Estate Planning Flashcards
1
Q
This form of ownership involves outright or absolute ownership and control.
A
Fee simple
2
Q
This form of ownership provies a partial interest that terminates at death.
A
life estate
3
Q
This form of ownership allows the owner of use and enjoy the property for a set number of years.
A
Term of years (interest for years)
4
Q
Are shares in a tenancy in common required to be equal?
A
No, they may be unequal
5
Q
How does a tenancy in common pass at death?
A
It passes by will and goes through probate
6
Q
What is the value of a tenancy in common in the gross estate?
A
The percentage of ownership and its value
7
Q
Are shares in a JTWROS property required to be equal?
A
yes
8
Q
How does a JTWROS pass at death?
A
It goes to the co-owner(s) via the survivorship feature; it is outside of probate
9
Q
Can you sever your interest in a JTWROS without the consent of the other owner(s)?
A
Yes
10
Q
How are estate taxes applied to a JTWROS property?
A
- If held between spouses, there is no estate tax and the surviving spouse received a stepped-up basis in one-half of the property
- If non-spouse owners, 100% of the asset is included in the estate of the first-to-die unless the survivor can prove that they contributed to the purchase. Then, it will be divided based on their contribution.
11
Q
How are gift taxes applied to a JTWROS property?
A
- If held between spouses, there is no gift tax because of the unlimited marital deduction.
- If held between non-spouses, if all contribute equally there is no gift. If contributions are unequal, the amount of additional contribution will be considered a gift to the other.
12
Q
Tenancy by the entirety is a form of ownership that is limited to
A
spouses
13
Q
Is TBE recognized universally?
A
No, only in some common-law states
14
Q
Can your right in a TBE property be severed without mutual consent?
A
no
15
Q
How is TBE property treated for estate tax purposes?
A
1/2 is included in the gross estate of the first-to-die. It passes outside of probate.
16
Q
What creditor protection does TBE provide?
A
protection from separate creditors but not joint creditors
17
Q
How is community property treated for estate tax purposes?
A
50% is included in the gross estate of the first-to-die. 100% of the property receives a stepped-up basis. The property passes by will and will be included in the probate estate.
18
Q
What is not considered community property? (3)
A
- separate property
- inherited assets
- gifted assets
19
Q
This is a property system that allows people, including married people, to own property soley in their own names.
A
common-law system
20
Q
This is a property system that generally assumes that property acquired during marriage belongs equally to both spouses.
A
community property system
21
Q
For non-spouse joint tenants, the property at death is included in the decedant’s gross estate to the extent that the surviving joint tenant cannot prove that he actually contributed to the purchase price.
A
consideration furnished
22
Q
A legal right to property that does not include the right to present possession or enjoyment of the property.
A
future interest
23
Q
A future interest given to a person that is capable of becoming possessory upon the natural end of a prior estate created by the same instrument.
A
remainder
24
Q
A future interest that is retained by the grantor after the conveyance of a lesser quantum that he has.
A
reversion
25
Does a revocable trust protect assets from the grantor's creditors?
No
26
In what year did the federal gift and estate tax become unified?
1976
27
Allows for the transfer of assets between spouses tax free.
marital deduction
28
Transfers to qualified charities are not taxed.
charitable deduction
29
A credit equal to the tax on an amount of taxable transfers that Congress has declared tax payers should not have to pay out of pocket.
applicable credit amount
30
The dollar value of taxable gifts or a taxable estate that will generate gift or estate tax liability equal to the applicable credit amount.
applicable exclusion amount
31
A gift by one spouse may be treated as if half of it were given by each spouse, thereby doubling the allowable annual exlcusions.
gift splitting
32
A deduction is allowed annually for a limited amount of gifts of a present interest by any donor to each done in a calendar year.
annual exclusion
33
Money used to pay the tax is not itself taxed.
tax exclusive nature
34
What form must be filed for federal gift tax?
