Round 2 Flashcards
Estate Freeze
= retain some interest for owner control and cash flow
- installment note (gift business to heir)
- lifetime gift (gift stock to son)
- Charitable Remainder Trust
TCJA
= $11.18MM
sunsets in 2025 (and goes back to $5MM)
minority discount
50% or less
interest on installment note
= deductible from income of buyer
payments pass to estate at death
private annuity
no payments due at seller death
compensate key employee of corporation
= nonqualified deferred compensation
Section 162 bonus insurance plan
sprinkle trust
trustee can determine if income distributed to bene or not
(bene can be trustee)
* CAN continue in death
grantor trust
grantor pays income tax on assets
= REVOCABLE (avoids probate)
grantor treated as owner
709 gift tax return
= only when file taxes and when EXCEED annual exclusion ($15k)
* do NOT need for annual exclusion/ gifts excluded
endowment effect
prefer what’s ours
EMH
- prices reflect ALL available info instantly
- trade at fair market value
- outperform market, increase risk/ beta
CAPM
=RISK (diversification)
MPT
how risk fist into neoclassical
illusion of control
= hold undiversified assets
private equity premium puzzle
limit to arbitrage
impacts investor to force down price of overprices stock
family harmony
avoid keeping score
prenup
waive rights to property/ business
preserve for KIDS
child support
taxed to GIVER
*ends at 18 or “emancipated” = military
community property
CA, WI, LA, AZ, TX, WA, ID, NV, New Mexico
social security
= ANNUITY only
not lump sum
live off of 30% less in retirement
= anchoring
GRAT
= gift of FUTURE interest
= appreciating asset out of estate to avoid estate tax
*does NOT allow for GST exemption
divinity trust
preserve as much principal through generations
retirement planning goal
= accumulate assets for decumulation
- available assets to replace/ secure post-retirement
- meet retirement objectives
- elim/ minimize risks that disrupt plan
- plan to address shortfalls
*at least 5 years prior to retirement
QDRO
= COURT order
volatility puzzle
stock prices vary based on future earnings & interest rates
QDOT
surviving spouse to take marital deduction is NOT U.S. citizen
gift tax within 3 years of death
back into estate
installment sale (buy/sell)
defers capital gains
establish connection then?
gather data
NOT qualified distribution for ROTH IRA
= work car
CAN use ROTH IRA from dead spouse
lease payments for LLC- how taxed?
taxed as ordinary income to partners
NOT in retirement planning process
POLST
buy sell death benefits
tax free to business
loan from life insurance cash value
NO income tax at time of loan
effective tax rate
= predictable/ stable income (simple)
lump sum insurance
- burial, travel, bereavement
- 6/12 living expenses
- legacy plan, inheritance
- buy/sell
estate planning changing due to?
technology
state law
can override will (community property) and interpret provisions
life insurance w/ estate as bene
does NOT avoid probate (brings into estate)
JTWROS
probate AVOIDENT (title passes by deed)
gift tax =
estate tax=
gift tax = exclusionary
estate tax = inclusionary
life insurance proceeds included in estate
incident of ownership or payable to estate
DSUE
decedent survivor unused exemption
unused marital deduction available to survivor ($11.18)
- at survivor’s death, estate can use
residuary trust planning
= 2 trusts
- assets qualify for exclusion ($11.18)
- assets qualify for marital deduction
gift to closely held business
NO annual exclusion (future interest)
Fed Estate tax steps
- gross
- AGI
- AGI- maritable, charitable, state death
- deductions/ credits
- calculate
gain from property sale
sale amount - basis
capital loss
$3,000/ year against ordinary income
charitable deduction on AGI
60% of AGI
reimbursement of medial expenses in following year
same/ all included as income for that year
qualified adoption expenses
credit in year adoption FINALIZED
claims from previous years also included
social security threshold
= substantial gainful activity levels of earnings
* needs based
SSI income limits (poor)
$2,000 single
$3,000 couple
if NOT given N
= perpetuity
PV = cash flow/ R
R= (1+ROR/ 1+ inflation) -1
2503 (c)
child trust w/ income/ corpus distributed at 21
* IS present interest
expend
= spend down
spousal support (alimony)
TAXED to RECEIVER
DEDUCTION to contributor
*after 1/1/19 not taxed or deductible
divorce rental property
original basis and new basis taxed as ORINDARY INCOME
UTMA and 2503(c)
permits annual exclusion on gifts to these
first $100,000 in ABLE
NOT counted as resource for SSI eligibility
* many states have Medicaid payback at death
1041
= property transfer for divorce NOT taxed (must be within 6 years)
- even if to 3rd party, not HSA/ MSA
- NOT if nonresident alien
section 736
husband/ wife divorce and both partner of business:
- distributive shares
- payment of partnership property
312 (I) plans
- money-purchase
- tandem
- target-benefit
reserved jurisdiction method
= employee spouse receive stock options vesting at later date
spousal support
no designation of payment from 1 to other
*ex-spouse CANNOT file joint tax return
QTIP
- hold property for surviving spouse and income distributions
- passed to bene
- blended family
neoclassical economic theory
full info, utility max, rational preference
status quo basis
avoid moving from current situation because might be negative
amygdala
= emotional (system 1)
medical expenses are an example of
= essential/ discretionary
raise money from outsiders?
