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Retirement Planning > Estate Planning > Flashcards

Estate Planning Flashcards

1
Q

Financial goals for establishing for estate planning?

A

1) Preserving business value
2) maximixing flexibility
3) maximizing benefits for a surviving spouse
4) Minimizing nontax transfer costs
5) maintaining a satisfactory standard of living
6) maintaining adequate premortem and postmortem liquiditiy

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2
Q

Tax goals related to income tax?

A

1) Shifting the receipt of income
2) Shifting the taxation of income
3) Obtaining a stepped-up basis
4) Deferring the recognition of income and gain

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3
Q

Tax goals relate to transfer taxes?

A

1) Freezing or reducing the value of assets subject to the tax
2) Leveraging the use of exclusions, exemptions, reductions, and credits
3) Delaying payment of a tax due

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4
Q

Three basic legal forms of legal interests a person may hav in property?

A

1) Fee simple
2) Life estate
3) Terms of service

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5
Q

Fee Simple

A

Maximum ownership in property

Gives owner the right to use, possess, or dispose of the property in any way he chooses during life or at death

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6
Q

Life Estate

A

A partial interest in property that gives a person the right to possess and use the property for the remainder of the individuals life or for the remainder of someone else’s life

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7
Q

Terms of Years

A

entitles the owner to the possession and/or enjoyment of property for a fixed period.

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8
Q

Tenancy in Common

A

the ownership of property by two or more people who each owns an undivided (unequal) interest in the property

remaining tenants do not automatic receive benefits from other partner. Must provide for will!

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9
Q

Spousal Joint Tenants

A

Spouses gross estate is only half

Surviving spouse receveies stepped up basis

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10
Q

Considered Furnish Rule

A

Applies if joint owners were not spouses at the time of the first joint tenant’s death.

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11
Q

Tenancy by the Entirety

A

Limited form of joint tenancy with right of survivorship that can exist only between spouses

Only recogniczed by common-law states

Neither spouse may sever the survivorship right of the other without mutual consent

Features creditor protection from the claims of each spouess separate creditors

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12
Q

Fee Simple…

1) Inclusion in Gross Estate
2) Inclusion in Probate Estate?
3) Rights of Survivorship?
4) Partitionable Without Consent?

A

1) 100%
2) Yes
3) No
4) N/A

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13
Q

Tenants in Common…

1) Inclusion in Gross Estate
2) Inclusion in Probate Estate?
3) Rights of Survivorship?
4) Partitionable Without Consent?

A

1) Percentage of ownership
2) Yes
3) No
4) Yes

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14
Q

Joints in Tenancy…

1) Inclusion in Gross Estate
2) Inclusion in Probate Estate?
3) Rights of Survivorship?
4) Partitionable Without Consent?

A

1) Nonspouses- rule of contributions Spouses-50%
2) No
3) Yes
4) Yes

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15
Q

Tenancy by Entirety…

1) Inclusion in Gross Estate
2) Inclusion in Probate Estate?
3) Rights of Survivorship?
4) Partitionable Without Consent?

A

1) 50%
2) No
3) Yes
4) No

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16
Q

Community Property…

1) Inclusion in Gross Estate
2) Inclusion in Probate Estate?
3) Rights of Survivorship?
4) Partitionable Without Consent?

A

1) 50%
2) Yes (decedents 50% interest)
3) No
4) No

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17
Q

Community Property System

A

Assumes that property acquired during marriage belongs equally to both spouses

Subject to probation

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18
Q

Separate Property

A

Property titled individually in only one spouses name

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19
Q

Which states have adopted the community property system?

A

Texas
Washington
Idaho
Nevada

California
Louisiana
Arizona
New Mexico

Winsconsin

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20
Q

Advantage of community property over common law?

A

Stepped up basis for both versus just decedent spouses half

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21
Q

If someone contributes more than the other in a JTWRS account…

A

It’s considered a gift

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22
Q

A gift is made when the name of the noncontributing joint owner (the donee) is added to the deed

A

A gift is made when the name of the noncontributing joint owner (the donee) is added to the deed

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23
Q

Stepped up basis in community property after death?

A

Both halves of community property receive a stepped-up basis equal to the fair market value at the death of the first spouse.

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24
Q

Gifts and inheritances received by one spouse during marriage are not considered community property

A

Gifts and inheritances received by one spouse during marriage are not considered community property

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25
Q

Fractional Interest Discount

A

Discount for minor ownership in real estate

Discount for the cost of a partition action if there is no possibility the separately owned interests can be consolidated for marketing purposes.

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26
Q

Code Section 2704

A

Deals with valuation of certain lapsing rights and restrictions in closely held business entities

If there is a lapse of any voting or liquidation right in a closely held business entity, and the individual holding the right and members of the individual’s family control the entitiy both before and after the lapse, the lapse is treated as a gift from the individual holding the right

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27
Q

Minority Interest Discount

A

Premised upon the inability of the minority interest owner to influence business policy, compel income distributions, or force business liquidation, mergere, consolidation, or sale resulting in loss of balue.

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28
Q

Lack of Marketability Discount

A

discount for value of what would be the value of a similar bsuiness interest without the problems closely held business interests to sell (risky to own)

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29
Q

Lock-in Discount

A

the inability of partners to withdraw from a partnership because of provisions in the partnership agreement and/or state law has been used to claim a valuation discount

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30
Q

Chapter 14 Rules: Code Section 2701

What are the 4 prerequisites in order to apply?

A

Lifetime transfers of corporate or partnership interests where there is no established market for such interests

Prerequisites

1) Must be a transfer of an equity interest
2) Transfer must be made to a member of the transferors family
3) Transferor or family memeber must keep an applicable retained interest in the coroporation or partnership
4) There are senior and junior equity interest in the entity

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31
Q

Chapter 14 Rules: Code Section 2701

2 prerequisites?

A

Deals with transfers in whic a trust or a term of years in involved. Applies only to lifetime transfers, and therefore, has an effect only on valuation for gift tax purposes.

1) There must be a transfer in trust or a transfer of a term interest to a family memeber
2) Transferor must retain an interest in the trust

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32
Q

Three types of qualified retained interests for a transaction subject to Section 2702?

A

1) Qualified Annuity Interest
2) Qualified Unitrust Interest
3) Qualified Remainder Interest

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33
Q

Trusts that have retained a qualified annuity or unitrust interest….

A

Grantor Retained Annuity Trust (GRAT) and Grantor Retained Unitrust (GRUT)

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34
Q

Minor’s Trust - Section 2503(c)

“Closes out at 21”

A

Allows transfers to be considered present interests qualifying for the annual exclusion if the following are met
1) Both the property and its income may be expended by, or for the benefit of, the beneficiary before the beneficiary reaches age 21

2) Beneficiary may be given the right to access all trust property on the minors 21st birthday
3) If dead before 21, property payable to minors estate or whomever minor may appoint under general power of appointment

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35
Q

Section 2702 does not apply to…

A

1) Incomplete gifts
2) A personal residence trust (PRT) or qualified personal residence trust (QPRT)
3) Charitable remainder annuity trusts or unitrusts (CRATS or CRUTS)
4) Chartitable lead annuity trusts or unitrusts (CLATS OR CLUTS)
5) A polled income fund PIF
6) certain spousal propery settlements incident to a divorce where the transfer of property is deemed to be for full and adequate consideration under IRC Section 2516
7) A noncitizen surviving spouse’s transfer or assignment of property to a qualified domestic trust under the circumstances described in Reg. 20.2056A-4(b)

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36
Q

Code Section 2704

A

Deals with valuation of certain lapsing rights and restrictions in closely held business entities