Form 709
35
How are most gifts valued for gift tax purposes?
at fair market value
36
What discounts are available for gifting closely held stock? (3)
1. minority interest discount
2. Lack of marketability discount
3. Lock-in discount
37
What control can a grantor retain over an irrevocable trust and still have it count as a completed gift?
grantor can be trustee with health, education, maintenance, and support standard
38
How is life insurance valued for gift tax purposes?
replacement value
39
How are securities valued for gift tax purposes?
average of high and low prices on date of gift
40
How are securities valued for gift tax purposes if the security was not traded on the gift date? (7)
1. FMV of security on last day it traded before gift date
2. FMV of security for first day it traded after gift date
3. # of business days between last trade date before gift and gift date
4. # of business days between gift date and first trade date after gift date
5. FMV before x # days after
6. FMV after x # days before
7. Add steps 5 & 6 and divide by total number of businesses days
41
These rules were put in place to prevent families from avoiding transfer taxes by undervaluing assets and transferring them to other family members.
Chapter 14 rules
42
This applies to the valuation of the gift of a closely held business between family members when the transferer retains an interest in the entity. If the transferer gets a fixed, regular income from the business, the value of that will be deducted but the rest will be taxed.
Chapter 14, Section 2701
43
This rule applies to the value of a transfer in a trust between family members. The transferer must retain an interest in the trust. It applies to businesses being transferred in annuity form. The present value of the income stream is deducted from the value and the rest is taxed.
Chapter 14, Section 2702 (Grantor retained trusts)
44
This rule applies to buy-sell agreements. The IRS will tax any amount of FMV that is not paid for when transferring a business between family members.
Chapter 14, Section 2703
45
This rules provides that the lapse of a voting or liqudation right in a closely held business or partnership will be treated as a gift. The value will be the excess of FMV over what you gave up.
Chapter 14, Section 2704
46
What transfers are exempt from gift tax? (4)
1. To political organizations
2. To educational institutions if paid directly to the school
3. Medical payments if paid directly for medical care or for medical or LTC insurance
4. Property transfers as part of a divorce agreement
47
How many annual exclusions may a donor use?
It can be used for as many donees as the donor chooses
48
To what interests may the annual exclusion apply?
to gifts of present interest only
49
What are the requirements for a qualified charitable distribution of RMDs? (3)
1. RMD goes directly to the charity
2. Must be a gift of cash or property
3. Up to $100,000/year
50
Will a qualified charitable distribution of RMDs also be eligible for a charitable deduction on income tax returns?
No, because the money donated is not counted as income
51
In this arrangement, a beneficiary receives income from the asset and when the term ends, the assets goes to a charity.
Charitable Remainder Trust
52
In this arrangement, the charity gets the income and the assets reverts back to the donor or family member after the term.
Charitable Lead Trust
53
In this arrangement, you sell a charity property for less than FMV?
Charitable bargain sale
54
What is the unholy trinity for life insurance?
When there are different owner, insured, and beneficiary. If the insured dies, the owner is deemed to have made a gift of the policy proceeds to the beneficiaries.
55
What is the 5/5 rule for general powers of appointment?
The lapse of such a power will only be considered a gift to the extent the amount the holder could have appointed exceeds the greater of $5,000 or 5% of the property subject to the power
56
A gift to a 2503(b) trust is considered a present interest gift because
the trust income is payable on a mandatory basis at least annually
57
A gift to a trust with Crummey powers is considered a present interest gift because
the beneficiary has the power to withdraw assets as they are being gifted into the trust
58
A gift to a 2503(c) trust is considered a present interest gift because
both the property and its income may be expended by, or for the benefit of, the beneficiary before the beneficiary reaches age 21, and the beneficiary must be given the right to access all trust property on the minor's 21st birthday, and if the beneficiary dies before the age of 21, the property and its income will be payable either to the minor's estate or to whoever the minor may appoint under a GPA
59
The donor spouse gives donee spouse a qualifying income interest for life in the property and makes an irrevocable election on his/her gift tax return to qualify the property for the marriage deduction
Qualified Terminable Interest Property (QTIP)
60
At current rates, the gift/estate tax on the first 1,000,000 in taxable property is
$345,800
61
May gift splitting be used for specific gifts only?
