Estate Planning _ Gift and Estate Taxes Flashcards
What types of items are included in decedent’s gross estate?
Property OWNED AT DEATH
GIFT TAX PAID & GIFTS WITHIN LAST 3 YEARS
** GIFTS ONLY OF
- LIFE ESTATE
- XFER AT DEATH
- REVOCABLE XFERS
- XFER OF LIFE INSURANCE ON LIFE OF DECEDENT
RETAINED LIFE INTERESTS
REVERSIONARY INTERESTS
ANNUITIES (SURVIVORSHIP)
GENERAL POWER OF APPOINTMENT
QTIP PROPERTY
What types of property are considered owned at death?
Cash, stocks, bonds, retirement accounts, autos, clothes, etc.
Rental income accrued before death
** AFTER DEATH = PART OF ESTATE FOR INCOME TAX
Cash surrender value of life insurance owned on life of another person
State income tax refunds
Medical insurance reimbursements
Awards for pain and suffering (NOT WRONGFUL DEATH)
What are Deductions from the Gross Estate?
** REMEMBER: ABCDE
Types of Expenses (ABCDE):
Administration
Burial (NO PREPAID EXPENSES ALLOWED)
Casualty (Losses during administration)
Debts
Expenses (Last medical)
What is the Estate Tax Formula?
Adjusted Gross Estate
Less: Marital Deduction
Less: Charitable Deduction
Equals: Taxable Estate
Plus: Post 1976 Gifts (added back to gross up)
Equals: Tentative Tax Base
**Refer to tax rate schedule (see provide tax chart) to calculate tax
FMV at Date of Gift
Real Estate = Appraisal
Publicly Trade Securities = Avg of high + low during trading day
Bonds = PV of expected future payments
** Discounts may be allowed back for lack of marketability, lack of liquidity, or lack of control
What are not considered gifts?
Qualified Transfers
- directly to institution (qualified education or medical)
Payments for Support
Payments to Divorcing Spouses
Transfers in a Business Setting = compensation
What are the typical 4 Gifting Strategies?
Direct Gifts = effective and efficient
Appreciating Property = reduces future gross estate
Spouses = used to equalize assets
Minors = may need trusts or custodial accounts
Gifts and Estate Tax Rates
Estate tax base or taxable gifts are over $1,000,000:
Tentative Tax = $345,800 + 40% of excess over $1,000,000
Imputed Loan Interest
interest-free or below-market loans require the lender to impute interest (phantom) income
considered a gift to the borrower, may be eligible for annual exclusion
LOAN IMPUTED INTEREST
$0 - $10,000 $0
$10,001 - $100K The lesser of:
- net investment income, or
- interest calculated using AFR less interest calculated using
stated rate of the loan
> $100K Interest calculated using AFR less interest calculated using stated
rate of the loan
** IMPUTED INTEREST BASED ON DONEE’S UNEARNED INCOME
What form is required for Split Gifts?
Form 709 required for all split gifts (must be filed annually when > annual exclusion by April 15th following year of gift)
Both spouses must consent and are required to sign the gift tax return
** Community Property DOES NOT REQUIRE gift splitting (each spouse owns 50% of property)
What is the lifetime gift tax applicable credit?
$5,113,800 (applicable credit equivalency amount) of cumulative taxable transfers IN EXCESS OF THE ANNUAL EXCLUSION AMOUNT for transfer taxes
calculated based on the $12,900,000 applicable exclusion
for gifts > annual exclusion, there is a MANDATORY REDUCTION IN THE APPLICABLE CREDIT AMOUNT
How does the Crummey Provision work?
allows trust beneficiary to withdraw some, or all, of any contribution to a trust for a limited period of time (usually 30 days) after the contribution
called a “power to lapse”, may limit to annual exclusion or less
converts future interest gift in trust to present interest gift allowing for annual exclusion
What is the 5/5 Lapse Rule of the Crummey Provision?
trust with more than one beneficiary
taxable gift deemed made when a power to withdraw an amount > $5,000 or 5% of trust assets has lapsed or not been used by a beneficiary
Specific items MUST BE INCLUDED in the GROSS ESTATE
Cash, stocks and bonds, retirement accounts, personal residences, other real estate, HH goods, automobiles, business interests,
Notes Receivable
Life insurance ON SOMEONE ELSE’S LIFE
Collections (art, wine, jewelry)
Outstanding loans due from others
Income tax refunds owed
Patents/copyrights
Pain and suffering award
Damages owed decedent
Dividends declared and payable
Income in respect of decedent (wages receivable)
Any other tangible personal property
Transfers Taking Effect at Death, when are they included in the gross estate?
Included in gross estate if transfer conditioned on all of the following:
- Possession or enjoyment can be obtained only by surviving the decedent, AND
- Decedent has retained a reversionary interest, AND
- Value of reversionary interest IMMEDIATELY BEFORE DEATH of decedent EXCEEDS 5% of the PROPERTY VALUE
How are financial securities NOT TRADED ON VALUATION DATE included in the gross estate?
