Bryant - Course 6. Estate Planning. 12. Miscellaneous Planning

Question 1

Module Introduction

“The white elephant” is an expression describing an expensive though useless object that cannot be easily disposed of, something that is more trouble than it is worth. This expression supposedly alludes to the practice of ancient Siamese kings of gifting white elephants to chosen subjects. To keep a white elephant was a very expensive task. The inordinate cost of maintaining a white elephant meant that the gift could easily induce bankruptcy if it was not also accompanied by a grant of land. Therefore, if a king became dissatisfied with one of his subjects, he would give him a white elephant. Since it is a special honor to receive the royal white elephant, it could not be refused. This gift would, in most cases, ruin the recipient.

In our times, however, the recipient of a gift has many options under the United States Internal Revenue Code. No one is forced to take what is gifted or bequeathed to him or her. The bequest or legacy can be disclaimed. A disclaimer is one of the several legal techniques available to structure a tax-effective estate plan. In the right situations, the use of disclaimers can ensure flexibility in the estate plan.

Answer 1

The Miscellaneous Planning module, which should take approximately three hours to complete, will explain a myriad of topics, including income in respect of decedent (IRD), disclaimers, the duties of the executor, trustee, and attorney in the estate planning process.

Upon completion of this module, you should be able to:
* Identify IRD assets and explain their tax implications,
* State the uses of disclaimers as an estate planning tool,
* Define the requirements for an effective disclaimer,
* Identify the professionals required in the estate planning process,
* Enumerate the attributes of a suitable executor,
* List the characteristics and qualifications of an appropriate trustee,
* Describe the attributes to look for while selecting a good attorney,

Question 2

Module Overview

Two important goals of estate planning are to provide for family members and to minimize the impact of federal estate and gift tax. Making a will is an important part of this process, but estate planning includes much more. An estate plan actually involves creating a blueprint of how people want their financial and personal affairs handled after they can no longer handle them. It involves making many decisions, using various estate planning tools, and seeking the help of professionals.

Answer 2

To ensure that you have an understanding of miscellaneous estate planning techniques and issues, the following lessons will be covered in this module:
* IRD Assets
* Disclaimers
* Selection of Estate Planners

Question 3

Section 1 - IRD Assets

Describe IRD Assets

To ensure that you have an understanding of IRD assets, the following topics will be covered in this lesson:
* IRC 691
* Who Pays Taxes
* Tax Deduction

Upon completion of this lesson, you should be able to:
* Discuss IRC 691, which describes items of IRD and their tax treatment,
* Understand which taxpayer is responsible for paying estate and income tax, and
* Describe the income tax treatment of any estate tax paid on the item of IRD.

Answer 3

Mary owned a portfolio of financial investments. Some of her assets were held in an IRA, some in annuities, and others in a regular mutual fund account. Upon her death, her beneficiaries found that some of the assets, classified as income in respect of a decedent (IRD), would not only be subject to estate tax (payable by the decedent owner’s estate) but income tax as well (payable by the recipient of the asset).

The question then becomes, what assets are considered IRD assets subject to this double tax liability?
* The Internal Revenue Code defines an item of IRD as an asset owned by a cash-basis taxpayer in which income accrued but was not taxed.
* For example, if the decedent were a participant in a qualified retirement plan, the income earned in the plan is income tax-deferred.
* Should the owner of the retirement plan die, the Internal Revenue Code will not allow the beneficiaries of the plan to receive the benefits on an income tax-free basis.
* In other words, since the participant of the plan received the income tax benefits during the lifetime and would have been subject to income tax liability during the lifetime (as funds were withdrawn from the plan), this same income tax liability transfers to the beneficiaries of the plan.
* More specifically, an asset deemed to be an item of IRD does not receive a step-up or a step-down basis.
* The tax-deferred earnings will be subject to income tax.

It is important to know what types of assets are deemed to be items of IRD. Capital assets, such as bank accounts, CDs, stocks, bonds, mutual funds, real estate, and business assets, are not items of IRD.
* The beneficiary of these assets receives as his or her basis in the property the FMV of the asset at the time of the decedent’s death.
* These assets typically receive a step-up cost basis treatment.

Question 4

Lists some items of IRD

Answer 4

Asset IRD
* Deferred Annuity. Beneficiaries do not receive a step-up cost basis and will have to pay income tax on all of the earnings within the account, regardless of the underlying investment.
* Immediate Annuity with Period Certain. If the owner dies prior to the period certain, the beneficiary receiving the balance of the proceeds will be subject to income tax liability.
* Employer-Sponsored Qualified Retirement Plan (401k, TSA, Company Pension Plans). Distributions taken from these retirement plans by the beneficiaries will be subject to income tax liability.
* IRAs. The rules are the same as for employer-sponsored plans.
* EE Bonds. Deferred interest payable when the bonds are surrendered or reissued is taxed as income to the beneficiary.
* Salary, bonus, commission, rental income, lottery winnings, or any other income. They are taxable to the recipient (estate or beneficiaries) as income.

Question 5

From the following list, identify items of IRD. (Select all that apply)
* Stocks
* Mutual Funds
* IRA Accounts
* 401(k) Plan Accounts
* Bank CDs
* Salary
* Deferred Annuities
* Bonds
* Sales Commissions

Answer 5

IRA Accounts
401(k) Plan Accounts
Salary
Deferred Annuities
Sales Commissions

These items are considered items of IRD:
* IRAs
* 401(k) Accounts
* Salary
* Deferred Annuities

Question 6

Describe Section 691: IRD

Answer 6

IRC Section 691 defines IRD as income earned by a decedent, but not received by the date of death and therefore not included in the final income tax return.
* However, this income, which the decedent would have included in gross income if he or she had lived, does not escape taxation.
* Assets, which are income in respect of a decedent, such as the life insurance commissions or installment payments received after a decedent’s death, are taxed as income to the recipient of these assets.

The beneficiary who receives an asset that is deemed to be income in respect of a decedent will pay the income tax on the earnings within this type of asset in the same manner that the decedent would have paid the income tax if living. Keep in mind that IRD assets are not capital assets, those which receive a step up or down in basis on the date of death.

Practitioner Advice: A surviving spouse who receives distributions from a retirement plan account or a traditional IRA may roll the amount over to their own IRA account. This allows the surviving spouse to defer the receipt of income until the RMD date. However, as the surviving spouse withdraws assets from the plan, these distributions will be subject to ordinary income tax liability.