No, all gifts must be split if elected
62
A CLT in which trust income is paid to the charity in the form of a guaranteed annuity?
Charitable Lead Annuity Trust (CLAT)
63
A form of CLT in which trust income is paid to the charity as a fixed percentage of the net FMV of trust assets determined annually.
Charitable Lead Unitrust (CLUT)
64
A form of CRT in which income is payable as a sum certain that is no less than 5% of the initial FMV of all trust assets.
Charitable Remainder Annuity Trust (CRAT)
65
A form of CRT in which income must be payable as a fixed percentage that is not less than 5% of the net FMV of trust assets valued annually.
Charitable Remainder Unitrust (CRUT)
66
Who are the three parties to a trust?
1. Grantor
2. Trustee
3. Beneficiaries
67
What are the common operating elements of a trust? (3)
1. Legally and mentally competent grantor
2. Legally and mentally competent trustee
3. One or more beneficiaries
68
What are the roles of the trustee? (5)
1. Manage and invest trust assets
2. Keep trust records
3. File any tax returns
4. Make distributions of income and principal
5. Act as a fiduciary
69
What are reasons for creating a trust? (5)
1. Flexibility and ability to benefit beneficiaries
2. Trustee's management/investment expertise
3. Avoid probate at grantor's death
4. Protect grantor's assets from creditors
5. Income, gift, or estate tax savings
70
How is income in a revocable living trust taxed?
It is passed through to the grantor's personal tax return
71
How long may a trust last?
21 years after the death of a life in being when an interest was created
72
This type of trust can be rescinded or amended?
Revocable trust
73
How are revocable trust assets handled for estate tax purposes?
Assets are included in the estate
74
How are revocable trusts taxed for gift tax purposes?
The gift is not complete, so there is not gift tax
75
Does a revocable trust avoid probate?
if it is funded, it avoids probate
76
In this type of trust, the grantor relinquishes control over the property in the trust. The grantor cannot change the trust provisions.
Irrevocable trust
77
How are assets in an irrevocable trust handled for estate tax purposes?
The assets are out of the estate
78
This type of trust is set up while the grantor is alive.
Inter vivos trust
79
This type of trust is set up when the grantor dies. It is created by the will.
Testamentary trust
80
This type of trust must pay out all income at least annually. It may not distribute principal or corpus.
Simple Trust
81
How is a Simple Trust taxed?
At the beneficiary's individual tax rate
82
This type of trust may accumulate income and/or distribute corpus. It may make charitable contributions to offset taxes.
Complex trust
83
This trust provision allows the trustee to dictate when a beneficiary receives money over time.
Sprinkling/spray
84
This trust provision allows the trustee to distribute amounts necessary for the support or education of an individual.
Support provision
85
This trust provision prohibits the beneficiary from assigning their interest to a creditor. It denies creditors the right to demand that the trustee pay for the beneficiary's debts.
