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Estates Flashcards

1
Q

Estate Planning Goals

A

effective & efficient transfer of property during life or at death, maximizing net to heirs & minimizing taxes

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2
Q

Legal Documents & Powers

A
  • the will
  • a durable power of attorney for healthcare &/or property
  • an advance medical directive or living will
  • a power of attorney is the power to act
  • a durable power of attorney (usually for health care) survives incapacity & disability but not death
  • a power of appointment is the power of an agent to appoint the assets of a principal (can cause inclusion in gross estate)
  • an advance medical directive (living will) provides direction regarding the artificial sustainment of life

powers, if durable, survive incapacity & disability but not death; must be in writing & are always revocable

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3
Q

Types of Wills

A
  1. Statutory
  2. Holographic - handwritten, must be handwritten; dated & signed by a testator
  3. Nuncuputive - dying declaration only covering tangible personal property
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4
Q

Legal Capacity

A

necessary to make a will

generally 18 years of age but less capacity than to make a contract

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5
Q

Will Provisions

A

Residuary clause

Guardianship clause

Survivorship Clause or Simultaneous Death Clause = a survivorship clause is superior to a simultaneous death clause, but should not exceed 6 months in the case of a spouse or it will be considered a terminable interest & will not qualify for the unlimited marital deduction for a citizen spouse

Contingent Legatee Clause = Per Stirpes (by the root); Per Capita (by the head)

Codicil = an amendment

In Terrorem Clause = no contest; will only be effective if the decedent has left the legatee in question enough of a legacy so as to not risk losing the contest

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6
Q

Per Stirpes vs Per Capita

A

Per Stirpes = by the root

Per Capita = count the people

the # of heirs per stirpes is less than or equal to the # of heirs per capita

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7
Q

Property Titling

A

there exists real property, tangible & intangible personalty (moveables)

legal ownership is title (could be a trustee)

Equitable ownership is the economic right to enjoy the benefits of the property (beneficiary)

property titling w/ a survivorship clause will automatically (by law) pass to the survivor joint tenant & may not be best from the decedent’s perspective; if you don’t trust them put it in a trust

Community property does not have a survivorship right & therefore 1/2 of community property will pass either testate or intestate; however the surviving spouse may have a legal usufruct (right to use assets) over the decedent’s half of community property if the decedent dies intestate

there are no split gifts (only joint gifts) of community property

9 states have community property regimes = Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, & Wisconsin

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8
Q

Sole Ownership

A

100% value included in gross estate of decedent

100% included in probate estate

no automatic survivorship feature

qualifies for unlimited marital deduction IF spouse is heir/legatee

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9
Q

Tenancy in Common TIC

A

no deemed contribution rule for spouse

% owned value included in gross estate of decedent

% owned value included in probate estate

NO automatic survivorship feature

qualifies for unlimited marital deduction IF spouse is the heir/legatee

property partitionable w/out consent of joint owner

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10
Q

Joint Tenancy With Rights of Survivorship JTWROS

A

actual contribution rule % owned value included in gross estate of decedent (follow the actual contribution rule EXCEPT when property is jointly owned w/ a spouse who is always deemed to have contributed 50% of the property’s purchase price)

NOT included in probate estate

automatic survivorship feature included

qualifies for unlimited marital deduction IF spouse is the joint owner

property partitionable w/out consent of joint owner

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11
Q

Tenancy by the Entirety TIE

A

50% deemed contribution rule value included in gross estate of decedent

NOT included in probate estate

automatic survivorship feature included

qualifies for unlimited marital deduction

property NOT partitionable w/out consent of joint owner

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12
Q

Community Property

A

50% deemed contribution rule value included in gross estate of decedent

50% of value included in probate estate

NO automatic survivorship feature

qualifies for unlimited marital deduction if spouse is the heir/legatee

property NOT partitionable w/out consent of joint owner

1/2 of community property passes through probate, but both halves receive a step to FMV at the death of the first spouse

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13
Q

Probate

A

the legal process of retitling otherwise non-retitled assets

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14
Q

Probate - Advantages

A

implements dispositive objectives of testator

provides for the orderly administration of assets

provides clean title to heirs or legatees

parties in interest have notice & a right to be heard

insures debts of deceased are paid

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15
Q

Probate - Disadvantages

A

delays

costs

publicity

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16
Q

Non-Traditional Relationships (non-married couples)

