Advanced Estate Planning (Lesson 4) Flashcards
(156 cards)
1
Q
The ___ _____ of qualifying property left to the surviving spouse is included in the marital deduction
A
- Net value for marital deduction purposes equals the gross value of the qualifying property left to the surviving spouse less any taxes, debts, or estate administration expenses payable out of the spousal interest
2
Q
What are the advantages of the unlimited marital deduction
A
- defers estate taxes until the death of the surviving spouse
- may fund the applicable estate tax credit of the surviving spouse
- ensures the surviving spouse has sufficient assets to support their lifestyle
3
Q
What is the requirement to receive the unlimited marital deduction
A
- the decedent must have been married as of the date of their death
- surviving spouse must receive property through the estate
4
Q
What are the two limitations that are put on the unlimited marital deduction
A
- property passing to the spouse must qualify for the marital deduction
- only the net value of qualifying property that is left to a spouse can be included as the martial deduction
5
Q
What is the net value for use in calculating the marital deduction
A
- equals the gross value of the qualifying property left to the surviving spouse less any taxes, debts, or estate administration expenses payable out of the spousal interest
6
Q
What are generally the three ways that property can be left to a spouse and qualify for the marital deduction
A
- outright transfers to spouse
- GPOA Trusts
- QTIP trusts (spouse only income beneficiary)
7
Q
What are the three requirements for property to qualify for a martial deduction
A
- property must be included in the decedents gross estate
- property must be transferred to the surviving spouse
- interest must be a terminable interest unless it meets one of the exceptions
8
Q
Does property qualify for the marital deduction if the deceased spouses will directs the executor to use property included in the gross estate to purchase terminable interest property for the surviving spouse
A
- Unlimited marital deduction is not available
9
Q
What are the exceptions to the terminable interest rule that qualify for the unlimited marital deduction
A
- six month survival contingency
- terminable interest, either outright or in trust, over which the surviving spouse has a GPOA
- QTIP Trust
- CRT where a spouse is the only noncharitable beneficiary
10
Q
Is a interest in a patent a terminable interest
A
- yes because a patent right terminates after a certain period of time
11
Q
When will a outright bequest to a spouse not the best option
A
- spouse is not cable of managing assets
- may need protection from current and future creditors
12
Q
What are the two types of trusts that qualify for the marital deduction
A
- General Power of Appointment Trust
- QTIP Trust
13
Q
What is a general power of appointment trust
A
- known as a A Trust
- creates a terminable interest for a surviving spouse that will nevertheless require the unconsumed assets to be included in the surviving spouses gross estate and thus qualify the transfer of the property to the trust for the unlimited deduction
14
Q
What is an A Trust
A
GPOA Trust
15
Q
Does a trust that gives the surviving spouse the power to appoint the property only to their estate qualify for the unlimited marital deduction
A
- Yes referred to as an estate trust
- spouse must be the the only beneficial interest in the trust
16
Q
What is a Qualified Terminable Interest Property Trust
A
- Known as a C Trust
- Holds property for the benefit of a surviving spouse and make income distributions to the surviving spouse at least annually
- at the surviving spouse death the trust property will transfer to the remainder beneficiary as determined by the grantor of the QTIP Trust
17
Q
What are the requirements for a QTIP trust to qualify for the marital deduction
A
- property must be in the gross estate of the first to die spouse and must transfer to the surviving spouse
- Surviving spouse is entitled to all of the trust income for life
- surviving spouse must have the authority to compel the trustee to sell nonincome producing investments and reinvest those proceeds in income producing investments
- During surviving spouses lifetime no one can have the right to appoint the property to anyone other than the surviving spouse
- transferor /executor must file an election to treat the trust as a QTIP Trust on the transferors gift tax return or the decedents federal estate tax return
18
Q
If the surviving spouse is not a US citizen does the unlimited marital deduction available
A
- no there is a special annual exclusion amount of $159,000
19
Q
What is the special annual exclusion amount for non US citizen spouses
A
- $159,000
20
Q
What is one way that a non citizen surviving spouse can qualify for the unlimited marital deduction
A
