Estates Live Review Flashcards
Community property basic defintion
each spouse owns a separate, undivided, equal interest in the property
community property survivorship rights
there are NO survivorship rights in community property; thus a will is deeded by each spouse, and the property will be subject to probate upon the death of either spouse
Name the two most common non community property interests
- income earned and assets owned by either spouse prior to marriage
- property received as a gift or inherited by one spouse
income tax advantage of community property
the property gets a full step up in basis (only LTCG property) in the entire property if at least one half of the whole proerpty is includible in the deceased spouse’s gross estate
estate tax of non spouse joint tenant property
FULL value of jointly held property is included in the gross estate of the first tenant to die unless the survivor can document that they contribted to the purchase price of the property
what type of property cannot be disclaimed
TBE
who can hold property TBE
spouses only
TIC basics
several tenants possible
undivided interest
income with respect to their interest
TICs can transfer their shares to others
NO survivorship rights
4 types of assets that are subject to probate
fee simple
TIC
the beneficiary is the estate
community property
federal estate form (the number)
706
what’s included in the gross estate
all probate and nonprobate assets
how do you calculate the AGE
gross estate, then subtract funeral expenses, admin expenses, debts, taxes, and casualty losses
how do you calculate the taxable estate
take the AGE (aka the net estate)
Subtract the marital and charitable deductions
what is the tax base (for estates)
taxable estate
Then add back adjusted taxable gifts
estate tax calculation from tax base
tax base
-estate tax deduction
–
then multiply by 40%
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tentative tax
-gift taxes paid
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net estate tax
when are gift taxes paid added to the estate
gift taxes paid on any gifts within three years of death are added to the gross estate
when would life insurance be included in the decedent’s estate
- the proceeds are paid to the executor of the decedent’s estate
- decedent at death possessed an incident of ownership in the policy
- the insured transferred a policy with an incident of ownership within three years of death
if you own a life insurance policy on yourself and die, is this included in your estate
yes.
what happens at your death (estate tax wise) if your spouse owns a policy on your life
If you gift it to them and die within three years of transfer, the DB is included in your estate
if you gifted it to them and your estate is your bene. the DB is included in your probate estate
what happens if you sell your life insurance policy to someone else and then die?
nothing is included in your estate (no three year rule)
incidents of ownership
right to assign, terminate, to borrow against the cash reserves, to name benes, and to change beneficiaries
NOT premium paying
what happens estate tax wise if you own a policy on your spouse and you die
replacement cost is included in your probate estate (no three year rule)
what happens if you have a life insurance on your spouse, you gift it to your kid, and then you die
nothing is included in your gross estate, there is no three year rule
see general power of appointment, think what?
OUTRIGHT OWNERSHIP
special vs general powers of appointment with estate and gift tax
general powers ARE subject to estate and gift tax
Special powers are NOT subject to gift or estate tax
when is gift tax paid included in your estate?
gift tax PAID (not the gift) on gifts within three years of death are included in the estate of the transferor
transfers with retained life estates
included in the decedent’s gross estate IF they retain the right to use or enjoy the property or receive income from it
valuation of a gift if FMV is greater than the donor’s adjusted basis
1.appreciated property
the value of the gift for gift tax purposes is its FMV at the date of the gift
2. If FM is greater than the donor’s adjusted basis, then the donor’s adjusted basis applies for income tax purposes
this is carryover basis
what happens if a gift is less than donor’s adjusted basis
this is loss property
dual basis rules apply when the property is transferred
Types of gifts that are fully deductible for gift tax purposes (hint: there are 4)
gifts to us citizen spouse
gifts to qualified charities
direct payments to a medical provider or educational institution
gifts to American political parties
when do you have to file a form 709
- if you gave more than $18k to any non spouse
2.a gift of future interest in any amount
- a gift from a noncommunity/individal account for which spouses elect gift splitting
primary rule for gifts of future interest
terms of the transfer, typically trusts, delay posession and enjoyment
DO NOT qualify for the annual exclusion
examples of NON completed gifts
- revocable trusts
- disclaimer
- disclaimer trusts
gifts of future interest
do NOT qualify for the annual exclusion, must use exemption
examples of future interest gifts (Hint: there are three)
2503b trusts
remainder interests
a trust in which income will be accumulated for a period of years
examples of gifts of present interest
2503c tursts
direct gift
crummey trust
529 plans
UGMA/UTMA
taxable gift of life insurance
insured transfers their policy to someone else
taxable gift is equal to the interpolated terminal reserve, plus the unearned premium (replacement value)
what’s better for incapacity planning; revocable trust or durable power of attorney
Revocable trust
continutes after death
who appoints guardians?
the court! and they supervise.