A

should avoid probate & use alternative methods of passing assets to partners

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17
Q

Contracts w/ Named Beneficiaries

A

transfers to named beneficiaries via “State Contract Law”

Life Insurance Policies, Annuities, PODs, TODs, Qualified Retirement Plans, IRAs/SEPs

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18
Q

Property Titled w/ Survivorship Features

A

transfers to survivor via “State Titling Law”

JTWROS, Tenancy by the Entirety

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19
Q

Property Already Retitled into Trusts

A

transfers according to trust provisions via “State Trust Law”

all trust assets

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20
Q

All Other Property

A

to probate for retitling (testate & intestate assets) then transfers to legatees & heirs via “State Probate Law”

Sole Ownership, Tenants in Common, 1/2 Community Property, Automobiles, Household Goods

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21
Q

Gifts

A

Gift = a voluntary transfer w/out full consideration; the value for gift tax purposes is the FMV at the date of the gift

the annual exclusion for 2024 is $18,000 per donee per donor w/ $13,610,000 lifetime exemption per donor for taxable gifts; taxable gifts are net of annual exclusion

Gift Tax Return (Form 709) required for all taxable gifts (over $18,000) & split gifts; file by April 15 or w/ extensions to October 15

Community property gifts are not split but rather joint gifts

a gift must be of a present interest for the annual exclusion

best to gift property w/ the greatest potential for appreciation to the youngest donee

2503(b) & 2503(c) trusts for minors are deemed gifts of a present interest; otherwise use a Crummey provision

Transfers NOT subject to gift tax = legal support, qualified transfers paid directly to educational or medical provider, transfers to political organizations, payments to divorced spouses, transfers in business setting, gifts to a spouse (citizen: unlimited; non-citizen: $185,000 for 2024)

Imputed Interest on Gift & Below Market Loan:
- From $0 - $10,000 = none
- From $10,001 - $100,000 = lesser of net investment income of borrower (if < $1,000 then 0) or Federal rate times loan
- Over $100,000 = Federal rate times loan principal

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22
Q

Gift Basis

A

gift basis for income tax is the carryover basis of the donor unless FMV < donor’s basis at the time of gift in which case double basis rule (FMV for losses, donor’s basis for gains)

if gift tax is paid by donor on appreciated property the pro rata share of the tax associated w/ the appreciation is added to the donor’s original basis to determine the donee’s basis

do NOT make gifts of property where FMV < Basis (loss property); if so, double basis rule applies

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23
Q

Gross Estate (think balance sheet)

A

the gross estate includes the FMV of all assets owned by the decedent at death or the value using the alternate valuation date (6 months later) if properly elected (gross estate down, tax liability down); $13,610,000 lifetime exemption 2024

added to the gross estate is any life insurance in which the decedent had incidents of ownership w/in 3 years of death, any gift tax paid on gifts made w/in 3 years of death, & any assets over which decedent had a general power of appointment

if properly elected, the alternate valuation date (AVD) values all assets 6 months from DOD except those distributed (date of distribution) & wasting assets (patents, copyrights - valued at date of death)

Form 706 due 9 months from the DOD; can get 6 months automatic extension, does NOT apply to payment of tax

exemption portability for deceased spouse = any unused exemption by decedent spouse may be carried forward by surviving spouse filing a timely election to do so

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24
Q

To value equity securities for Form 706:

A

take the average of the high & low for the date of death

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25
Q

Transfers During Life - Arms Length Transactions

A

sales, installment sales, & exchanges

NO impact on gross estate of transferor

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26
Q

Transfers During Life - Special Sales

A

to loved ones, private annuities & SCINs

(possible transfers w/out transfer taxes)

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27
Q

Transfers During Life - Partial Gifts

A

GRATs, QPRTs, TPPTs

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28
Q

Transfers During Life - Outright Gifts & Gifts in Trusts

A

annual exclusion gifts & 529 plans

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29
Q

Transfers During Life - Gifts of Minority Interests

A

Family Limited Partnerships (FLP)

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30
Q

Transfers During Life - Transfers NOT Subject to Gift Tax

A

Qualified transfers, legal support, transfers to spouse pursuant of divorce

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31
Q

Transfers During Life - Private Annuity (PA)

