Wealth Counsel

Question 1

What is a “taxable estate?”

Answer 1

An estate that is in excess of the exclusion amount and is thus subject to federal transfer taxes.

Question 2

What is “guardianship or conservatorship estate?”

Answer 2

Assets of the ward in a court-supervised guardianship proceeding.

Question 3

What is the “probate estate?”

Answer 3

Assets that cannot be transferred to others after death without going through the probate/estate administration process.

Question 4

What is the “trust estate?”

Answer 4

Assets held in trust

Question 5

Define “testate.”

Answer 5

The condition of having died with a valid Last Will and Testament that covers at least part of the decedent’s assets.

Question 6

Define “Intestate.”

Answer 6

The condition of having died without a valid Last Will and Testament (can also be partial).

Question 7

Define “Testator/Testatrix”

Answer 7

The person who makes a Last Will and Testament.

Question 8

Define “Legatee/Devisee/Beneficiary/Her”

Answer 8

One or more individuals that receive assets from a decedent.

Question 9

List different kinds of wills.

Answer 9

In will-centered estate plans:

Last Will and Testament / Attested Will
Non-conforming Will
Holographic Will
Out-of-State Will
Military Will
Noncupative/Oral Will
Joint Will, Contractual Will, Mutual Will

In trust-centered estate plans:

Pour-Over Will

Question 10

Define “Trust.”

Answer 10

A fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of one or more beneficiaries.

Question 11

Define “Settlor/Trustor/Grantor/Trustmaker.”

Answer 11

Person who establishes a trust.

Question 12

Define “Beneficiary” in the context of trusts.

Answer 12

One or more individuals, trusts, or entities that receives assets from a trust.

Question 13

Define “Trustee.”

Answer 13

One or more persons named in a trust or appointed by a court to administer trust assets and make distributions, can be initial, successor, or alternate, can also be divided by role (e.g. distribution trustee and investment trustee) (this is a fiduciary role).

Question 14

Define “Trust Protector / Trust Advisor.”

Answer 14

One or more persons with limited powers over a trust, usually including the power to restrain or direct trustees in limited circumstances (this can be a fiduciary or non-fiduciary role.)

Question 15

Define “Trust Agreement.”

Answer 15

The document that contains the trust’s terms, e.g. instructions for how the trust is to be administered by the trustee.

Question 16

What is “realization” as a tax concept?

Answer 16

Unrealized appreciation is generally not taxed. A taxpayer must receive or lose something of monetary value.

Realized gains or losses are taxed if they are recognized. If a gain or loss is realized, it is generally recognized unless an exception or non-recognition provision applies.

Question 17

What is “basis?”

Answer 17

Basis is the amount you can recover tax-free when a gain is recognized. In property transactions, for example, this might be the capital investment in the property.

Realized $100,000 from the sale of property.
Initially bought the property for $75,000. (Basis)
Reognized: $25,000 taxable gain. $100,000 - Basis.

Question 18

Is higher “basis” or “lower” basis typically the tax planning goal?

Answer 18

As a general principle, for income tax purposes, higher basis is good!

Question 19

What does a deduction do?

Answer 19

It typically lowers taxable income by the amount of the deduction.

The amount the taxpayer saves depends on the taxpayer’s tax rate, but the amount the taxpayer save is always going to be less than the amount of the deduction.

Question 20

What is a credit?

Answer 20

A tax credit is a dollar for dollar offset of the tax that would otherwise be due. Assuming a taxpayer owes at least 10,000 a 10,000 tax credit would save 10,000 dollars.

Question 21

List the community property states.

Answer 21

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

Elective Community Property Trusts are also available in Alaska and Tennessee.