Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Estates > quiz review1 > Flashcards

quiz review1 Flashcards

1
Q

what is a remainder interest

A

gifting property, but keeping an interest in the ability to live in or use the property during life

conversely, a reversionary interest gives someone else the benefit of the asset during life, but, the asset reverts back to the donor at the end of the term.

A life interest would be a controlling interest for life, and term interest would be a control for a limited time.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

what are terms used with wills?

A
  • Codicil is a document used to alter a will.
  • Devisee is a gift of real property through a will.
  • Legatee is a person who inherits property under the will.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What property items are included in a gross estate?

A

FMV of all assets held by decedent at death, INCLUDING jointly held property, debts outstanding owed to decedent, and pain/suffering/damages and other claims owed to decedent

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

hich parts of the estate planning process are appropriate actions that can be completed without the aid of an attorney?

A

II. Calculating the value of the client’s probate estate.

III. Advising the client on the need for diversification in her investment portfolio.

IV. Advising the client that title of assets would be better as community property.

BUT NOT:
Advising the client to make her revocable trust irrevocable. or
Explaining the strategic use of the annual gift tax exclusion.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

what is tax treatment on buy/sell and entity purchase agreement

A

Insurance premiums to fund buy-sell agreements in a cross-purchase plan are not tax deductible. In the case of an entity agreement, where the firm owns the policies, the premium would also NOT be tax deductible.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

what are characteristics of a cross purchase plan?

A
  • Life insurance owned by partner will not be included in Decedent’s probate estate
  • Life insurance and/or disability insurance premiums to fund the agreement are NOT tax deductible
  • Surviving partner would receive an increased cost basis in Decedent’ stock equal to the amount paid to redeem the shares from Decedents estate
  • transaction side-steps the entity and thus avoids constructive dividend concerns.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

what are differences in the choice of a stock redemption (entity agreement) versus a cross-purchase partnership buy-sell agreement funded with insurance

A
  • cross-purchase should be selected if the surviving partners expect to sell their business interest during their lifetimes.
  • entity approach may solve the affordability problem if one partner is significantly older than the others.
  • entity agreement becomes more desirable as the number of partners included in the agreement increases.
  • Transfer-for-value problems can be created if existing policies are transferred between shareholders of a corporation in a cross-purchase agreement.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

considerations for a decedent’s estate holding an uncollected note receivable

A
  • The note must be included in the gross estate at the fair value of the note.
  • A long time to maturity, accrued interest, and a rate below market affect note valuation for estate purposes, thus estate valuation.
  • Also, if debtor is in poor financial health the note may be discounted, directly impacting the value of decedent’s estate.
  • Forgiveness of the note itself, however, does not impact the value of the note to the estate. The note will be included for estate tax purposes even if it is forgiven at death.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Joyce’s gross estate was $1,000,000. Her funeral costs were $16,000. She left $20,000 to charity and $14,000 to a community hospital. Total amount of home mortgage (owned in JTWROS with her spouse) was $100,000. The home was valued at $200,000. She had personal consumer debt of $15,000. Her spouse was her personal representative and waived his fees. She left $260,000 in cash outright to her spouse. What is her taxable estate?

A

AGE: $1,000,000 - $16,000 (admin cost) - $50,000 (1/2 debt from the mortgage) - $15,000 (credit card debt) = $919,000

Taxable Estate: $919,000 - $310,000 (marital deduction) - $34,000 (charitable deduction) = $575,000

The maritable deduction is calculated as follows:

The total amount of the home is $200,000 therefore her portion would be $100,000. If the debt is $100,000 then her portion is $50,000. So she would be leaving $100,000 - $50,000 = $50,000 to the spouse for the home. So total marital deduction is $260,000 + $50,000 = $310,000.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

describe the income tax implications of a sale-leaseback using an installment payment method?

A

I. The transferor may not be able to deduct lease payments made to a family member as ordinary and necessary business expenses.
II. A fully depreciated property that is transferred by sale-leaseback to a family member can nonetheless be depreciated by the new owner.
III. The transferor of a sale-leaseback may be subject to depreciation recapture in the year of sale.
IV. A sale-leaseback reduces the transferor’s gross estate LESS than a gift-leaseback would.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

The estate planning process is accomplished in what order:

A

I. Establish the relationship.
IIa. (Gather) Collect pertinent information.
IIb. (Identify) Identify influential factors.
III. (Select technique(s)) Select the appropriate technique.
IV. Present the plan
V. (Implement) Implement the plan.
VI. Monitor the plan

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

How to structure a standard AB Trust ?