A

b/t loved ones/transferor in ill-health based on table life expectancy

exchange at FMV for life annuity

transferor has investment risk similar to bond

transferee has business risk

annuity is taxable (3 tiers) - ordinary income, then capital gains, then basis

Per IRS regulations after 2006, gain is recognized at exchange

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32
Q

Transfers During Life - Self-Cancelling Installment Note (SCIN)

A

similar to PA except term certain & premium must be paid for right to cancel at transferor’s death

serial payment is taxable (3 tiers) - transferee’s basis equal to sale price unlike PA

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33
Q

Transfers During Life - Grantor Retained Annuity Trust (GRAT)

A

a gift equal to the FMV of property placed in irrevocable trust less the PV of the annuity stream retained

transferor must outlive trust term to remove asset from gross estate

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34
Q

Transfers During Life - Qualified Personal Residence Trust (QPRT)

A

same as a GRAT except used w/ personal residence - the gift equals FMV minus PV of use

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35
Q

Transfers During Life - Tangible Personal Property Trust (TPPT)

A

same as QPRT but used w/ tangible personalty (usually art)

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36
Q

Transfers During Life - Family Limited Partnership (FLP)

A

transfers to FLP for 1% general partner interest & 99% limited partner interests then making use of marketability/liquidity discounts & annual exclusions - transfers of LP interests to family members while retaining total control & w/ no or limited transfer tax

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37
Q

Transfers at Death

A

by will, by intestacy, by operation of law (contract, titling, or trust) - no annual exclusion

results in no asset or appreciation out of the gross estate

no charitable income tax deduction available for bequests

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38
Q

Trust

A

a legal entity created & funded by grantor

legal title to property is in name of the trustee who manages property for the benefit of the beneficiary

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39
Q

The Principal Benefits of a Trust (2)

A
  1. management of assets
  2. creditor protection
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40
Q

A Trust is Often Used To: (3)

A
  1. divide an asset into income & remainder interests (split interests)
  2. to avoid probate
  3. if irrevocable, to reduce taxes on appreciation, taxes on income, & transfer taxes
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41
Q

Taxation of Trusts

A

taxed at 37% above $15,200 (2024)

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42
Q

Types of Trusts

A

Simple = must pay out all income annually

Complex = may accumulate income

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43
Q

Tax Filing

A

Form 1041 due April 15 or w/ extension

if simple, all income is distributed to beneficiaries annually

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44
Q

Grantor

A

person who creates & initially funds the trust

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45
Q

Trustee

A

the individual or entity responsible for managing the trust assets & fulfilling the directions of the grantor as expressed in the trust instrument

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46
Q

Beneficiary

A

the person (or persons) who holds the beneficial title to the trust assets

47
Q

Gift Tax as Applied to Trusts

A

if the trust is a revocable trust, a transfer to the trust is not a completed gift & will NOT be subject to gift tax

if the trust is an irrevocable trust, any transfer to the trust is a taxable gift (unless the grantor retains some interest in the trust) subject to gift tax

if irrevocable trust is created for charities, the unlimited gift tax charitable deduction is available to avoid gift tax on the portion that is determined to be for the charity

48
Q

Inclusion/Exclusion from Gross Estate of Trust Assets

A

assets held by an irrevocable trust funded during a grantor’s lifetime are generally excluded from the gross estate of the grantor

if a grantor makes a transfer to an irrevocable trust in which he no longer retains an interest, there is no inclusion in the gross estate of the grantor; exceptions include life insurance transferred w/in 3 years of death

49
Q

Revocable Trusts

A

classification of trust arrangement

the grantor of a revocable trust retains the right to revoke the trust at any time

commonly used to avoid probate & provide management of the grantor’s assets should grantor become incapacitated

50
Q

Irrevocable Trust

A

classification of trust arrangement

the grantor of an irrevocable trust cannot take back the property that was transferred to the trust

51
Q

Inter Vivos Trust

A

classification of trust arrangement

a trust created during the lifetime of the grantor

52
Q

Testamentary Trusts

A

classification of trust arrangement

a trust created in the will of the grantor & comes into existence after the death of the grantor

53
Q

Standby Trust (also known as a Contingent Trust)

