Estate Planning Process

Question 1

What is an estate?

Answer 1

It is the rights, titles, and interests that a person, dead or alive, has in any property

Question 2

What are the three objectives of estate planning?

Answer 2

-Preserve wealth
-Allow a client to use that wealth
-Pass the greatest possible amount of that wealth to designated recipients

Question 3

How does a client of beneficiary protect assets from creditors?

Answer 3

-Give assets away irrevocably
-Stand up a business form (LLC, LLP, etc)
-Place assets in trust at the sole discretion of the trustee

Question 4

Preserve business value, Maximizing pre & post mortar flexibility, Maximizing spouse benefits, Minimizing non-tax transfer costs, Maintaining satisfactory standard of living, & Maintaining adequate liquidity are examples of…

Answer 4

Non-tax, financial-related estate planning goals

Question 5

Meeting the needs of dependents, Proper distribution of assets, Transfer by trust, Efficient transfer of assets at death, Asset protection, & Control of assets are examples of…

Answer 5

Nonfinancial estate planning goals

Question 6

Shifting receipt of income, Shifting taxation of income, Obtaining stepped-up basis, & Deferring recognition of income and gain are examples of…

Answer 6

Tax-related estate planning goals specific to income tax

Question 7

Freezing or reducing the value of assets subject to tax,
Leveraging use of exclusions, exemptions, reductions and credits, & Delaying payment of tax due are examples of…

Answer 7

Tax-related estate planning goals specific to transfer tax

Question 8

What are the areas of estate planning mistakes, pitfalls, and weaknesses?

Answer 8

Failure to recommend necessary changes to a will
Improper disposition of assets
Improper titling of assets
Improper arrangement of life insurance
Lack of estate liquidity
Failure to give advice on funeral arrangements
Failure to avoid ancillary probate, provide business planning, minimize taxes and costs

Question 9

What is ancillary probate?

Answer 9

When probate must occur in more than one state. When property is not titled in such a way that is recognizable by a state (i.e. titled to a trust), a second probate may be needed.

Question 10

What is a fee simple or absolute ownership form of legal ownership for individuals?

Answer 10

The maximum ownership someone could have in a property. It gives the owner the right to use, posses or dispose in any way he chooses during life and death.

Question 11

What is the life estate form of legal ownership for individuals?

Answer 11

A partial interest in property that gives a person the right to posses and use the property for the remainder of the individual’s life or the remainder of someone else’s life.

Question 12

What is the “term of years” form of legal ownership for individuals?

Answer 12

It entitles the owner to property in terms of a fixed period of time. Usually a lease.

Question 13

What is tenancy in common (TC)?

Answer 13

% of ownership in gross estate
Included in probate (unless by will)
No right of survivorship
Partitionable without consent
Unequal share

Question 14

What is Joint Tenancy With Rights of Survivorship (JTWROS)?

Answer 14

Non-spouse: based on contribution
Spouse: 50% in gross estate
Not included in probate - property passes to survivors regardless of will
There is right of survivorship
Partitionable without consent

Question 15

What are the tax implications upon death of a spouse for spouse JTWROS?

Answer 15

-There are no gift tax implications
-The decedent spouse’s gross estate includes only half of the value of property
-The surviving spouse receives HALF of the stepped-up basis

Question 16

What are the tax implications upon death of a non-spouse in JTWROS?

Answer 16

No gift tax as long as it was an even purchase. Otherwise, the tenant who paid more, the difference from 50% will be considered a gift

Question 17

What is the Consideration Furnished Rule?

Answer 17

Applies if joint tenants were not married at the time of the first tenant’s death. Unless the surviving tenant can prove a percentage of ownership, 100% of the property will be included in the decedents gross estate.

Question 18

What is Tenancy by the Entirety (TE)?

Answer 18

Only between spouses
50% included in gross estate
Not included in probate
There is right of survivorship
Not partitionable
Credit protection from individual claims

Question 19

What is the community property system?

Answer 19

Only between spouses - 1/2 interest
50% included in gross estate
50% decedents interest in probate
No right of survivorship
Not partitionable

Question 20

What is the common-law system?

Answer 20

DOES NOT assume that property acquired during the marriage belongs equally to both parties, but instead it is how the couple decides to title their property.

Question 21

In community property, what is undivided ownership?

Answer 21

It means that each spouse owns half of the property, but they cannot lay claim to any identifiable portion of the property

Question 22

What is a significant tax advantage for the surviving spouse under community property?

Answer 22

The surviving spouse gets 100% of the stepped-up basis. Under common-law, the surviving spouse only gets 50% of the stepped-up basis.

Question 23

What is present interest?

Answer 23

Property I have a right to, can modify, can sell, now

Question 24

What is a future interest?

Answer 24

A right to a property one will have in the future. An inheritance for example

Question 25

What is a reversion (interest)?

Answer 25

A transfer of a right to a party that eventually reverts back to the original gifter.

Question 26

What kind of property is community property and what isn’t?

Answer 26

Property that was acquired before the marriage and is maintained separately, is not community property. Once commingled, it becomes community.

Question 27

Is property inherited or gifted to an individual spouse DURING marriage considered community property?

Answer 27

No