Spendthrift provision
86
What are tax advantages of a lifetime gift over a testamentary trust? (4)
1. Gift tax is "tax exclusive" while estate tax is "tax inclusive"
2. Removal of potential future appreciation from future transfer tax
3. Taxable income may be moved from high bracket donor to lower bracket done
4. May enable a decedent's estate to take advantage of special elections if the right assets are gifted
87
What are non-tax advantages of a lifetime gift over a testamentary transfer? (7)
1. Greater privacy
2. Potential reduction of probate and admin costs
3. Possible protection from creditors
4. Enjoyment from seeing donee enjoy the gift
5. Opportunity to see how well donee manages wealth
6. Opportunity to provide for donee's education, support, and financial well-being
7. Gives the donee incentive to run a family business
88
What are tax disadvantages of a lifetime gift over a testamentary transfer? (5)
1. Gift tax due if annual exclusion exceeded
2. Loss of step-up in income tax basis for beneficiary
3. Loss of possibility that property values may decline, resulting in a lower transfer tax
4. Loss of possibility that tax law changes in the future may be more beneficial to the taxpayer
5. Does not provide for possible changed circumstances of donor and/or donee
89
What are non-tax disadvantages of a lifetime gift over a testamentary transfer? (3)
1. Loss of the use of, possession of, and/or income from the property
2. Psychological loss from controlling of the asset
3. Irrevocability
90
A gift given with the expectation that the donee will pay the gift tax on it.
Net gift
91
An informal arrangement in which Person A gives a gift to Person B with the understanding that Person B will give it back to Person A when Person B dies.
Reverse gift
92
How long must someone live after a reverse gift in order for the original donor to receive a stepped-up basis when they inherit?
1 year after gift date
93
Giving property away and then leasing the property from the person you gave it to.
Gift leaseback
94
When is the corpus of a 2503(b) trust distributed?
It can be distributed at any time
95
This type of trust ensures those dependent on the support of another that the support will be there and will not be subject to the claims of creditors. It must be irrevocable to avoid the claims of creditors.
Support Trust
96
This trust allows the grantor to receive a fixed income, at least annually, for life.
Grantor Retained Annuity Trust (GRAT)
97
This type of trust allows the grantor to receive a % of trust assets at least annually.
Grantor Retained UniTrust (GRUT)
98
This type of trust allows the grantor to receive a percentage of all income produced by the trust.
Grantor Retained Income Trust (GRIT)
99
This type of trust allows the grantor to live in the property for the term of the trust. The residence may not be occupied by anyone other than the grantor or their family.
Qualified Personal Residence Trust (QPRT)
100
This type of trust is used to purchase items for an individual receiving Medicaid or Social Security benefits. It is intended to support the individual without causing them to lose out on their government benefits.
Supplemental Needs Trust
101
Is a grantor retained trust a present interest gift?
No
102
This type of trust owns life insurance on the grantor.
Irrevocable life insurance trust (ILIT)
103
This type of trust grants the spouse a power of appointment over assets in the trust.
Marital Trust (A trust)
104
What are the consequences of retaining an interest or control in a gifted asset? (4)
1. If the property is placed in trust, some of the income will be taxed to the donor/grantor
2. May cause the asset to remain in the donor's estate (if the owner dies within three years of releasing the retained right)
3. May lose the marital deduction (with the exception of QTIP)
4. May lose the charitable deduction (unless in an approved form such as CRT or CLT)
105
For intrafamily loans, imputed interest does not apply to loans below what amount?
$10,001 and not to buy income property
106
How is the gift amount calculated for an intrafamily term loan?
PV of loan at stated interest rate - PV of loan at AFR
107
How is the gift amount determined for an intrafamily demand loan?
A gift is made each year of the difference between the stated interest rate and AFR. Annual exclusion is available.
108
How is the gift tax on a net gift calculated?
tentative tax/(1+donor's rate of tax)
109
This type of custodial account for a minor is not allowed to invest in real estate.
UGMA
110
This type of custodial account for a minor has no restriction on the type of property that can be gifted.
UTMA
111
This account is established by irrevocably registering the gifted property in the custodian's name for the benefit of the named minor.
UTMA
112
This is a revocable living trust that the grantor establishes to handle her financial affairs when and if she becomes incompetent to do so.
Contingent (Standby) Trust
113
How much can be contributed to a 529 plan in a single year?
Can contribute in a single year and be taxed as if over five years. This means you can contribute up to five times the annual exclusion.
