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Estate Flashcards

1
Q

What kinds of property are considered separate in a community property state?

A
  1. Income earned by spouses prior to marriage
  2. Property received as a gift by one spouse
  3. Property inherited by one spouse
  4. Interest earned on separate assets held by one spouse as sole owner
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2
Q

What is the main tax advantage of community property?

A

It gets a full step-up in basis (LTG property, not ordinary income property) in the entire property if at least one-half of the whole property is includible in the deceased spouse’s gross estate.

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3
Q

What is quasi-community property?

A

Property that would have been community property except for the fact it was acquired while the couple was living in a noncommunity property state.

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4
Q

Is Joint Tenancy with Rights of Survivorship property (JTWROS) included in the probate estate of the decedent?

A

No

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5
Q

How is JTWROS property (nonspouses) taxed when the first owner dies?

A

The full value of JTWROS is included in the gross estate of the first tenant to die unless the survivor can establish ownership (consideration) of some portion of the property before joint tenancy was created.

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6
Q

How is JTWROS property held by spouses taxed when the first owner dies?

A

If a married couple are the only joint tenants, when the first spouse dies, his or her gross estate must include one half of the property’s FMV as of the date of death.

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7
Q

What is the surviving spouse’s basis in property that was JTWROS after one spouse dies?

A

It is 1/2 of the old basis (regardless of who “paid”) plus 1/2 of the date of death value.

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8
Q

Can JTWROS property be disclaimed?

A

Yes

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9
Q

What is Tenancy by the Entirety

A

Just like JTWROS but can only be held by spouses

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10
Q

Can Tenancy by the Entirety property be disclaimed?

A

No. Severance can only occur with the mutual consent of both parties

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11
Q

What is the benefit of Tenancy by Entirety?

A

In most states, it is protected from the claims of each spouse’s separate creditors but are not protected from the claims of both spouses’ joint creditors.

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12
Q

Can Tenancy in Common property be disclaimed?

A

Yes

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13
Q

What kind of title does a Trustee hold?

A

Legal title

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14
Q

Explain Elective Share

A

In almost all states, a surviving spouse who has not inherited a certain minimum amount provided by state law has a right to take a share of the deceased spouse’s estate.

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15
Q

What is the Uniform Simultaneous Death Act (USDA)

A

It provides that any people who die within 120 hours of each other, by law, are deemed to predecease each other.

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16
Q

What is a Totten Trust?

A

A revocable trust in a bank account in which the depositor is named “trustee” for another’s benefit. The depositor retains the right of withdrawal until death. When the depositor dies, the balance passes to the beneficiary.

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17
Q

Can a will be revoked if it is intentionally destroyed or shredded?

A

Yes

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18
Q

What is a holographic will?

A

One that is in the testator’s handwriting and signed. A holographic will can be accepted by courts.

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19
Q

What is a nuncupative will?

A

An oral will. It must be made in the presence of witnesses - generally during a final illness or combat situation.

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20
Q

What is the key feature of a testamentary trust?

A

It does not automatically take effect upon the death of a decedent. It becomes effective only if the will creating the testamentary trust is admitted to probate. But a testamentary trust does not go through probate.

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21
Q

What transfers made within three years of death are included in the gross estate of the transferor?

A
  1. Certain transfers of life insurance by the insured

2. Any gift TAX paid out-of-pocket on gifts within three years of death (included under the gross-up rule)

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22
Q

Are survivor annuities included in a decedent’s gross estate?

A

If the survivor is to receive periodic payments (rather than a lump sum) the present value of the future payments is included in the gross estate.

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23
Q

Are life estates included in a decedent’s gross estate?

A

A life estate is not included in a decedent’s gross estate, unless it is a retained life estate - then it is.

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24
Q

What three deductions are taken from the adjusted gross estate to arrive at the taxable estate?

A
  1. Marital Deduction
  2. Charitable Deduction
  3. State Death Taxes
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25
Q

What is added back to the Taxable Estate to arrive at the Tentative Tax Base?

A

Taxable Gifts

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26
Q

What is the Prior Transfer Credit?

