Estate Tax Flashcards
Estate Tax Filing requirement
Form 706 for all decedents that are US citizens
Total gross estate plus taxable gifts exceed exemption $5,430,000
Executor is responsible for paying tax
Due 9 mo after decedents death
6 month extension can be requested
Gross Estate
ALL probate assets Singly owned TIC Estate as Bene Community Property
All non-Probate Assets JTWROS TE Life Ins General Powers Gift taxes paid 3yrs (not GSTT) etc..
Adjusted Gross Estate
gross estate minus:
- funeral expenses
- administrative expenses incurred in settling the estate (attorney or accountant fees)
- unpaid mortgages and other claims against the estate
- any casualty losses that are incurred during the period of administering the estate
Taxable Estate
Adjusted Gross Estate
less marital deduction and
charitable deduction
Tax Base
Taxable Estate plus taxable gifts
Once the decedent’s taxable estate is calculated, any taxable gifts made by the decedent after 1976 are added back at their date-of-gift value ( gets appreciation out of estate
Tentative Tax
Tax Base - $5,450,000= Tentative tax at 40%
Net Estate Tax
Tax Base - gift taxes paid
Inclusions Gross Estate
- property owned at the date of death
- interests in property where the decedent has retained the right of control or beneficial enjoyment as of the date of death
- certain property the decedent gifted within three years of death (the three-year rule)
- gift tax paid on any gift made by the donor-decedent within three years of death (the gross-up rule)
does not always equal the probate estate!!!
three-year gift property
usually, gifts made within three years of the death are not included in the donor’s estate
Two major exceptions:
1. property the decedent gifted within 3 years of death that otherwise would have been included under any of the retained interest sections
2. proceeds of life insurance policies - if the owner insured of the policy gifts any of the incidents of ownership within 3 years of death, the death proceeds are included in the owner’s gross estate or, if a policy is gifted to an ILIT within 3 years of death the proceeds go back to the gross estate
Exclusion from Gross Estate
Life insurance owned by others
Completed Gifts
Life Estate for his or her life only not after (retained life interest is included)
Prior transfer credit
Estate tax paid by one decedent
Bene dies w/in 10 years…get credit
Sources of Estate Liquidity
Sale of assets
Life Insurance
General Power of Appointment
OUTRIGHT Ownership
general - allows the holder to appoint the property to himself, his creditors, his estate, creditors of his estate
limited (special)-
- if a person owns a general power of appointment when she dies, the property that is subject to that power is included in her gross estate for tax purposes
- if a person with power of appointment exercises the power, releases the power, or allows it to lapse during her lifetime, she has make a gift to the person who receives the property
Special Power of Appointment
Limits who can receive the property
Can transfer only to specifically designated individuals (children, grandchildren…)
or can transfer only under specific circumstances
Ex Exercisable only with consent of the creator of the power or a person having substantial adverse interest.
3 major exceptions General Power
- the holder’s power is limited by an ascertainable standard (i.e. is on behalf of the holder only for the holder’s health, education, maintenance, or support (HEMS)
- holder may exercise the power only with the consent of the grantor or a third party who has an interest that is adverse to that of the holder
Five or Five
3. right to exercise the power is limited to the greater of:
a. $5000
b. 5% of the total value of the property subject to the power at the time of the lapse or the holder’s death