= LLC
3.8% tax
= net investment income (interest, dividend capital gain)
S corp taxation
losses DEDUCTIBLE by stockholder
when business owner retires
- reduce owner’s taxable estate
- increase estate liquidity
included in gross estate of decedent (dead owner):
- PROPERTY owned at death (business interest)
- life insurance within 3 YRS
- transfers W/ RIGHT
- JOINT property
- benefit w/ qualified retirement plan
- property interest w/ GENERAL POWER OF APPOINTMENT
- life insurance w/ BENE PAY COST OF SETTLING ESTATE
applicable credit amount
tax created by exclusion for lifetime and transfer @ death
blockage discount
more sellers than buy = reduce price
installment note @ death
included in SELLER gross estate
6166 - installment PAYMENT
= business value INCLUDED in seller’s gross estate
decedent must own 20% (corp, LLC, partnership)
closely held = no more than 15
buy/sell w/ life insurance
policyowner = purchaser beneficiary = transferred to dead owner's estate
*premiums = NOT deductible
cross-purchase
policyowner = purchaser
premium = after-tax dollars
income tax = purchaser equal to sale price
capital gains = seller
entity purchase
policyowner = business on life of each owner
business transfers proceeds to dead owner’s estate
straw man
intermediary ignored (buying from someone else)
miscellaneous expense
= Schedule A (2% AGI limit)
value effect
small stock effect
NOT consistent with CAPM
applicable credit
= annual exclusion
self-canceling installment note
NOT included in seller’s gross estate
annual exclusion gifts
NOT included in estate tax computation
LLC key employee retention
company buys key person life and disability insurance
GST
GSST
GST = MONEY to grandchild GSST = TAX on the money to grandchild
child support tax
taxed to GIVER
Alimony tax
deductible to GIVER
taxed to RECEIVER
*after 1/1/19 = taxed to GIVER
buy/sell liquidation
** assume ENTITY
= distributive share = capital gain = ordinary income
cross purchase buyer tax
basis = purchase price
ABLE
automatically eligible if:
- receive SSI only
- disability before 26
- disabled
charitable
= DEDUCTION (not adjusted)
Adjusted (gross income) examples
- business expenses of own business
- loss of sale
- alimony
charity gift
gift tax return and qualified for gift tax (completed gift)
* DEDUCTION (not adjustment)
DONOR for marital deduction
must be U.S citizen
* SURVIVING spouse does NOT have to be U.S. citizen
QTIP
deceased spouse (1st to die) decides who remained bene is (remainder interest)
above-the-line
= ADJUSTMENT = deduction whether or not taxpayer itemizes
below-the-line
= DEDUCTION (standard/ itemized)
lease of business
LLC (business) lease to LLC (building)
lease payments taxed to owner’s as ordinary income
related party installment sale
if family member sells business within 2 years and in trust term –> all deferred tax IMMEDIATELY TAXED to owner
self-cancelling installment note
out of your estate
private annuity
= no estate taxes
6166 installment payments
first 10 years NOT interest only
divorce retirement plan discovery process
questionnaire asking all plans from previous jobs
