Module 11

Question 1

Joint Tenancy with rights of survivorship:
Summery
max # of owners
Identity of owners
Right to transfer during life
Right to transfer at death 
Deemed ownership %

Answer 1

Unlimited owners
A person ownes an undivided equal interest in the property (unless stated otherwise by state law) with one or more other persons. A joint tenant does NOT have the right to direct who will receive his interest at death, it all must go to the surviving spouse, thus making it a will substitute.
Anyone
Can transfer owned interest only during life. No consent of other owners required (except for spouses)
equal %

Question 2

Will substitutes (8)

Answer 2

Some forms of jointly held property
Insurance proceeds paid to names beneficiaries
Proceeds of IRAs, Keoghs, and other individual and qualified retirement plans paid to named beneficiaries
Trusts funded during the owner’s lifetime (intervivos or living trusts)
Payable on Death accounts (POD)
Transfer on death accounts (TOD)
Totten trusts
TOD deeds (used to pass on real estate upon the owner’s death)
Government savings bonds

Question 3

Tenancy in common:
Summery
max # of owners
Identity of owners
Right to transfer during life
Right to transfer at death 
Deemed ownership %

Answer 3

A person owns property with one or more other persons where each owns a distinct title to an undivided interest in the property that may be equal or unequal. NOT a will substitute, since if either tenant dies, the decedent’s share of ownership goes to the deceased’s estate.
anyone can own
Can transfer owned interest only during life; no consent of co-owners required
Transfer owned interest only at death; by will or intestacy (probate)
Deemed ownership % as stated in title; if not stated, equal ownership is presumed.

Question 4

Tenancy by Entirety:
Summery
max # of owners
Identity of owners
Right to transfer during life
Right to transfer at death 
Deemed ownership %

Answer 4

A special type of joint tenancy, where property still passes through survivorship rights at death, but requiring spousal consent for transfer during life.
max of 2 owners
husband and wife
can transfer owned interest only, consent of spouse required
can only transfer by right of survivorship at death, thus making it a will substitute.
Ownership percentage is 50-50

Question 5

Community property:
Summery
max # of owners
Identity of owners
Right to transfer during life
Right to transfer at death 
Deemed ownership %

Answer 5

Property acquired during marriage belongs 50-50 to each spouse, no mater who's name is on the title or purchased the property. It is NOT a will substitute, since if once spouse dies, his owned interest is passed through probate to the person(s) designated in the will. 
2 people (husband and wife)
owned interest only with spousal consent required for transferring real estate
Owned interest only is passed at death through a will or probate
Deemed ownership % is equal

Question 6

Ownership in fee simple: summery

Answer 6

One person has all ownership rights (sole ownership) must be distributed by probate

Question 7

Testator: def

Answer 7

Male creator of a will

Question 8

Testatrix: def

Answer 8

a female creator of a will

Question 9

Codicils: def

Answer 9

formal documents by which wills can be amended

Question 10

Probate: def

Answer 10

The court-supervised process for administering and distributing a decedent’s probate estate

Question 11

Advantages of probate (3)

Answer 11

Provides a forum for the will to be validated
Provides for the appointment of someone to administer the decedent’s probate estate
Provides a process by which debts and taxes can be paid.

Question 12

Disadvantages of probate (3)

Answer 12

Everything is public
Delay in transfer
Legal and admin costs

Question 13

Repercussions of dying intestate (6)

Answer 13

Only specific blood relatives who are the state specific heirs will be entitled to recieve property in the estate
All property generally goes only to the spouse and/or surviving children
Any part of the intestate that does not go to the spouse will generally go to the children in equal shares
The income/property cannot go to one person for a specified amount of time with it ultimaely going to another person or charity
Tax planning will be next to impossible since the distribution of property will not be controlled by the decedent
Property only goes to the state (escheats) if the surviving relatives are too remote

Question 14

Codicils: def

Answer 14

formal documents by which wills can be amended

Question 15

Probate: def

Answer 15

The court-supervised process for administering and distributing a decedent’s probate estate

Question 16

Gross estate: def

Answer 16

All property subject to federal estate tax

Question 17

Gross estate includes (7)

Answer 17

Anything owned by a person at death (real, tangible, and intangible.
Life insurance proceeds from a policy where the deceased had ownership, regardless of who the beneficiary is)
Interests transfered during life with strings attached (ownership rights)
Anything overwhich the deceased had power of appointment
Anything included in the probate estate
Anything that passes through will substitute
Survivorship benefits from a decedent’s IRA, qualified retirement plan, and annuities.

