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CFP > Estate Planning > Flashcards

Estate Planning Flashcards

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1
Q

Non-community property interest

A
  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 seperate assets helfd by one spouse as a sole owner
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2
Q

Joint tenancy with

right of survivorship

(JTWROS)

A
  • 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
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3
Q

Tenancy by the entirety

A
  • 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 seperate creditors, but NOT protected from the claims of both spouse’s joint creditors
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4
Q

Tenancy in common

A
  • 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 property to other individuals
  • Ownership stake goes through probate upon death
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5
Q

Assets NOT subject to probate

A
  • Property conveyed by deeds of title (IRA)
  • Property held by joint tenancy with rights of survivorhsip
  • Government savings bonds - co-ownership
  • Revocable living trusts
  • Payable on death accounts (PODs)
  • Totten trust
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6
Q

Assets subject to probate

A
  • “Singly” owned assets
  • Property held by tenancy in common
  • Assets where the beneficiary is the “estate of the insured”
  • Community Property (CP)
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7
Q

Assets Included in Gross Estate

A
  • Singly owned assets
  • Tenancy in common
  • Beneficiary is the estate
  • Community property
  • JTWROS/Entirety
  • Life Insureance
  • General Powers
  • 3-year gross-up on gift taxes paid (but NOT GST taxes paid)
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8
Q

Life Insurance

added to the estate

A
  • 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
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9
Q

Valuation of a gift

A
  • The value of a gift for gift tax purposes is its fair market value (FMV) at the date of gift
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10
Q

Basis of a gift

A
  • 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 us less than the donor’s adjusted basis, use the chart below

Client’s substituted basis $2,015,000 Gain

between $2,0150, 000 and no gain or loss

$1,515,000

FMV date of gift $1,515,000 Loss

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11
Q

Deductible Gifts

(not taxable gifts)

also called exempt gifts or

qualified transfer

A
  • Gifts to a spouse, provided they are not a terminal interest
  • Gifts to qualified charities
  • Qualified payments in any amount msde 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
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12
Q

Summary of rules regarding

gifts and the donor’s estate

A
  • 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
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13
Q

Powers of Attorney

A

Traditional, non-durable power of attorn__ey - 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

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14
Q

Power of Appointment

(Trusts)

A
  • 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
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15
Q

Gifts & Estate Tax Implications

(General Power)

A

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
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16
Q

“5 or 5” Power

A
  • Property subject to a general power will be included in a donee decedent’s 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
17
Q

Grantor Trust Rules

(Tainted / Defective Trusts)

Income Tax & Estate

A
  • Trust may be defective / tainted for Income Tax and Estate Tax purposes if the grantor retains:
  1. A right to income or the right to use/enjoy trust property (beneficial enjoyment)
  2. A reversionary interest exceeding 5% (retained interest)
18
Q

Elements of a Trust

A
  • 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 the 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
19
Q

Simple vs. Complex Trusts

A
  • Siple trusts (2502(b), Marital, QTIP) are considered merely a “conduit” for forwarding income to the beneficiaries (pass-through)
  • Comples trusts (2503(c)), are seperate tax entities and taxed as such if it meets two requirements

→It is irrevocable, and the grantor has not rertained any control

→Income is accumulated

20
Q

Crummey Trust

A
  • 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 anual gift exclusion or the value of the gift transferred
21
Q

Nonmarital “B” Trust

(Family, Bypass, Credit Shelter, Unified Credit

Shelter)

A
  • Property transferred to the trust at time of decdent’s death
  • Can be structured to provide a stream of income to surviving spouse or other individuals
  • Decedent has postmortem control
22
Q

QTIP “C” Trust

(Current Income Trust)

A
  • Provides surving 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 QTIP - LAME

L​ifetime income for the spouse

Annual payments to spouse

Mandatory payments to spouse

Exclusively fopr spouse

23
Q

Qualified Domestic Trust

(QDT/QDOT)

A
  • 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
24
Q

Present Interest Gift Vehicles

A
  • UGMA
  • UTMA
  • 2503(c)trust
  • Section 529 college savings plan

Gift to a 2503(b) trust is a gift of future interest

25
Q

Charitable

Contributions/Transfers

A

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
26
Q

Intrafamily Transfers

(Property owner needs income)

A

PIGS need income

  • Private Annuity
  • Installment Sale
  • Grantor Annuity Trusts(GRAT/GRUT)
  • Self-canceling installemt note (SCIN)
27
Q

Intrafamily Transfers

(Property owner wants to gift assets

and/or income to family members)

A
  • Partnership / S-corp
  • Family Limited Partnership (FLP)
  • Gift Leaseback
  • Qualified Personal Residence Trust (QPRT)
28
Q

Disclaimer

A
  • 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
29
Q

Psotmortem Planning Techniques

(Estate Liquidity)

A

Stock Redemption (Section 303)

  1. 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 25% of decedent’s adjusted gross estate
  2. During the first 4 years (of 14 years) can pay interest only on taxes due
30
Q

Postmortem Planning Techniques

(Estate tax Reduction)

A

Special Use Valuation (section 2032A):

  1. 25% of the gross estate consits of real property
  2. Must be in qualified use - 5 out-of-8 year rule before death and 10 years after death

CFP (6 decks)

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