- become a US citizen before the due date of estate tax return and maintain residency in the United states following the death of the decedent spouse
21
Q
What is a way the the unlimited marital deduction is available for a non citizen spouse who does not want to become a US citizen
A
- create a Qualified Domestic Trust (QDOT)
22
Q
What are the requirements for a QDOT to qualify for the unlimited martial dedcution
A
- at least one of the QDOT trustees must be a US citizen or a US domestic corporation
- trust must prohibit a distribution of principal unless the US Citizen trustee has the right to withhold estate tax on the distribution
- trustee must keep a sufficient amount of the trust assets in the US to ensure payment of federal estate taxes or the trustee must have a minimum net worth sufficient to assure the payment of estate taxes upon the death of the non citizen spouse
- executor of the citizen spouses estate must elect to have the martial deduction apply to the trust
23
Q
What happens if the surviving spouse does not use the deceased spouses unused exemption before they remarry
A
- the first to dies exclusion is wasted
24
Q
What is a bypass trust used for
A
- used to ensure that an individual can make full use of their applicable estate tax credit amount
- Usually funded with an amount up to the applicable estate tax exemption
25
What does it mean when the estate is underqualified
- means that too much of the decedents property was subject to estate tax at the death of the first spouse due to a failure to make adequate use of the unlimited marital deduction
26
What does it mean when the estate is overqualified
when a decedents taxable estate is less than the applicable estate tax exemption
27
What is the formula for capitalized income approach used for estate life insurance needs
(Gross income - Adjustments)/ Riskless rate adjusted for inflation = Life insurance needed
28
What are some common objectives of life insurance
- Protect income stream for beneficiaries
- Source of funds for education
- Provide liquidity at death
- Source for retirement income
- Create or sustain family wealth
29
What is term life insurance
- a life insurance contract that states if the insured dies within the term of the contract, the insurance company will pay the stated death benefit
30
What is universal life insurance
- a term insurance policy with a cash accumulation account attached to it
31
What is variable life insurance
- are universal life insurance policies with one added feature the insured can choose how to invest the cash in the cash accumulation account
32
What is Whole life insurance
- provides guarantees from the insurer that are not found in term insurance and universal life insurance contracts
33
What is one of the advantages of a second to die policy
- that one of the parties (usually the spouse) can be uninsurable
34
Who is the owner of a life insurance contract
- is the person who has title to the contract
35
Who is the insured in a life insurance contract
- is the person whose life is covered by the contract
36
What is the transfer for value rule for taxation of life insurance contracts
- applies when the life insurance policy is exchanged for valuable consideration
- causes the death benefit that is received in excess of basis to be subject to income tax
37
When will the transfer for value rules not apply when there is a transfer of a life insurance policy
_- If the transfer of the life insurance policy is to any of the following individuals:_
- the insured
- partner of the insured
- a partnership in which the insured is a partner
- a corporation in which the insured is a shareholder or officer
- a transferee who takes the transferors basis in the contract
38
What is the surrender value of a life insurance policy
- is generally the cash value of the contract less a surrender charge which is governed by the contract or by state law
39
What happens if the owner of the policy surrenders the policy to the insurance company
- receives an amount that is greater than their adjusted basis in the policy will be considered Ordinary taxable income
40
What is a dividend that is received on a life insurance policy considered
- owners adjusted basis
41
Is there any tax consequence from taking a loan from policy
- no tax consequence results from taking the loan
42
What happens if a policy lapses when there is an outstanding loan
- the gain on the policy will include the outstanding loan and will be subject to ordinary income tax
43
A policy loan should generally not be taken unless
- they expect to repay the loan or
- if the loan will not be repaid the policy will remain in force until the death of the insured
44
Does a transfer of ownership for life insurance qualify for the annual exclusion
- yes because it is a present interest gift
45
What is the value for gift tax purposes if the life insurance policy is still in the premium pay status