Question 7

Practitioner Advice:

Practitioner Advice: A surviving spouse who receives distributions from a retirement plan account or a traditional IRA may roll the amount over to their own IRA account. This allows the surviving spouse to defer the receipt of income until the RMD date. However, as the surviving spouse withdraws assets from the plan, these distributions will be subject to ordinary income tax liability.

Question 8

Describe Tax Deduction that can be taken with IRD

Answer 8

The FMV of all assets owned by the decedent is included in the decedent’s gross estate.
* Therefore, there may be situations where the estate will be responsible for paying an estate tax on a taxable estate, which also includes items of IRD.
* Since the recipient of the item of IRD must include the assets as taxable income, it is possible to have an item of IRD subject to two tax liabilities - estate tax and income tax! This seems very unfair.
* However, IRC Section 691 sets up a mechanism whereby any estate tax liability paid by the decedent’s estate on the income portion of the IRD will be an income tax deduction to the recipient of the item of IRD.
* In other words, the estate tax attributed to the income of such an asset may be used to reduce the amount of taxable income received by the beneficiary of the asset.

The income tax deduction for any estate tax paid is treated as an itemized deduction. The beneficiary is allowed to use the deduction against all of the distributions he or she receives from the asset deemed to be an item of IRD until all of the deduction has been utilized.
* Missed IRD deductions can be taken by amending past income tax returns. However, an income tax return can only be amended for the past three years.

Question 9

Jennifer’s cousin Anne had a bonus check of $2,000 from her employer that came in the mail after Anne had passed away. The executor included this bonus amount in the value of the estate. If the estate tax was 20% of the estate and Jennifer is the sole beneficiary of the estate, how much will she be able to deduct for IRD income tax purposes?
* $4,000
* $1,600
* $2,000
* $400

Answer 9

$400
* Jennifer will be able to deduct 20% of the $2,000 or $400, which is subject to both estate tax on Anne’s estate and Jennifer’s personal income tax.

Question 10

Section 1 - IRD Assets Summary

Income in respect of decedent (IRD) is an asset in which there is accrued income and the decedent would have been responsible for paying the income tax liability but died before doing so. Given that the owner has died, the income tax liability on these types of assets flows to the beneficiaries.

Items of IRD are subject to estate tax in the decedent’s estate and income tax to the beneficiary. Since the same asset is subject to two tax liabilities, the Internal Revenue Code allows the beneficiary to take an income tax deduction for the estate tax attributed to the income within the item of IRD. It is very important for estate planners to understand the interrelationship between the income and the estate tax liabilities on these types of assets. Such an understanding by the planner may facilitate postponing or spreading out the income tax liability of the beneficiary until a future date. It is only with a surviving spouse that the income tax liability can be postponed until a later date - with a non-spouse beneficiary, the income tax liability on these assets is spread out over longer periods of time.

Answer 10

In this lesson, we have covered the following:
* IRD Assets are those on which income is earned by a decedent, but not included on the final income tax return. Instead, it is taxed to the recipient of the payments. The recipient, or beneficiary, of an item of IRD becomes responsible for this tax.
* IRC 691 outlines what is considered IRD and the tax treatment of IRD.
* Who Pays Tax: The value of the decedent’s gross estate includes the full value of the item of IRD. This may then be subject to an estate tax liability. The recipient is responsible for paying the income tax liability on the item of IRD as the income is received.
* Tax Deduction: To prevent full double taxation, any estate tax paid by the estate on the income portion of these assets will reduce the amount of taxable income received by the beneficiary. In other words, the attributed estate tax is an income tax deduction to the beneficiary of the asset.

Question 11

Section 2 - Disclaimers

Have you ever refused a gift or an inheritance? Although it is hard to imagine why anyone would, there may be situations where the intended recipient can and will want to refuse a gift or an inheritance. The refusal to accept a gift or inheritance is known as a disclaimer.

Answer 11

To ensure that you have an understanding of disclaimers, the following topics will be covered in this lesson:
* Defining Disclaimers
* Use of Disclaimers

Upon completion of this lesson, you should be able to:
* Define a disclaimer,
* Describe the uses of disclaimers in estate planning,
* List the requirements for an effective disclaimer, and
* Explain the tax implications of a disclaimer.

Question 12

Define Disclaimers

Answer 12

A disclaimer is an unqualified refusal by a potential beneficiary to accept benefits given through a testamentary or lifetime transfer of property.
* It is also called renunciation.
* Most often a disclaimer refers to the refusal by a potential beneficiary to inherit all or part of a bequest under the terms of a will or trust.

In most cases, the person entitled to receive a bequest disclaims because he either does not need or does not want the bequest. Disclaimers are often used when the bequest would otherwise increase the amount of federal estate tax that would be due from the estate.

The disclaimant, the person refusing the gift or bequest, is treated as if he or she died before the decedent or donor. Therefore, if we are dealing with a disclaimer of estate assets, the contingent beneficiaries named within the will or trust will receive the disclaimed property.

Question 13

How is the disclaimant regarded for Federal Tax Purposes

Answer 13

For federal tax purposes, the disclaimant is regarded as never having received the property. Therefore, the disclaimant is treated as having died before the transferor.
* As a result, no transfer is considered to have been made by the disclaimant for federal gift tax purposes, or for estate tax or generation-skipping transfer (GST) tax purposes.

Question 14

How is the disclaimer regarded for Federal Law Requirements

Answer 14

For federal estate, gift, and generation-skipping tax purposes, it is important to satisfy the federal law requirements for a valid disclaimer, even if local law does not characterize the refusal as a disclaimer.
* To be fully effective for both state and federal purposes, the disclaimer must also comply with the applicable state law and may have to meet separate rules for state gift or state death taxes.

Question 15

List common Uses of Disclaimers

Answer 15

Disclaimers are a practical and effective estate planning tool by which beneficiaries, who are perhaps aware of facts and circumstances unknown to the decedent, can often rearrange an estate plan to better deal with current personal, economic, and tax issues facing their family.

Possible uses of a disclaimer may include:
* A disclaimer may be used if a bequest increases the intended beneficiary’s potential estate tax liability. The beneficiary who disclaims cannot control who will receive the property, as the disclaimed assets will pass to the transferor’s contingent beneficiaries.
* If the contingent beneficiaries are in lower income tax brackets, a disclaimer can shift the income taxation to the lower brackets.
* When the property is left to a spouse who doesn’t need or want it, disclaiming the portion not needed may facilitate utilization of all or a portion of the estate tax exclusion amount.
* A trust with an interest passing to a charity that does not meet the requirements for a charitable deduction can use a disclaimer by other beneficiaries to qualify the trust interest for a charitable deduction.
* Disclaiming retirement plan assets in favor of a younger contingent beneficiary allows the retirement benefits to be distributed over a longer period of time with a concurrent reduction in the income tax liability.
* The potential disclaimant may be entitled to receive an annuity or unitrust payment from a charitable remainder trust but does not need the payment. In this situation, a disclaimer of that interest will allow the transferor a 100% charitable deduction instead of a deduction limited to the value of the charitable remainder.

