Estate Planning Basics Flashcards
Act of 2014 created the opportunity for persons with a disabililty starting before age 26 to be the beneficiary of an ABLE Account, with that account acting as protected assets for Medicaid up to a point. Contribution limits to avoid taxation, state determined account limits and Medicaid Pay Back rules apply to these accounts
ABLE Saving Account
The ABLE Act of 2014
Pertinent to calculating estate taxes. It is the gross estate of the deceased minus administrative expenses to settle the estate, funeral expenses, debts of the decedent, unisured theft and casualty losses to estate property, and claims against the estate.
Adjusted Gross Estate
Person who settles the probate estate when an individual dies intestate (without a will)
Administrator
An additional probate action required for real estate located in a state other than a decedent’s state of domicile.
Ancillary Probate
Allows a donor to give up to $15,000 (2019) of gifts per year per individual
Annual Exclusion
Pertains to federal gift and estate taxation. It is a dollar-for-dollar tax credit offset against the tentative tax generated when calculating the federal gift or estate tax payable The amount of the tax credit offsets any taxes that would have been due on the first $11.4 million (Total of both taxable gifts and adjusted gross)
Applicable Credit Amount
The dollar value of taxable transferred property on which federal gift or estate tax does not have to be paid out of pocket because of the gift and estate tax applicable credit amounts. The exclusion for both gift and estate tax in 2019 is $11.4 million.
Applicable exclusion amount
Insurance policies, bank and retirement accounts: The person or persons who will receive either the insurance policy or account proceeds. They can also be an entity, such as a charity. Trusts: The person whom the trust is to benefit.
Beneficiary
The act of transferring property by a will
Bequest
Pertains to estate planning for a small business owner, It is a written agreement providing for the sale of one business owners interest to other owners (cross purchase) or to the business entity in the event of his or her disability or death. This ensures that the business owner’s heirs are paid.
By-sell Agreement
A separate, supplementary written document that amends or supplements an existing will.
Codicil
A state that does not allow husbands and wives to own property as community property
Common Law State
Property that is acquired by either or both spouses during marriage is classified as ________ if the couple lives in a ________state, and the property is not titled in some other acceptable form of co-ownership
Community Property
A state in which community property laws apply. These include Alaska, Arizona, California, Idaho, Louisanna, Nevada, New Mexico, Texas, Washington and Wisconsin
Community Property state
A person who stands next in line to receive an estate distribution or insurance or retirement benefits if the primary beneficiary predeceases the decedent/owner/insured or disclaims the estate property/benefits. Can also be called a secondary beneficiary
Contingent Beneficiary
A mutual agreement between two or more competent parties concerning a specified subject, such as life insurance or property
Contract
A special type of nondeductible IRA to which qualified taxpayers can contribute up to $2000 per year until the designated beneficiary turns 18. Interest and earnings on the account accumulates income tax free. To be considered tax free upon withdrawal from the account, earnings my be allocated for qualified education expenses (K-12 and postsecondary). If not used for this purpose, earnings can be withdrawn are included in the gross income of the recipient and are also subject to a ten percent penalty.
Coverdell Education Savings Account (ESA)
Pertains to estate planning for small busines owners. A type of buy-sell agreement in which each partner purchases insurance on the life (lives) of the other partner(s) to buy a deceased partner’s interest in the business
Cross-Purchase Agreement
Another name sometimes given to estate taxes. Less than 0.2% of estates pay any estate taxes
Death taxes
A person who has died
Decedent
Pertains to estate planning for small businesses. An _________ is a buy-sell agreement in which (1) the business agrees to purchase the interest of each owner in the event of death, and (2) the business is applicant, owner, premium payer, and the beneficiary of policies on the lives of each other.
Entity Agreement
A beneficial interest in property. For example, a trust beneficiary has an equitable interest in property held in trust.
Equitable Interest
All the property interests a person owns, including property over which the person exercises decisive control.
Estate
The ability of an estate to meet cash claims and taxes against it.
Estate Liquidity
The process of acquiring, conserving, and distributing a person’s property interests in the most effective and efficient manner.
Estate Planning
A tax levied by the federal government and some states on the value of one’s assets upon death. Very few estates pay any federal estate tax
Estate tax
A representative responsible for distributing property when an individual dies with a valid will. Also known as a personal representative (PR) in some states.
Executor
A tax levied upon the donor of a lifetime transfer of property for which the donor receives less than full value, and over which the donor gives up control. Taxable gifts of up to $11.4 million may be given before the donor actually has to pay any taxes.
Federal Gift Tax
Trusts in general. A trust to whom assets have been transferred. Life insurance trusts. A trust that owns assets other than life insurance policies.
Funded Trust
Possession, use, or the enjoyment of a specified property is time or the postponed until some future time or the occurrence of a specified event.
Future Interest
A power of appointment in which the donee (or holder) has the unlimited power to appoint another person’s property to anyone, including himself or herself, his or her estate, or his or her creditors. Property subject to such a power at the donee’s death is included in the donee’s gross estate for federal estate taxation purposes.
General Power of Appointment
A tax imposed on property transferred to someone who is deemed to be two or more generations below the person who made the transfer. The first $11.4 million excluded from taxation.
Generation-skipping Transfer Tax
Allows spouses in a marriage to treat a gift to a third person by one spouse as if each gave one-half of the gift. Example: a gift of $30,000 would be considered a gift of $15,000 from each spouse, thereby enabling each spouse to take advantage of the $15,000 annual exclusion amount.
