Module 9 Estate Planning Basics

Question 1

Real Property

Answer 1

immovable, includes all interests in land and improvement considered permanently attached to the land and associated with that land.

Question 2

personal property

Answer 2

All property interests that are movable. Can be either tangible or intangible.

Question 3

Tangible Personal Property

Answer 3

Household furnishings, automobiles, jewelry, stamp or coin collections

Question 4

Intangible Personal Property

Answer 4

Rights that are evidenced by a paper document. Bank accounts, stocks, bonds, promises to perform (contracts), promises to pay (promissory notes), rights to use (leases), digital assets (discussed in more detail later).

Question 5

Testator

Answer 5

Owner of a will, who can make changes and amend it as they see fit. At death, the will is fixed as the owner is no longer able to make change. The will owner is also called the grantor or settlor.

Question 6

decedent

Answer 6

person who dies

Question 7

beneficiary or primary beneficiary

Answer 7

Person who received an inheritance from an estate.

Question 8

Contengent Beneficiary

Answer 8

Person who stands next in line to receive an inheritance if the primary beneficiary has passed away or disclaims the inheritance.

Question 9

disclaiming an inheritance

Answer 9

When beneficiary exercises the option of not accepting the inheritance.

Question 10

Bequest

Answer 10

Property transferred by a will.

Question 11

Testate - Intestate

Answer 11

Testate when a person dies with a will.

Intestate - invalid or no will in place.

Question 12

Executor

Answer 12

Person who carries out the terms of a will.

Question 13

Administrator

Answer 13

Court appointed if there is no will in place.

Question 14

Personal Representative (PR)

Answer 14

Executor or administrator - legal authority found in letters testamentary if decedent has will or letters of administration if there is no valid will.

Question 15

Probate

Answer 15

Ensures a legal, orderly transfer of ownership from a decendent to others.

Question 16

Executor

Answer 16

Person who carries out the terms of the will.

Question 17

Administrator

Answer 17

Court appointed person to carry out the affairs of an estate.

Question 18

Important items to settle an estate

Answer 18

Will
Social Security Card
Auto Titles
Deed to house and other real estate
insurance policies
safe-deposit box records
financial account statements
digital assets

Question 19

Digital Assets

Answer 19

bank and other financial institution
websites
email
social media
cryptocurrency
online photo storage
online gaming and gambling

Question 20

Stored Communications Act (SCA)

Answer 20

Unlawful access to stored communications - added to the Electronic Communications Privacy Act in 1986.

Question 21

Computer Fraud and Abuse Act (CFAA)

Answer 21

Prosecute the unlawful use of a computer; an anti-hacking law. Passed in 1984.

Question 22

Fiduciary Access to Digital Assets Act

Answer 22

Fiduciaries have access to digital property including computer files, websites, and cryptocurrency. Revised 2015 (RUFADAA)

Does not allow access to email, text messages, and social media accounts unless expressly stated by the account owner in a will, trust, power of attorney or other record.

Question 23

Will Substitutes

Answer 23

Joint tenancy with the right of survivorship (JTWROS)
Tenants by the entirety (TBE)
contract beneficiary designations for life insurance policies and employee benefits, and contract provisions in business buy sell agreements and marital, or nuptual, agreements.
P.O.D. (payable on death) designations for U.S. government savings bonds and some bank accounts
T.O.D. (transfer on death) designations for securities
placing assets in a revocable or irrevocable trust while the greater is still living.

Question 24

Car Purchase (Basis for father) $5,000
30 years later at death $100,000
     Appreciation $95,000
Son sells 1 year later for $120,000
Capital Gain

Answer 24

Car Purchase $5,000
Step-Up In Basis $100,000 (Basis for the son)
Son sells 1 year later for $120,000
Capital Gain $20,000

Question 25

Family home worth $350,000. Purchase price $100,000.
XYZ stock $64,000 purchase price $30,000
IRA with XYZ brokerage worth $72,000 deductible contributions made in to account $16,000

Answer 25

Family home
Cost basis $350,000
sell for $360,000
capital gain $10,000
if moved in after death and lived there for two to five years
up to $250,000 of gain would not be taxed

XYZ stock
cost basis $64,000
sale price $63,500
$500 capital loss
     May take a loss up to $3,000

IRA with XYZ
no 10% early withdrawal

Question 26

When to review Estate Plan

Answer 26

birth
marriage
tax law changes
starting a business
death
relocation
inheritance
ending a business

Question 27

DSUE:

Answer 27

The last deceased spouse’s unused exclusion amount; the Tax Reduction Act of 2010 (TRA 10) introduced portability and allows any unused exclusion amount from the first spouse to die to be added to the surviving spouse’s exclusion amount.
Return to question.