Question 16

What are the Requirements to Use Disclaimers?

Answer 16

IRC Section 2518 provides a single set of definitive rules for disclaimers. To be effective, a disclaimer must be qualified for purposes of the estate, gift, and generation-skipping transfer taxes. The requirements governing tax-qualified disclaimers are as follows:
* There must be an irrevocable and unqualified refusal to accept an interest in property.
* The refusal must be in writing.
* The transferor, his or her legal representative, or the holder of legal title to the property must receive the writing.
* The refusal must be received no later than nine months after the day on which the transfer creating the interest is made or, if later, nine months after the day on which the donee or beneficiary attains the age of 21.
* The disclaimer must be made prior to acceptance of the interest or any of its benefits.
* The interest must pass to a person other than the disclaimant without any direction on the part of the disclaimant. However, a valid disclaimer by a surviving spouse may be made even though the interest passes to a trust in which she has an income interest.
* The interest disclaimed may be an entire interest, but can be an undivided fractional part of the proposed gift.
* The beneficiary of a gift or bequest who is insolvent or in bankruptcy may disclaim the gift or bequest to avoid claims of creditors. However, local law must be consulted to assure this will be effective.

Question 17

Which of the following are requirements for a disclaimer?
* In writing
* No later than 9 months after transfer creating interest
* Revocable
* Disclaimant designates where the interest should go

Answer 17

In writing
No later than 9 months after transfer creating interest

• Disclaimers must be in writing, irrevocable, declared no later than 9 months after the transfer, and the disclaimant cannot have a say in who receives the property.

Question 18

What are the Tax Implications for Disclaimers?

Answer 18

Far-sighted estate planning could result in favorable tax treatment. The tax implications of a disclaimer are explained below:
* A disclaimer of a property interest or a power is not treated as a gift for gift tax purposes.
* A disclaimed interest in property is not considered to be a transfer by a disclaimant or decedent for estate tax purposes and will not be included in his or her estate as a transfer with a retained life estate.
* If a person disclaims property in favor of a surviving spouse or charity, the marital or charitable deduction will be permitted, provided the property would otherwise qualify for these deductions.
* Any income received on the disclaimed property will be chargeable to the person in whose favor the property was disclaimed.

Question 19

What are the Issues with Disclaimers in Community Property States?

Answer 19

A qualified disclaimer is taken into account for purposes of the marital deduction.
* In either separate property or a community property state, a disclaimer can be expected to initially qualify the estate for the marital deduction or to increase or decrease the deduction if the surviving spouse gains or loses because of the disclaimer.

The availability of the unlimited marital deduction, which applies to both separate and community property, alleviates concerns for future planning in this area.
* However, different rules apply to the disposition of separate and community property by will.
* Therefore, it is still important to carefully characterize all of the property interests held by a decedent and his or her spouse to determine if under community property rules a disclaimer is desired or required.

Where the entire community property is subjected to probate upon the death of only one spouse, the surviving spouse should exercise caution to disclaim only the community property interest of the decedent.
* A disclaimer of both halves would probably result in a taxable gift to the individual who receives the interest as the result of the disclaimers.
* Furthermore, several types of problems can also arise when attempting to determine whether a specific property is to be characterized as community, quasi-community or separate.

Question 20

Section 2 - Disclaimers Summary

Estate planning does not end with the creation of a will or trust. The use of disclaimers can significantly reduce tax liability. A disclaimer is simply the refusal to accept a bequest or a gift. According to the law, the person making the disclaimer is considered to have predeceased the transferor. The property disclaimed then goes to whoever would have received the property in the event of the disclaimant’s death, for example, the contingent beneficiary if the transfer disclaimed is a bequest.

In this lesson, we have covered the following:
* A disclaimer is defined as the irrevocable and unqualified refusal by a potential beneficiary to accept benefits given through a testamentary or lifetime transfer of property. If a person makes a qualified disclaimer, the property disclaimed is treated as never having been transferred to that person for federal gift, estate or GST tax purposes. To be qualified, a disclaimer must meet federal requirements but does not have to meet all state requirements. However, the transfer of property ownership rights must be recognized under state law as well as federal law for a disclaimer to be effective.

Answer 20

• Use of disclaimers: Disclaimers can be effectively utilized as estate planning tools to minimize taxes. Generally, they are used when the disclaimant does not need the property, and the contingent beneficiary does. Disclaimers may also be used to take full advantage of the unified credit exemption, marital deductions, and charitable deductions. For a disclaimer to be effective, it must be irrevocable and unqualified and it must be in writing. The transferor or his/her legal representative must receive the writing within nine months after the transfer is made.

Question 21

A disclaimer cannot be used effectively for federal transfer tax purposes to:
* Shift income-producing property to someone in a lower income bracket.
* Transfer property under the direction of the disclaimant.
* Qualify additional property for the marital deduction.
* Increase the decedent’s estate in order to utilize the applicable credit.

Answer 21

Transfer property under the direction of the disclaimant.

• Disclaimants cannot give direction as to where the property will be transferred once they have refused it.

Question 22

A disclaimer that results in a transfer to or for an individual who is two or more generations younger than the transferor can attract:
* Gift tax
* Estate tax
* Inheritance tax
* Generation-skipping transfer tax

Answer 22

Generation-skipping transfer tax
* A transfer to an individual who is two or more generations younger than the transferor is a direct generation skip transfer. A disclaimer can create generation-skipping transfer by someone other than the disclaimant because, under GST tax law, a direct skip transfer is a GST subject to the GST tax if it is also subject to federal estate or gift tax.

Question 23

With respect to disclaimers, which of the following is true?
* A disclaimer of a property interest, or a power, is treated as a gift for gift tax purposes.
* A disclaimed interest in property is considered to be a transfer by a disclaimant/decedent for estate tax purposes and will be included in his estate at death as a transfer with a retained life estate.
* Any income received on disclaimed property will not be chargeable to the person in whose favor the property was disclaimed.
* If property is disclaimed by a person in favor of a surviving spouse or charity, the marital or charitable deduction will be permitted provided the property would otherwise qualify for these deductions.

