Federal Estate Tax Flashcards
(39 cards)
What is the difference between death, inheritance, and estate taxes?
Death is passing assets the decedent to beneficiary
Inheritance is receiving assets from a decedent
Estate tax is the collective name for death and inheritance taxes
What is the formula for calculation estate tax ALWAYS?
Total estate - $1M. Multiply * 40% + 345,800. Subtract tax exclusion amount = total estate tax
How is a life insurance policy, owned by the decedent on another’s life, valued?
Replacement cost
How are survivorship benefits, aka annuities, taxed in estate?
By charitable gift or commercial product, it is the value of the premium charged as of the date of death
By charitable trust or private product, it is PV of payments left as of the date of death
How are bonds valued at death?
The redemption value of the bond as of the date of transfer
How are the different property ownership methods taxed?
TC - by percentage of ownership from FMV
JTWROS- 50/50 to spouse. In non-spouse, 100% to first to die unless PR can prove contribution by surviving owners
TBE - 50/50
What is a Section 2032A special use valuation?
Allows PR to elect that farm or other closely held real estate, be valued at its actual use value vice it’s best use value. Ex: Tractor dealership vs potato farm - which is worth less?
What is the alternate date of valuation?
A special election the PR can use, ONLY IF the decedent was going to pay estate taxes, to use a date 6 months after death to try and lower the tax bill.
If elected, it applies to all property in the estate.
Exception is that if depreciation is only due to time lapse, you can’t deduct it.
What is the decedent’s gross estate?
The entirety of the estate - no deductions - including those assets subject to IRS sections 2035-2038.
What is the taxable estate?
The gross estate - allowable deductions
What is the tentative tax base?
The taxable estate + (adjusted) taxable gifts made during life
What is the total tentative tax?
The tentative tax base applied against the cumulative tax table
What is the net estate tax due?
The total tentative tax minus any available credits
Income, such as compensation, bonuses, renewal commissions, and interest accrued, that is all payable to a decedent, is called ______ __ _________ __ _ ____________. It is income taxed and includable in the gross estate. It does not receive a stepped-up basis.
Income in respect of a decedent (IRD)
What is the only way life insurance is included in the gross estate?
If the decedent had incidents of ownership - as in, a right to do anything or receive any benefit from the policy.
At it’s fundamental level, what is a power of appointment?
The power held over all or a portion of a trust created by someone else.
What is the difference between a special and general power of appointment?
General can do anything with the trust including appoint assets to themselves. Special power of appointment limits the power.
What are the estate tax implications for someone who holds a general power of appointment?
The greater of 5% or $5000 over the last years allowed, but not exercised, is included in the estate
What is the significance of IRS sections 2026-2038 on lifetime transfers?
The sections rule that property gifted, may be brought back into the estate if deemed not enough control was given up. Examples are a retained life estate provision, or an irrevocable trust where the grantor retains the right to specify or designate who and when income will be enjoyed. GRATs, GRUTs, CRATs and CRUTs all have similar control issues where the remaining interest at death can be brought back into the estate
Transfers of a retained interest, transfers of life insurance where the owner is the insured, and the gross-up rule are all part of the …
Section 2035 3-year rule which if not obtained, subjects these assets to be part of the estate.
What is the gross-up rule?
Any gift taxes paid out of pocket within 3 years of death, are included in the estate. NOT THE VALUE OF THE GIFT, just the gift tax
What is the adjusted gross estate? (A, B, C, D)
The gross estate minus the sum of administrative, burial, casualty losses, and debts) A, B, C, D = AGE
For a trust to qualify for a marital deduction, what must happen? (LAME)
Lifetime, Annual, Mandatory, Exclusive
There must not be terminable interest. The spouse must have outright control over the income and corpus of the trust. Known as qualifying income interest.
What are the four exceptions to the terminable interest rule for martial deduction?
Life estate coupled with general power of appointment
QTIP
Sole beneficiary of a CRAT or CRUT
Survival conditioning