If there is a lapse of any voting or liquidation right in a closely held business

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37
Q

Applicable Family Member (Section 2701 and 2702)

A

1) Trasferor Spouse
2) Any ancestor of either the transferoro or the transferor’s spouse
3) Spouse of any such ancestor

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38
Q

“Member of the family”

A

For transferors and interests in corporations

1) Tranferors spouse
2) Any lineal descendant of either the transferor or their spouse
3) Spouse of any lineal decedent

For transferors in trusts

1) Individuals spouse
2) any ancestor or lineal descendant of either the individual or the individuals spouse
3) Any brother or sister of the individual or their spouse
4) Spouse of any ancestor, lineal decendent or brother / sister

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39
Q

Transfers exempt from gift tax…

A

1) Political Organization Exemption
2) Eduactional Exemption
3) Medical Exemption
4) Divorce

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40
Q

Common Unintended Gifts

A

1) Titling property in joint names
2) Certain gifts of life insurance
3) Intrafamily transactions
a) Forgiveness of a legally enforceable debt
b) Intrafamily loans
c) Bargain Loan
d) Adding a name to a bank account
e) Lapse of General Power of Appointment

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41
Q

4 things someone can do with a general power of appointment….

A

a) Disclaim it
b) Release it
c) Exercise it
4) Let it lapse

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42
Q

Mandatory Income Trust - Section 2503(b)

A

Income payable mandatory

Only a portion of each transfer to this type of trust will qualify for the annual exclusion

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43
Q

Crummey Power

A

Giving a beneficiary the power to withdraw assets as they are being gifted into the trust

Transfers to trusts are present regardless of whether they are pulled or not

Gift exclusion

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44
Q

Exceptions to the Terminable Interest Rule

A

1) Qualified Joint Interests in Property
2) Life Estate with Power of Attorney
3) Qualified Terminable Interest Property
4) Income Interest in a Charitable Remainder Trust

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45
Q

CRUT

Gift Taxation
Payment
Other

A

GT:

1) Income interest gift taxable unless given solely to spouse
2) Remainder interest receives charitable deduction

Payment:
Income interest: fixed amount > 5% of INITIAL NET FMV of contributed assets to non charitable beneficiary

Corpus: to a qualified charity at end of trust term

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46
Q

When must a gift tax return be filed?

A

A gift tax return must be filed whenever a married couple elects gift splitting and whenever a gift of a future interest is made

Original donee must file

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47
Q

If a decedent’s property does not pass to someone by will substitute or by will, and there are no legal heirs under the applicable state intestate succession statute, the property will

A

escheat to state

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48
Q

What property transfers between family members are subject to the special zero valuation rules under Chapter 14?

A

Corporate recapitalization
Partnership capital freezes
Buy-sell agreements
Grantor Related Trusts

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49
Q

Charitable Remainder Unitrust (CRUT)

A

it provides an annual income payment based on the market value of the trust assets as revalued each year and will provide a potential hedge against inflation

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50
Q

Charitable Annuity Trust (CRAT))

A

provides a fixed annual income payment

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51
Q

Value of Gift for Tax purposes

A

a transfer of property in exchange for less than full and adequate consideration

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52
Q

What common operating elements do all trusts share?

A

1) A legally and mentally competent grantor who must have intended to establish a transfer property to the trust
2) A legally and mentally compentent trustee
3) One or more beneficiaries who hold a beneficial interest in the trust property
4) Property owned by the trust (its corcus), whic can be real estate, cash, or other tangible or intangible assets

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53
Q

Duties of Trustee

A

1) Manages assets
2) Investing for benefit of trust beneficiaries
3) Makes distributions of trust income and principal as directed by terms of trust document
4) Has fiduciary relationship

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54
Q

Rules Against Perpetuities

A

Aims to prevent the grantor of the trust from controlling the disposition of the trust property for an unreasonably long time

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55
Q

Reasons to create a trust?

A

1) Flexibility or ability to benefit benficiaries
2) Management or investment expertise
3) Avoid probate
4) Protect from creditors
5) Income, gift, or estate tax savings

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56
Q

Classifications of trust

A

1) Powers relinquished by the grantor
2) Date at which trust becomes operative
3) Income taxation of the trust

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57
Q

Testamentary Trust

A

created by the decedent’s will and made effective at death

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58
Q

Sprinkling Provision

A

trustee granted the power to direct trust income to more than one beneficiary

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59
Q

Spendthrift Clause

A

prohibits the beneficiary from assigning the benficiaries interest to a creditor and denies creditors the right to demand that the trustee pay for the beneficiaries debts

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60
Q

The Chapter 14 rules of estate valuation generally apply in…

A

certain estate freeze transactions, such as corporate recapitalizations, between family members. These rules also apply in the valuation of interests in certain trusts, such as grantor retained income trusts (GRITs)

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61
Q

QTIP

A

1) included in the estate of the second spouse to die at the same percentage as the first spouse took as a marital deduction
2) QTIP trusts allow a terminable interest to be left to the surviving spouse and still qualify for the estate tax marital deduction
3) QTIP trusts are useful when the first spouse to die has children from a prior marriage

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62
Q

The donee can depreciate depreciable property based on…

A

It’s adjusted basis NOT its fair market value.

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63
Q

Advantages of Lifetime Gift over Testamentary Transfer…

Tax considerations

A

1) Annual exclusion
2) Gift tax is “tax exclusive” while estate tax is inclusive
3) Removal of potential future appreciation
4) Tax income may be moved from a high-bracket to low bracket tonee
5) May enable decedents estate to take advantage of special elections if the right assets are gifted

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64
Q

Disadvantages of Lifetime Gift over Testamentary Transfer…

Tax considerations

A

1) Gift tax due if annual exlusion is exceeded
2) Loss of step up in income tax basis for beneficiary
3) Loss of possiility that property values may decline, resulting in lower transfer tax
4) Loss of psossibility that tax law changes in the future
5) Does not provide for possible changed circumstances of donor and donee

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65
Q

Advantages of Lifetime Gift over Testamentary Transfer…

NonTax considerations

A

1) Privacy
2) Reduction in probate and admin costs
3) Protection from creditors
4) Enjoyment
5) See how donee manages wealth
6) Provide for education, support, and financial well being
7) Incentive to run family business

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66
Q

Disadvantages of Lifetime Gift over Testamentary Transfer…

NonTax considerations

A

1) Loss of use, possession, or income from the property
2) Psychological loss
3) Irrevocability

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67
Q

Consequences of retaining control or interest in gifting assets…

A

1) If placed in trust, may require grantor rules AKA some income to be taxed to the grantor
2) Gift assets may still be included in donors gross estate at death (Chapter 14 or IRC Sections 2036-2038)
3) Could deny marital deduction
4) Could deny charitable deductions

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68
Q

Inclusive or Exclusive for Gift Tax? Who pays?

A

Donee - Inclusive

Donor - Exclusive

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69
Q

Trust Goal: Avoid Probate. How?

A

1) Funded under inter vivos trust

2) Funded or unfunded life insurance trust

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70
Q

Trust Goal: Asset Protection?

A

Irrevocable Trust

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71
Q

Trust Goal: Tax savings?