A

put the deductible estate value (credit equivalency - $5,430K in 2015) amount in the B trust and put all excess assets in the A Trust.
DO NOT include spouses assets.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are BAD strategies that would cause the decedant’s unified credit amount to be added into the surviving spouse’s gross estate?

A
  • Bequeath the entire estate to a trust, giving the surviving spouse a general power of appointment.
  • Bequeath the applicable exclusion amount to a qualified terminable interest property trust (QTIP) and the balance outright to the surviving spouse.
  • Bequeath the applicable exclusion amount outright to the surviving spouse and the balance to the children
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is required for a deed to effectively act as a “will substitute”?

A
  • Competent grantor’s signature.
  • There must be delivery of deed during the grantor’s lifetime with an intent to gift.
  • The property does NOT need clear title - it may be subject to a mortgage.
  • NO pre-death recording of the deed is required.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is the least important factor in choosing an appropriate/competent Personal Representative?

A

knowledge of investments is NOT a key factor, as that skill can be hired outside…

following ARE important factors in choosing a good/ competent rep…

  • Being willing and able to accept fiduciary responsibility.
  • Possessing sufficient common sense to know when to retain competent legal assistance.
  • Possessing sufficient common sense to know when to retain competent legal assistance.
  • Being a trusted family member.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

When are Life insurance proceeds NOT tax-free?

A

When the insured is the policy owner.

When the policy was sold to a third party.

When a modified endowment contract is sold to a third party.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What risks ARE associated with failing to plan an estate?

A
  • estate may incur excessive transfer taxes.
  • beneficiaries may not get what you intended for them
  • extra / pre-marital children may be ignored…
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

characteristics of a non durable POA

A
  • does not allow the agent to act if the principal becomes incapacitated
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Section 303 stock redemption characteristics

A
  • value of the stock must be greater than 35% of the decedent’s adjusted gross estate, including gifts made in the last 3 years.
  • must be the stock of a closely-held firm
  • can only be used if the corporation has the cash to redeem the shares
  • can only be made with positive earnings and profits account.
  • limited to an amount that cannot exceed the death taxes of the estate, plus funeral and administrative expenses for which the decedent is liable.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

prerequisites for gift splitting

A
  • Both spouses must be U.S. citizens or resident aliens when the gift is made.
  • Donors must be married at the time the gift is completed.
  • Each spouse must signify their consent in writing on the gift tax form (709).
  • NOTE - only need to complete one gift split form 709
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

best ways to minimize taxes for married couple with estate assets

A
  • Bequeath the applicable exemption equivalent amount to a bypass trust and the balance to the surviving spouse in a qualifying way
  • Bequeath the entire estate to a trust, giving the surviving spouse a general power of appointment over the assets at her death (if total
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

characteristics of by pass trusts

A
  • minimizes/ avoids gift/ estate tax liability
  • No marital deduction, taxed in the first spouse to die estate
  • Executor then takes the full unified credit deduction on the estate tax return
  • Amount of credit is placed in trust removing the asset from the transfer to the spouse. The surviving spouse can invade the trust for health, education, maintenance and support.
  • Highly appreciated assets are often used to fund the trust.
  • ALLOWS income splitting / sharing
  • AKA Credit Shelter trust or B-Trust
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

characteristics of a Q-Tip Trust

A
  • qualifies for the unlimited marital deduction.
  • Does NOT give the spouse an unlimited general power.
  • Must distribute income yearly only to surviving spouse.
  • Only one beneficiary is permitted in a QTIP trust in order to qualify for the marital deduction.
  • Trustee may have the power to invade for the HEMS of the spouse only.
  • enables the grantor to provide for a surviving spouse and also to maintain control of how the trust’s assets are distributed once the surviving spouse has also died (e.g. children from prior marriage)
  • commonly used by individuals who have children from another marriage
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

who must pay tax on the trust income?