A

A credit given when property is included in the transferor’s taxable estate (paying tax) and the transferee dies within 10 years of the transferor (also paying tax).

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27
Q

What is a Five or Five Power?

A

A “power” to take either $5,000 or 5% of a trust. It that is the limit of assets that can be taken, then the assets of the trust are not included in the “power holder’s” estate.

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28
Q

True or False?
A special power may not be exercised in favor of the holder or the financial equivalent of the holder. (A holder’s child is not considered the financial equivalent of the holder.)

A

True

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29
Q

Is a life estate included in a decedent’s gross estate?

A

No, because the decedent transfers nothing at death.

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30
Q

Is a deathbed check mailed to a relative considered a gift?

A

It may not be if the check does not clear before the donor’s death. If funds don’t clear, then it has not been completed.

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31
Q

When a life insurance policy is given as a gift, what is the gift tax based on?

A

The replacement value of that policy.

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32
Q

What are gifting strategies for closely-held businesses?

A

Family Limited Partnerships, LLCs or gifting closely-held stock will reduce the value of the business interest in the donor’s estate (but watch out for gifts of stock in a closely held corporation - it may disqualify the state from Section 303 or Section 6166 elections.

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33
Q

True or False?

Gifts of a future interest do not qualify for the gift tax exclusion?

A

True

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34
Q

What are the exceptions to the rule about future interests?

A
  1. Gifts in trust of future interests on behalf of minors
  2. 2503(c) trusts
  3. Crummey trusts
  4. 529 plans
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35
Q

What is the annual exclusion for a gift to a noncitizen spouse?

A

$155,000

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36
Q

What is the value of the gift for gift tax purposes?

A

The FMV on the date of the gift

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37
Q

How is the donee’s basis calculated for income tax purposes?

A
  1. If the FMV on the date of the gift is greater than the donor’s adjusted basis, then the donee’s basis is equal to the donor’s basis increased by any gift tax PAID by the donor that is attributable to the appreciation (must be appreciated property to get increased basis).
  2. If the FMV on the date of the gift is less than the donor’s adjusted basis, then a loss is measured using the FMV on the date of the gift. A gain is measured using the donor’s basis.
  3. If the sale price of the gift is between the donor’s basis and the FMV on the date of the gift, neither gain nor loss is recognized.
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38
Q

When will the donor of a gift recognize a gain?

A

When he is gifting property subject to indebtedness that is greater than its cost to the donor. Gain = excess of debt over basis.

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39
Q

When is a gift tax Form 709 required?

A
  1. Any year you gift more than $15,000 to any non-spouse
  2. Whenever you make a gift of a future interest in any amount
  3. When a gift is made for which spouses want to elect gift splitting. (Two returns will need to be filed if, after the split, the values exceed the annual exclusion.)
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40
Q

Does a gift tax return need to be filed to “split” a gift is it is community property or JTWROS?

A

No. It is considered one-half owned.

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41
Q

When is there a gift of money in a joint tenancy bank account?

A

When the funds are withdrawn by the donee, not upon creation.

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42
Q

When is there a gift of money in a joint tenancy U.S. Savings bond?

A

When the bond is redeemed.

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43
Q

What are the five types of exempt gifts?

A
  1. qualified payments made directly to an educational institution for tuition
  2. qualified payments made directly to a medical provider
  3. gifts to a spouse
  4. gifts to a qualified charity
  5. gifts to the President of the U.S.
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44
Q

To be split a gift, do you need to be married at the time of the gift, or when you file your return?

A

At the time the gift is made.

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45
Q

How are charitable contributions of a life insurance policy valued for the income tax deduction?

A

It is the cash value of the policy or the cost basis, whichever is less (and then limited by AGI) because life insurance is treated as an ordinary income asset, not a LTCG asset that can be valued at FMV for charitable deduction purposes.

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46
Q

What is an OBRA “payback trust”?

A

Omnibus Budget Reconciliation Act of 1993
A “payback trust” is an exception to the 60 month look back period to qualify for Medicaid. If there are assets remaining in the trust when the disabled person dies, the state is entitled to be paid back any of the funds Medicaid paid on behalf of the beneficiary. VERSUS a Special Needs Trust which can be established with a remainder beneficiary who will inherit the trust assets after the disabled person dies.