Answer 23

If property is disclaimed by a person in favor of a surviving spouse or charity, the marital or charitable deduction will be permitted provided the property would otherwise qualify for these deductions.
* Disclaimed property acts as though it never went to the disclaimant’s estate. If the property qualifies, it can take advantage of marital or charitable deductions.

Question 24

Section 3 - Selection of People Involved in Estate Planning

Have you ever had to select the best man or maid of honor at your wedding? Or have you ever thought of who would be responsible enough to be the guardian of your children in case you passed away while they were still young? Although these roles carry an air of honor, they also come with a tremendous amount of responsibility. Not everyone will be up to the task. In estate planning, three of the major roles that your client will need to fill are:
* the executor,
* the trustee, and
* the attorney.

It is impossible to make a proper selection of any member of the estate planning team without a general understanding of what that individual should be doing and how that person interacts with others who also have important roles to fulfill. Therefore, it is important that the client gain basic information regarding the duties of the executor, trustee and estate attorney, as well as the attributes and selection criteria of each party.

Answer 24

This lesson will establish practical guidelines in the selection process from the point of view of the person who ultimately must make those choices: the client.

To ensure that you have an understanding of the selection of these roles, the following topics will be covered in this lesson:
* Selecting an Executor
* Selecting a Trustee
* Selecting an Attorney

Upon completion of this lesson, you should be able to:
* State the criteria for selecting an appropriate executor,
* List and describe the attributes of a good executor,
* Specify the principles for choosing a suitable trustee,
* Distinguish between the factors in selecting a trustee and an executor,
* Identify the attributes of a desirable trustee,
* Define the guidelines for identifying an attorney well suited for estate planning and administration, and
* List and describe attributes of an ideal attorney.

Question 25

Describe Selecting an Executor

Answer 25

An executor is a person or institution named in a valid will to serve as the personal representative of a testator when his or her will is probated. Technically, this person is referred to as the executor, if male, and executrix, if female, but is commonly referred to as the executor or personal representative regardless of gender.

When death occurs:
* The executor must locate and probate the decedent’s will,
* Prove that it was the decendent’s will and that it in fact was his or her last will,
* Collect the decedent’s property, pay debts, taxes and expenses, and
* Distribute any remaining assets to the beneficiaries specified in the decedent’s will.

An executor’s responsibilities typically last from nine months to two or three years. In rare instances, such as when there is a will contest or the estate remains open for tax or other reasons, the executor’s duties continue for a period of years.

An executor is considered a fiduciary. This means if the executor does not exercise the duties with care, the potential exists for a lawsuit brought by the estate beneficiaries on the following grounds: a breach of confidentiality, conflicts of interest, failure to exercise due care or diligence or prudence, failure to properly preserve or protect estate assets, failure to file timely and proper tax returns or maintain adequate records, and the breach of the duty to make all major discretionary decisions personally and not to delegate such decisions.

Question 26

There should always be at least one and preferably two successors to the main executor(s).
* True
* False

Answer 26

True
* The choice of executor(s), primary as well as successor, is complicated by a combination of family, personal, tax and nontax considerations, both tangible and intangible.
* There should always be at least one and preferably two successors to the main executor(s).
* All of the proposed executors must be capable of handling the executor’s tasks and responsibilities, which are often complex, but from the heirs’ point of view, their successful and prompt completion is always crucial.

Question 27

What are the major attributes to consider when choosing an executor?

Answer 27

• Sensitivity. Highest preference should be given to the identification of an individual who is able to put in extra effort in giving consideration to the psychological as well as financial needs and individual circumstances of the beneficiaries.
• Competence. Legal capacity entails U.S. citizenship and the satisfaction of state law requirements such as age of majority, mental competency and domicile.
  Intellectual capacity includes the ability to analyze the situation as quickly as possible under the circumstances and determine what facets of the estate administration can be handled within the bounds of the executor’s personal knowledge and capabilities, and then secure the appropriate professional assistance in these areas in which the executor knows he or she lacks experience.
  Emotional capacity involves the ability to make a multitude of important decisions, such as the selection of and negotiations with the estate’s attorney and tax elections.
• Understanding of the needs and appreciation of the circumstances of the beneficiaries. Personal knowledge of the beneficiaries, their ages, health conditions, income requirements, strengths, weaknesses and eccentricities is extremely helpful to an executor.
• Knowing of the nature, value and extent of the decedent’s assets. Familiar with the nature, value and extent of the decedent’s assets such as:
  a) how to safeguard, transport, insure, have appraised and sell such items, and
  b) the location of all of the assets or the names of those persons who can help in this key part of the estate’s probate.
• Experience in the administration of estates. The major strengths of a corporate fiduciary as opposed to an individual is experience with administering estates.
• Business and investment experience. Professional executors such as banks, trust companies, professional advisors clearly will have an edge in a case where significant business or investment decisions will have to be made. Familiarity with the decedent’s business is a plus.
• Ability to serve willingness to serve. The duties and responsibilities of an executor can amount to considerable time and effort, ranging from dozens of hours to hundreds and even thousands of hours. This responsibility and potential personal liability may drastically reduce the willingness of the nominee to accept the position.
• Geographic proximity to the estate’s beneficiaries and the estate’s assets. Physical distance the executor may make it difficult for the executor to travel and devote the time spent away from home.
• Lack of any conflict of interest. Wherever there is any potential for a conflict of interest, such as sibling rivalries, business associate versus family member, or the attorney who drafted the will is chosen as executor, the use of a professional fiduciary or advisor should be considered.
• Integrity and loyalty. It is as essential that the testator have absolute trust in the honesty and loyalty of the executor for reasons that go beyond the obvious legal or ethical implications.

Question 28

Identify the legal capacity requirements of an executor. (Select all that apply)
* Mental Competence
* Sensitivity
* Business and Investment Experience
* Age of Majority
* Experience

Answer 28

Mental Competence
Age of Majority

• Legal capacity requires that the executor be a U.S. Citizen and satisfy state law requirements such as attainment of age of majority, mental competency, and domicile.

Question 29

Describe the consideration of Fees in the executor selection process

Answer 29

The fee amount a personal representative is entitled to may be determined by:
* The statutory law of the state where the estate is probated,
* Local county rules or customs governing what the personal representative is entitled to charge for services rendered to the estate,
* In the case of professional executors, such as banks or trust companies, an advertised fixed and scheduled fee, and
* Provisions in the will or in separate contractual agreements between the testator and the nominated executor.

For a large estate, the scheduled fee may possibly be lowered by negotiation. An attorney specializing in estate administration can be invaluable during this process.