A

classification of trust arrangement

a trust created during the grantor’s lifetime that is either unfunded or minimally funded

the trust simply stands by & waits for a triggering event to activate it

54
Q

Pourover Trust

A

classification of trust arrangement

a trust that is capable of receiving assets from another source, generally the grantor’s estate at the grantor’s death

55
Q

Grantor Trust

A

classification of trust arrangement

can be revocable or irrevocable trusts

to qualify for grantor trust status, the trust must be an inter vivos trust

the grantor, NOT the trust or the beneficiaries, is responsible for paying the income tax attributable to the trust’s income

56
Q

Funded or Unfunded

A

classification of trust arrangement

a trust can be either funded or unfunded

an unfunded trust is a trust that has been created, but NOT funded

57
Q

Inter Vivos Revocable Trusts

A

all revocable trusts are grantor trusts for income tax purposes requiring the grantor of the trust to pay income tax

Advantages of a Revocable Trust:
1. probate avoidance
2. privacy for the decedent & the decedent’s family
3. contests are discouraged

NOT effective for reducing taxes for estate planning purposes

58
Q

Inter Vivos Irrevocable Trusts

A

to achieve estate & gift tax benefits, a trust created during the grantor’s lifetime must be irrevocable

when an inter vivos irrevocable trust is created, the grantor CANNNOT take the property back after it has been transferred to the trustee

Gift Tax - many transfers to trusts are transfers of a future interest & therefore NOT eligible for the annual gift tax exclusion

Crummey Power - a Crummey power makes it possible to qualify a transfer to an irrevocable trust for the gift tax annual exclusion

59
Q

Life Insurance Trusts (ILITs)

A

irrevocable inter vivos trust

purpose of an ILIT is to prevent an insured party from having incidents of ownership in the life insurance policy on his life

60
Q

Bypass (Credit Shelter) Trusts

A

also known as a “B Trust”

commonly used in estate planning to utilize the decedent’s unused exemption & bypass inclusion in the estate of the surviving spouse

can either b an inter vivos (during lifetime) or a testamentary (at death) trust

61
Q

Testamentary Bypass Trust

A

transferring property to a bypass trust does NOT deprive the surviving spouse from enjoying the property

can be structured so that all income of the trust is payable to the surviving spouse

may have powers to invade corpus for surviving spouse

62
Q

Inter Vivos Bypass Trust

A

while most bypass trusts are created at death, an inter vivos bypass trust can yield greater benefits

once created, all future growth & appreciation in the property transferred to the bypass trust escapes federal estate taxation at the decedent’s death

63
Q

Power of Appointment Trusts

A

inter vivos or testamentary irrevocable trusts

the trust grants the beneficiary a power of appointment over the trust assets

the power of appointment can be a general or a limited (special) power of appointment

however the power must be a general power of appointment to qualify for the marital deduction

64
Q

Qualified Terminable Interest Property Trusts (QTIP)

A

typically created at the death of the first spouse

it grants the surviving spouse a lifetime right to the income of the trust while transferring the remainder interest to individual(s) of the grantor’s choosing

qualifies for the unlimited marital deduction even though the spouse does not receive outright access to the assets

65
Q

Trusts for Minors

A

2503(b) Trust = may hold property in trust for the lifetime of the beneficiary (or beneficiaries) but must make income distributions to the beneficiary (or beneficiaries) on an annual basis

2503(c) Trust = allows income to be accumulated in the trust & allows the grantor to qualify the entire gift to the trust up to the annual exclusion amount for the gift tax annual exclusion but can have only one beneficiary

66
Q

Totten Trusts

A

not a trust but rather a bank account that includes a pay on death clause w/ a named beneficiary (PODs)

67
Q

Blind Trusts

A

a revocable trust arrangement whereby an individual transfers property to the trust for management purposes when self-management of the assets might be deemed to be a conflict of interest (i.e., political officials during their term in office)

68
Q

Trusts QuickTip

A

trusts generally have flexible provisions, EXCEPT for charitable trusts that have specific rules to follow to comply w/ IRS guidelines

69
Q

Life Insurance Objectives

A

protect income stream

provide for education

provide for liquidity at death

provide for retirement income of the surviving spouse

used to create or sustain family wealth

70
Q

Types of Life Insurance Policies

A

term, universal, whole life, second to die

71
Q

Modified Endowment Contracts (MEC)

A

an investment rather than insurance contract

loans come out LIFO (taxable)

