Method of property transfer at death Flashcards
What are the advantages and disadvantages to probate?
Advantages:
Administration of the estate (court supervision)
Marshaling of the decedent’s assets
Paying a bills and resolving credit issues
Overseeing distribution of the estate as directed by Will or by intestacy law
Disadvantages to probate:
Loss of privacy
Possible will contest
Court cost and delays
Possible multiple state proceedings (ancillary probate)
What is community property?
- Each spouse owns a separate, undivided, and equal interest in the property
- All property acquired by the spouses during the marriage is generally community property
- No survivorship rights a will is needed. Property will be subject to probate.
Non-community property includes the following:
- Property received as a gift by one spouse
- Property inherited by one spouse
- Income earned by spouses prior to marriage
- Interest earned on separate assets held by one spouse as sole owner
What is the tax advantage of community property?
Enjoys a full 100% step up in basis of any long-term capital gain property
What is sole ownership?
Subject to probate, and can be disclaimed by the intended beneficiary also called outright ownership or fee simple
What is joint tenancy with rights of survivorship?
- Not subject probate, and can be disclaimed
- Shared equally by all the joint tenants
- Income producing property is split equally among all joint tenants
- Survivorship feature and death of each tenant property immediately passes to the surviving joint tenants in equal shares
Excluded from the probate estate
Joint tenants with rights of survivorship and a state tax? JTWROS
Full value of jointly held property is included in the gross estate of the first tenant to die unless the survivor can establish ownership consideration of some portion of the property before joint tenancy was created
If this cannot be done, the entire amount will be included in the decedent’s gross estate
How are estate taxes for spousal joint tenants with rights of survivorship handle? jTWROS
Two spouses are the only joint tenants when the first spouse dies his or her gross estate must include 1/2 of the properties fair market value as of the date of death
What is Tenancy by the entirety? TE
- Not subject to probate and cannot be disclaimed
- Ownership can only be held by spouses
- Severance can only occur with the mutual consent of both parties
- Equally divided interest between the spouses
- Assets held by spouses as tenants by the entirety are protected from the claims of each spouses separate creditors, but are not protected from the claims of both spouses joint creditors
What is Tenancy in common? TC
- Subject to probate, and can be disclaimed
- Way in which property can be owned unequal by several owners simultaneously
- Maybe several tenants in common
- Does not equalize each tenants interest in the property
- Entitled to a division of income from income producing property, according to their respective interest in the property
- Free to transfer their respective shares of the property to other parties
- Estate tax purposes there are no survivorship rights and property
- Upon death of the holder, respective share will go through the probate process and will be included in the holders gross estate
What is a power of attorney?
One person uses to empower another person to act on his or her behalf
What are two advantages of including a provision in a revocable trust that specify management by a successor trustee in the event of the grantors incompetency?
A Trustee’s authority to act in managing assets may be recognized in virtually all states and can be enforced. A durable power of attorney may not be recognized
Revocable trust continues after death while a durable power expires at death
What is a testamentary trust?
Created by Will designate a person to serve as trustee names the beneficiary of the trust and includes directions on how trust assets are to be administered
How is a life insurance policy treated for state or federal estate tax purposes?
If the life insurance policy named a beneficiary, it is included in the gross estate for federal estate tax purposes however, it is not subject to probate