An executor is entitled to reasonable compensation for services rendered. Fees should not be determined solely on the basis of the monetary amount of the decedent’s probate assets, but should take into account:
* Nature of the executor’s tasks,
* Time spent,
* Complexity of the problems and decisions that have to be made,
* Professional background and competence of the executor, and
* Ultimate results and benefits obtained for the heirs.

In many cases, testators expect that family members named as executors will charge no fees, but professional fiduciaries will. Although in many situations this assumption will be correct, this selection criterion should be tempered by considering the mistakes the nonprofessional may make and the opportunities the nonprofessional may miss.

Question 30

Describe Selecting an Trustee

Answer 30

A trustee is a person and/or institution named in a trust agreement to carry out provisions or terms of the trust. A trustee can be an individual, either a professional or nonprofessional, or it can be a corporate fiduciary. It is also possible and common to appoint both individual and corporate trustees.

The following is a list of possible goals for creating a trust:
* Reduce or eliminate income, estate, or generation-skipping transfer taxes at the federal or state level.
* Reduce or eliminate probate costs.
* Provide a vehicle that will serve as a receptacle for both probate and non-probate assets and facilitate the attainment of other estate planning objectives through a unified administration.
* Provide for minor children in a manner more flexible and custom-tailored to the grantor’s desires than the Uniform Gifts or Uniform Transfers to Minors Acts allow.
* Provide for recipients who have attained the age of majority but who lack the emotional or intellectual maturity or physical capacity or technical training to handle large sums of money, or an investment portfolio, or a family business.
* Provide for individuals who have the capacity to handle large sums of money, or an investment portfolio, or a family business, but choose not to make the necessary investment decisions, or deal with constant problems, or devote the degree of attention required.
* Postpone full ownership of trust assets until the beneficiaries of the trust have attained ages specified by the grantor or until events specified by the grantor have occurred.
* Enable the investment of an asset that does not lend itself to fragmentation. This often occurs where the grantor desires to spread the beneficial ownership among a number of individuals. Life insurance policies and real estate are just two examples of assets that are difficult to split up or are worth substantially more if held together.
* Limit the parties who can obtain the assets and achieve particular dispositive objectives. For instance, where family control of a business or a specific asset is important, the grantor will want to limit the class of beneficiaries and prevent recipients from disposing of property to persons outside the family. A common example is the desire to protect assets from the consequences of an unsuccessful marriage.

It is the trustee’s duty to ensure that the trust achieves its goals. The duties of the trustee may therefore include the satisfaction of a number of tax and nontax objectives that include, but are not limited to, the investment, management, and protection of trust assets and compliance with the intentions of the grantor.

Question 31

What are the Distinguishing Factors between Executors and Trustees?

Answer 31

To a great extent, the selection process and decision criteria for selecting a trustee will follow the same pattern as in choosing an executor. However, there are several significant distinctions.

The trustee’s responsibilities commonly last for at least one generation and often last beyond two or three generations:
* This fact should have a significant effect on the choice of trustee or on the decision to name both co-trustees and successor trustees or to provide a mechanism for their appointment by a resigning trustee or by the beneficiaries.
* The choice of trustee is tax-sensitive. There will be situations in which tax consequences will vary widely with results ranging from success to tax disaster depending on whether the grantor, the grantor’s spouse, the beneficiaries, the grantor’s business associates, the grantor’s professional advisors, or a totally independent third party are named as trustees.
* The decision is further complicated by a multiplicity of personal, family, business, investment, and nontax considerations, which must all be weighed by the grantor and the attorney drafting the trust.

Question 32

Why is the selection of a trustee the most difficult?

Answer 32

The selection of a trustee is most difficult because of the longevity of most trusts, the complexity of the tax and other laws with which the trustee must comply, and the sensitivity a trustee must have to both the grantor’s objectives and the beneficiary’s needs and desires.
* Professional trustees tend to be shielded from conflicts of interest that may otherwise arise when the trustee is a friend, family member, or business associate.
* Click here to read more about conflict of interest.
* For these reasons, one or more co-trustees, who are almost always professionals, are appointed where the terms of the trust are complex or the estate is large.
* Click here to read about the attributes of a trustee.

Question 33

What are the Attributes of a Good Trustee?

Answer 33

When selecting a trustee, the major attributes to consider are:
* Availability. The real issue is whether the trustee will be able to serve effectively long enough (permanency) and will be in the area (proximity).
* Impartiality and lack of conflict of interest. A trustee who is also a family member may be forced by conscience or by duty to make choices injurious to the harmony of family relationships. An independent professional trustee is not subject to such problems. The ability of a professional trustee to be objective and impartial should be given high preference in the decision-making process.
* Financial security. The security of the funds entrusted to the trustee and the depth of the trustee’s pockets in the event of a successful malfeasance or misfeasance suit by beneficiaries. Banks and trust companies are audited both internally and externally. Lack of a system of checks and balances is one of the major shortcomings of an individual nonprofessional trustee.
* Investment sophistication, policy and track record. The decision must be made on the basis of the type of investment policy the grantor of the trust desires and the particular trustee that will come closest to matching that policy.
* Business sophistication. Where one or more businesses are held in the trust, it is extremely important that the trustee have expertise in running that type of business. Even if the trustee should and will sell it, knowing when and how best to dispose of it is a very important skill.
* Accounting and tax-planning expertise. The trustee must have a working knowledge of the accounting laws and both federal and state tax laws involving income, estate, gift, and generation-skipping tax. Corporate fiduciaries have a definite advantage over nonprofessional individual trustees. It is possible and in many cases appropriate for a trustee to hire agents for advice and assistance.
* Record keeping and reporting ability. A trust is a long-term arrangement under which accountings must be made periodically over many years to a number of parties that may include the grantor, the beneficiaries, the appropriate federal and state taxing authorities, and the supervising court. This requires regular statements of the receipts, disbursements, and assets of the trust in an intelligible form, and careful long-term record storage.
* Knowledge of and sensitivity to beneficiaries and their circumstances. If flexibility in dealings with trust beneficiaries and a high degree of personal sensitivity are primary considerations, a nonprofessional trustee is indicated.
* Fees. Corporate and other professional fiduciaries charge a fee for their services. Usually, this fee is based on a percentage of the income and principal of the trust. A distribution fee equal to a percentage of the principal disbursed from the trust is also often charged upon termination or otherwise.
* Tax-neutral impact. If one of the major reasons for establishing an irrevocable trust is to save taxes, the identity of the trustee is a very tax-sensitive decision because the inclusion of the trust’s assets in income, gross estate, or generation-skipping tax base will result if the wrong party is selected as trustee. The potential for adverse tax results increases significantly when the trustee is given discretionary powers over the income or principal of the trust if the trustee or a cotrustee is the grantor, his or her spouse, a family member, or some combination of them, or if one or more of these people becomes a trustee under a successor provision in the trust.
* Decision-making abilities. The trustee selected must be able to make many decisions, some of great significance, over an extended period of time. This entails the need for emotional maturity and wisdom as well as knowledge.
* Competence. A trustee must have the legal capacity to contract. This precludes the appointment of a minor or an incompetent adult. In many states, a nonresident individual can act as a trustee. However, as a practical matter, geographical considerations often contraindicate selecting a person who lives a considerable distance from the beneficiaries of the trust. Some states bar nonresident corporations from serving as trustees.
* Standard to which trustee will be held. A trustee must use the same degree of care and skill that a person of ordinary prudence would exercise in dealing with his or her own property. The Uniform Probate Code, adopted by many states, places a higher standard on professional trustees.
* Integrity. Honesty and loyalty are the watchwords of trusts. Vast sums of money and other assets are entrusted to fiduciaries who must exercise a high degree of care over trust property and act consistently on behalf of trust beneficiaries.
* Flexibility to meet changing circumstances. Change in tax law and in the circumstances and goals of each of the beneficiaries are the only certainties. As a trust is a mechanism specifically designed to meet that change, the trustee must be willing and able to change as well.
* Willingness to serve throughout the term of the trust. An individual trustee could easily lose interest through the long years and even generations a trust may last. Corporate fiduciaries are more likely than individuals to continue for the full term.
* Experience as a trustee. Through experience, the fiduciary is more likely to appreciate the broad and complex multiplicity of laws involved, know who to call on for assistance, avoid many mistakes and more efficiently administer and execute the terms of the trust.
* Neutral state law impact. If state law trust requirements are not met, the trust will be invalid and provide none of any intended tax benefits. This is because federal laws’ recognition of a trust as a separate tax entity presupposes the validity of the trust under state law. When a beneficiary is named as trustee, the Doctrine of Merger must be considered.

