M9: Estate Planning Basics

Question 1

The ABLE Act of 2014 created the opportunity for persons with a disability starting before age 26 to be the beneficiary of an blank, with that account acting as protected assets for Medicaid up to a point. Contribution limits to avoid taxation, state-determined account limits, and Medicaid Pay-Back rules apply to these accounts.

Answer 1

ABLE savings account

Question 2

Pertinent to calculating estate taxes. The blank is the gross estate of the of the deceased minus administrative expenses to settle for estate, funeral expenses, debts of the decedent, uninsured theft and casualty losses to estate property, and claims against the estate.

Answer 2

Adjusted gross estate

Question 3

Person who settles the probate estate when an individual dies intestate (i.e., without a will).

Answer 3

Administartor

Question 4

An additional probate action required for real estate located in a state other than a decedent’s state of domicile.

Answer 4

Ancillary probate

Question 5

Allows a donor to give up to $17,000 (2023) of gifts per year per individual.

Answer 5

Annual exclusion

Question 6

Pertains to federal gift and estate taxation. It is a dollar-for-dollar tax credit offset against the tentative tax generated when calculating the federal gift or estate tax payable. The amount of the tax credit offsets any taxes that would have been due on the first $12.92 million (total of both taxable gifts and adjusted gross estate).

Answer 6

Applicable credit amount

Question 7

The dollar value of taxable transferred property on which federal gift or estate tax does not have to be paid out of pocket because of the gift and estate tax applicable credit amounts. The exclusion for both gift and estate tax in 2023 is $12.92 million.

Answer 7

Applicable exclusion amount

Question 8

Insurance policies, bank, and retirement accounts: The person or persons who will either receive the insurance policy or account proceeds. The blank can also be an entity, such as a charity.
Trusts: The person whom the trust is to benefit.

Answer 8

Beneficiary

Question 9

Property transferred by a will.

Answer 9

Bequest

Question 10

Pertains to estate planning for a small business owner. It is a written agreement providing for the sale of one business owner’s interest to other owners (cross purchase) or to the business entity (entity purchase) in the event of their disability or death. This ensures that the business owner’s heirs are paid.

Answer 10

Buy-sell agreement

Question 11

A separate, supplementary written document that amends or supplements an existing will.

Answer 11

Codicil

Question 12

A state that does not allow married spouses to own property as community property.

Answer 12

Common law state

Question 13

Property that is acquired by either or both spouses during marriage is classified as blank if the couple lives in a blank state, and the property is not titled in some other acceptable form of co-ownership. In general, each spouse is considered to own half of the property, regardless of who provided the means to purchase or acquire the property, and even when title is held in just one spouse’s name. Some exceptions apply (relating to separate property).

Answer 13

Community property

Question 14

A state in which community property laws apply. These include Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

Answer 14

Community property state

Question 15

A person who stands next in line to receive an estate distribution or insurance or retirement benefits if the primary beneficiary predeceases the decedent/owner/insured or disclaims the estate property/benefits.

Answer 15

Contingent/Secondary beneficiary

Question 16

A mutual agreement between two or more competent parties concerning a specified subject, such as life insurance or property.

Answer 16

Contract

Question 17

Pertains to estate planning for small business owners. A type of buy-sell agreement in which each partner purchases insurance on the life (lives) of the other partner(s) in an amount that is sufficient for the surviving partner(s) to buy a deceased partner’s interest in the business.

Answer 17

Cross-purchase agreement

Question 18

Less than 0.2% of estates pay any federal estate taxes.

Answer 18

Death/Estate taxes

Question 19

A person who has died.

Answer 19

Decedent

Question 20

A beneficial interest in property. For example, a trust beneficiary has an blank in property held in the trust.

Answer 20

Equitable interest

Question 21

All the property interests a person owns, including property over which the person exercises decisive control.

Answer 21

Estate

Question 22

The ability of an estate to meet cash claims and taxes against it.

Answer 22

Estate liquidity

Question 23

The process of acquiring, conserving, and distributing a person’s property interests in the most effective and efficient manner.

Answer 23

Estate planning

Question 24

A tax levied by the federal government and some states on the value of one’s assets upon death. Very few estates pay any federal estate tax.

