Estates Flashcards

Question

Transfers During Life - Arms Length Transactions

Answer 1

sales, installment sales, & exchanges NO impact on gross estate of transferor

Answer 2

to loved ones, private annuities & SCINs (possible transfers w/out transfer taxes)

Answer 3

GRATs, QPRTs, TPPTs

Answer 4

annual exclusion gifts & 529 plans

Answer 5

Family Limited Partnerships (FLP)

Answer 6

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

Answer 7

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

Answer 8

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

Answer 9

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

Answer 10

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

Answer 11

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

Answer 12

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

Answer 13

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

Answer 14

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

Answer 15

1. management of assets 2. creditor protection

Answer 16

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

Answer 17

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

Answer 18

Simple = must pay out all income annually Complex = may accumulate income

Answer 19

Form 1041 due April 15 or w/ extension if simple, all income is distributed to beneficiaries annually

Answer 20

person who creates & initially funds the trust

Answer 21

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

Answer 22

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

Answer 23

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

Answer 24

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

Answer 25

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

Answer 26

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

Answer 27

classification of trust arrangement a trust created during the lifetime of the grantor

Answer 28

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

Answer 29

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

Answer 30

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

Answer 31

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

Answer 32

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

Answer 33

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

Answer 34

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

Answer 35

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

Answer 36

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

Answer 37

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

Answer 38

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

Answer 39

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

Answer 40

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

Answer 41

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

Answer 42

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

Answer 43

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)

Answer 44

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

Answer 45

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

Answer 46

term, universal, whole life, second to die

Answer 47

an investment rather than insurance contract loans come out LIFO (taxable)

Answer 48

owner, insured, & beneficiary

Answer 49

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

Answer 50

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

Answer 51

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

Answer 52

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

Answer 53

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

Answer 54

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)

Answer 55

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)

Answer 56

provides an income tax deduction the donated property & any future appreciation are out of the gross estate of transferor

Answer 57

part sale & part gift

Answer 58

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

Answer 59

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

Answer 60

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)

Answer 61

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

Answer 62

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

Answer 63

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

Answer 64

no income tax deduction/unlimited estate tax deduction outright bequest, or bequest in trust (CRAT, CRUT, CLT)

Answer 65

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

Answer 66

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

Answer 67

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)

Answer 68

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

Answer 69

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

Answer 70

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

Answer 71

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

Answer 72

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

Answer 73

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

Answer 74

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

Answer 75

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.

Answer 76

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

Answer 77

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

Answer 78

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

Answer 79

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

Answer 80

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)

Answer 81

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

Answer 82

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

Answer 83

$18,000 2024

Answer 84

$13,610,000 2024

Answer 85

40% (based on highest estate tax rate)

Answer 86

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

Answer 87

cannot be used to avoid GSTT

Answer 88

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

Answer 89

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