Question 18

Inclusionary rule: def

Answer 18

A three year inclusionary rule which brings any property transferred up to 3 years before death back into the estate if it would have been included in the estate had the deceased retained ownership.

Question 19

Gross estate is reduced by: (6)

Answer 19

Funeral and admin expenses
debts
uninsured theft and casualty losses
Unlimited marital deduction (can give away entire estate to spouse and zero out their tax liability)
Unlimited charitable deduction (can do the same for a charity)
State death taxes actually paid

Question 20

Taxable estate: def

Answer 20

Gross estate less deductions

Question 21

Federal transfer taxes: 3

Answer 21

The original federal estate tax
A federal gift tax to support the estate tax
A federal generation-skipping tax (GSTT) to support the estate tax

Question 22

Transfers exempt from gift tax: 2

Answer 22

Medical

Tuition

Question 23

Annual exclusion for gift tax: def

Answer 23

The annual amount that you can give to as many individuals as you want without incurring a gift tax. $13,000 for 2012

Question 24

Gift tax:
Valuation of assets
Basis of transferee
Filing Requirements

Answer 24

Valuation of assets - FMV on date of completion of the gift
Basis of transferee - carryover of basis from donor
Filing requirements - April 15th of calendar year following the year of the gift (form 709)

Question 25

Estate Tax:
Valuation of assets
Basis of transferee
Filing Requirements

Answer 25

Valuation of assets - FMV on date of death or alternate valuation date
Basis of transferee - step-up in basis to value used for estate tax (except IRD, which does not qualify for stepped-up basis)
Filing requirements - 9 months after date of death (form 706, 6 feet under, estate tax)

Question 26

Trust: def

Answer 26

A will substitute in which the trustee manages property for the benefit of the beneficiary. Though the trustee has legal title to the property, they are not owners; the real owners are the beneficiaries.

Question 27

Grantor: def

Answer 27

The person who transfers property to the trustee. The grantor can name himself beneficiary of his own trust.

Question 28

Trusts’ roles in estate planning: 6

Answer 28

Provide for management of property, even in other states
Asset protection rom creditors
Income accumulation
Enables grantor to give someone lifetime benefits, with the money ultimately going to someone else (like children in a prior marriage)
Can eliminate the need for probate
Privacy (except in “pour-over trusts” whose assets come in part from a will

Question 29

Cost basis: def

Answer 29

The price paid for an asset, adjusted by costs incurred in buying, selling, and owning the asset. In stocks or bonds acquired through a broker/dealer, basis is adjusted by commission expenses which increase the cost basis, and by any return of capital which decreases it.

Question 30

Capital gain or loss: def

Answer 30

The amount realized from a sale, transfer, or exchange of a capital asset, less cost basis after adjustments.

Question 31

Income beneficiary: def

Answer 31

the people who will benefit from the trust during the existence of the trust

Question 32

Remainder beneficiaries: def

Answer 32

The people who take title to the trust assets when the trust ends

Question 33

Kind of relationship that exists between the trustee and these beneficiaries
Def of that relationship

Answer 33

Fiduciary

to act in good faith for the benefit of the beneficiaries

Question 34

Bypass trust: def

Answer 34

Irrevocable trust set up by one spouse for the benefit of the other. Doesn’t qualify for the marital deduction, it bypasses it, which allows the grantor to use the applicable credit amount on the amount contributed.

Question 35

Contingent (standby) trust: def

Answer 35

A revocable trust established to provide lifetime management of assets, then take the remainder of the trust upon the grantor’s death. Usually minimally funded until the grantor’s death or incapacity.

Question 36

Grantor retained interest trust: def

Answer 36

Irrevocable trust where the grantor retains interest with the remainder passing to a younger generation beneficiary at the end of a term of years. Can be a grantor retained annuity trust (GRAT) or grantor retained unit trust (GRUT), each with its own tax consequences.