A

depends:
Beneficiary, if they have authority (access to the corpus), even if they don’t take the income
Grantor, if they retain authority (revocable)
Trustee if income is in their (irrevocable by grantor) discretion and authority

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

CRT trust characteristics

A

Both must have 10% remainder interest
CRAT must pass 5% probability test (assets will remain)
CRAT Requires invasion of corpus to pay annual income.
CRUT permits (but does not require) invasion of principal (corpus) to meet income payout requirements
CRUT must be recalculated annually
- sprinkling provision allows the trustee to make payments of income or corpus to beneficiaries based upon specific needs.
- discretionary provision allows trustees to distribute corpus or income, or not, as they determine is most prudent.
- spendthrift provision prohibits a trust beneficiary from assigning interests in the trust corpus.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

characteristics of complex vs simple trusts

A

A complex trust is a non-grantor trust which in a given year accumulates fiduciary income or distributes trust corpus,
VS. a simple trust distributes NO corpus
Section 2503(b) is a simple trust
2503(c) trust allows for accumulation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

characteristics of a qualified disclaimer

A

I. It may not redirect the bequest to another person selected by the disclaimant.
II. It must be received by the executor of the estate within 9 months of the death of the decedent.
III. It must be written and irrevocable.
IV. The disclaimant may disclaim a part of an asset.

must be written, irrevocable and received by the executor of the estate within 9 months. It must not direct the asset and can be for any interest partial or full.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Characteristics of a Grantor Retained Unitrust (GRUT)

A
  • The grantor creates an irrevocable trust with a retained income interest.
  • Income must be paid out at least annually.
  • The amount of income to be paid to the income beneficiary is recalculated annually based on the GRUT valuation.
  • corpus value may be included in the grantor’s gross estate if grantor dies before the end of the term of the GRUT
29
Q

marital deduction characteristics

A
  • applicable exclusion amount applies
  • spouse must be a U.S. citizen unless a QDOT is utilized
  • property must be a complete transfer to qualify
  • may be applied to terminable interest property - terminal interest property that will qualify are those items which are the exception to the terminal interest rule such as (1) GPOA trusts (2) QTIP trust and (3) charitable trusts where the surviving spouse is the only non-charitable beneficiary
30
Q

marital estate planning alternatives

A
  • spouse can be given a special power of appointment over the corpus of a testamentary bypass trust established by decedent
  • spouse must be the ONLY income beneficiary
  • QTIP trust is equally viable as either a marital trust or a credit shelter trust
31
Q

reasons for business continuation plans

A
  • When a guaranteed market must be created for a business in the event of death or disability such as for an ESOP.
  • When a “peg” of the business value is needed.
  • When the business involves a great deal of financial risk to the family of the deceased owner.
  • When NO shareholder or partner desires to continue to run the business with the family of the deceased co-owner.
32
Q

Reasons for split-dollar life insurance in a business setting

A

I. It can be a fringe benefit to an employee.
II. Insurance premiums are usually split between the employer and the employee (insured).
III. It may be used to fund a buy-sell stock redemption agreement.

33
Q

clauses commonly found in wills

A 
Exordium (introductory) clause
debts clause.
Fiduciary appointment clause 
fiduciary powers clause.
Attestation clause
Residuary clause 
self-proving clause.
34
Q

characteristics of ownership as Tenancy in Common

A

I. Undivided interests in the property.
II. Is presumed when property is transferred to two or more people.
III. Equal rights to possess the property among all tenants in common.
IV. Ownership interests do NOT have to be equal
V. Income and costs are shared in proportion to ownership interests.

35
Q

characteristics of QPRTs

A

QPRTs can hold only one residence.

The donor retains all tax advantages

36
Q

what are non-tax characteristics of a reverse gift?

A
  • The gift is given with the intention that the donor receive it back with a step up in basis.
  • property is included in the donor’s gross estate
  • gift must be completed one year prior to the donor’s death.
  • typically NOT with a high basis asset (no significant gain issue)
37
Q

Value of an estate freeze

A

Any property transferred would be appreciating in value and the future gain would occur in the transferee’s estate

38
Q

characteristics of an Irrevocable Life Insurance Trust

A

I. Create a vehicle to avoid GSTT.
II. Make proceeds available to the surviving spouse.
III. Ensure proceeds will be excluded from the probate of both spouses.
IV. Shelters cash contributed for premiums from gift taxation up to the annual exclusion amount.

39
Q

characteristics of fee simple separate property ownership

A

I. Included in probate estate and gross estate.
II. Can include personal property (chattel) of all types.
III. Is presumed in common law states.
IV. Is not presumed in community property law states.