Question 34

List Questions to Consider on Conflict of Interest

Answer 34

Conflict of interest can occur even where there is no issue of impartiality. For example, assume that grantor names his or her attorney as trustee. The attorney/trustee would most likely be objective and impartial as between the conflicting interests of family members. But consider these questions:
* Once the grantor has died, who will negotiate with the attorney to ensure that fees are reasonable?
* Who could fire the attorney or trustee if services were not performed properly or in a timely manner?
* Can the attorney remain impartial as a trustee if he or she represents the business of one of the beneficiaries?
* Is it appropriate for an accountant serving as trustee to continue in the dual capacity if he or she also represents a business owned by the trust?
* What if there is an argument between the attorney/trustee and the grantor or the trust’s beneficiaries that is entirely personal or is on the attorney/client level and has nothing to do with the relationship he or she has as a trustee?
* Is it possible for an attorney/trustee to fairly represent the beneficiaries, the grantor or cotrustees in a trust-related situation?
* Will the attorney or accountant be willing to allocate appropriate time to the trust or will at the same time that the person is concentrating on obtaining and servicing professional clients? This is especially important if the fees for serving as trustee are substantially lower than that charged in the professional’s practice.

Conflict of interest problems would plague a business associate or partner who was named trustee. For instance, if the trust held stock in one or more businesses in which the trustee was an officer or shareholder, his or her salary, or stock interest would be affected by the actions taken as a trustee. What if the trustee was the art dealer for the trust of an artist who trusted him or her and had the highest degree of respect for the dealer’s integrity, judgment and marketing expertise? Assume the trust’s assets consisted mainly of the artist’s paintings. The dealer/trustee would be bound to obtain the highest price possible when selling trust assets. But as a dealer, he or she would want to pay the lowest possible price. Would it be appropriate to continue as trustee under those circumstances? It is risky to name anyone who is likely to buy or lease assets from or sell or lease assets to the trust or have any other dealings with trust property.

Some of these impartiality and conflict-of-interest problems can be overcome or minimized if anticipated in advance. But in most cases, if such problems can occur, they will. Often, the problem is not that an unethical transaction has occurred or an improper decision has been made. Rather, it is that the parties are uncomfortable merely because the beneficiaries know it could happen and the trustee knows the beneficiaries may distrust, second-guess, or sue him or her merely because they suspect a conflict of interest could have occurred or might occur.

Question 35

Describe pros and cons of Co-Trustees

Answer 35

After considering the desirable characteristics of a good trustee, it will become obvious to most grantors that it is impossible to select a trustee who possesses all of these characteristics. Therefore, in order to ensure that the trustee has most of the desirable characteristics, many grantors appoint corporate and nonprofessional as co-trustees.
* Often, one or more family members and a corporate fiduciary are selected.

Combining the positive aspects of more than one trustee comes at a certain cost. Therefore, some drawbacks or issues must be considered.
* For instance, if two trustees are selected, what is the procedure if they do not agree on a given issue?
* If three or more are selected, will the majority rule?
* What responsibility does a dissenting trustee have for an action (or nonaction) taken by the majority?

Question 36

Describe Selecting an Attorney

Answer 36

The duties of the attorney will depend on the client’s stage in the estate planning process, whether accumulation, conservation, or distribution. Clearly, the attorney must be aware of what is done at each stage, and the implications and consequences of these actions to the client and his or her beneficiaries.
* For instance, it may be easier and less expensive in the planning stage of the cycle to draft a simple will as opposed to a series of complex trusts.
* However, this may be short-sighted, as the client’s family may have fared better had the attorney drafted a more thorough estate plan.

An estate planning attorney must gather data regarding the client and his or her family or other potential beneficiaries and their circumstances, including information regarding the client’s sources of wealth, income, liabilities, and expenses, as well as the client’s financial goals and fears. The attorney must then assemble this data and relate each of these objective facts and subjective feelings to each other, and be able to ascertain the client’s current position and the extent of his or her weaknesses in the following areas:
* Liquidity: Will the client during his or her lifetime, and the executor after death, be able to pay taxes and other expenses without the need for a forced sale?
* Disposition of assets: Are they going to the right person at the right time in the right manner?
* Adequacy of capital and income: Does the client have enough capital and income in the event of death or disability, at retirement, for special family needs such as the care of a retarded or physically handicapped child, or for charitable bequests?
* Stability and maximization of value: Has the client put a floor under, and then maximized, the value of the assets he or she currently owns? For instance, the value of a business without adequate liability or fire insurance coverage has not been stabilized, and the value of a partnership without a fully funded buy-sell plan has not been maximized.
* Excessive transfer costs: Is the client paying too much in income taxes, or will the client’s estate pay an unnecessary amount of estate or other death taxes or transfer costs?
* Special needs: Does the client have special needs or desires that must be met, such as making gifts to a charity, supporting a poor relative, or protecting a spendthrift spouse?