72
Q

Parties to a Life Insurance Policy

A

owner, insured, & beneficiary

73
Q

Income Tax Treatment of Life Insurance

A

death benefit generally NOT taxable

Transfer for value exception = if policy is purchased, then any benefit in excess of basis will result in taxation as ordinary income

if policy is cancelled or surrendered = taxable to extent surrender value exceeds all premiums paid

dividends treated as a return of basis

loans are NOT taxable unless they are from a MEC & then only to the extent of earnings on a LIFO basis

74
Q

1035 Exchanges of Life Insurance

A

policy exchanges are NOT taxable for exchanges from life insurance to life insurance, but are taxable from annuity to life insurance

NOT taxable from life insurance to annuity, NOR from annuity to annuity

75
Q

Life Insurance - Accelerated Benefits/Viatical Settlements

A

insured is deemed to have died (per IRC) if d/t chronic illness or terminal illness; therefore, proceeds will NOT be taxable:

Chronically ill - person cannot perform at least 2 of 6 ADLs (activities of daily living)

Terminally ill - expected to die w/in 24 months

76
Q

Life Insurance - Transfers & Gifts

A

value of life insurance for gifts & bequests:

Term insurance - gift value is the unexpired premium

Insurance in pay status - gift value is sum of the interpolated terminal reserve & any unearned premiums

Out of pay status - gift value is replacement value

change of beneficiary is NOT a gift

77
Q

Estate Tax of Life Insurance

A

Life insurance policy is included in gross estate if:

  • decedent had any incidents of ownership
  • death benefits are paid to the estate
  • policy was transferred w/in 3 years of death (IRC 2035); note any gift tax attributable to the transfer is also included in the gross estate
78
Q

Irrevocable Life Insurance Trust ILIT

A

created to avoid inclusion in the gross estate of the insured

Crummey provision allows for gifts of present interest for grantor contributions

ILITs can provide liquidity to the executor by permitting lending money to the estate or buying assets from the estate (must be discretionary)

79
Q

Charitable Gifts & Bequests

A

can be made w/ cash, ordinary income producing property, or long or short term capital gain property

if gift is LTCG property (including tangible personalty put to a related use) then the donor may take an income tax deduction equal to the FMV of the gift to the extent of 30% of AGI if the gift is to a public charity

if the property donated does NOT qualify for LTCG treatment then the basis may be deducted for income tax purposes up to 50% (60% for cash) of the taxpayer’s AGI

unused deductions are carried over for up to 5 years (total 6 deductions possible)

80
Q

Advantages of Lifetime Gifts to Charities

A

provides an income tax deduction

the donated property & any future appreciation are out of the gross estate of transferor

81
Q

Lifetime Transfers to Charities Other than Outright Gifts - Bargain Sales

A

part sale & part gift

82
Q

Lifetime Transfers to Charities Other than Outright Gifts - Charitable Gift Annuities (CGA)

A

donor transfers property to a charity in exchange for an annuity that is for less than full value of the property transferred

the donor receives an income tax deduction for the difference b/t the value of the transfer & the PV of the annuity stream

83
Q

Lifetime Transfers to Charities Other than Outright Gifts - Pooled Income Funds

A

similar to a “pooled” or “comingled” CRT maintained by a charity

the funds are managed by the charity w/ income paid to the donor & the remainder passing to the charity at the donor’s death

84
Q

Lifetime Transfers to Charities Other than Outright Gifts - Charitable Remainder Trusts (CRT)

A

trust established by transferring assets (often appreciated) w/ income paid to the donor (&/or donor’s spouse or family) & a charity receiving the remainder interest

donor receives an income interest in the form of an annuity (CRAT) or a unitrust payment (CRUT); taxable under 3 tier system (ordinary income, then capital gains, then basis)

donor receives an income tax deduction equal to FMV of asset transferred less the value of the income interest (PV of the annuity or unitrust payments)

85
Q

Lifetime Transfers to Charities Other than Outright Gifts - CRAT

A

must pay to an annuitant a fixed amount greater than or equal to 5% per year regardless of earnings

may NOT accept additional contributions after the inception

the remainder interest must be at least 10% at the inception

Term - usually a single or joint life; fixed term no more than 20 years

86
Q

Lifetime Transfers to Charities Other than Outright Gifts - CRUT

A

must have a unitrust payment greater than or equal to 5% but may have a provision limiting the payout to earnings & may have a provision for making up prior payments when future income is sufficient

