WAB Estate Flashcards
Dynasty Trusts
Are a _______ trust
Is a gift of _______ interest
Must last for _________
1) simple trusts
2) gifts of future interest
3) lasts for the lives being plus 21yrs 9mos or as long as local law allows
What is added to the taxable estate to determine tentative tax base?
Taxable gifts above the annual exclusion
What is subtracted from the gross estate to arrive at the adjusted gross estate?
Funeral expenses, admin costs, debts, taxes and casualty losses
What’s deducted from AGE to get to the taxable estate?
Marital and charitable deductions
Tax base to tentative tax?
Less estate tax deduction (12,920,000)
Tentative tax to net estate tax
Less gift taxes paid
A wealth replacement trust is
An irrevocable life insurance trust
Recapitalization….
Freezes the asset in the gross estate
Key person discount
Allowed for businesses that lost a key employee who was responsible for its goodwill or admin/mgt skills
A reversionary interest is tainted for income tax purposes when
- The grantor/grantors spouses interest exceeds 5% of the trust value at the time of creation
- trust income is or may be used to pay premiums on life insurance on life of grantor or grantor spouse
Income in respect to the descendent (IRD) tax treatment
Estate tax is due in full but the estate is allowed an income tax deduction for the estate taxes attributable to the fee collected
Gifts of future interest
(Doesn’t qualify for $17k exclusion and must use exemption)
- 2503b trust
- remainder interest
- a trust in which income will be accumulated for a period of years
Gifts of present interest
(Qualifies for $17k exclusion and gift splitting)
- 2503c trust
- direct gift
- crummy trusts
- 529 plans
- UGMA/UTMA
What is not a completed gift
- Revocable trusts
- disclaimer
- disclaimer trusts
A trust is tainted for estate tax purposes when
- if grantor retains a reversionary interest that exceeds 5% measured at time of death
- if grantor has the right to income or use/enjoy the trust property (beneficial enjoyment)
When does a trustee become a fiduciary
When the trustee CONTROLS THE ASSETS
Examples of simple trusts
2503b, QDT, QTIP, DYNASTY
- income taxed to bene
- income is distributed
- corpus distributed at termination
- no charitable gifts
Examples of complex trusts
2503c, irrevocable living trusts
- income must or may be accumulated
- accumulated income is taxed to the trust and distributed income is taxed to bene
- charitable gifts permitted
Ascertainable standard (HEMS) distributions are not subject to
Gift or estate tax BUT IS SUBJECT TO INCOME TAX
Reverse Q-Tip Election
Estate can treat the trust for GSTT purposes as if still part of decedents estate ( gstt exemption not lost if elected )
Are taxable gifts included in the taxable estate?
No, they are added to the taxable estate
A lapse of a general power of appt with no 5 or 5 limitation is
Likely to trigger federal gift tax
Pour-over will
Passes decedents separately owned assets into a trust (still in gross estate)
Which charitable transfers allow for distributions to be paid to a life annuity or for a term certain(20yrs)?
CRAT OR CRUT only
(Pooled income funds and gift annuities only allow life of bene as time frame)
What is the required minimum distribution from a CLUT to avoid payment of the excise tax?
The trusts annual income
(CRAT AND CRUT ARE 5%)
Calculating a Net Gift Tax
1) Calculate normal gift tax (FMV-17k)x 40%
2) take answer 1) and divide it by 1.40
Private annuities don’t work anymore because they create
Phantom income
Which planning techniques are considered freezing techniques?
GRAT, QPRT, Preferred stock recap, private annuity, SCIN
(Freeze usually refers to a recapitalization)
What is a preferred stock recap
Owner retains preferred shares and gifts the common shares away (freezes value while maintaining control)
Community property can only be held by
Married couples!!!
If a grandparent is the grantor/trustee of a UTMA or 2503c trust then the assets of the trust will be
Included in the grandparents estate if they predecessor the child
The rule against perpetuities allows a trust to last as long as
Loves in being plus 21yrs and 9mos
Quasi Community Property
Property that would have been community property but was acquired while couple was living in a non community property state
Noncupative Wills
Oral will that must be made in presence of a witness during final illness
Valuation from a preferred stock recap
- Preferred share value is based on dividends
- Common stock value (given away) is the difference between FMV of corporation and the value of the preferred shares
What is the biggest risk associated with establishing an unfunded ILIT?
The grantor transferred in an existing second to die policy then died within 3 years following the transfer (policy included in estate but payable to trust - if trust purchases the policy the 3 yr rule doesn’t apply)
Unfunded vs funded ILIT
Unfunded - premiums paid from gifts by the grantor
Funded - premiums paid from income made by trust investments (premiums taxable to grantor)