114
What qualifications must be met to protect trust assets from the grantor's creditors? (4)
1. Transfer must not be an attempt to defraud creditors
2. Trust must be irrevocable
3. Grantor must not be able to demand any trust assets for his benefit
4. Grantor should not be the trustee if the trustee has discretion over distribution of income
115
What qualifications must be met to protect trust assets from the beneficiary's creditors? (2)
1. Trust should not provide for a mandatory distribution of income to the beneficiary and should not give the beneficiary a demand right, Crummey power, or general power of appointment
2. Trust should contain a spendthrift provision
116
This type of trust is designed to pass the grantor's property to several generations of descendants.
Dynasty trust
117
This type of trust is designed to be subject to grantor trust rules for income tax purposes, but also to be out of the donor's estate.
Intentionally Defective Grantor Trusts (IDGT)
118
This is a sale in which the purchase price is paid over time.
Installment sale
119
What part of an installment sale is included in a seller's gross estate?
The PV of the remaining payments
120
How is gain treated in an installment sale?
It is spread out. Each payment consists of basis, gain, and interest.
121
This is a type of installment sale in which all unmatured payments will be cancelled at the seller's death.
Self cancelling installment notes (SCIN)
122
What part of a SCIN sale in included in the seller's gross estate?
Unrecognized gain from the sale will be reported as IRD; cancelled payments will be excluded if SCIN premium has been paid.
123
What is the buyer's basis in a SCIN sale?
The full purchase price - even if not fully paid
124
This is when an assets is sold for less than FMV?
Bargain sale
125
This is when one party sells business related property to get it out of their estate and leases it back.
Sale-leaseback
126
What are the three parts of a private annuity payment?
1. return of basis (not taxable)
2. gain on sale (taxable)
3. ordinary income (taxable)
127
Which sales techniques receive the entire purchase price at the time of sale? (3)
1. Outright sale
2. Bargain sale
3. Sale-leaseback
128
What sales techniques allow installment reporting of gain? (3)
1. Installment sale
2. SCIN
3. Sale-leaseback (potentially)
129
Which sales techniques include the unpaid purchase price in the seller's gross estate at death? (3)
1. Installment sale
2. Private annuity if payments will continue to a survivor
3. Sale-leaseback (if purchased in installments)
130
Which sales techniques allow continued use of sold assets? (1)
Sale-leaseback
131
Which sales technique may also include a gift element?
Bargain sale
132
Which gifting technique provides for needs of minors only? (3)
1. UGMA
2. UTMA
3. IRC Sec 2503(c) minor's trust
133
Which gifting techniques plan for incompetency? (2)
1. Revocable trust
| 2. Contingent/standby trust with a springing durable power of attorney
134
Which gifting techniques remove assets from the gross estate? (2)
1. All irrevocable gifting techniques
2. Grantor must not retain any interest that would cause IRC Sec 2035-2038 to apply and must not gift property to a non-spouse and title JTWROS
135
Which gifting techniques qualify for the annual gift tax exclusion by providing for mandatory distribution of income? (7)
1. IRC Sec 2403(b) trust
2. Irrevocable trust
3. CRAT & CRUT
4. CLAT & CLUT
5. PIF
6. Power of appointment trust
7. QTIP trust
136
Which gifting techniques to not shift taxation of income? (5)
1. Revocable trust
2. Contingent/standby trust
3. GRIT, GRAT, and GRUT, to the extent of grantor's retained right
4. Any irrevocable trust or custodial account when trust income is actually used to discharge a legal obligation of support
5. ILIT when trust income is or may be used to pay premiums on insurance policies on the life of the grantor or the grantor's spouse
137
Which gifting techniques allow tax-free accumulation of income? (3)
1. 529 Plan
2. Coverdell
3. ILIT
Grantor trust rules must be avoided
138
Which gifting techniques do not protect assets from the claims of the donor's creditors? (3)
1. Revocable trusts
2. Contingent/standby trusts
3. Grantor-retained trusts as to the interest retained by the grantor
139
This type of property should be gifted if the donee is in a lower tax bracket than the donor and the donor does not need the income.