Term - usually a single or joint life; fixed term no more than 20 years

requires annual valuation since unitrust payment is a fixed % of the assets in the trust; however assets can be added to a CRUT after inception

remainder interest must be at least 10% at inception of trust

87
Q

Lifetime Transfers to Charities Other than Outright Gifts - Charitable Lead Trusts (CLT)

A

same as a CRT except charity receives income or use interest & generally a family member (non-donor) receives remainder interest

generally no income tax deduction for the donor w/ a CLT as income is received by the charity

CLTs can be used to transfer property to a loved one in the future at a lower transfer cost

88
Q

Lifetime Transfers to Charities Other than Outright Gifts - Testamentary Transfers to Charity

A

no income tax deduction/unlimited estate tax deduction

outright bequest, or bequest in trust (CRAT, CRUT, CLT)

89
Q

Lifetime Transfers to Charities Other than Outright Gifts - IRA Transfer to Charity (Qualified Charitable Distribution)

A

must be over age 70.5

can donate up to $105,000 2024 per year directly from IRA to charity (of which a one-time distribution of $53k 2024 may go to a new CRAT, CRUT, or CGA; SECURE 2.0 Act)

donor does NOT include distribution as taxable income nor does the donor receive a charitable income tax deduction

the donation counts as a distribution for RMD purposes

90
Q

Unlimited Marital Deduction - Married Couples

A

treated as one economic unit for tax purposes

therefore, there is no transfer tax for transfers b/t spouses

this concept, “the unlimited marital deduction (UMD),” applies to transfers during life & at death

91
Q

Unlimited Marital Deduction - Non-Citizen Spouses

A

non-citizen spouses are NOT permitted the UMD

instead, there is a super annual exclusion of $185,000 2024 during life but NO UMD at death unless the executor elects to put the assets in a qualified domestic trust (QDOT)

92
Q

Requirements to Qualify for the Unlimited Marital Deduction

A

decedent must have been married at the time of death

surviving spouse (SS) must receive property from the decedent’s estate

only net value of qualifying property left to the SS will qualify

property bequests that are outright, in a POA trust, or in a QTIP will qualify

Terminable interest property includes transfer such that the SS’s interest terminates at some future point & does NOT qualify for UMD EXCEPT:
- survivorship contingency that does not exceed 6 months
- an interest where the SS has a general power of appointment over the assets; a general POA trust requires that only the SS receives income at least annually & the GPOA is exercisable by the SS alone, & that no other person other than the SS may appoint assets to anyone other than SS during SS’s life
- QTIP requirements same as POA except that SS does not have POA over assets but can require trustee to invest in income producing property
- a charitable remainder trust where the SS is the only non-charitable beneficiary

93
Q

Unlimited Marital Deduction - Overqualification

A

d/t portability, overqualification (over using the marital deduction) is not as much of a problem as in years prior to portability

underqualification is simply leaving too much to a non-spouse beneficiary such that the first decedent spouse has an estate tax liability

94
Q

Unlimited Marital Deduction - Portability

A

estates of decedents dying after January 1, 2011 can elect to transfer any of the deceased spouse’s unused exclusion (DSUE) to the surviving spouse

the election is made by filing a timely Form 706

95
Q

Unlimited Marital Deduction - Bypass (B) Trust

A

remains a viable option for the credit equivalency amount to remove highly-appreciating assets from the estate of the surviving spouse

96
Q

Liquidity Needs

A

last medical, funeral, transition period, administrative costs, & income, estate & GST taxes

97
Q

Sources of Liquidity

A

life insurance, sale of assets, IRD accounts, corporate redemptions, loans from ILITs, & assets purchased by ILITs

98
Q

Income Tax Return Elections (Forms 1040 & 1041)

A

income up until DOD - final Form 1040 (spouse can file MFJ)

income after DOD - Form 1041 (fiduciary tax return); executor must elect tax year for 1041; this could be calendar year or any other period

unpaid medical bills of decedent - Form 1040 or Form 706

qualifying casualty losses before death - Form 1040

casualty losses after death - Form 1041 or Form 706

executor fees if not waived - Form 1041 or Form 706

99
Q

IRD Assets

A

income in respect of a decedent

income earned but not yet taxed as of DOD

IRAs, qualified plans, U.S. Savings Bonds, installment notes, annuitized annuities, accrued dividends, accrued wages, etc.