Often the attorney must organize the entire estate planning team. The attorney should always work with the client and the client’s other advisors to establish priorities and agree on responsibilities. This will facilitate the successful completion and implementation of the estate plan.

Only the attorney can draft the appropriate estate planning documents. These range in complexity and length from simple durable power of attorney to the recapitalization of the client’s business and the complete restructuring of the nature of the client’s estate plan.

Question 37

What are Attributes of a Good Attorney?

Answer 37

Many of the same attributes needed in the selection of an executor or trustee are also important in the search for an attorney.

Some ways to identify competent attorneys practicing in the estate planning field are:
* Membership directory of the county or city estate planning council
* Telephone book listing
* Trust officers at banks
* Business meetings or adult education courses
* Practicing attorneys who teach estate planning in law schools or business schools
* Attorneys who write in professional journals or regular newspaper columns, or do radio talk shows on estate planning
* Attorneys who have a master’s degree in taxation
* Referrals from friends and business associates
* Bar association referral services and local law schools with tax master’s programs

Click here to read about the attributes of an attorney.

Question 38

List Attributes when selecting an Attorney

Answer 38

The selection of an attorney who specializes in estate planning and administration should focus primarily on identifying someone who has:
* Competence. Once the estate reaches the size at which federal estate taxes may be imposed, or if the client or any of the client’s beneficiaries are under a legal, physical, mental, or emotional disability, or if there is an unusual fact pattern, it is best to find an attorney who specializes in estate planning and administration.
* Compassion. The estate planning attorney will be keenly sensitive to the importance of the client’s business, for instance, not only as figures on a ledger sheet but also as a personification of the client and as part of a goal-striving behavior. Such an attorney will be extremely conscious of the circumstances, needs, hopes, and fears of the client and of his or her intended beneficiaries.
* Clarity. An estate planning attorney must be able to request information from other professionals, explain to them what each member of the estate planning team is doing and what remains to be done. The attorney must also be able to communicate clearly with nonprofessionals, such as the client or the client’s family, the nature and extent of problems the client may not have known existed. Clarity encompasses not only transferring information but also the urgency of deciding and then acting.
* Affordability. Clients should demand a written and signed statement of the attorney’s hourly fee or an estimate of the overall cost for planning or administering the estate, before allowing work to begin.

Question 39

Section 3 - Selection of People Involved in Estate Planning Summary

Estate planning is an extremely complex process. Choosing a team of professionals helps people review their financial situation and identify strategies to achieve their financial goals. They could also provide valuable advice on how to avoid unnecessary taxes and draw up the legal documents required. The key players for consideration by the client are the executor, trustee, and attorney.

In this lesson, we have covered the following:
* Selecting an executor involves consideration of attributes such as sensitivity, competence, integrity, loyalty, and the ability and willingness to serve. The executor is named in a valid will to serve as the personal representative of a testator. The executor’s responsibilities include locating and probating the decedent’s will, collecting his or her property, and paying debts, taxes and expenses, as well as distributing remaining assets to beneficiaries. To fulfill these responsibilities, the executor must have some experience in the administration of estates and familiarity with the decedent’s business and know the nature, value, and extent of the decedent’s assets. He or she must understand the needs and appreciate the circumstances of the beneficiaries and not have any conflicts of interest. It would be an added benefit if the executor were geographically close to the estate’s beneficiaries and assets.

Answer 39

• Selecting a trustee is not easy because trusts may last for a long period, even over many generations. The main duties of a trustee are to reduce or eliminate taxes and probate costs. The trustee must fulfill the desires of the grantor with respect to minor children and recipients who lack the ability, or do not wish to handle, money and investments. The ideal attributes of a trustee are availability, impartiality, financial security, competence, integrity, and preferable experience as a trustee. Additionally, the trustee should be able to make proper decisions, which have a tax-neutral impact. The trustee must also possess investment and business sophistication, accounting and tax planning expertise, and record-keeping and reporting ability. Due to the complexity of the tax and other laws related to trusts, a trustee must be sensitive to both the grantor’s objectives and the beneficiary’s needs and desires. For these reasons, one or more co-trustees, who are almost always professionals, are appointed where the terms of the trust are complex or the estate is large. A corporate trustee is in many ways more advantageous than an individual due to the willingness to serve throughout the term of the trust.
• Selecting an attorney who specializes in estate planning should focus primarily on identifying someone who has competence and compassion. He or she must also have the ability to communicate clearly with other professionals and with clients, as well as a willingness to work at a price that is in line with the client’s means. An estate planning attorney must gather data regarding the client, his or her family, and potential beneficiaries, as well as the client’s sources of wealth, income, liabilities, expenses, financial goals, and fears. This information must be used to ascertain the client’s current financial position related to liquidity, disposition of assets, adequacy of capital and income, stability and maximization of value, excessive transfer costs, and special needs.

Question 40

For which type of trusts does it not matter who is selected as trustee?
* Revocable trust
* Irrevocable trust
* Testamentary trust
* Charitable trust
* Discretionary trust

Answer 40

Revocable trust

• A revocable trust has a neutral impact on taxes at both federal and state levels. If the grantor has reserved the right to revoke the trust at any time, in most situations he or she will be treated as if he or she had not established a trust and had remained as the outright owner of the property in the trust. So it does not matter for tax purposes who is selected as trustee.
• But if one of the major reasons for establishing an irrevocable trust is to save taxes, the identity of the trustee is a very tax-sensitive decision, because inclusion of the trust’s assets in the income, gross estate or generation-skipping tax base will result if the wrong party is selected as trustee.

Question 41

When selecting an attorney, the client should find the one who charges comparably lower fees.
* False
* True

Answer 41

True
* Selecting the right attorney is a cost-saving factor.
* However, the lowest fee may be far from the least expensive because of the complexity of the practice and the potential for making expensive mistakes.
* Malpractice premiums for estate planning and administration attorneys are among the highest in the profession.

Question 42

Which of the following are concerns for selection of a trustee? (Select all that apply)
* Last for multiple generations
* Possible law suits
* Tax sensitive
* Conflict of interest

Answer 42

Last for multiple generations
Possible law suits
Tax sensitive
Conflict of interest
* Trusts can last for multiple generations; therefore, it is necessary to pick successor trustees. Financial security and checks and balances are necessary in case of law suits. Revocability of trusts dictates whether or not the trustee is liable for the taxes of the trust. The trustee’s relationship to the beneficiary may raise conflict of interest in his or her actions.