47
Q

Can a simple trust make a charitable gift?

A

No

48
Q

Can a complex trust make a charitable gift?

A

Yes

49
Q

Is a simple trust treated as a separate tax entity?

A

Yes, and is subject to a $300 personal exemption.

50
Q

What is a Crummey Trust?

A

An irrevocable trust with demand rights. The right of withdrawal is equal to the lesser of the amount of the annual exclusion or the value of the gift transferred.

51
Q

What is a Spendthrift Trust Provision?

A

One that prohibits the transfer of the beneficiary’s interest and stipulates that it is not subject to the claims of the beneficiary’s creditors.

52
Q

What is the difference between a Bypass Trust and a QTIP trust as it relates to the income?

A

Bypass can provide a stream of income to the surviving spouse only. A QTIP trust can also be split among the spouse and other individuals if the decedent chooses.

53
Q

Can a surviving spouse have access to corpus of a Bypass Trust and not include it in surviving spouse’s estate?

A

Yes, 5 or 5 provision or HEMS withdrawal right.

54
Q

What is the key characteristic of a marital trust?

A

The surviving spouse has postmortem control over the property in this trust. Surviving spouse has a right to all income and the ability to invade the entire amount of the corpus of the trust.

55
Q

What are the other names for a QTIP Trust?

A

C Trust or “Current Income Trust”

56
Q

When is a QTIP Trust used?

A

When the decedent wishes to provide the surviving spouse with a stream of income that will be paid (only) for life yet also wishes to qualify the property for the marital deduction but must be included in estate of surviving spouse. It is LAME. It allows the decedent to have postmortem control over the property when the surviving spouse dies. Executor of decedent’s estate must make an election on the decedent’s tax return.

57
Q

What is an estate trust?

A

A marital trust that does NOT provide the surviving spouse an income stream. It generally holds non income-producing assets.

58
Q

What types of assets can be held in a uGma account?

A

Cash type - securities, cash, life insurance and annuities

59
Q

What types of assets can be held in a uTma account?

A

Any type, including real estate, partnership interests and intellectual property. This allows gifts at death.

60
Q

What happens if the custodian predeceases the minor in a custodial account?

A

The custodial property would be included in the donor/custodian’s gross estate.

61
Q

How is the income generated from funds in a 2503(b) trust taxed?

A

As a present interest because it is distributed and so eligible for the annual tax exclusion.

62
Q

How are transfers to a 2503(c) trust treated?

A

As a gift of a present interest. Exclusion applies. Subject to trust tax rules.

63
Q

What is the kiddie tax?

A

Tax on a child’s investment income at the same rate that applies to trusts and estates.

64
Q

What kind of exemption is available for a 2503(c) trust?

A

A $100 exemption

65
Q

When does the kiddie tax apply?

A
  1. Kid turns 18 or 19-23 if a full-time student
  2. Has earned income for the tax year of one-half or less of his or her support
  3. Has a certain amount of unearned income ($2,200 in 2019); and
  4. Has at least one living parent at the end of the tax year.
66
Q

What is a sprinkling or spray trust?

A

One that allows the trustee to have discretion to determine whether a particular beneficiary needs any income (only).

67
Q

What is a dynasty trust?

A

An arrangement where transfers are made to a B trust that benefits multiple future generations.

68
Q

What is the rule of perpetuities with respect to dynasty trusts?

A

It can be free of estate, gift and GST taxes for the lives in being plus 21 years and 9 months or as long as local law allows.

69
Q

If stated in a term of years, what is the maximum allowable period to provide income to an income beneficiary of a CRAT?

A

20 years

70
Q

What it the minimum allowed remainder interest for a CRAT?

A

At least 10% of the amount initially contributed.

71
Q

What are the CRAT rules?

A
  1. Only one transfer to trust allowed.
  2. Must pay out a specific amount of income each year (at least 5%).
  3. The amount remains fixed once the initial payments are calculated.
72
Q

How is a CRUT (Charitable Unitrusts) similar to CRATS?