40
Q

Reasons to use life insurance to fund business continuation agreements

A

I. It provides sufficient assets for the buyer to perform on the contract.
II. The insurance gives the agreement efficacy. No money . . . No deal.
III. The insurance strengthens the commitment of the buyer when it must follow through on the agreement.

41
Q

characteristics of a private annuity

A

I. Title to the property is conveyed to the individual responsible for making annuity payments at the time of the transaction.
II. Annuity cannot be secured by the transferred property.
III. Each payment received by the annuitant is divided into gain, interest income, and a non-taxable recovery of basis.
IV. interest portions of payments to the annuitant cannot be deducted by the transferee.

42
Q

are estate taxes inclusive or exclusive? /

are gift taxes inclusive or exclusive?

A

Estate tax payments are tax INCLUSIVE - they include tax on the tax payment, while gift tax payments do not, so they are tax Exclusive.

Estate taxes require that tax be paid on the full amount, including the portion of it that will be used to pay taxes.

43
Q

How are trust distributions taxed?

A

The amount taxed to beneficiaries is limited to the trust’s DNI (Distributable Net Income). If the amount distributed is greater than the total DNI, a proportional amount is allocated to each beneficiary based on the total distributed to beneficiaries.

44
Q

How to determine the estate tax base?

A

consider gifts which were made within 3 years of death and add back the gift amount NET of the gift exclusion (up to $14k/gift, up to max %5430k exclusion).

45
Q

An advantage of the probate process

A

A creditor must file a claim against the estate during the period that the probate is open.
Once probate is closed, creditors no longer have the ability to obtain payments (Note: Creditors must be notified).
If the creditor does not come forward, the claim is lost forever.

46
Q

definition of a gift

A

A completed property transfer under state property law

47
Q

characteristics found in both bequests and in gifts

A

I. Unlimited marital deduction.
II. The use of the unified credit.
III. The deductibility of the unified credit.
NOT The annual exclusion which applies only to lifetime gifts and not to bequests.

48
Q

characteristics of charitable lead trusts

A
  • Beneficiaries can be named as trustees of the CLT.
  • Property transfers to a CLT are irrevocable
  • The maximum period for a CLT trust is 20 years if the trust is for a fixed term.
  • remainder interest may revert to the grantor as the income for the term passes to a 501 (c)(3) charity.
49
Q

what is the limit to the amounts gifted to 501(c)(3) charities

A

there are no limits on charitable gifts to 501c3 orgs

50
Q

what is an exception to tax treatment on life insurance proceeds?

A

Periodic annuity settlement benefits are not fully subject to income tax because the recipient has a tax basis equal to the proceeds. Proceeds are includible in estate for tax purposes only if grantor retained an incident of ownership.

51
Q

installment sale characteristics

A

Has a fixed selling price contractually agreed to by both parties.

Allows pro-rata recognition of profits in the year payments are received. - In the year payments are made they are recognized for tax purposes,
but the entire amount is not accelerated in the year of payment.

Installment sale treatment is mandatory but need not be a sum certain at time of sale (i.e., purchase of business with earn-out).

52
Q

characteristics of stock redemption buy-sell agreements

A
  • A stock redemption plan must have a corporation as a party to the contractual arrangement.
  • A stock redemption plan is a stock purchase by a corporation, so the cost basis of the surviving shareholders are not affected, thus they do not receive a step up in basis.
  • Proceeds of a policy owned by a surviving shareholder are not includible in the decedent’s gross estate.
  • Premiums are not tax deductible.
53
Q

how to calculate a JTWROS Capital Gain at the death of a spouse for estate purposes

A

1/2 of basis steps up to FMV and goes into surviving spouse’s basis
- the sale price is reduced by the new basis and the difference is the capital gain

54
Q

techniques that can be used to lower the value of an individual’s gross estate

A

establishing trusts to remove assets - specifically:
Qualified Personal Residence Trust.
Family Limited Partnership.
Irrevocable Life Insurance Trust.