A

1) Splitting trust income among beneficiaries
2) Reducing gift tax with multiple annual exclusions and valuation discounts
3) Reducing estate tax by eliminating assets from grantors gross estate

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72
Q

Support Trust

A

Used when a donor has impoverished or incapaciated parents or when children are depenedent upon the donor for part or all of their financial support

Irrevocable and has spendthrift clause

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73
Q

Supplemental Needs Trust

A

same as Support but assets are used to purchase supplemental items for a beneficiary at the discretion of the trustee , rather than for the beneficiaries support

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74
Q

Contingent (standby) Trust

A

Same as RLT except it is nominally funded at the time of creation. Executes power of attorney once a contingency happens

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75
Q

Outright Gift to Nonchartitable Donee Advantages

A

1) Annual exclusion
2) Removes asset from donors gross estate
3) Removes future appreciation from donors gross estate
4) Removes future income
5) No recognition of gain
6) Creditor protection

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76
Q

Outright Gift to Nonchartitable Donee Disadvantages

A

1) Loss of control
2) Loss of future income
3) Included in taxable adjustable gifts
4) Use of applicable credit used

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77
Q

Outright Gift to Chartitable Donee Advantages

A

1) No gift tax
2) Income tax deduction
3) If bargain, donor receives proceeds
4) If stock bailout, donor avoids the gain
5) If annuity, allows donor to receive income without trust
6) If remainder in farm, allows donor to get current income tax deduction while retaining some property for themself or someone else

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78
Q

Outright Gift to Chartitable Donee Disadvantages

A

1) If bargain, only gets tax deduction on gift portion
2) If annuity for someone else, interest will incur gift tax
3) If annuity, tax deduction will be smaller than the gift of total interest in the asset because charity is obligated to pay
4) If remainder in farm, tax deduction will be smaller than the gift of toal interest because of the reaminder interest constitutes a charitable gift

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79
Q

Gift-leaseback Advantages

A

1) Same as outright
2) Donor retains property use
3) Business deduction for lease payments
4) If donor gives property to children, lease payments can be accumulated for education or other expenses.

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80
Q

Gift-leaseback Disadvantages

A

1) Same as outright

2) donor must make lease payments to keep use of the property

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81
Q

Reverse Gift Pros

A

1) Same as outright
2) Step up in basis if there is more than one year between gift and death
3) Receives gift back in the process from donee

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82
Q

Reverse Gift Cons

A

1) Same as outright
2) Donee may not give the property the donor by will
3) No step up in basis if there is less than one year

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83
Q

Net Gift Pros

A

1) Same as outright
2) Donors pays no gift tax out of pocket
3) Donors estate gets credit for gift paid by donee
4) Purpose is to receive an obligation from donee

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84
Q

Net Gift Cons

A

1) Loss of control over asset
2) Loss of future income from asset
3) Adjusted taxable gifts may be increased
4) Donor can incur capital gain if gift tax paid or mortgage assumed by the donee exceeds the donors basis

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85
Q

UGMA Pros

A

1) Annual exlclusion
2) no trust document needed
3) Removes asset from donors estate if he does not die while he is the custodian
4) Removes future appreciation from donors estate
5) No recognition of gain
6) Safe from creditors
7) Safe from minors creditors until distribution

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86
Q

UGMA Cons

A

1) Same as outright
2) term is limited by state
3) trust income is taxed to the parent if used for their support
4) Kiddie tax rules apply
5) Property remains in the donor’s gross estate if she dies as the custodian or successor custodian
6) One minor per account

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87
Q

UTMA Pros

A

1) Same us UGMA

2) Fewer restrictions on types of property that can be gifted

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88
Q

UTMA Cons

A

1) Same as outright
2) Term is limited by state
3) Trust income is taxed to the donor if used to meet the obligation of support
4) Kiddie tax rules
5) Property Remains in donors gross estate if he dies as custodian
6) Only one minor per account

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89
Q

Section 2503 (c) Trust Pros

A

1) Present value of income entitled to exclusion
2) No recognition of gain (carryover basis)
3) Trust ends when beneficiary turns 21
4) Removes future income
5) one beneficiary
6) appreciation is removed from estate unless dead while trustee
7) discretionary distribution of trust assets
8) Remove reach from creditors
9) Removes reach from minors creditors until distritbution

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90
Q

Section 2503 (c) Trust Cons

A

1) Trust document must be drafted
2) Same as outright
3) Trust income taxed at grantor if used to meet the obligation of support
4) Kiddie tax rules apply
5) Property remains in estate if the grantor dies as the trustee
6) Must take out assets by 21
7)

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91
Q

Section 2503 (b) Trust Pros

A

1) Present value of income entitled to exclusion
2) No recognition of gain (carryover basis)
3) Removes future income
4) Multiple beneficiaries
5) beneficiaries not limited to minors
6) appreciation are removed from estate unless transfer sections are violated
7) Contributions qualify for annual exclusion8) Remove reach from creditors
9) Removes reach from minors creditors until distritbution

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92
Q

Section 2503 (b) Trust Cons

A

1) Trust document must be drafted
Income distribution is mandatory
2) Part of contribution is taxable
3) Same as outright
4) Trust income taxed at grantor if used to meet the obligation of support
5) Kiddie tax rules apply
6) Property remains in estate if the grantor dies as the trustee

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93
Q

Crummey Trust Pros

A

1) Same as irrevocable trust
2) Multiple beneficiaries any age
3) Qualifies for exclusion to the extent powers are granted
4) Distribution of income is discretionary

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94
Q

Crummey Trust Cons

A

1) Donor may incur a gift tax on funding
2) Loss of control of assets
3) Possible loss of income
4) Trust document must be provided
6) Crummey powers may be exercised (unlikely)

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95
Q

Charitable Lead Trust Pros

A

1) Allows the donor to benefit charity without incurring a gift tax and retain eventual title or giving title to another beneficiary
2) Can be established for a term certain or one or more lives
3) Can give the charity an annuity or unitrust
4) Grantor can get deduction for present value
5) Charitable deduction for present value
6) Remainder interest to spouse qualifies for marital deduction
7) May be used to discount a gift to family members holding the remainder itnerest

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96
Q

Charitable Lead Trust Cons

A

1) Income deduction cannot exceed present value
2) If remainder interest not retained, gift tax will be incurred
3) Grantor will not have trust assets during trust term
4) Assets will be in grantors gross estate if he retains a reversion that is greater than 5% of the assets value at the time of the grantors death

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97
Q

Charitable Remainder Trusts Pros

A

1) allows the donor to benefit charity while retaining income or giving income to a designated beneficiary
2) Can be established for a term certain or one or more lives
3) Can give the charity an annuity or unitrust
4) Grantor gets a gift tax and income tax deduction for the present value of remainder trust
6) Remainder interest to spouse qualifies for marital deduction

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98
Q

Charitable Remainder Trusts Cons

A

1) If the income interest is not retained or given to the spouse, a gift tax will be incurred when the trust is funded
2) Trust assets will be included in the grantors gross estate if the grantor retains the income interest, but hte estate will receive an offsetting chartitable deduction
3) Trust amounts distributed are taxed to that beneficiary, accumulated income is not taxed since it will go to charity
4) Title to property passes to charity

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99
Q

Pooled Income Funds (PIF) Pros

A

1) Allows the donor to benefit the charity while still retaining income from the property
2) Can be established for one or more lives of income beneficiary
3) Grantor gets a gift and income tax deduction for the present value of the remainder interest
4) The income beneficiary gets income produced by a contributed share

It’s a form of a CRT

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100
Q

Pooled Income Funds (PIF) Cons

A

1) If income interest is not retained or given to spouse, gift tax will be incurred
2) Trusts assets will be included in the estate if income interest retained,
3) Trust amounts distributed are taxed to that beneficiary
4) Can only be established by 50% chartities
5) Title to property passes to charity

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101
Q

GRIT Pros

A

1) Allows grantor to retain INCOME from assets for a term certain

2) Grantor will be subject to an income tax on amounts to which she is entitled
3) Assets are removed from the gross estate if the grantor survives the trust term
4) Probate is avoided, unless the grantor dies during the term
5) Can contribute additional assets after first year

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102
Q

GRIT Cons

A

1) The entire amount will be subject to a gift tax if a chapter 14 rule applies

2) Gift tax on funding
3) Remainder interest does not qualify for annual exclusion
4) Assets are not removed from the grantors estate if the grantor dies during the term
5) Income interest is not protected from grantors creditors
6) Trust document must be provided
7) Loss of control over assets

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103
Q

GRAT Pros

A

1) Allows the grantor to retain an ANNUITY for a term certain
2) Grantor will be subject to an income tax on amounts to which she is entitled
3) Only remainder will be subject to a gift tax because grantor retains a qualified interest
4) Assets are removed from the gross estate if the grantor survives the trust term
5) Unless the trust assets revert to the grantor’s estate if she dies during the trust term, probabte is avoided unless the grantor dies during the term

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104
Q

Grat Cons

A

1) Cannot contribute additional assets after the initial year of funding

2) Gift tax on funding
3) Remainder interest does not qualify for annual exclusion
4) Assets are not removed from the grantors estate if the grantor dies during the term
5) Income interest is not protected from grantors creditors
6) Trust document must be provided
7) Loss of control over assets

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105
Q

Grut Pros

A

1) Allows grantor to retain a UNITRUST INTEREST from the assets for a term certain
2) Grantor will be subject to an income tax on amounts to which she is entitled
3) Only remainder will be subject to a gift tax because grantor retains a qualified interest
4) Assets are removed from the gross estate if the grantor survives the trust term
5) Probate is avoided unless the grantor dies during the trust term
6) Can contribute additional assets after the initial year of funding

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106
Q

GRUT Cons

A

2) Gift tax on funding
3) Remainder interest does not qualify for annual exclusion
4) Assets are not removed from the grantors estate if the grantor dies during the term
5) Income interest is not protected from grantors creditors
6) Trust document must be provided
7) Loss of control over assets

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107
Q

QPRT Pros

A

1) Allows the grantor to retain the use of her PERSONAL RESIDENCE
2) The remainder will be subject to a gift tax because the trust is not subject to Chapter 14 rules
3) Assets are removed from the gross estate if the grantor survives the trust term
4) Probate is avoided unless the grantor dies during the trust term

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108
Q

QPRT Cons

A

1) The grantor will have to move or pay rent if he survives the trust term

2) Gift tax on funding
3) Remainder interest does not qualify for annual exclusion
4) Assets are not removed from the grantors estate if the grantor dies during the term

6) Trust document must be provided
7) Loss of control over assets

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109
Q

Revocable Trust Pros

A

1) Funded assets avoid probate
2) No gift tax on funding
3) retain control over trust assets
4) retain income from trust assets
5) can be used for incompetency

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110
Q

Revocable Trust Cons

A

1) Income is taxed to the grantor and trust assets are still part of the grantor’s gross estate
2) There is no protection from the grantor’s creditors
3) Trust document must be provided

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111
Q

Irrevocable Trust Pros

A

Funded assets avoid probate

2) Assets are removed from the gross estate
3) Can shift taxation of income
4) Potects assets from grantors creditors

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112
Q

Irrevocable Trust Cons

A 
Gift tax on funding 
Loss of control over assets
Possible loss of income from assets 
Taxed on income if the grantor trust rules apply
A trust document must be drafted
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113
Q

Intentionally Defective Grantor TrustPros

A

1) Funded assets removed from estate
2) Trust can buy assets without capital gain
3) Trust assets pass to remainder beneficiaries
4) Income taxed to the grantor removes further assets from the estate
5) Trust assets not included in estate

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114
Q

IDGT Cons

A

1) Gift tax on funding
2) Grantor is still taxed on income
3) Cost of drafting trust document
4) Provides little asset protection from creditors
5) promissory note received by the grantor on the sale of assets is included

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115
Q

ILIT Pros

A

1) Same as a irrevocable trust
2) If drafted by a bypass trust, trust assets will not be included in estate of surviving spouse
3) Can be funded with a policy only or with other assets as well
4) Can give beneficiaries Crummey powers to make contributions eligible for exclusions
5) Trustee can be given voluntary authroity to use insurance deaht benfits to purchase assets from the estate of either spouse or to make loans to either estate

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116
Q

ILIT Cons

A

Trust document must be drafted

2) Taxation of income can be shifted unless income is used to pay premiums on policy
3) Loss of control
4) 3 year rule applies if funded with an existing policy
5) Crummey power may be exercised and may cause income tax

117
Q

Contingent Standby Trust Pros

A

Same as revocable

Not immediately funded upon creation

118
Q

Contingent Standby Trust Cons

A

1) Requires execution of durable power of attorney
2) Possible needless expenditure
3) No protection against grantors creditors
4) assets not removed from grantors estate
5) Income is taxable to the grantor

119
Q

What will provide for needs of minors only?

A

UGMA
UTMA
2503 (c) Trust

120
Q

What plan is for incompentacy?

A

revocable trust

contingent / standby trust with a springable power of attorney

121
Q

What will remove assets from gross estate?

A

All irrevocable gifting techniques

The grantor must not retain any interest

122
Q

What techniques would qualify for gift tax annual exclusion? (outright title)

A 
Outright gift
Gift leaseback
Reverse Gift
Net Gift
Revocable Trust
Bargain Sale
123
Q

What plans would qualify for gift tax annual exclusion? (statuete)

A 
UGMA
UTMA
2503 C trust
529 Account
Coverdell
124
Q

What would qualify for gift annual exclusion with a Crummey?

A

Crummery TRust

ILIT with crummey powers

125
Q

What qualify for gift annual exclusion AND mandatory distribution of income?

A 
2503 b trust
Irrevocable Trust
CRAT's and CRUT's
CLAT's and CLAT's 
PIFs
Power of appointment trust
QTIP Trust
126
Q

What techniques will receive entire purchase price at time of sale?

A

Outright sales
Bargain sale
Sale-leaseback

127
Q

What techniques allow installment reporting of gain?

A

Installment sale
self-canceling installment note (SCIN)
sale leaseback

128
Q

What technique includes unpaid purchase price in the seller’s gross estate if outstanding at death?

A

installment sale
private annuity
sale-leaseback

129
Q

What technique allows continued use of sold assets?

A

sale-leaseback

130
Q

What technique avoids possible gift element?

A

All cited sales techniques unless between related parties and purchase price does not equal FMV or bargain sale

131
Q

Gifting options for out of state property?

A

Gift, sell, or place in trust to avoid ancillary probate

132
Q

Gifting options for highly appreciate property?

A

Better to transfer at death for step up

133
Q

Gifting options for high income producting property?

A

Gift if donee is in lower bracket

134
Q

Gifting options for loss property?

A

Not good. Better to sell and take loss deduction

135
Q

Buy-Sell Agreement Pros

A

1) Assures the owner of a market for business interest
2) Assures all owners that business ownership will not fail into the hands of third parties without their consent
3) No gift tax implications unless Chapter 14 applies
4) No immediate surrender of business interest
5) Does not require change in business form

136
Q

Buy-Sell Agreement Cons

A

1) Purchase price stipulated in agreement may not be applied for transfer tax purposess if Chapter 14 applies
2) Requires expenditure of money for life insurance
3) Cost of drafting agreement
4) May require a business owner to purchase even if she does not want to

137
Q

Recapitalization with Estate Freezes Pros

A

1) Allows multiple ownership of business entity
2) Allows the owner to maintain control, preference in the payment of income, and freeze the value of the business for estate taxes-while admitting new owners
3) Enables the owners to interest family members in the business
4) Enables the owner to create a market for his business interest
5) Allows some business income to be taxed at a lower marginal rate
6) Asset protection by frationalizing ownership
Potential use of gift tax annual exclusion and minority and marketability discounts
7) Owner retains control over retained interests

138
Q

Recapitalization with Estate Freezes Cons

A

1) Costly
2) May require change in entity and capitalization
3) Requires the owner to immediately surrender part of the buiness interest
4) can be a large gift tax cost if Chapter 14 rules apply
5) If business interests are sold to family members, can cause recognition of gain
6) If business interests are gifted to family members, may require use of gift tax credit

139
Q

Buy-Sell Agreement VS Recapitalization Asset

Ensuring a Market?

A

BS- Ensures a market by making purchase at death, disability or retirement

Recap- does not absolutely ensure market, but does increase the likelihood that donees or purchasers of an interest will become more interested in the busines

140
Q

Buy-Sell Agreement VS Recapitalization Asset

Remove business interest from gross estate?

A

BS- Does not achieve this

Recap- achieves this only this for business interest gifted or sold to another`

141
Q

Buy-Sell Agreement VS Recapitalization Asset

Avoid or reduce gift tax?

A

BS- will avoid gift tax because it is a sale transaction unless Chapter 14 applies

Recap - avoids if business interest is sold at FMVl gift tax is usually reduced by annual exclusion and valuation discounts if business interest is gifted

142
Q

Buy-Sell Agreement VS Recapitalization Asset

Freeze business interest value for estate taxes?

A

BS- does not achieve

Recap- achieves if owner retains only interests with a fixed liquidation value; gifted interests are frozen at the date of gift value for purposes of original owner’s estate tax calculation

143
Q

Buy-Sell Agreement VS Recapitalization Asset

Shift taxation of income from business interest?

A

BS- does not achieve this

Recap- achieves this for business interests that are gifted or sold

144
Q

Buy-Sell Agreement VS Recapitalization Asset

Avoid capital gain?

A

BS- avoids this until a sale occurs; if a sale is completed soon after death, the stepped=up basis will reduce/eliminate gain

Recap- there should be no recognition of gain on formation of new entity or recapitalization there could be gain if interest is sold rather than gifted

145
Q

Characteristics of a Standby Contingent Trust

A

1) The trust must be established inter vivos to handle the grantor’s financial affairs when he becomes incompetent.
2) The trust is only minimally funded upon creation.
3) Full funding will occur only when the grantor becomes incompetent.
4) If the grantor is incompetent, he cannot act as trustee.

146
Q

Self-Cancelling Note Basis

A

1) The purchaser’s basis in the asset purchased is limited to the payments that are actually made to the seller before death.
2) The purchaser’s basis is the agreed upon purchase price even if some of the anticipated payments are never made because of the cancelation provision

147
Q

Characteristics of Entity Purchase Buy-Sell Agreement

A

The purchase price established for an owner’s interest in the agreement will be accepted for transfer tax purposes by the IRS if more than 50% of the value of the property subject to the agreement is owned directly or indirectly by individuals who are not members of the transferor’s family.

148
Q

Family Limited Partnerships

A

The transfer of the limited partnership interests to the junior family members may qualify for both a minority interest discount and a lack of marketability discount for federal gift tax purposes.

149
Q

Installment Sales

A

Execute a promissory note for the balance of the purchase price

Basis is full purchase price

Right to the installment recognition of gain is automatic if at least one payment is made in any year other than year of sale

150
Q

What happens if seller dies before all payments under installment sale are made?

A

The sellers gross estate must include the present value of the principal balance of the note plus accrued interest as of the date of the death

Payments forgiven may be subject to gift tax and eligible for tax exclusion

151
Q

Self-Canceling Installment Note (SCIN)

A

Installment note but payments cancel at death

Purchaser pays more in premium and interest as a result

Allows transfer of wealth at a discount without transfer tax if the seller dies before his actuarial mortality date

152
Q

Sale-Leaseback Transaction

A

One party sells business-realted property to a buyer and then the seller’s closely held business leases the same property from the buyer

153
Q

Outright Gift Pros

A

1) Immediate receipt of entire purchase price
2) Present value of asset, future appreciation, and future income are removed from the seller’s gross estate
3) There is no gift tax if it is sold at FMV
4) Little paperwork

154
Q

Outright Gift Cons

A

1) Seller may have to realize capital gain
2) Sale proceeds are included in the sellers gross estate if not disposed prior to death
3) Loss of control of asset

155
Q

Bargain Sale Pros

A

1) Seller will not incur capital gain on the gift portion
2) Asset is removed from the sellers gross estate
3) Little paperwork
4) Seller recives some value for the asset

156
Q

Bargain Sale Cons

A

1) Seller does not receive FMV for asset
2) The seller may owe a gift tax if exceeds the annual exclusion
3) Seller may have to recognize capital gain
4) Sale proceeds are included in the seller’s gross estate if not disposed of prior to death

157
Q

Installment Sale Pros

A

1) Asset removed from the sellers gross estate
2) No gift tax if the purchase prices equals FMV
3) A promissory note can be secured
4) Payments under note do not end at the seller’s death
5) Gain can be recognized on an installment basis unless the taxpayer elects otherwise

158
Q

Installment Sale Cons

A

1) No immediate receipt of the entire purchase price
2) Unconsumed sale proceeds and unpaid balance of note are included in the seller’s gross estate
3) Second disposition rule may require recognition of gain without receipt of funds

159
Q

Self-Cancelling Installment Note Pros

A

1) Same as installment note except payments end at death
2) Not included in estate even if there is debt remaining at the seller’s death if proper premium is paid for cancellation
3) Sale can turn a non income producing asset into a income producing one
4) If SCIN premium was paid, the buyer’s basis will be the entire purchase price

160
Q

Self-Cancelling Installement Note Cons

A

1) Same as for an installment except the canceled note is not included in the seller’s gross estate if the SCIN premium was paid
2) Possibility of an estate tax if there is cancellation of debt at debt without payment of proper premium for cancellation right
3) Gain must be recognized even if debt is canceled at death

161
Q

Private Annuity Pros

A

1) Asset removed from estate
2) Payments due only until annuitant dies
3) Annuitant is paid more than FMV of the asset he exceeds life expectancy
4) No gift tax if the asset is valued correctly
5) Asset not subect to probate

162
Q

Private Annuity Cons

A

1) Seller must pay gain in the year of sale
2) No immediate receipt of entire purchase price
3) Annuitant is paid less than FMV of the asset if he dies before expectancy
4) Unconsumed sale proceeds and present value of payments are included in the sellers gross estate

163
Q

Sale Leaseback Pros

A

1) Asset removed from the seller’s estate
2) No gift tax if the sale is for FMV
3) Seller retains use of the property as lessee
4) Income tax deduction for lease payments if property is used for business and payments are reasonable and neccesary
5) Purchase price can be paid in a lump sum or in insttallments
6) Sale turns non-income producing property into an income producing property

164
Q

Sale Leaseback Cons

A

1) Seller may incur capital gain
2) Unconsumed sale proceeds are included in sellers gross estate
3) Seller loses control of the asset as an owner

165
Q

Entity Purchase Agreement

A

The business entitiy has the obligation or option to purchase if death, disability, or retirement comes

If not exerceised, owners have the option to purchase remaining proportionate shares

166
Q

Entity Purchase Agreement

A

The business entitiy has the obligation or option to purchase if death, disability, or retirement comes

If not exercised, owners have the option to purchase remaining proportionate shares

167
Q

Simple Trust

A

one that must pay out all of its income to the beneficiaries at least annually and cannot distribute any trust principal

A simple trust cannot accumulate trust income, make charitable distributions, or make distributions in excess of its income.

168
Q

A Trust Spouse Control?

A

the surviving spouse must receive a general power of appointment, so the first spouse to die does not control the ultimate disposition of the property

169
Q

General vs Special Power of Appointment?

A

Granting her spouse a special power of appointment over the trust assets would allow Sandra to provide a lifetime income to her spouse and give him the right to withdraw limited amounts of principal for emergencies.

A general power of appointment would allow the spouse to appoint all of the trust principal to himself or to his children.

Section 2503(b) and Section 2503(c) trusts are used to make gifts to minors.

170
Q

Section 2503c Trust

A

also known as a minor’s trust, provides for the discretionary distribution of annual trust income on the minor’s behalf with the principal being made available to the minor when the minor attains age 21

171
Q

Section 2503(b) trust

A

also known as a mandatory income trust, is an alternative to the Section 2503(c) trust. It must distribute income each year to the trust beneficiary and does not require distribution of the principal (corpus) when the beneficiary attains age 21.

172
Q

How many cross-purchase buy-sell agreements on otheres?

A

All but themselves {n x (n-1)}

173
Q

Entity Purchase Plan

A

Business entity itself purchases the interest of an owner who dies

174
Q

Sprinkling Provision

A

when trustee is granted the power to direct trust income and can sprinkle income to more than one beneficiary

175
Q

Spendthrift Clause

A

denies creditor right to demand that the trustee pay the beneficiaries debts

176
Q

Support Provision

A

distribute only as much income or principal from the trust as trustee deems necessary for the support or education of the beneficiary

177
Q

Forms of Property Ownership: Subject to Probate?

Fee Simple (Sole)
Tenancy in Common
Community Property
JTWRS
Tenancy By Entirety
A

1) Yes
2) Yes
3) Yes
4) No
5) No

178
Q

Personal Representative

A

responsible to the probate court for keeping the proceedings in motion and ensuring completion of the entire process in a timely manner

179
Q

Duties of PR

A

1) Collect money
2) Notify everyone and receive future communucations
3) Secure property against theft
4) Collect amounts due from others (rent or notes)
5) Collect amounts due to death (SS or life insurance)
6) Provide notice to creditors
7) File Return
8) Keep assets inured and invest assets
9) Manage assets
10) Distribute probate estates (will)

180
Q

Order of Probate Process

A

1) Lodge Will with Court
2) Appoint PR
3) Notice to Creditors
4) Inventory and Manage Assets
5) Pay Debts, Taxes, and Expenses
6) Distribute Assets

181
Q

Spousal Elective Share

A

Provided by common law states to provide for a surviving spouse by giving the spouse the right to take a percentage of the probate estate - usually a maximum of 50%

182
Q

Homestead Allowance

A

gives a dependent spouse or children either an ownership or occupancy interest in real property that is used by these parties

183
Q

Family Allowance Statue

A

Pays family members for the maintenance of estate process. Has priority over creditors

184
Q

Adeemed Statue

A

When asset was left to beneficiary, but the asset is not there anymore

185
Q

How to avoid Ancillary Probate?

A

Giving away real property prior to death or placing the property in a will substitute form, such as a trust or joint tenancy

186
Q

Holographic Will

A

must be written entirely in the will marker’s handwriting and signed by the testator

187
Q

Nuncuptive Will

A

Made orally by the testator, have a least one witness

188
Q

Pour over Will

A

Transfer estate assets into a trust

189
Q

Per Capita

A

Every person in the class to receive the same amount regardless of their degree of relationship

190
Q

Per Stirpes

A

Every decendent family line gets equal

191
Q

By Representation

A

Per stirpes except each generation will be treated the same

192
Q

Per Capita at Each Generation

A

When two different lower generations split their share so they can get more from the distributed at each split

193
Q

Codicil

A

Must be exe

194
Q

Will Substitute

A

transferring property at death that avoid subjecting estate property to the probate process

JTWROS & TBE

195
Q

Transfer on Death

A

Same as POD except with pubicly traded securities

196
Q

Advantage and disadvantage of Will Substitue

A

Revocable (Not JTWROS)

Expensive

197
Q

Example’s of Will Substitutes

A 
Government Savings Bond
POD Account
TOD Account
Life Insurance
Revocable Living Trust
Irrevocable Living Trust JTWROS
198
Q

Potential gift tax on creation? JTWROS and Irrevocable

A

No / Yes

199
Q

Joint tenancy beneficial for…

A

Transferring Control

Removing Estate

200
Q

Government Savings Bonds

Avoid Immediate Gift Tax?
Decrease Estate?
Revocable Transfer?
Shift Income?

A

Yes
No
Yes if A payable to B, No if A or B
No

201
Q

Payable on Death Accounts

Avoid Immediate Gift Tax?
Decrease Estate?
Revocable Transfer?
Shift Income?

A

Yes
No
Yes
No

202
Q

Transfer on Death Accounts

Avoid Immediate Gift Tax?
Decrease Estate?
Revocable Transfer?
Shift Income?

A

Yes
No
Yes
No

203
Q

Beneficiary Designations

Avoid Immediate Gift Tax?
Decrease Estate?
Revocable Transfer?
Shift Income?

A

Yes, if revocable
No, unless revocable
Yes, in most cases
No, unless irrevocable

204
Q

Revocable Living Trusts

Avoid Immediate Gift Tax?
Decrease Estate?
Revocable Transfer?
Shift Income?

A

Yes
No
Yes
No

205
Q

Irrevocable Living Trusts

Avoid Immediate Gift Tax?
Decrease Estate?
Revocable Transfer?
Shift Income?

A

No, if completed gift
Yes, if certain rights are not retained
No
Yes, if certain rights are not retained

206
Q

Joint Tenancy with Right of Survivorship

Avoid Immediate Gift Tax?
Decrease Estate?
Revocable Transfer?
Shift Income?

A

No, unless to spouse
Yes, if to spouse, NO if to nonspouse unless he contributes funds
No
Yes, if to other than spouse

207
Q

Tenancy by the Entirety

Avoid Immediate Gift Tax?
Decrease Estate?
Revocable Transfer?
Shift Income?

A

Yes
Yes
No
No

208
Q

Residuary Clause

A

bequest any remaining property not listed in a will

209
Q

Codicil

A

Instrument usedd to modify or amend an existing will

Less expensive and cumbersome than writing an entire will

210
Q

Testate

A

died without a will

211
Q

Qualified disclaimer must be receive by the decedents estate within…

A

9 months after the later of when the interest was made, or the day on which the person disclaiming the interest reaches age 21.

212
Q

Operation of Law…

A

avoids probate,
may qualify for the marital deduction,
transferred to the survivor(s) listed in the title

213
Q

How are real estate and non real estate assets probated by location?

A

Real- according to the laws of the state in which they are located

Non-Real - probated according to the laws of the decedents state of residence

Intangible assets can be probated in any state

214
Q

Calculating Federal Tax

A

1) Subtract $1 Million
2) Multiply 40%
3) Add $345,800 (Tax on first million)
4) Subtract Lifetime Credit ($4,577,800)

215
Q

Fractional Interest Discount

A

co-ownership discount normally is applied to estates that contain real estate that cannot be sold because the surviving contenant refuses to sell his partial interest to the estate, refuses to buy the partial interest held by the executor of the state, and refuses to join in a sale to a third party

216
Q

Minority Interest

A

Given when can’t influence business policy

217
Q

Examples of Incident of Ownership

A

1) Name the beneficiary
2) Cash in
3) Surrender or Cancel
4) Receive policy dividends
5) Borrow against policy cash values
6) Pledge the policy as collateral for a loan
7) Assign any of the foregoing rights or the policy itself
8) Revoke an assignment

Right to pay premiums is NOT included

218
Q

When does Section 2036 occur?

A

1) When the decendent gifted property to another but retained the right to enjoy the property that was gifted
2) If donor-grantor establishes a lifetime irrevocable trust and retains the right to specify or designate who will subsequently enjoy of possess the trust property or its income

219
Q

When does Section 2035 occur?

A

1) Transfers of a retained interest within three years of death
2) Transfers of life insurance in which the original owner is also the insured (within 3 years)
3) Gross Up Rule (gifting within 3 years)

220
Q

Two additional circumstances in which 3 year rule applies…

A

1) Lapse of a general power of appointment over the greater of 5% or $5,000
2) NQSO to charity, they exercise it, value of NSQO added on estate of value date of death

221
Q

Deductions made before estate tax is calculated..

Which are Adjusted Gross Estate and Taxable Estate?

A

1) Funeral
2) Administrative
3) Debts
4) Theft and Casualty

5) Marital
6) State Death Taxes Paid
7) Charitable

222
Q

Terminal Interest Rule

A

An amount passing to a surviving spouse that is a terminable interest is not entitled to a marital deduction

Terminable Interest is an interest in property that will terminate with the mere lapse of time upon the occurence or nonoccurence of a stated contingency or event, and at that time it will pass to a third party named by the decendent

223
Q

4 exceptions to the terminable interest rule that will qualify for a marital deduction?

A

1) Life estate with a general power of appointment
2) QTIP Election
3) Charitable Remainder Trusts
4) Survival Conditioning

224
Q

Purpose of Bypass Planning

A

to allow the grantor’s spouse to receive some benefit from the trust assets without qualifying for the marital deduction, thus using some or all of the grantor’s applicable credit amount

Uses a bypass trust to avoid martial deduction

225
Q

Qualify for Martial deduction?

1) Power of Appointment Trust (A Trust)
2) QTIP (C Trust)
3) Bypass Trust (B Trust)

A

1) Yes
2) Yes - if elected by decedents executor
3) No

226
Q

Included in surviving spouse’s gross estate?

1) Power of Appointment Trust (A Trust)
2) QTIP (C Trust)
3) Bypass Trust (B Trust)

A

1) Yes
2) Yes
3) No

227
Q

Steam of income to surviving spouse?

1) Power of Appointment Trust (A Trust)
2) QTIP (C Trust)
3) Bypass Trust (B Trust)

A

1) Yes
2) Yes
3) No

228
Q

Stream of income to multiple beneficiaries?

1) Power of Appointment Trust (A Trust)
2) QTIP (C Trust)
3) Bypass Trust (B Trust)

A

1) Yes - mandatory
2) Yes - mandatory
3) Yes - discrestionary

229
Q

Does surviving spouse have the right to invade corpus?

1) Power of Appointment Trust (A Trust)
2) QTIP (C Trust)
3) Bypass Trust (B Trust)

A

1) No
2) No
3) Can, but not required

230
Q

Is surviving spouse the ultimate beneficiary of property when trust terminates?

1) Power of Appointment Trust (A Trust)
2) QTIP (C Trust)
3) Bypass Trust (B Trust)

A

1) Maybe
2) No
3) No

231
Q

Does the surviving spouse have a general power of appointment over trust?

1) Power of Appointment Trust (A Trust)
2) QTIP (C Trust)
3) Bypass Trust (B Trust)

A

1) Yes
2) No
3) No

232
Q

Funding amount

1) Power of Appointment Trust (A Trust)
2) QTIP (C Trust)
3) Bypass Trust (B Trust)

A

1) Any amount for which decedent wants the marital deduction
2) Any amount for which decedent wants the marital deduction and any other property for which the marital deduction is not desired
3) Usually an amount at least equal to applicable exclusion amount

233
Q

Can it be used in combination with other trusts?

1) Power of Appointment Trust (A Trust)
2) QTIP (C Trust)
3) Bypass Trust (B Trust)

A

1) Yes
2) Yes
3) Yes

234
Q

What “wasting assets” must be listed at their date of death value?

A

Installment Notes

Joint and Survivor Annuities

235
Q

Retention to Use Property =

A

Includible in their gross estate!

236
Q

When one spouse dies in community property, what happens to basis?

A

Stepped up to FMV

237
Q

Donor-Advised Fund

A

A donor-advised fund is an arrangement in which the donor makes a gift to charity and then makes future recommendations regarding who should receive grants or future monies from the charity.

The major advantage of a donor-advised fund to the donor is the ability to name several charitable recipients.

Low Cost

238
Q

What amount of federal estate tax that may be deferred?

A

Tax attributable to the value of the closelt held businesss or businessess

239
Q

If someone wants to retain some but not all income from the property…

A

Could place JTWROS

240
Q

If someone wants to retain some but not all income from the property AND retain control of assets while providing protection from creditors…

A

FLP or LLC

241
Q

Examples of wasting assets

A

Def: Value diminishes as a function of time

1) Annuities
2) Installment Notes
3) Joint and Suvivor Annuities
4) Patents
5) Copyrights

242
Q

When can AVD not be done?

A

All assets pass to the surviving spouse and qualify for the martial deduction, thus resulting in no estate tax payable

Tax base does not exceed exemption amount

243
Q

Homestead Exemption

A

Protects families home from creditors

244
Q

Surviving interest (wife or husband)

A

Dower / Curtesy

245
Q

Electing Against the Will

A

Allow a surviving spouse to elect to receive a speficified share of the decedent’s assets in lieu of the share provided under the will

246
Q

Section 303 Stock Redemption

A

Allows shareholder of closely held corp to tell shares for estate taxes and admin expenses taxed at capital gains versus ordinary income.

247
Q

Installment Payment of Estate Taxes Requirements

A

Value of closely held business interest in estate must exceed 35% of her adjusted gross estate

All closely held business interests owned by the decedent may be aggregated, but the decedent must own at least 20% of the total value of each business at the date of death

Federal Estate Tax that may be deferred is limited to the tax attributable to the value of the closely held business

248
Q

Section 6166 (Installment Payment of Estate Taxes)

A

If requirements of installment are met, may defer for 5 years of any estate tax payment relating to the closely held business

249
Q

Section 303 Stock Redemption Requirements

A

Value must exceeed 35% of owners AGE

Only an amount equal to the total of decedent’s estate taxes plus admin expenses is eligible for this favorable treatment, any amount in excess of this total must be treated as a dividend.

250
Q

Special Valuation Use (Farm)

A

Land used as a family farm can be valued as farmland rather than at its value if it were converted to commercial use

Lowers valuation and therefore lower estate taxes

251
Q

Special Use Valuation Requirements

A

Net value of the real and personal property devoted to this qualified use must be equal to at least 50% of the adjusted value of the gross estate

Separately real property must be at least 25%

Must have been owned for at least 5 of 8 years prior to death

Passed to a qualified heir that will use it for the same use

Will lower by $1.18 million!

252
Q

Income in Respect of Decedent

A

Gross income to which the decedent was entitled at the date of death but had not yet received

Examples: Rent, IRA, annuities, deferred comp, installment notes, and tax deferred accounts

Not eligible for step up

253
Q

Reverse QTIP

A

A special election made by an executor to treat qualified terminable interest property as if the QTIP election had not been made for generation-skipping transfer tax purposes.

An election that allows better utilization of a decedent’s GSTT exemption.

