Estate Planning Flashcards
Allowable deductions from Gross Estate
four deductions
- funeral and administration expenses
- debts of the decedent
- certain taxes
- casualty or theft losses
Essential Estate Planning documents for Special Needs Child
3 documents
- Will
- Letter of intent
- Guardianship Appointment
GSTT Non-related skip persons
age difference
Skip person is 37.5 to 62.5 years younger than the transferor.
if you add the ages, they equal 100
Gifting Property
Gifting Property with LOSS:Scenario 1
When Sale Price > FMV
“Wait and See” Approach
= Donor’s HP + Basis
Donor gifts property at a loss. The donee subsequently sells the property for a gain, so the donee use the donor’s original basis to offset the gains AND inherits the donor’s holding period.
Gifting Property
Gifting Property with LOSS:Scenario 2
When Sale Price < FMV
“Wait and See” Approach
= HP + BASIS from Gift Date
Donor gifts property at a loss. The donee subsequently sells the property at a loss, so the donee uses the FMV from the gift date as the basis (step-up) AND the holding period will begin from the gift date.
Gifting Property
Gifting Property with LOSS: Scenario 3
When Sale Price is BETWEEN Basis and FMV
“Wait and See” Approach
= No loss or gain!
Donor gifts property at a loss. The donee subsequently sells property at a value between the donor’s basis and the FMV from the date of the gift, so the donee has no loss or gain (i.e. the double basis rule applies). The holding period is a non-factor.
Gifted Property
Gifted property with GAIN
&
Gift Tax Adjustment
If the FMV of the property at the time of the gift is greater than the donor’s basis, then:
- The donee will assume the donor’s holding period and
- The donee uses the donor’s basis as their own
When the donor has paid gift taxes, the “tacking on” rules apply to the basis.
Gift tax adjustment is calculated as:
[Gain ÷ (either FMV minus Annual Exclusion or FMV)] X Gift Taxes Paid
Exam question will likely say the “donor used their annual exclusion”, therefore the annual exclusion is deducted from the FMV. If they did make prior gifts to this donee and exceeded the annual gift tax exclusion, then just use FMV in the denominator. The numerator is the gain.
The federal estate tax is a tax on the transfer of property when a person dies. It is measured by the value of the property rights that are shifted from the decedent to others. It is a tax on the right to…
It is a tax on the right to transfer property or an interest in property, rather than a tax on the right to receive property.
Gifts can take on the following forms…
four forms
- Outright transfer of property to an individual or trust
- Forgiveness of a debt
- Foregone interest on an intra-family, interest-free or below market loan
- The assignment of the benefits of an insurance policy
What is the name of the estate where the separately-owned assets of the decedent’s estate transfer under the provisions of the will?
legal term
testate
Will substitutes
Which Will substitutes allow assets to avoid the probate process?
three substitutes
Three substitutes (T.L.C.):
- Trusts (funded revocable trusts, irrevocable trusts, and property in a trust)
- Operation of Law (JTWROS, Tenancy by the Entirety, Joint bank accounts, POD/TOD accounts, life estate).
- Contract (named beneficiaries on life insurance, pension plans, IRAs, annuities).
Spousal Transfer
What type of trust is used when the surviving spouse does not need the trust income or corpus?
Estate Trust
Qualifies property for a marital deduction in the decedent’s estate.
Spousal Transfer
Surviving spouse to access trust income for health, education, maintenance, and support (aka, the ‘HEMS’ standard) without including the assets in their estate.
Ascertainable Standard
Spousal Transfer
Which trust qualifies transfers to a non-US citizen spouse for the unlimited marital deduction?
QDOT (Qualified Domestic Trusts)
Remember: ‘O’ for DOmestic
Spousal Transfer
Which trust is appropriate when decedent has had previous marriages and wants to take care of the current spouse but be certain his kids from prior marriages are well taken care of?
QTIP (Qualified Terminable Interest Trust)
- Property passes gift and estate tax free under marital deduction (executor qualifies the TIP)
- Provides the surviving spouse with income for life
- Limited control to surviving spouse, so she cannot change the trust terms to cut out children from prior marriage.
- Upon death of surviving spouse, gives trust corpus to children from a previous marriage tax-free BUT assets included in the surviving spouse’s estate.
Spousal Transfer
Which type of trust allows the surviving spouse to obtain tax-free income “if needed”, but with limited control, and assets won’t be included in the surviving spouse’s taxable estate?
B-Trust. AKA Bypass Trust, Residual Trust, Credit Shelter Trust, and Family Trust.
When surviving spouse passes, assets won’t be included in the surviving spouse’s taxable estate, as it “bypasses”. The assets are passed on to named beneficiaries without incurring significant estate taxes.
Allows the surviving spouse to obtain tax-free income “if needed”, but with limited control. Income interest is terminable interest property (TIP).
Decedent spouse cannot receive a marital deduction.
The spouse can be given a 5 by 5 power of appointment over the trust corpus and a limited power of appointment with an ascertainable standard (HEMS) to receive distributions from trust income and corpus.
B = Below ground, so control is with decedent, therefore included in taxable estate. Does NOT qualify for marital deduction.
Spousal Transfer
What type of trust provides the surviving spouse with a general power of appointment, access to income, and the ability to invade the trust corpus during life.
A-Trust
Also known as a Marital Trust or Power of Appointment Trust
Assets qualify for unlimited marital deduction for the decedent.
Surviving spouse must receive all income, which is paid at least annually.
Surviving spouse determines beneficiaries of the trust assets at death via general power of appointment in the will.
A=Above ground, so control remains with surviving spouse, therefore included in her taxable estate.
Spousal Transfer
What type of estate minimizes spouse’s total estate tax liability for their combined estates?
Estate equalization
Spousal Transfer
Which trusts provide the surviving spouse with all income annually?
A-Trust or QTIP
Spousal Transfer
Which trusts provide the surviving spouse with income if needed?
B-Trust or Estate Trust
Spousal Transfer
Which trusts allow the surviving spouse to choose trust beneficiaries?
A-Trust or Estate Trust
Spousal Transfer
Which type of trust allows the surviving spouse to do post-mortem estate planning determine what portion of the decedent’s estate to transfer into a trust to use the decedent’s unified credit?
Disclaimer trust
Used by spouses to avoid estate taxes on large estates or to keep assets away from creditors. The spouse chooses not to inherit the assets, and a qualified disclaimer is used to create a Disclaimer Trust.
What type of trust is used when both spouses have wealth above their combined lifetime exclusion amount ($12.92M)?
A-B Trust
The order of funding is B-Trust, then A-Trust (B = before, then A=after)
B trust is filled with decedent’s lifetime exclusion (but no marital deduction), with the remainder going into the A-Trust.
Surviving spouse has control over A-trust, hence included in her taxable estate upon death.
For a gift from a US citizen spouse to a Non-US citizen spouse, what is the gift tax exclusion limit?
$175,000 gift tax exclusion
Alternate Valuation Date (AVD)
This extends the valuation to six months after the date of death.
One exception exists for assets sold in between the DoD and AVD - those are treated as valued on their date of sale.
Alternate Valuation Date (AVD)
Which assets do not qualify for AVD and must be valued using FMV at DoD?
Depreciating assets whose value decline over time:
* Cars
* Patents, Copyrights, Intellectual Property
* Life Estates
* Remainder interests