NOTE that a Totten trust does not remove asset from gross estate, just from probate

55
Q

characteristics of the Federal Gift Tax

A
  • Federal gift tax applies to all gratuitous transfers,
  • the annual exclusion provides an exemption for the first $14,000 of each gift.
  • Gifts can be split.
  • Asset values are based on FMV @ date of death or six months after the date of death for the gross estate.
  • Taxes are progressively higher as more assets are transferred during life.
  • Value is determined on the date of the transfer of the assets for lifetime transfers.
  • Gift taxes paid two years prior to the death of the decedent for gifts made four years ago are included in the gross estate of the decedent under the gross up rule.
56
Q

characteristics of the unlimited tax marital deduction

A
  • Citizenship affects the application of the marital deduction;
  • a non-U.S. citizen must receive distributions through a QDOT to utilize the marital deduction.
  • The deduction is not always equal to the qualified property. It is commonly equal to the qualifying property less any expenses paid by the surviving spouse.
  • decedent must have been married but could be separated not divorced as of the date of his death.
  • surviving spouse must receive property that is included in the gross estate of the decedent.
  • net value, not the gross value, of qualifying property left to the surviving spouse is excluded by the marital deduction (net after taxes, debts, or estate administration expenses payable out of the spousal interest_.
57
Q

what is a “mutual will”

A

A mutual will is also referred to as a sweetheart will where both spouses leave all assets to each other

it is different from a “joint will” in which either:

(a) Two or more persons draw up wills to bequeath or dispose of property in a predetermined and agreed upon manner at the same time.
(b) One will covers both parties with the same result for the surviving party regardless of which one survives.

58
Q

characteristics of “Powers”

A
  • A release of a power is a formal statement by the donee giving up the power.
  • A lapse is the termination of a power without exercise.
  • Powers of appointment are presumed limited if not so stated in the document in some states.
  • Power holders must exercise powers in accordance with the provisions of the power, Will, or trust.
59
Q

types of wills passing through probate

A

QTIP
GPOA trusts
Testamentary trusts,
- note credit shelter trusts are usually testamentary

60
Q

characteristics of a durable power of attorney (DPOA)

A
  • It must be in writing.
  • The attorney-in-fact is not obligated to utilize the DPOA.
  • It ceases at the death of the principal.

conversely, a Springing power becomes effective only upon determination of incompetency of the principal.

61
Q

describe special and general powers

A

I. The surviving spouse can be given the power to invade the entire corpus of a marital trust for an ascertainable standard.
II. The existence of a general power of appointment will cause the power holder to be considered the owner of all or part of the trust for federal estate tax purposes in the event the power holder dies.
III. Exercise, lapse or release of a general power of appointment are considered a transfer of the property by the power holder for gift, estate, and generation skipping tax purposes.
IV. The existence, lapse, exercise, or release of a special power will not cause inclusion in the power holder’s gross estate.

62
Q

characteristics of an intervivos trust

A
  • created during a grantor’s lifetime
  • hold property for the benefit of specified beneficiaries and to avoid probate,
  • Not excluded from the grantor’s gross estate
63
Q

Crummey power characteristics

A

I. Permits a donor to contribute $14,000 each year to a trust and utilize the annual exclusion.
II. Gifts must be of a present interest to qualify for the annual exclusion –> utilizing the Crummey power creates the present interest.
III. For withdrawal purposes, Crummey powers are commonly used within an Irrevocable Life Insurance Trusts.

64
Q

net gift tax characteristics

A
  • donor does not pay tax, requires donee to pay…
  • if adjustable taxable basis is less than the tax paid, then DONOR will have to recognize taxable income equal to the difference.
65
Q

definition of a noncupative will

A
  • oral expression of testamentary intentions
  • with two witnesses present to verify
  • ONLY valid in some states, and not in others
  • Usually only includes personalty assets, not realty.
66
Q

Who are parties to a power of attorney

A

Principal

Principal’s agent

67
Q

When would a decedent be considered to have died intestate

A
  • holographic will needs to be written, signed and dated to be valid, otherwise, decedent is intestate
  • if a testator is not “of sound mind”, they cannot make a valid wil
  • if a person dies without a VALID will or a will that only covers part of his assets, he has died intestate.
    if not fully listing all assets, and no residuary clause, then intestate
68
Q

How can one effectively revoke a will

A
  • A will can be revoked by physically destroying the will

- Completing a new will properly which rescinds prior wills will also revoke a previous will.

69
Q

which property transfers at death by contract?

A

Traditional and Roth IRA transfers property at death by contract.
Any other assets with a beneficiary designation is the contract, and at the death of the account owner, the account assets will be transferred to the beneficiary.

Estates (3 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions