revoke, or terminate the trust.

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15
Q

Explain special powers of appointment

A

Holder is limited to class of individuals who may receive trust property.

There are restrictions.

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16
Q

5 or 5 Power

A

Technique used by estate planners to provide flexibility and financial security for beneficiary with minimal tax consequences

Property subject to general powers is not a taxable gift unless it exceeds the greater of:

  1. $5k, or
  2. 5% of total value of the fund
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17
Q

What are distributions for an ascertainable standard?

A

HEMS - not a general power

HEATLH
EDUCATION
MAINTENANCE
SUPPORT

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18
Q

Gifting property benefits

A

Highly appreciated - donate to charity or keep til death for step up

Property likely to appreciate - gift removes future value.

Income producing - gift to lower tax bracket donee

Loss property - sell property, take loss, then gift cash.

Out of estate- gift to avoid ancillary probate

Depreciating property - keep until fully depreciated

Life ins - excellent gift - taxed on replacement value not DB value.

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19
Q

What tax form is used for a gift tax filing greater than $15k?

A

Form 709

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20
Q

What are the 5 types of exempt gifts - meaning no gift tax return is needed (form 709)

A

Qualified pmts directly to education institution

Qualified pmts made directly to A provider of medical care

Gifts to spouse

Gifts to political org
Gift to the President

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21
Q

What is the tax deduction received for donating life ins w/ $75k CV and basis of $50k if AGI is $200k

A

Charitable contribution is the lesser of CV or basis and still subject to 50% of AGI or $100k for $200k AGI. However not a factor because basis is $50k.

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22
Q

What form are estate taxes file on?

A

Form 706

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23
Q

What are the gift tax and estate tax exemption amounts?

A

Gift = $11,180,000

Estate= $11,180,000

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24
Q

DPOA

A

Not affected by later incompetency

Terminated at death

25
Q

Springing Power

A

Not in effect until incapacity of the principal

26
Q

General vs special powers of atty

A

General grants power to deal with all assets

Special power is limited to certain acts or assets.

27
Q

Guardianship vs conservatorship

A

Guardianship is for a person

Conservator is for financial decisions

Both are court appointed

28
Q

Medicaid qualifications

A

Income and assets must be below a certain limit. $2k for assets and income varies by state

Subject to 5 yr look back for gifts.

Annuities must name the state as remainder beneficiary to cover expenses

29
Q

SNT vs OBRA payback trust

A

SNT is funded by a parent or someone else and OBRA is is funded asset owner.

OBRA trust pays the state back first if asset remain at death where SNT can pass to remained beneficiary.

30
Q

Per Capita beneficiary transfer

A

Equal shares are created for all living decedents.

Ex: 5 children of your own and one child has 5 kids (grandkids). If child with kid dies before you. There 5 kids get equal share of whole estate

Can also say that “survive me” then it would be split between 4 living kids.

31
Q

Per Stirpes beneficiary transfer

A

Estate divided into equal share and if one child dies before you there % will be split by their heirs.

32
Q

Simple trust features

A

Income is distributed
Income taxed to beneficiary
No distribution of corpus
No charitable gifts

33
Q

Complex trust features

A

Irrevocable

Income must or may be accumulated

Income accumulated is taxed to the trust

Income distributed is taxed to beneficiary

Corpus can be distributed

Can make charitable gifts.

34
Q

Bypass trust provision

A

Gives decedent postmortem control over property.

Can provide a stream of income for surviving spouse only.

Can invaded corpus with 5 or 5 provision or HEMS

At spouses death assets pass estate tax free to other beneficiaries.

35
Q

Marital trust

A

2nd spouse to die controls. Can invade corpus

Also called A trust

Passed through unlimited marital deduction

Included in gross estate of surviving spouse.

36
Q

Qualified terminal interest property trust - QTIP

A

C trust - for spouses only

Provides surviving spouse income stream for their life

Qualified the property for marital deduction

Keywords: LAME
lifetime income
Annual pmts to spouse
Mandatory pmts to spouse
Exclusively for spouse
37
Q

Pour-over trust

A

Provision used to capture assets the client owns but aren’t controlled by the revocable trust at death.