Question 28

GSTT:

Answer 28

This transfer tax is imposed when property is transferred to a skip person either during life or at death.
Return to question.

Question 29

Skip person:

Answer 29

A person who is someone two or more generations younger than the person who made the transfer; most commonly triggering a tax imposed on transfers from grandparents to grandchildren or great-grandchildren.
Return to question.

Question 30

Portability:

Answer 30

Means that the last deceased spouse’s unused exclusion amount can be transferred to the survivor, provided the estate of the deceased spouse filed an estate tax return showing nonuse of all or part of the exclusion amount, and did not make an election on this return denying the surviving spouse the right to use his or her DSUE amount (among other restrictions not covered in this course).

Question 31

Types of Titling

Answer 31

Joint Tenancy
Joint Tenants with right of survivorship (JTWROS)
Tenants by the entirety (TBE)
Tenants in common (TIC)

P.O.D. and T.O.D. accounts
Trusts
Community property states (9)

Question 32

Joint Tenants with right of survivorship

Answer 32

(JTWROS)
Two owners each own 50%
Can sell portion owned without agreement from other owner.
May not be married own whole property and transfers to other owner upon death.

Question 33

Tenancy by the Entirety

Answer 33

(TBE)
Only available to married couples, each own 50%.
Must both agree if wanting to sell.
Upon death goes to living spouse.

Question 34

Tenants in Common

Answer 34

(TIC)
Two or more people have ownership interests in a property.
Ownership could be 60% 40% and passes to the person (s) in the will upon death.

Question 35

Community Property

Answer 35

Washington, Idaho, Nevada, California, Arizona, New Mexico, Texas, Louisiana, Wisconsin

Property acquired during marriage - belongs one-half to each spouse regardless of:
Name on title
who paid for it

Exceptions:
Acquired with separate funds
Gift or inheritance not put in other spouses’ name or commingled
Acquired before marriage

Question 36

Basis

Answer 36

Value of asset at the date of purchase

Question 37

Step Up In Basis

Answer 37

New Basis at the time of inheritance.

Question 38

Estate Property Distribution

Answer 38

Estate
At death, an estate is created.

 Property is then distributed either:

Probate:
Will
State intestacy laws

Outside Probate:
Trust
Right of survivorship
Beneficiary designation

Question 39

Spousal Election Against the Will

Answer 39

A surviving spouse may be entitled to take more property than is specifically given to him or her by a will.

Question 40

Codicil

Answer 40

Amends an existing will.

Question 41

What allows for an unlimited deduction for gift and estate tax purposes?

Answer 41

Transfer from a U.S. citizen spouse to a U.S. citizen spouse and a qualified charity

Question 42

property held in a custodial account (UTMA or UGMA)

Answer 42

Generally less costly to create than a trust.

Question 43

$15,000 (2021) annual gift tax exclusion amount

Answer 43

Must be for a married couple if they file jointly.

Question 44

When does a testamentary trust become operative?

Answer 44

On the death of the grantor.

Question 45

When does a step up (or step down) in an estate not apply?

Answer 45

Stock held in a traditional IRA account

Question 46

Who is a grantor?

Answer 46

The person who holds legal title to property in the trust for the benefit of another person.

Question 47

Federal gift and estate tax.

Answer 47

Shares a common tax rate table.

Question 48

Intestate succession statutes

Answer 48

Favor the spouse most and then blood relatives, especially children. Dying intestate still requires the appointment of a personal representative to determine the probate assets.

Question 49

Buy-sell agreement primary purpose.

Answer 49

Transferring a business interest at the death of an owner.