Question 37

Charitable remainder trust: def

Answer 37

Irrevocable trust which provides income to the grantor for a stated period of time, then the remainder is distributed to a charity.

Question 38

Charitable lead trust: def

Answer 38

An irrevocable trust where the income goes to a charity and the remainder goes to the grantor’s non-charitable beneficiary. The charity will either be given an annuity in the form of a charitable lead annuity trust (CLAT) or a charitable lead unitrust payment (CLUT). If the trust is funded during the grantor’s lifetime, he may be eligable for an income tax deduction for the present value of the charity’s income interest.

Question 39

Disclaimer trust

Answer 39

Irrevocable trust created to reveive property interests rejected (disclaimed) by either a donee or an estate beneficiary

Question 40

Irrevocable life insurance trust (ILIT)

Answer 40

Irrivocable trust that is either partly or wholly composed of life insurance contracts, with the sole purpose of not having those life insurance proceeds included in the grantor’s estate. Must be funded or unfunded.

Question 41

Funded ILIT: def

Answer 41

Trust contains life insurance contract and additional funds to pay the premiums.

Question 42

Unfunded ILIT: def

Answer 42

Trust contains only a life insurance contract, so money must be given each year to pay the policy premiums. In order to be entitled to a gift tax exclusion for these contributions, trust beneficiaries must be given a special type of power of appointment called Crummey power. When they refuse to take the portion of the life insurance premiums they are entitled to, the grantor will pay the premiums and keep the policies in force.

Question 43

Spendthrift trust: def

Answer 43

A trust set up for people believed by the grantor to be incapable of managing their own affairs.

Question 44

Pourover trust: def

Answer 44

A revocable or irrevocable trust that is established before death. It allows estate assets to be added after death. The pouring over may be partly or wholly accomplished by using a pourover will that leaves the decedent’s estate to the trust.

Question 45

Marital deduction or marital trust: def

Answer 45

An irrevocable trust created by one spouse to benefit the other spouse, and it’s designed so that the grantor is entitled to a marital deduction for federal gift or estate tax purposes.
A power of appointment trust “A Trust”
Qualified terminable interest property (QTIP) aka C Trust
Estate trust

Question 46

A power of appointment trust (A Trust): def

Answer 46

Must pay out all income exclusively to the grantor’s spouse at least annually for life, and gives the grantor’s spouse a general power of appointment. Most often used when a spouse wants to receive the marital deduciton upon funding, and wants the spouse to receive trust income on a mandatory basis.

Question 47

Qualified terminable interest property (C trust) def:

Answer 47

Like the A trust, must pay out all income exclusively to the grantor’s spouse at least annually for life, but the grantor in the trust document will receive the trust corpus (the property in the trust) when the grantor’s spouse dies. Commonly used in second marriages so that the grantor’s children from a prior marriage can be remainder beneficiaries)

Question 48

Estate trust

Answer 48

Names the grantor’s spouse as sole income beneficiary, and pays the principle and any undistributed income at the spouse’s death to the spouse’s estate.

Question 49

Ways businesses can be “passed through”: 5

Answer 49

Outright gifts
installment sales
Private annuity transactions
QTIP Trust
Buy-sell agreements, either in Cross Purchase where eau business partner buys a life insurance policy on the other in order to buy the interest of the other when he dies, or Entity redemption, where the corporation takes life insurance policies on both business partners in order to buy back the shares of the spouse of the deceased spouse

Question 50

Family limited partnership (FLP): def

Answer 50

A partnership where a senior family member transfers his business assets to a limited partnership while retaining a general partnership interest.

Question 51

Two classes of partners in FLPs + def:

Answer 51

Limited partners - have liability for partnership debts up to the level of their investments and can play no active role in day to day management
General Partners - fully liable fro the debts of the partnership and have control of daily management (unlimited liability). No taxable gift when the partnership is created: only when the property is actually gifted to junior members are taxes due.

Question 52

Limited Liability Company (LLC): def

Answer 52

Pass through for income tax purposes
All members have limited liability
All members are equal in management unless an agreement says otherwise.