Question 43

Who is named in a valid will as the personal representative of the testator?
* Attorney
* Executor
* Trustee
* Beneficiary

Answer 43

Executor

• The executor is named in a valid will to serve as the personal representative of a testator when his or her will is being probated.
• A trustee and co-trustee are named in a trust agreement.
• An attorney is usually selected by the client for legal advice on estate planning but may also be appointed as executor, co-executor, trustee or co-trustee.

Question 44

A trustee can be: (Select all that apply)
* A professional
* A nonprofessional
* A corporate fiduciary
* An individual

Answer 44

A professional
A nonprofessional
A corporate fiduciary
An individual
* A trustee can be an individual, either a professional or nonprofessional, or a corporate fiduciary.

Question 45

Module Summary

Estate planning is the process of developing a program for effective management, enjoyment, and disposition of a person’s property at the least possible tax cost. There are several techniques, such as disclaimers, that can be used in planning an estate efficiently.

The key concepts to remember are:
* Income in Respect of Decedent (IRD): Income in respect of a decedent is income that is earned by a decedent, but is not received by the date of his or her death. This income cannot be included in the decedent’s last life income tax return and must be taxed to the recipient of the payments, the beneficiary, and/or the estate. The estate must pay income tax on the amount it retains. Beneficiaries will pay the tax on the income of the trust or estate actually distributed to them. The amount that is reported as part of the estate can be deducted from the beneficiary’s personal tax.
* Disclaimers: A disclaimer is the irrevocable and unqualified refusal by a potential beneficiary to accept a bequest. When a property is disclaimed, it passes from the decedent to the person or entity that, under the will or trust, is designated to receive the property if the disclaiming beneficiary is not living at the time the gift or bequest is made. Disclaimers can be used as an estate planning tool to reduce estate tax liability. If the disclaimer is qualified, that is, if it meets the requirements of the law, the property disclaimed is treated as never having been transferred to the disclaimant for federal gift, estate, or GST tax purposes. A disclaimer can also be used to fully benefit from unified credit exemption and other deductions on estate tax.

Answer 45

• Selection of Estate Planners: The essential parties in the estate planning process are the executor, trustee, and attorney. The executor is responsible for probating the decedent’s will, paying probate expenses, and collecting and distributing the property. The trustee’s responsibility is to ensure that the trust meets its goals. For example, he or she must carry out the wishes of the grantor with respect to minor children and recipients who lack the ability or do not wish to handle money and investments. An estate planning attorney must gather data regarding the client, use this information to ascertain the client’s current financial position, and organize the estate planning process. The selection comes down to finding those who are competent, willing, and able to serve, sensitive to client and beneficiary conditions and needs, can avoid conflict of interest, and are suitable in respect to taxation and compensation.

Question 46

IRD assets are taxed as income to __ ____??____ __.
I. the recipient of these assets
II. the decedent
* Neither I nor II
* II only
* Both I and II
* I only

Answer 46

I only
* Assets, which are income in respect of a decedent, such as the life insurance commissions or installment payments received after a decedent’s death, are taxed as income to the recipient of these assets.

Question 47

A(n) __ ____??____ __ is a person or institution named in a valid will to serve as the personal representative when a will is probated.
* testator
* trustee
* executor
* grantor

Answer 47

executor

• An executor is a person or institution named in a valid will to serve as the personal representative of a testator when his or her will is probated.
• Technically, this person is referred to as the executor, if male, and executrix, if female, but is commonly referred to as the executor or personal representative regardless of gender.

Question 48

The estate planning attorney must be able to ascertain the client’s current position and the extent of his or her weaknesses in which the following areas?
* Liquidity
* Transfer costs
* Disposition of assets
* Special needs

Answer 48

Liquidity
Transfer costs
Disposition of assets
Special needs

An estate planning attorney can provide analysis and recommendations of the following:
* Transfer costs
* Special needs
* Disposition of assets
* Liquidity
* Adequacy of capital and assets
* Stability and maximization of value

Question 49

Each of the following is a requirement of a qualified disclaimer EXCEPT:
* Must be in writing.
* May be delivered via a revocable refusal.
* May be received no later than nine months after the day on which the transfer creating the interest is made.
* Must be made prior to acceptance of the interest or any of its benefits.

Answer 49

May be delivered via a revocable refusal.

• There must be an irrevocable and unqualified refusal to accept an interest in property for the transaction to be categorized as tax-qualified.

Question 50

An item of income in respect of a decedent (IRD) may have which of the following tax liabilities: (Select all that apply)
* Self-employment tax
* Estate tax
* Income tax
* Generation-skipping transfer tax

Answer 50

Estate tax
Income tax

• Since the recipient of the item of IRD must include the assets as taxable income, it is possible to have an item of IRD subject to two tax liabilities:
• estate tax
• income tax

Question 51

Each of the following is an item of income in respect of a decedent (IRD) EXCEPT:
* Insurance commissions
* Mutual Funds
* Deferred Annuities
* EE Bonds

Answer 51

Mutual Funds

• Capital assets, such as mutual funds are not considered items of IRD.
• EE bonds, insurance commissions, and deferred annuities are items of IRD.

Question 52

A __ ____??____ __ is an unqualified refusal by a potential beneficiary to accept benefits given through a testamentary or lifetime transfer of property.
* disclaimer
* stop-loss
* bequest
* remuneration

Answer 52

disclaimer

• A disclaimer is an unqualified refusal by a potential beneficiary to accept benefits given through a testamentary or lifetime transfer of property. It is also called renunciation.
• Most often a disclaimer refers to the refusal by a potential beneficiary to inherit all or part of a bequest under the terms of a will or trust.

Question 53

Which of the following is considered an item of income in respect of a decedent (IRD)?
* IRAs
* Stocks
* Real estate
* Bonds

Answer 53

IRAs

• Capital assets, such as bank accounts, CDs, stocks, bonds, mutual funds, real estate, and business assets, are not items of IRD.
• IRAs are considered items of IRD.

Question 54

A(n) __ ____??____ __ is a person and/or institution named in a trust agreement to carry out provisions or terms of the trust.
* trustee
* executor
* testator
* grantor

Answer 54

trustee

• A trustee is a person and/or institution named in a trust agreement to carry out provisions or terms of the trust.
• A trustee can be an individual, either a professional or nonprofessional, or it can be a corporate fiduciary. It is also possible and common to appoint both individual and corporate trustees.