Answer 24

Estate tax

Question 25

A representative responsible for distributing property when an individual dies with a valid will. Also known as a personal representative (PR) in some states.

Answer 25

Executor

Question 26

A tax levied upon the donor of a lifetime transfer of property for which the donor receives less than full value, and over which the donor gives up control. Taxable gifts of up to $12.92 million (2023) may be given before the donor actually has to pay any taxes.

Answer 26

Federal gift tax

Question 27

A trust to which assets have been transferred.

Answer 27

Funded trust

Question 28

Possession, use, or enjoyment of a specified property is postponed until some future time or the occurrence of a specified event.

Answer 28

Future interest

Question 29

A power of appointment in which the donee (or holder) has the unlimited power to appoint another person’s property to anyone, including themselves, their estate, or their creditors. Property subject to such a power at the donee’s death is included in the donee’s gross estate for federal estate taxation purposes.

Answer 29

General power of appointment

Question 30

A tax imposed on property transferred to someone who is two or more generations below the person who made the transfer. The first $12.92 million (2023) of taxable generation skipping gifts is excluded from taxation.

Answer 30

Generation-skipping transfer tax

Question 31

Allows spouses in a marriage to treat a gift to a third person by one spouse as if each gave one-half of the gift. For example, a gift of $34,000 would be considered a gift of $17,000 from each spouse, thereby enabling each spouse to take advantage of the $17,000 annual exclusion amount.

Answer 31

Gift splitting

Question 32

Enables an individual to gift up to $17,000 (2023) per year of present interest gifts to as many recipients as they choose without incurring a federal gift tax. A present interest gift is an unrestricted and immediate right to possess, use, or enjoy property.

Answer 32

Gift tax annual exclusion

Question 33

Pertains to a trust. The blank is the individual who creates and usually provides initial funding to the trust for the benefit of themselves or others.

Answer 33

Grantor

Question 34

Pertains to estate taxation. The blank is the starting point for calculating the estate tax. It includes: all property in the probate estate; property over which the decedent held a general power of appointment at death; the face amount of life insurance owned on the deceased’s life and the replacement cost of insurance owned on others’ lives; half of any property owned jointly (JTWROS or TBE) between spouses; and the full value of property owned jointly (JTWROS) between nonspouses, except to the extent the executor can show the contribution made by the surviving parties.

Answer 34

Gross estate

Question 35

A state tax levied on an heir upon their receipt of property from a decedent’s estate.

Answer 35

Inheritance tax

Question 36

Transfers that take place during a transferor’s lifetime.

Answer 36

Inter vivos transfers

Question 37

When a person dies with probate property, but without a valid will in place, they are said to have died “blank.” Partial intestacy can occur when a decedent had a defective will that does not dispose of all probate property. Intestate property is distributed in accordance with state law (intestate succession statutes).

Answer 37

Intestate

Question 38

Pertains to life insurance. The policy owner names a beneficiary but does not retain the right to change the named beneficiary.

Answer 38

Irrevocable beneficiary designation

Question 39

A trust that the grantor cannot unilaterally revoke.

Answer 39

Irrevocable trust

Question 40

A form of property ownership by any two or more individuals. Interests in the property are considered equal, so any income earned on the property is taxed equally to each owner. If an owner dies, their interest in the property passes automatically to the surviving joint owner(s), so it avoids probate.

Answer 40

Joint tenancy with right of survivorship (JTWROS)

Question 41

An interest held by the legal owner of a property, such as a trustee of a trust.

Answer 41

Legal interest

Question 42

Entitles the holder to the income from a property or to the use of the property, or a portion of the property, during their lifetime.

Answer 42

Life interest

Question 43

A trust that is created during the grantor’s lifetime and that is to be operative during their lifetime.

Answer 43

Living trust

Question 44

Pertains to gift and estate taxation. The blank enables an individual to give or bequeath an unlimited amount of qualifying property to a U.S. citizen spouse without incurring a gift or estate tax liability.

Answer 44

Marital deduction

Question 45

The right to use, possess, enjoy, and dispose of property.

Answer 45

Ownership

Question 46

Sole ownership; property is titled in only one individual’s name.

Answer 46

Ownership in fee simple

Question 47

The person appointed by a court to administer and distribute a decedent’s estate.

Answer 47

Personal representative/Executor

Question 48

A right given to a person to appoint title to property owned by another.