High income-producing property
140
This type of property should be gifted to remove it from the donor's estate.
Property likely to appreciate substantially in the future
141
This type of property should not be gifted if the donee could benefit from a stepped-up basis.
Highly appreciated property
142
To whom should property likely to be sold by the donee shortly after gifting be gifted?
To lower-bracket donee b/c gains will be taxed as the lower marginal tax rate
143
This type of property is not good to gift because neither the donee nor the donor can use its tax benefits.
Loss property
144
This type of property should be gifted, sold, or placed in a trust to avoid ancillary probate.
Out of state property
145
This type of property is not desirable to gift because the deductions can be used by higher bracket donor to offset income.
Depreciable income property
146
This assures a closely held business owner of a market for his or her interest in the event of death or disability or retirement.
Buy-sell agreement
147
In this form of buy-sell, each owner is obligated to each other owner and buys a life insurance policy on each other owner.
Cross purchase
148
In this type of buy sell, the company is obligated to each owner. The company purchases a life insurance policy on each owner.
Entity purchase
149
Are premiums for a buy sell tax deductible?
No
150
What is the basis in a cross purchase?
the purchase price of the business interest
151
What will be included in the gross estate in the case of a cross purchase buy sell?
the owner's share of business and the replacement costs of life insurance policies on other owners
152
This is a way to allow additional business owners to join the business by gifting or selling them non-voting stock.
Recapitalization
153
Are premiums paid in an entity purchase buy sell agreement considered income?
No
154
A business owner gifts a lower class stock, while keeping preferred stock that has a fixed liquidation value.
Preferred stock recapitalization or partnership capital freeze
155
When will ch. 14 rules not apply to intrafamily transfers? (3)
1. There are readily available market quotations for either the retained or transferred interest or
2. The retained interest is the same class as the transferred interest or
3. The retained interest is proportionally the same as the transferred interest
156
This says that if the owner of a life insurance policy sells or gifts the policy the death benefit becomes taxable.
Transfer for value rule
157
If a split-dollar life insurance policy is owned by the employer, it is taxed under what regime?
economic benefit regime
158
What is taxed under the economic benefit regime?
Value of benefits paid by employer - anything paid by employee = taxable income
159
What are the incidents of ownership in a life insurance policy? (7)
1. Right to name and change beneficiary
2. Right to cash in, surrender, or cancel a policy
3. Right to receive policy dividends
4. Right to borrow against cash values
5. Right to pledge the policy as collateral for a loan
6. Right to assign any of the foregoing rights or the policy itself
7. Right to revoke an assignment
160
The death benefit must be include in the original owner's gross estate if the owner transferred an incident of ownership in the policy within ___ years of death.
3
161
What is the replacement cost for a term policy?
Unused premium
162
What is the replacement cost for a whole life policy?
interpolated terminal reserve + unused premium
163
The employer pays the entire premium on a cash value life insurance policy on the life of the employee who also owns the policy and designates the beneficiary.
Salary Increase or Selective Pension Plan
164
How are premiums taxed on a selective pension plan?
dedutible to the employer, taxable to the employee
165
When the the death benefit not include in the insured's estate?
When someone other than the insured is the owner and the estate is not the beneficiary
166
In this form of split-dollar life insurance, the employee gets current insurance protection only?
non-equity agreement
167
In this form of split-dollar life insurance, the employee gets current insurance protection and part of the cash value?
equity agreement
168
Who usually gets part or all of the cash value in a split-dollar life insurance agreement?
The employer
169
Is the death benefit from a salary increase or selective pension plan included in the employee's gross estate?
yes
170
When will a grantor who establishes a CRUT be eligible for an income tax deduction?
In the year the trust is established
171
When must an estate go through ancillary probate?
For each state in which the decedent owns property
172
If a spouse elects against the will, what percentage of the estate are they usually able to obtain?