100
Q

Valuation Date

A

DOD or alternate valuation date (AVD) (DOD + 6 months)

for AVD, gross estate & estate tax must decrease

if AVD is elected, assets are valued as of the AVD (6 months after DOD); the 2 exceptions are wasting assets & assets sold b/t DOD & AVD

Wasting Assets = assets that decline in value because of time (patents, installment notes, etc); valued on DOD

assets distributed b/t DOD & AVD are valued based FMV at date of disposition

101
Q

Disclaimers

A

anyone can disclaim in writing to the executor any amount, fraction, percentage, or asset

must be in writing w/in 9 months

the beneficiary disclaiming cannot have benefitted & cannot direct the disclaimed assets

102
Q

Portability Election

A

executor must elect portability of the decedent’s unused exemption to the surviving spouse

103
Q

QTIP Election

A

executor must make QTIP election to use marital deduction for terminable interests

assets are contributed to a QTIP trust on behalf of a surviving spouse (SS)

Requirements:
-SS must receive all income annually
- Trust assets must be included in SS’s estate
- No one can appoint property to anyone other than SS during SS’s life
- SS can require that all trust property be income-producing property

104
Q

IRC 6166

A

installment payments

if closely held business exceeds 35% of adjusted gross estate, the executor may elect to pay the estate tax in 2 or more installments, but not more than 10

executor can delay first payment of tax for up to 5 years

the amount that can be paid on installment is the % of estate tax that is the same ratio as the closely held business bears to the adjusted gross estate

2% interest rate on first $740,000 2024 of tax (equals $1,850,000 of estate subject to tax)

105
Q

IRC 2032A

A

special use valuation of real property (farms)

FMV implies “highest & best use”; the FMV of property must be included in the gross estate regardless of the use; this creates an issue for certain businesses & farms – forced to sale to pay the taxes

IRC 2032A allows for valuation of property based on the current use of the property in lieu of FMV but not reduced below FMV by more than $1,390,000 2024

106
Q

IRC 2032A Requirements

A

decedent must be a U.S. citizen

farm (or trade or business) must have been actively managed by decedent or family 5 out of last 8 years prior to death

value of the real & personal property used in a qualifying manner must equal or exceed 50% of gross estate

the value of the real property must equal or exceed 25% of the gross estate

property must pass to qualifying heir who must then actively participate in the farm or business for 10 years

107
Q

Generation Skipping Transfer Tax (GSTT) Annual Exclusion

A

$18,000 2024

108
Q

GSTT Lifetime Exemption

A

$13,610,000 2024

109
Q

GSTT Rate

A

40% (based on highest estate tax rate)

110
Q

GSTT

A

affects direct skips, terminable terminations, & taxable distributions

Skip Person = 2 or more generations down if lineal, or more than 37.5 years younger if non-lineal

Trust may be considered skip person if all interests in the trust are held by a skip person or distributions can be made only to skip persons

Exception = if a child of the transferor is deceased, then the child’s descendants move up one generation; also applies to transferor’s grandniece/grandnephew if transferor has no living lineal descendants

Taxable Termination = non-skip person dies leaving only skip persons in trust

Taxable Distribution = distribution to a skip person

111
Q

GSTT - Qualified Disclaimer

A

cannot be used to avoid GSTT

112
Q

GSTT - Qualified Transfers

A

tuition payments made directly to a qualified educational institution or medical payments made directly to a hospital (health care provider) on behalf of a skip person are not subject to GSTT

transferor or his executor may affirmatively allocate GST exemption; this allocation is made on Form 706 or Form 709

113
Q

Form 706 (6 = Death)

A

Gross Estate
- Tentative total allowable deductions
= Tentative taxable estate
- State death tax & unlimited marital & charitable deductions
= Taxable estate
+ Adjusted taxable gifts
= Tentative tax base
= Tentative tax (based on rate schedule)
- Total gift tax paid (or payable)
= Gross estate tax
- Basic exclusion amount
- DSUE (portability)
- Other credits
= Net estate tax
+ GST tax
= Total transfer tax

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