Answer 48

Power of appointment

Question 49

A written document executed by one person who authorizes another person to act on their behalf. For example, one individual can handle the financial affairs of another who has developed dementia or Alzheimer’s disease.

Answer 49

Power of attorney

Question 50

An unrestricted and immediate right to possess, use, or enjoy property.

Answer 50

Present interest

Question 51

The legal process of administering and distributing the blank estate. Assets not distributed by the will do not have to go through blank, such as property held by JTWROS or TBE, or property passed on to beneficiaries of retirement accounts.

Answer 51

Probate

Question 52

Property handled and distributed by a personal representative or administrator upon a person’s death that is not held in some sort of will bypass form, such as JTWROS; property is disposed of according to the decedent’s will, or if there is no will then according to the state’s intestacy laws.

Answer 52

Probate estate

Question 53

The rights and liabilities that come from ownership of a specific property.

Answer 53

Property interest

Question 54

An interest in which the individual is entitled to the property after a specified period of time or after a life interest has ended.

Answer 54

Remainder interest

Question 55

A trust in which the terms may be altered or the trust revoked after creation.

Answer 55

Revocable trust

Question 56

Pertains to property ownership between spouses in a community property state. blank is property that was acquired by either spouse before marriage or was individually inherited, was individually received as a gift, or was purchased with individual funds. Ownership of this property belongs exclusively to the spouse who held it prior to marriage, inherited or received it, or purchased it with individual funds.

Answer 56

Separate property

Question 57

The beneficiary’s basis for property received from an estate. This value is usually the asset’s fair market value on the date of death.

Answer 57

Stepped-up cost basis

Question 58

The residual estate after all deductions permitted by the federal estate tax have been subtracted from the gross estate.

Answer 58

Taxable estate

Question 59

A form of property ownership that exists only between spouses. Survivorship rights exist and may be terminated only with the consent of both parties. Interests in the property are equal. This form of property ownership acts as a will substitute, and thus avoids probate.

Answer 59

Tenancy by the entirety (TBE)

Question 60

A form of ownership that exists between two or more individuals. There are no rights of survivorship, so upon death property passes to the tenant’s heirs through probate. Interests in the property may be unequal.

Answer 60

Tenancy in common (TIC)

Question 61

Transfers that take place at or after the transferor’s death.

Answer 61

Testamentary transfers

Question 62

A trust that is created under a will or inter vivos trust provision that does not become operative until after the creator’s death.

Answer 62

Testamentary trust

Question 63

Dying with a valid will in place.

Answer 63

Testate

Question 64

An individual who creates a will by signing and executing a last will and testament.

Answer 64

Testator

Question 65

The right to ownership.

Answer 65

Title

Question 66

A fiduciary arrangement set up by a grantor whereby property is held and managed for a named beneficiary by a third party known as a trustee.

Answer 66

Trust

Question 67

Property owned by a trust.

Answer 67

Trust corpus

Question 68

The person or organization that holds legal title to the property held in trust. The blank holds and manages the property for the benefit of the beneficiary.

Answer 68

Trustee

Question 69

Laws enacted in many states that enable gifts to minor children. blank accounts only allow gifts of cash, securities, or life insurance.

Answer 69

Uniform Gifts to Minors Act (UGMA)

Question 70

Laws enacted in many states that enable the transfer of property to minor children. blank accounts are more flexible than UGMA accounts and allow more types of gifts, such as property, blank accounts also allow both inter vivos and testamentary transfers.

Answer 70

Uniform Transfers to Minorts Act (UTMA)

Question 71

Any person may transfer unlimited amounts of qualifying property to a qualified charity free of gift or estate tax because of this deduction.

Answer 71

Unlimited charitable deduction

Question 72

Any person may transfer unlimited amounts of qualifying property to their spouse free of federal gift or estate tax because of this deduction. There are limitations for non-U.S. citizen spouses.

Answer 72

Unlimited marital deduction

Question 73

A legal document that specifies how a person wishes to distribute probate property (and provides other instructions, such as guardians for minor children in the event both parents die) in the event of death.

Answer 73

Will

Question 74

Legal arrangements that avoid probate by allowing the transfer of estate assets without intervention of a probate court.

Answer 74

Will substitutes