50%
173
This allows a spouse to elect against the will.
Spousal elective share
174
This protects a family from selling the house they live in to pay creditors.
Homestead allowance
175
This allows the family in an illiquid estate to sell assets to provide for themselves until the estate is settled.
Family allowance statues
176
This statute makes sure someone left out of the will or someone that did not exist when the will was made will be treated equally and included in inheriting the estate.
Permitted or omitted heir statutes
177
This says that you cannot kill someone and collect from their estate.
Felonious homicide
178
This law defines if money given to a child intervivos is actually an advance on their inheritance.
Advancement statues
179
This allows someone to choose not to receive an bequest to which they are entitiled.
Disclaimer
180
This covers when there are not enough assets in the estate to pay all of their debts and expenses. It specifies which shares are to be reduced first, second, etc. and by what amounts.
Abatement
181
This law handles when a bequest cannot be found. It allows the inheritor to take other property worth the same amount.
Ademption
182
This negates a bequest to an ex-spouse unless it is expressly the intent of the decedent to provide for an expense.
Divorce or annulment statutes
183
When a husband and wife die at the same time, this prevents property from being distributed to the other spouse. Each will is carried out for their half.
Simultaneous death statues
184
This provides for how taxes will be paid in an intestacy situation.
Tax apportionment statues
185
What are the advantages of the probate process? (3)
1. Orderly
2. Provides certainty
3. Fair
186
What are the disadvantages of the probate process? (3)
1. Expensive
2. Lengthy
3. Public
187
What are the requirements for a valid will? (4)
1. Minimum age
2. Testamentary capacity
3. Valid form
4. Execution
188
What is the usual valid form for a will?
typewritten and notarized; some states allow handwritten (holographic) and verbal (noncupative) wills
189
What are the main clauses of a will? (5)
1. Preliminary
2. Dispositive
3. Residuary
4. Appointment clause
5. Concluding
190
Under this beneficiary designation in a will, each person gets and equal share.
Per Capita
191
In this beneficiary designation in a will, each the members at each generation will be paid equally the amount going to that generation.
Per capita at each generation
192
In this beneficiary designation in a will, each child's share of the inheritance travels down to their descendants.
Per stirpes
193
In this beneficiary designation in a will, if the first generation is deceased the inheritance is divided equally among the second generation, otherwise it is like per stirpes.
By representation
194
This provides that if a disinherited family member contests the will and succeeds in having the provision that disinherits her declared invalid, then that person is to be given a nominal amount.
No contest clause
195
This is a simple addition or deletion of a previous will.
Will codicil
196
When someone dies with a probate estate and no will.
Intestacy
197
A valid will exists but:
- property not held in a will substitute form, and
- property not disposed of by the decedent's will
Partial intestacy
198
How is intestacy handled?
In probate court
199
What are will substitutes? (2)
1. Right of survivorship
| 2. Beneficiary designations
200
What are examples of right of survivorship? (2)
1. JTWROS
| 2. Tenancy by the entirety
201
What are examples of beneficiary designation? (7)
1. Government savings bonds
2. Payable on death accounts
3. Transfer on death accounts
4. Beneficiary deeds
5. Life insurance
6. Revocable living trusts (funded)
7. Irrevocable living trusts
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When will a government savings bond be a revocable transfer?
If it is named as "A payable to B." It will not be revocable if it is listed as "A or B."
203
Is the marital deduction elective for only certain property?
No, it must be taken for all property that qualifies for it.
204
How is life insurance valued in an estate?
1. If insured in the owner, the death benefit will be included in the estate
2. If the deceased owns a policy on someone else, the value is the replacement value
205
How is a charitable gift or commercial annuity valued in an estate?
valued at the price an insurance company would charge for a single life annuity on the surviving beneficiary
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How is a private annuity and charitable trust valued in an estate?
the present value of future payments as of the decedent's date of death
207
This is a discount for an estate when a large block of publicly traded stock cannot be marketed without adversely affecting the price.