why would a grantor do a defective trust?
they may be intentionally tainted because the grantor’s income tax bracket may be lower than the trust’s tax rate
crummey rights
lesser of the amount of the annual exclusion ($18k) or the value of the gift transferred
estate and gift tax with respect to ascertainable standards
think HEMS
NOT subject to estate or gift tax
five or five power
included in the donee-decedent’s estate (or considered a taxable gift) only to the extent that property exceeds the greater of $5k or 5% of the total value of the fund subject to the power
bypass trust
Simple or complex
first spouse to die controls
“B” trust
goal is to give the decedent postmortem control over the property
usually equal to the exemption $13,610,000
marital trust
second spouse to die controls the trust
“power of appointment” trust
“A trust”
surviving spouse has transfer control over the property
QTIP trust
qualified terminable interest
simple trust
“C trust”
QTIP Trust “Keys”
Lifetime income
Annual payments
Mandatory payments
Exclusively for spouse
QDT/QDOT
simple trust
qualified domestic trust
similar to QTIP, but used for noncitizen spouses
UGMA vs UTMA
UTMA allows any property interest to be transferred
UGMA generally can only include securities, life insurance, and annuities
Section 2503(b)
Two parts
1. income interest
2. remainder/reversionary interest
income = present interest
corpus is a gift of future interest
2503(c)
-trust must provide the property or income expended by age 21
-anything remaining passes outright at 21
-if the donee dies before age 21, it’s payable to their estate
dynasty trust
beneficiary interests are limited to life estates
CRAT
Charitable remainder annuity trust
income tax deduction from the present value of the presumed remainder interest
only ONE initial transfer
up to 20 years
remainder interest passes to a qualified charity
at least 5% must go each year
fixed payments based on initial distribution
CRUT
Charitable remainder unitrust
multiple transfers to the trust are allowed
reappraised values
pooled income fund (PIF)
donor places property into a common trust fund operated by the charity
one common fund with commingled property
public charity receives the remainder interest
Charitable gift annuity
no specified amount of income required
property is transferred TO the charitable org
charity receives income NOW
CLAT and CLUT
established at death
estate can take a present value of the payment stream as an estate tax deduction
private foundation
distributes 5% of investment assets
installment sale
FMV in exchange for payments
PV of remaining payments INCLUDED in owner’s estate
gain is a capital gain
what happens if the seller dies during the installment sale repayment
the remaining payments are included in his/her estate which is a disadvantage
SCIN
self canceling installment note
balance of any payments due at the date of death are automatically cancelled
no value included in the owern’s estate
higher payout than installment
intrafamily transfers if the property owner needs income
“PIGS” need income
Private Annuity
Installment Sale
Grantor Retained Aunnuity Trust
SCIN
what if the property owner wants to gift assets and/or income to family members
Partnerhip/S corp (gifting shares)
FLP
Gift leaseback
QPRT
GRAT/GRUT
irrevocable trust into which the grantor transfers appreciating or income producing property in exchange for the right to receive a fixed annuity for a number of years
at the end of the term, corpus is distributed to a remainderperson
owner must outlive term of the asset is brought back into the estate
Gifting partnership/S corporation shares
family member receives conduit income
ineffective if a child is under age 24 (kiddie tax)
Not available if business is service related
Family Limited Partnership (FLP) - gifting shares
gift interest to limited partners to reduce the estate
qualifies for various valuation discounts
general partner maintains control
gift leaseback
lease payments are a business deduction, income to family member
do NOT use if child is under 24
gifts fully depreciated assets
QPRT
qualified personal residence trust (QPRT)
irrevocable trust
grantor transfers their personal residence retaining an interest for personal occupancy for a period of years
what happens if donor of QPRT dies before the initial term is complete?
FMV at date of death is included in the donor’s estate as if the trust never existed
home as a “string” on it
skip persons if not related
37 1/2 years younger than the transferor
AVD
alternate valuation date
must reduce total value of the gross estate
qualified disclaimer
generally a refusal by a primary benef to accept property
Section 303
allows a corporation to make a distribution of a portion of stock of a decedent that will not be taxed as a dividend
requirements for section 303
business must be a regular corp or an S corp
Value must be more than 35% of the adjusted gross estate
only an amount equal to a total of all estate taxes and admin expenses can be redeemed
6166
installment payment of estate taxes
6166 keys
estate tax attributable to the closely held business interest can be paid in 10 equal nstallments beginning 4 years after death
2302A
special use valuation for real estate used for farming or a closely held business
2302A keys
at least 50% of the estate
real property must constitute at least 25% of the gross estate
qualifeid use property
estate planning for non traditional relationships
guardianship for children
jtwros can be dangerous
revocable tursts or TIC is best