254
Q

Skip Person

A

1) a lineal descendant transferee who is two or more generations younger than the transferor
2) A non lineal
3) Unrelated transferee who is more than 37.5 years younger than the transferor

GSTT rules apply to skip persons only

255
Q

Deemed Allocation Rules

A

the transferor’s unused GSTT exemption, if any, must be allocated to lifetime direct skips, to the extent neccesary to prevent the actual payment of any GSTT rules unless the transferor elects otherwise

256
Q

How to avoid GSTT?

A

1) Timely allocation of unused exemption, if any

2) Deductions such as gift splitting, annual exclusions, state death taxes, debts, and expenses

257
Q

Reverse Gift

A

Gifted back within ONE year

258
Q

Fractional Interest in Tangible Personal Property…

1) Income Taxation
2) Property Interest
3) Miscellaneous

A

1) Donor gets a deduction for FMV of initial contribution and lesser the FMV at the time of initial contribution of subsequent contribution
2) Charity must have right to take possession of the asset in proportion with initial contribution. All remaining interests must be transferred to charity within 10 years or death
3) Deductions recovered with interest and a 10% penalty if the charity fails to take possesssion, use the propoerty for its exempt purpose, or receive all remaining interests within 10 years or death

259
Q

Qualified Conservation Contribution

1) Income Taxation
2) Property Interest
3) Miscellaneous

A

1) Donor gets deduction for the FMV up to 50% of base over the amount of all contributions for the year. 15 year carry forward if the entire deduction amount cannot be taken in contribution year
2) Charity has the right to use contributed property for conservation purposes
3) Purposes must include outdoor recreation and other outdoor activities on land

260
Q

CRAT

1) Income Taxation
2) Property Interest
3) Miscellaneous

A

1) Deduction for present value of remainder interest
2) Income interest: fixed amount > 5% of initial value of trust assets paid at least annually to noncharitable beneficiary
Corpus: to a qualified charity at end of trust term
3) no additions permitted
Invasion of corpus is mandatory to meet income payout
Term is lifetime of certain 20 years or less

261
Q

PIF

1) Income Taxation
2) Property Interest
3) Miscellaneous

A

1) Donor gets a deduction for the present value of the remainder interest
2) Income interest: to a noncharitable beneficiary annually; variable amount depending on investment success and percentage of total fund contributed
Corpus: to a qualified charity at the end of the term
3) Additions are permitted
No invasion of corpus; no amount of income payout is promised
The term is the LIFETIME of income beneficiary

262
Q

CLAT

1) Income Taxation
2) Property Interest
3) Miscellaneous

A

1) Donor gets deduction for present value of income interest if grantor trust rules apply. Otherwise, taxed to the trust with an unlimited deduction for contributions to charity
2) Income Interest: fixed amount of intiial value of trust assets to qualified charity at least annually
Corpus: one or more noncharitable beneficiaries at the end of trust term
3) No additions are permitted
Invasion of corpus is mandatory to meet income payout
The term is the lifetime of persons in being or term certain

263
Q

CLUT

1) Income Taxation
2) Property Interest
3) Miscellaneous

A

1) Donor gets a deduction for the present value of income interest given to a charity if grantor trust rules apply
2) Income Interest: fixed amount of intiial value of trust assets to qualified charity at least annually
Corpus: one or more noncharitable beneficiaries at the end of trust term
3) The term is for the lifetime of persons in being or term certain < state laws against perpetuities

264
Q

Farm or Personal Residence

1) Income Taxation
2) Property Interest
3) Miscellaneous

A

1) Donor gets a deduction for the present value of remainder interest given to charity
2) Life estate: noncharitable beneficiary gets use of and income from asset
Remainder: qualified charity at end of life estate
3) It does not require a trust
The term is for life or lives of noncharitble beneficiaries

265
Q

Exception to the Transfer-For-Value Rule

A

1) Transfers to the insured
2) Partner, partnership, or corporation where they are a shareholder
3) trasnfers to transferee whose adjusted basis is determined in the whole or in part by reference to the transferors adjusted basis
4) Trasnfers between spouses or incidental to a divorce

266
Q

Do CRATS or CRUTS permit additional contributions?

A

Only CRUTs permit additional contributions of property subsequent to inception

267
Q

How does Code Section 2612 define a “taxable distribution”?

A

a taxable distribution as any distribution from a trust to a skip person other than a taxable termination or direct skip

268
Q

Notes on trusts…

A

A deduction is available to a trust for distributions made to trust beneficiaries.

A charitable deduction is allowable for complex trusts but not for simple trusts.

The 10% income tax bracket applies to trusts.

Tax-exempt income is not taxable to a trust.

269
Q

When does a discharge of indebtness occur?

A

when a legal indebtedness owned by an individual is discharged or satisfied, and the individual’s net worth has been INCREASED the same as if the individual had earned income in the same amount

270
Q

How much remainder interest going to the charity in a qualified CRAT or CRUT must be at least ____ of the net FMV of any property transferred into the trust on the date of the contribution to the trust

A

10%

271
Q

Collateral Heir

A

Heirs with whom an individual shares a common ancestor but who are in a different line than the individual are known as

272
Q

Generally, for generation-skipping transfer tax (GSTT) purposes the measure of value is

A

FMV

273
Q

When is taxable distrtibution and inter vivos direct skip due?

A

GSTT for a taxable distribution is reported and due on April 15 of the year after distribution.

GSTT for an inter vivos direct skip is reported and due at the same time as the gift tax return.

274
Q

IRD is reported on…

A

IRD is considered an asset for estate tax purposes and is reported on IRS Form 706.
IRD is income for income tax purposes and is reported on either Form 1040 or Form 1041.

275
Q

Disadvantage of supporting organization

A

a major disadvantage of a supporting organization is that its activities must be controlled by the public charity it supports and not by the donor or the donor’s family.

276
Q

Guardianship VS Conservatorship

A

G- fiduciary relationship created by the law to enable one person to manage the personal care and well being of another

C fiduciary relationship created by law for the purpose of enabling one person to manage property of another

277
Q

Do Not Resucitate (DNR) Order

A

Set forth how to make DNR decisions, resolves, disputes, and protect a patients rights in such emergency situations

278
Q

Look back period for Medicaid

A

60 Months

279
Q

Federal Gift Tax (Alien Spouse)

A

Super annual exclusion - $100,000 transfers

No marital deduction

No gift splitting

No joint held

280
Q

Qualified Domestic Trust

A

The only exception for a surviving alien spouse to receive the marital deduction

281
Q

Cohabitation Agreement

A

similar to marital property agrement except for non spouses

most states recognize this

282
Q

Durable Power of Attorney

A

A durable power of attorney survives the principal’s legal incapacity (but not the principal’s death).

283
Q

Nondurable Power of Attorney

A

A nondurable power of attorney becomes legally invalid at the onset of the principal’s incapacity

284
Q

Is estate tax and gift tax returns required?

A

Estate - Yes

Gift - Not always, but is when gift splitting

285
Q

Marital Deduction does what to estate and gift?

A

Transfers estate liability and avoids gift tax

286
Q

No Contest

A

This type of clause is used when a close family member is disinherited in a will.

This type of clause imposes a penalty for contesting the validity of provisions in a will.

287
Q

Advance Medical Directive

A

her physicians are informed of her wishes regarding end-of-life care (living will)

288
Q

Community Property still separate under spousal agreement ?

A

The property is separate property so long as the spousal agreement is valid (i.e., recognized by local law and entered into with the requisite intent)

289
Q

When does a durable power of attorney take place?

A

A durable power of attorney takes effect upon its execution and delivery to the agent unless a different effective date is expressly stated in the instrument

Retirement Planning (2 decks)

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