Gross Estate

Question 1

What goes in the Gross Estate?

Answer 1

Property owned by dead

General Powers of Appointment

Life Insurance (Death benefit included if policy transferred within 3 years before death)

Joint Tenancy Property (based on % contribution, actual or deemed contribution)

Joint & Survivor Annuities

Gift Taxes Paid within 3 years of death

Retained life interests

Retained power to amend or revoke

Revisionary Interest

Question 2

When would Life Insurance be included in Gross Estate?

Answer 2

Death Benefit included if policy transferred within 3 years of death

Question 3

When are Gift Taxes paid included in Gross Estate?

Answer 3

If paid within 3 years of death

Question 4

Limited Power of Appointment: How to avoid inclusion of value in the holder’s Gross Estate?

Answer 4

Limit to ascertainable standard (HEMS)

Health
Educations
Maintenance
Support

Question 5

Valuation of Assets: How long can the Alternate Valuation Date be from Death?

Answer 5

6 months from Death for AVD

Executor must make election by filing date of Estate Tax Return

Question 6

Valuation of Assets: How can you get Valuation Discounts when Valuing a Closely Held Business?

Answer 6

Minority Owner Discount

Lack of Marketability discount

Blockage Discount (you own so much of a public stock it would move market if sold)

Key Person Discount (business loses value since you’re gone)

Question 7

Valuation of Assets: How to Value Financial Securities if death is on a Trading Day? (Stocks)

Answer 7

Average of High and Low FMV on the Trading Day

• Accrued Interest is included
• Accrued Dividends are included

Question 8

Valuation of Assets: How to Value Financial Securities (Stocks) that are NOT actively Traded?

Answer 8

(Price after death date X # days between death day and 1st preceding trade)

+

(Trade price before death date X # days between death date and next Trade)

DIVIDED by

Sum of Days Before and After date of Death

Question 9

Value Non-Actively traded Stock: Gift of stock or date of death is on Wednesday, Feb. 4th. Stock did not trade that day. It traded on Monday Feb. 2nd and on Tuesday Feb. 10. On Feb. 2nd the high was $29, low was $19, & closing price was $28.50. On Feb 10th, High was $32, low was $28, closing price was $32. What’s the value of the gift/date of death value?

Answer 9

Average price on Monday Feb 2nd = ($29+$29) / 2
=$24

Avg. Price on Tuesday Feb 10th = ($32+$28) / 2
=$30

($30 x 2 days) + ($24 x 4) / 6

= $26

or can look at it as:

M T “W” T F…….. M T

24 30

24 25 “26” 27 28 29 30

Question 10

Valuation of Assets: Value of Life Insurance in Gross Estate if: Policy is owned on another person

Answer 10

Depends on Pay Status of Premiums:

Premium Pay status =

Interpolated Terminal Reserve + Unearned premium

Paid Up Status =

Replacement Value

Question 11

Value of Life Insurance in Gross Estate if owned on another person: How is it valued if it’s in the Premium Pay Status?

Answer 11

Interpolated Terminal Reserve + Unearned Premium

Question 12

Value of Life Insurance in Gross Estate if owned on another person: How is it valued if it’s in the Paid Up Status?

Answer 12

Its Replacement Value

Question 13

Value of Life Insurance in Gross Estate if Policy is owned on decedent?

Answer 13

Death Benefit (Face value)

Question 14

When is a Life Insurance Policy included in Decedent’s Gross Estate?

Answer 14

Life Insurance Policy is included in Decedent’s Gross Estate if held any Incidents of Ownership

Question 15

What constitutes an Incident of Ownership for a Life Insurance Policy?

Answer 15

If Decedent could have:

Named or changed a Bene

Surrender or cancel policy

Receive Dividends

Borrow against Cash Value

Pledge policy as Collateral

Assign or Revoke these rights in others

Question 16

John’s son, Billy, bought a $1M life policy on his dad. John Gifted Billy $10,000 annually to pay the premiums. John dies 6 years after policy started and Death Benefit is payable to Billy. How much of Death Benefit is included in John’s Gross Estate?

Answer 16

NONE

John didn’t have any incident of ownership

Question 18

Must the AVD apply to all assets in Gross Estate?

Answer 18

YES

Exceptions:

• Wasting Assets
  (Notes, Patents, Annuitized Annuity)
• Assets disposed of between death & the AVD

Question 19

Date of Death Values: Land = $5M
Stock=$3M
Annuitized annuity=$1M
Condo=$3M

AVD Values:
Land=$4,500,000
Stock=$3,100,000
Annuitized Annuity=$950k

Condo= Sold @ 2 months after date of death for $2,950,000

How much is gross estate using the AVD?

Answer 19

Land=$4,500,000

Stock = $3,100,000

Annuity = $1,000,000
(because it’s a Wasting Asset, exception applies so use date of death value)

Condo=$2,950,000 (use date of sale value)

Total = $11,550,000

Question 20

Deductions from Gross Estate

Answer 20

Funeral Expenses

Last Medical Expenses

Admin Expenses

Debts

Casualty Losses during Admin

= Adjusted Gross Estate

Question 22

What’s added to the Taxable Estate?