A

Maximum 20 year term and 5% rule.

73
Q

How are CRUTs different from CRATs?

A
  1. Donor can make more than one transfer to the trust.
  2. Must pay out a specified percentage of income (a fixed percentage) each year (at least 5%) of the reappraised value of the corpus. However, the amount of income may vary.
74
Q

What is a NIMCRUT? (net income with makeup trust)

A

A kind of CRUT. Beneficiary will receive the lesser percentage of the trust’s value or the net income earned by the trust during the year.

75
Q

When is a NIMCRUT used?

A

When the donor is still working and does not want the money until he retires.

76
Q

How is a Charitable Leads Trust taxed?

A

Donor can claim an upfront income tax deduction for the present value of the payment stream distributed to the charities. Any remainder, which goes to the donor’s beneficiaries, is not included in donor’s estate.

77
Q

Who would use a Charitable Leads Trust?

A

Wealthier, estate tax-avoiding clients if they can afford to forego substantial income and own a significant amount of highly appreciating assets.

78
Q

Differences between a Charitable Gift Annuity and a CRAT?

A
  1. Property transferred to a charity, not a trust.
  2. Charity gets money now.
  3. Value of property transferred to charity exceeds the value of the annuity guaranteed by the charity.
  4. Donor is making charitable contribution in the amount of the excess and the amount so contributed is an allowable deduction. So both acquisition of an annuity and a charitable contribution. No 5% rule applies.
79
Q

What is the main rule of a private/family foundation?

A

At least 5% must be distributed annually.

80
Q

What is a major benefit of a private/family foundation?

A

It can distribute tax deductible gifts to noncharitable beneficiaries if:

  1. made for study, travel or similar purposes
  2. a scholarship, fellowship, prize or award
  3. intended to improve or enhance a literary, artistic, musical, scientific, teaching or other similar capacity, skill or talent of the grantee.
81
Q

What taxes are private foundations subject to?

A
  1. Excise tax of up to 2% of net investment income.

2. 15% penalty if it does not distribute annually 5% of the average FMV of its assets.

82
Q

What is a Supporting Organization?

A

Like a private foundation but generally created to benefit only one public charity. It must be controlled by the charity, not the donor’s family (but family can sit on BOD).
No 2% excise tax and no minimum distribution requirements.

83
Q

What are the 3 requirements of a Donor Advised Fund?

A
  1. Contributions are tracked to specific donors
  2. Owned or controlled by a sponsoring organization
  3. Donor or donor’s appointee can advise with respect to investments or distributions.
84
Q

What are the rules of a Charitable Stock Bailout?

A
  1. Stockholder and charity cannot agree to the time or certainty of redemption.
  2. If the corporation does not redeem the stock and the stockholders redeem it, it would result in dividend treatment of the redeemed stock.
85
Q

True or false?

A gift can be made by naming a beneficiary to a life insurance policy when a third-party is the insured.

A

True - When insured dies, owner of the policy makes inter vivos gift to beneficiary.

86
Q

What is the value of the gift of a life insurance policy when additional premiums need to be payed?

A

Add the “interpolated premium reserve” (the reserve adjusted to the date of the gift) and the value of the unearned portion of the last premium.

87
Q

Keys to a corporate recapitalization (Section 2701)

A
  1. CEO’s stock must be reissued as preferred, paying a cumulative preferred dividend.
  2. Gift value of common stock = value of business - value of retained preferred shares.
  3. Preferred shares provide retirement income and appreciation of business is in common shares (out of estate)
88
Q

What is the general rule for a transfer to qualify for the marital deduction?

A

The surviving spouse must have a retained interest (not just a life estate). Exception is when surviving spouse receives a life estate income, payable at least annually, plus a general power of appointment. Executor must elect QTIP treatment or QDOT property (trust created for marital deduction for property to nonresident spouse).

89
Q

Gift appreciated Asset to Donee. Donee dies and leaves asset to donor. Does Donor’s basis step up?

A

Only if one year has passed between gift and death.

90
Q

Does the 3 year rule apply to a gift of a life insurance policy if the decedent is not the insured?