Blockage discount
208
This is a discount for estates due to the inability of a closely held business interest to control business decisions.
Minority interest discount
209
This is a discount for estates when real estates has impaired marketability because the estate cannot sell its partial interest or purchase co-owner's partial interest.
Fractional interest (co-ownership) discount
210
This is a discount to an estate for the loss of a person who is vital to business operations.
Key person discount
211
This is a discount to an estate due to restrictions on marketability and costs of taking public a closely held business.
Lack of marketability discount
212
What tax form is filed for estate taxes?
Form 706
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When must an estate tax return be filed?
9 months after the date of death (can get an extension for 6 months)
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When can an estate be valued?
1. date of death
| 2. six months after date of death
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Under what circumstances must an estate tax return be filed?
If the gross estate (or gross estate + adjusted taxable gifts) exceeds the exclusion amount for the date of death.
216
How is tenancy by the entirety and community property treated in the gross estate?
Each spouse is deemed to own 1/2 of FMV and that is included in their estate
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Farm real estate or other closely held business real estate can be valued on the basis of its current use rather than full FMV.
Special Use Valuation
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When can the alternative valuation date not be applied?
1. To any property whose decline in value is attributable soley to the passage of time.
2. Assets disposed of prior to the 6 month date
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Can the AVD be applied to only some assets?
No, it must be applied to all assets (exceptions excluded)
220
How are assets sold before the AVD valued when AVD is use?
At the sale price
221
What assets are included in the gross estate? (7)
1. Assets owned at death
2. Assets with a retained interest
3. Assets subject to the three year rule
4. QTIP property
5. Survivorship benefits
6. Lifetime transfers
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When are life insurance proceeds included in the gross estate?
1. Decedent possessed incidents of ownership at death
2. Proceeds are payable to decedent's estate
3. Decedent-insured gifted policy within three years of death
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Which gifts are subject to the three year rule for inclusion in the gross estate?
1. Life insurance
2. Gift tax paid out of pocket
3. Retained interest given up
224
What is subtracted from total gross estate to arrive at adjusted gross estate? (4)
1. Administrative expenses
2. Burial expenses
3. Casualty losses and theft
4. Debts of the decedent, mortgages and liens
ABCD
225
What is subtracted from adjusted gross estate to arrive at the taxable estate? (3)
1. Marital deduction
2. State death taxes paid
3. Charitable deduction
226
What is added to taxable estate to equal the tax base?
adjusted taxable gifts
227
What are allowable deductible terminal interests for the marital deduction? (4)
1. Life estate with a general power of appointment
2. Spouse as sole income beneficiary of a CRAT or CRUT
3. Condition the transfer on the spouse's survival by a period not to exceed six months
4. QTIP trust with an election
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The retention of which rights will cause inclusion in the gross estate?
1. Transfers with a retained life estate
2. Transfers taking effect at death
3. Revocable transfers
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What qualifying income interest must a spouse have to qualify for the marital deduction?
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Recipient spouse must have a life estate interest or
1. Lifetime
2. Annual
3. Mandatory
4. Exclusive
LAME
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And control of remainder beneficiaries
230
How is the gift taxes payable credit computed?
Compute the amount of gift taxes that would be paid in the year of death on the adjusted taxable gifts and subtract the amount of gift tax that would be paid in the year of death on the amount that was the applicable gift tax exclusion for the actual year in which the adjusted taxable gifts were made.
231
Will delivering a deed to an escrow agent, remove an asset from the probate estate?
Yes, it is considered a completed gift
232
How is unpaid interest from an annuity treated for estate tax purposes?
It is considered Income in Respect of a Decedent
233
How is taxable gain on a bargain sale calculated?
1. Sale price/FMV=%
2. % x basis = adjusted basis
3. Sale price - adjusted basis = taxable gain