Gift Splitting
A transfer tax imposed on the gratuitous shifting of property ownership during life. first $11.4 tax excluded from taxation
Gift tax
Enables an individual to gift up to $15,000 per year of present interest gifts to as many recipients as he or she chooses without incurring a federal gift tax
Gift Tax Annual Exclusion
Pertains to a trust. The grantor is the individual who creates and usually provides initial funding to the trust for the benefit of himself, herself, or others
Grantor
The _____ is the starting point for calculating the estate tax. Includes: all property in the probate estate; property over which the decedent held a general power of appointment at death.
Gross Estate
Important in estate planning. the term refers to ownership rights such as (in the case of insurance) the right to change the beneficiary designations, borrow against the policy, surrender or assign the policy, elect a settlement option, or receive policy dividends and other benefits.
Incidents of ownership
A state tax levied on an heir upon his or her receipt of property from a decedents estate.
Inheritance tax
A trust that contains life insurance policies during an insured’s lifetime and contains life insurance proceeds after the insured’s death
Insurance Trust
Transfers that take place during a transferor’s lifetime
Inter Vivos Transfers
The payment for the use of money
Interest
When a person dies with probate property, but without a valid will in place, he or she is said to have died “_____”. Partial ______ can occur when a decedent had a defective will that does not dispose of probate property. ______property is distributed in accordance with state law.
Intestate
Pertains to life insurance. The policy owner names a beneficiary but does not retain the right to change the named.
Irrevocable Beneficiary Designation
A trust that the grantor cannot unilaterally revoke.
Irrevocable Trust
A form of property ownership by any two or more individuals. If an owner dies, his or her interest in the property passes automatically to the surviving joint owner(s) so it avoids probate.
Joint Tenancy with Right of Survivorship (JTWROS)
An interest held by the legal owner of a property, such as a trustee of a trust
Legal Interest
Entitles the holder to the income from a property or to the use of the property, or a portion of the property, during his or her lifetime
Life Interest
A trust that is created during the grantor’s lifetime and that is to be operative during his or her lifetime
Living Trust
Pertains to gift and estate taxation. The _____ _____enables an individual to give or bequeath an unlimited amount of qualifying property to a US citizen spouse without incurring a gift or estate tax liability
Marital deduction
The estate value that is available for distribution to heirs after taxes, debts and administrative expenses have been paid
Net Estate
The right to use, posses, enjoy, and dispose of property
Ownership
is titled in only one individuals name.
Ownership in fee simple
The person appointed by a court to administer and distribute a decedent’s estate, also can be called an executor
Personal representative
A right given to a person to appoint title to property owned by another
Power of Appointment
A written document executed by one person who authorizes another person to act on his or her behalf.
Power of Attorney
An unrestricted and immediate right to possess, use, or enjoy property
Present Interest
The legal process of administering and distributing the probate estate. Assets not distributed by the will do not have to go through probate, such as property held JTWROS, TBE, or property passed on to beneficiaries of retirement accounts
Probate
Property handled and distributed by a personal representative or administrator upon a person’s death that is not held in some sort of will bypass form, such as JTWROS; property is disposed of according to the decedent’s will, or if there is no will then according to the state’s intestacy laws.
Probate Estate
The rights and liabilities that come from ownership of a specific property
Property Interest
An interest in which the individual is entitled to the property after a specified period of time or after a life interest has ended.
Remainder Interest
A trust in which the terms may be altered or the trust revoked after creation.
Revocable Trust
Pertains to property ownership between spouses in a community property state. Ownership of property belongs exclusively to the spouse that held it prior to marriage, inherited etc
Separate property
State Statutes that allow a surviving spouse to elect to receive a certain amount of a deceased spouse’s estate to prevent the surviving spouse from being completely disinherited. Children can be disinherited, but not a surviving spouse.
Spousal Elective Share
The beneficiary’s basis for property received from an estate. This value is usually the asset’s fair market value on the date of death.
Taxable Estate
A form of property ownership that exists between two or more individuals. This form of property ownership acts as a will substitute, and thus avoids probate
Tenancy by the entirety (TBE)
A form of property ownership that exists between two or more individuals. There are no rights of survivorship, so upon death property passes to the tenant’s heirs through probate.
Tenancy in common
Transfers that take place at or after the transferor’s death
Testamentary Transfers
A trust that is created under a will or inter vivos trust provision and does not become operative unitl after the creator’s death
Testamentary Trust
Dying with a valid will in place
Testate
An individual who creates a will by signing and executing a last will and testament
Testator
The right to ownership
Title
A fiduciary arrangement set up by a grantor whereby property is held and managed for a named beneficiary by a third party known as a trustee
Trust
Property owned by a trust
Trust Corpus
The person or organization that holds legal title to the property held in trust. the trustee holds and manages the property for the benefit of the beneficiary.
Trustee
Laws enacted in many states that enable gifts to minor children. Only allow figts of cash, securities, or life insurance.
Uniform Gifts to Minors Act (UGMA)
Laws enacted in many states that enable the transfer of property to minor children. Accounts are more flexible than UGMA accounts and allow more types of gifts, such as property. Also allow both inter vivos and testamentary transfers
Uniformed Transfers to Minors Act (UTMA)
Any person may transer unlimited amounts of qualifying property to a qualified charity free of gift or estate tax because of the deduction.
Unlimited Charitable Deduction
A legal document that specifies how a person wished to distribut probate property in the event of death.
Will
Legal arrangements that avoid probate by allowing the transfer of estate assets without intervention of a probate court
Will Substitutes