Helps avoid probate

38
Q

UGMA

A

Must be funded with cash type assets: EE bonds, securities, life insurance, and annuities

Distributed at 18

No real estate

39
Q

UTMA

A

Allows for Real Estate, partnership interests, royalty interests to be deposited

Distributed at age 21 or 25

40
Q

2503b Trust

A

Usually established for adult children

Kiddie tax can be an issue if under 24

Provides income stream that is subject to income tax - present interest

Corpus is future interest that can be retained in the trust

41
Q

Dynasty Trust

A

Transfer are made into a B trust and can benefit many future beneficiaries.

Free from gift, estate, GST taxes for beneficiary lives plus 21 yrs and 9 months.

42
Q

Charitable remainder annuity trust

CRAT

A

Must payout at least 5% of income for the year

No additions

Fixed pmts

Pay to any charity

Remainder must be at least 10% or in total contribution

43
Q

Charitable remainder unitrust

A

Must distribute at least 5% of income

Payments can vary

Payable to any charity

Must at 10% remainder left

Raw land not useful to deposit

44
Q

Pooled income - no trust needed

A

Additions allowed

Variable pmts

Payable to a specific charity

Commingled property with other donors

No tax exempt securities allowed as investment

No 5% distribution rule

Still considered a charitable remainder trust

45
Q

Charitable Gift Annuity

A

No additions

Fixed income for life

Payable to specific charity

Charitable deduction based on gift less annuity.

Not subject to 5% distribution rule

46
Q

Charitable lead unitrust

CLUT

A

No minimum distribution is required

Tax deduction for income to charity

Future income and gains are taxable to you

47
Q

What are 3 circumstances that will include life insurance in you Estate?

A
  1. Proceeds paid to the executor of your estate
  2. There was incident of ownership at death
  3. Gifted policy within 3 years
48
Q

Life insurance - 3 yr rule

A

Defendant must be the insured for rule to apply

Only apples if gifted to wife, ex-wife, or trust

This includes ilit with no Crummey provisions

49
Q

Recapitalization

A

Allows owner to keep control of company

After recap, they will own a combination of common and preferred stock

Preferred produce divd for owner income and locks in value for estate

Common shares go to younger generation

Ex: $10m business recaps $1m common and $9m preferred shares. $1m goes to younger generation and preferred shares are frozen at $9m for estate calculation.

50
Q

Qualified domestic trust

QDOT

A

This is for a non-us citizen spouse

Max gift is $152k not $11,180,000

Jointly owned property is not considered 1/2 owned.

51
Q

Installment sale advantage and disadvantages

A

Adv: seller can remove appreciating asset from their estate

Disadvantages:

If seller does, remaining pmts are included in estate

If not is forgiven, debt is confident paid to the estate and estate must report the gain.

If cancelled, must recognize gain to the extent of fmv on that date minus basis

If sold to related party who sell within 2 yrs seller is deemed to have been paid in full

Recapture must be recognized in year of the sale.

52
Q

SCIN - self cancelling installment note

A

Pmts cancelled at sellers death

Buyer pays a premium

Attractive to very wealthy clients

Cancellation triggers recognition of entire remaining gain.

53
Q

FLP - family limited partnership

A

Donor retains control

Shifts income from parents to kids

Income and tax benefits must be distributed or allocated based on % ownership

Must be material producing

Discounts for lack of marketability and control. Basis value is not discounted

54
Q

Gift leaseback

A

Used by business owning parent that wants to gift but has lack of assets besides business

Give fully depreciated assets and lease back to company.

Kids gets income from lease and pmts are deductible to the company.

Subject to kiddie tax - if kid is over 24 this is better than FLP.

55
Q

Grantor retained annuity trust - GRAT

A

Irrevocable trust that the grantor transfers appreciating or income producing property in exchange for fixed annuity.

When term ends asset is transferred to beneficiaries tax free.

If grantor doesn’t outlive term then all property is brought back into grantors estate valued at the date of death

56
Q

Grantor retained unitrust - GRUT

A

Grantor received fixed percent of net fair mkt value - must be revalued each year.

Best asset is appreciating asset

57
Q

Qualified personal residence trust -QPRT

A

Irrevocable trust to transfer personal residence into

Grantor lives in property for period of time then it is passed to the beneficiaries outright.

Can hold up to two properties. Rental property can only be used for 14 days or 10% of number of days rented. Gift rental first before primary residence

If owner dies before term it is added back into gross estate and gift amt is voided

58
Q

Generation skipping transfer tax - GSST

A

$11,180,000 exemption is elective

Tax can be due now or later

Annual exclusions are allowed

Not integrated with federal estate tax system. It is a separate tax.

CFP TL VERSION (6 decks)

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