Answer 22

+ SUM of all Post 1976 gifts

EQUALS Tentative Tax Base

Question 23

Terminable Interest Rule for Marital Deduction

Answer 23

Asset Must later be included in surviving spouse’s Gross Estate

Surviving spouse’s interest can NOT terminate at a Future Date

Question 24

Exceptions to Terminable Interest Rule (Meaning you CAN take the Marital Deduction)

Answer 24

If it has a 6 month Survival Contingency (won’t be eligible for marital deduction if greater than 6 months)

Terminable Interest where Spouse has General Power of Appointment

QTIP Trust

Charitable Remainder Trust where spouse is the only Non-Charitable Bene

Question 25

What are the Remedies for How a Non-Citizen Spouse can use Unlimited Marital Deduction?

Answer 25

Becomes a US citizen before due date of estate return (9 months) and maintains residency following death of spouse)

or

Qualified Domestic Trust (QDOT)

Question 26

Rules for a QDOT to be used for Non-citizen to get Unlimited Marital Deduction?

Answer 26

• must have at least 1 US Trustee
• Must prohibit distribution unless U.S. Trustee has right to withhold taxes
• Trustee must keep sufficient assets to pay taxes
• Executor must elect marital deduction for the QDOT (election is made post-mortem)

Question 27

Credits on Estate Tax Formula

Answer 27

Prior Gift Tax Paid

Applicable Estate Tax Credit $5,113,800 (2023) ($12,920,000 exemption)

Prior Transfer Credit
-Credit for Estate Tax paid within last 10 years

Foreign Death Taxes credit
-Tax paid of property outside of U.S.

Question 28

Estate Tax Return: When is Form 706 Due?

Answer 28

9 Months after death

Question 29

Estate Tax Return: Extension to File Rule?

Answer 29

Extension to File (but not to Pay) can be for additional 6 months

Question 31

Estate Tax Portability

Answer 31

Must file Form 706 within 9 months to make Portability election

Lets Surviving Spouse get the Unused Exemption of Dead Spouse

Question 32

Estate Tax Portability: Remarriage Issues?

Answer 32

Election is based on the Last Deceased Spouse

A remarriage wouldn’t impact portability; however, if second spouse dies then they are considered last deceased spouse

Gets complicated with multiple deceased spouses

Question 33

John dies Jan. 15, 2023, survived by wife Wilma. Neither has made any taxable gift. John’s executor uses portability of his Deceased Spouse Unused Exemption (DSUE) of $12,920,000.

On June 30, 2023, Wilma makes taxable gifts to kids of $2,700,000. How much gift tax would she pay, if any?

Answer 33

Wilma is considered to have applied $2,700,000 of John’s DSUE, therefore, she owes no gift tax.

She now has a remaining exclusion amount of $23,140,000

($10,220,000 John’s + her own $12,920,000)

Question 34

Income in Respect of a Decedent

Answer 34

Income a decedent was entitled to be paid but did NOT receive before death

(All IRAs except Roth, Pension, annuity payments, Unpaid debt on installment note, Dividends declared but not received, Commissions earned but not paid)

The Asset is included in decedent’s gross estate, BUT there’s NO step-up in Basis

Income Tax must be paid by the recipient

Question 35

Income in Respect of a Decedent: Is there a Step-up in Basis for the Asset?

Answer 35

NO

Question 37

Full Consideration: Transfers/Sales: Private Annuity

Answer 37

Unsecured promise from buyer to make payments to annuitant for rest of annuitant’s life

Question 38

Private Annuity: When is this an Effective method?

Answer 38

When actual life expectancy is LESS than the IRS life expectancy table

Question 39

Private Annuity: When is this method Used?

Answer 39

When Seller (annuitant) is in Poor health

Question 40

Private Annuity: Can the Annuitant (Seller) be Terminally ill?

Answer 40

NO

but,
if seller lives > 18 months
then it’s presumed the seller was not terminally ill

Question 41

Private Annuity: What’s the risk?

Answer 41

Risk that the Seller (Annuitant) will live longer

Question 43

Self-Cancelling Installment Note (SCIN)

Answer 43

Installment sale with payments of Interest & Principal

Term of payment is determined by Seller

The SCIN Premium (which is additional amount above Interest & Principal) is paid to cancel the note at Seller’s Death

Question 44

Rules for a SCIN to NOT be considered a Gift?

Answer 44

If PV of Note is = to value of underlying property & the SCIN Premium is appropriate

Question 45

Can the Interest on a SCIN be Deductible?

Answer 45

YES, IF:

The property is Business Property, then the interest paid can be deductible by the business of the buyer

Question 46

When is a SCIN Used?

Answer 46

When Seller is in Poor Health

Question 47

Can you Deduct Interest of a Private Annuity?

Answer 47

NO

because there’s no business property transferred in a private annuity

Question 49

Family Limited Partnership: Why is it created?

Answer 49

To transfer assets to Younger Generation

When Transferor is intent of Gifting Assets while Maintaining Control

Question 50

FLP: How are they structured between General and Limited Partners?

Answer 50

1% General Partner - Parent

99% Limited Partner - gift these to the child (make use of annual exclusion)