A

No

91
Q

What is a Self Canceling Installment Note (SCIN)?

A

An installment sale where the balance of any payments due at the date of the seller’s death are automatically canceled. No estate tax, but cancellation of payments will trigger recognition of the entire remaining gain on decedent’s income tax return.

92
Q

What are the major advantages to a Family Limited Partnership (FPL)?

A

Lack of control and marketability are two types of valuation discounts that allow for gifting (gift value is discounted, but donee’s basis is not discounted). Plus, general partner can still control the business.

93
Q

True or False?

A partnership interest is considered personal property.

A

True - this means an owner can avoid ancillary probate, even for a real estate limited partnership.

94
Q

What are the key elements of a GRAT?

A

If grantor does not live out term, all the property is brought back into the grantor’s estate. Grantor has a “string” on the property. This is a gift of a future interest, so no $15,000 annual exclusion.

95
Q

Why is a GRAT more convenient than a GRUT?

A

A GRUT principal must be valued every year.

96
Q

What is a GRIT?

A

A Grantor Retained Income Trust - it is an irrevocable trust where the grantor retains a right to income for a period of years.

97
Q

What is the difference between a GRIT and a GRAT or GRUT?

A

There mere right to income does not assure that any will actually be distributed to the grantor.

98
Q

Problem with GRITS?

A

Retained interest is valued at zero, so no benefit in doing one except non-family GRITS are a loophole.

99
Q

When is a QPRT applicable?

A
  1. When the residence is large ($1M or more)
  2. When the life expectancy is reasonable (at least 10 years)
  3. When the donor continues to live in the residence
  4. When the estate is large (more than $11.4M)
100
Q

Who is liable for the GSTT on a direct skip?

A

The transferor.

101
Q

Is the $15k GSTT annual exclusion available for a taxable termination.

A

No. Taxable termination is a termination of a non-skip person’s interest in income or principal of a trust with the result that skip persons become the only remaining trust beneficiaries. Allocation of the GSTT exemption is elective. GSTT PAID BY TRUSTEE

102
Q

What is a GSTT taxable distribution?

A

Any distribution of property out of a trust to a skip person (other than a direct skip or taxable termination). No $15k annual exclusion. Beneficiary will pay GSTT when exemption is used up. GSTT PAID BY TRANSFEREE

103
Q

How do you calculate GSTT?

A
  1. Calculate gift tax due

2. (Amount of transfer - $15k (if direct skip) + gift tax paid) x 40% = GST due

104
Q

Does an estate receive credit for GSTT paid?

A

No

105
Q

What is the Alternate Valuation Date?

A

6 months after the decedent’s death

106
Q

When can you choose AVD?

A
  1. When it will reduce value of gross estate
  2. when it will reduce the federal tax liability
  3. Must be applied on all properties included in the gross estate.
  4. Cannot be elected for assets that decrease in value with the mere passing of time.
107
Q

When is property valued when it is disposed of between the date of death and the AVD, when AVD has been elected?

A

The date of distribution.

108
Q

True or False?

When you have wasting assets (like notes receivable), the ADV can be used on all other assets, but those.

A

True

109
Q

True or False?
When sold, appreciated Inherited Property is always given long term capital gains treatment, even if sold the day after receiving it.

A

True

110
Q

Requirements for Disclaimer to be valie

A
  1. Irrevocable
  2. In writing
  3. Within 9 months
  4. Received no interest in the benefits
  5. Interest will pass to someone else without dislcaiming person’s direction
111
Q

What is Section 303?

A

It allows the distribution of closely held stock to a decedent’s estate to provide liquidity, without it being treated as a dividend.

112
Q

What is Section 6166?

A

If the estate property qualifies, the estate tax attributable to the closely held business interest can be paid in 10 equal installments beginning 4 years after the decedent’s death.

113
Q

What is Section 2032A?

A

A method of valuation eligible for real estate used in connection with a closely held business or a farming operation. Can result in a maximum reduction of $1,160,000 in 2019 from the decedent’s gross estate for the value of special purpose real estate.

CFP - my flashcards (6 decks)

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