- is the sum of the policy's interpolated terminal reserve plus any unearned premium
46
What is the value for gift tax purposes if the life insurance policy is in paid up status
- is the replacement cost of the policy which equals the present cost charged by the insurance company to issue a similar contract
47
How can the gift of a life insurance premium held by a trust qualify for the annual exclusion
- if a Crummey power provision is included in the trust the gift will qualify for the annual exclusion
48
What is charitable deduction of a policy that is gifted to charity
- is ordinary income property
- net deduction is usually the adjusted basis of the property
- if the FMV is less than the adjusted basis the deduction is equal to the FMV of the property itself
- If policy is paid up deduction is equal to the replacement value
49
What is the charitable deduction of a policy that gifted to charity but premiums remain unpaid
- The deduction is equal to the interpolated terminal reserve
50
What happens if the owner of a insurance policy continues to pay premiums on a policy that is donated to charity
- the premium payments are an additional tax deductible charitable gift
51
What is the income tax deduction AGI limits for a gift of an existing life insurance policy to a charity
- limited to 50% of AGI public charity
- limited to 30% of AGI private charity
52
Naming a charity as a beneficiary qualify it for a tax deduction
- no ownership of the policy must be transferred to the charity irrevocably
53
What happens if the policy was transferred to the charity within 3 years of death
- the death benefit will still be included in the donors gross estate but will still be eligible for the unlimited charitable deduction on the estate return
54
Is the gift of a life insurance policy to a charity included in the adjustable taxable gifts for the estate calculation
- no because the annual exclusion applied and charitable deduction also applied
55
What happens if an individual dies owning a life insurance policy on the life of another person
- the value of the life insurance policy will be included in their gross estate
- value of the policy is terminal reserve plus any unearned premium
56
What is an incident of ownership that will cause a life insurance policy to be included an insureds estate
- the ability to exercise any economic right in the policy
57
What is the three year look back rule for including a policy in the owners gross estate
- if an individual gratuitously transfers ownership of a life insurance policy on their life within three years of death the death benefit will be included in their gross estate
- does not apply to sales of life insurance policies
58
Will a new life insurance policy bought within a ILIT subject to the three year look back rule
- No
59
What happens if a beneficiary dies with Crummey powers before they are able to lapse
- the GPOA (5x5) amount will be included in the power holders gross estate
60
What two provisions are used by a life insurance trust to provide liquidity to the estate without causing the death benefit to be subject to estate tax
- giving the trustee of the life insurance trust the right to purchase assets from the estate of the insured and
- giving the trustee of the life insurance trust the right to loan money to the estate of the insured
61
What are the two primary methods of utilizing life insurance to transfer ownership of a closely held business at an owners death
- Cross purchase agreements
- Stock redemption (Entity purchase) agreements
62
What is a cross purchase agreement for a closely held business
- consist of each owner owning an insurance policy on each of the other owners
- estate of each owner then commits to selling the ownership to the surviving owners typically for a predetermined cost (amount of insurance proceeds)
63
Are the premiums deductible in a cross purchase agreement and how is the death benefit taxed
- Premiums are nondeductible
- the death benefit is tax free to the remaining owners
64
Does the companies creditors have access to the life insurance proceeds and who purchases the deceased owners interest in a cross purchase agreement
- life insurance cannot be attached by the company's creditors
- remaining stockholders purchase deceased owners interest
65
How are the remaining owners interest affected in a cross purchase agreement
- owners interest are stepped up
- allows for an altering of ownership ratios
66
What is the advantage of a cross purchase agreement for a closely held business
- allows for a step up in the remaining shareholders basis and the life insurance cannot be attached by the companies creditors
67
What are the disadvantages of a cross purchase agreement for a closely held business
- requires each that each owner own a policy on each of the other owners which becomes inefficient with more than two or three owners (N X (N -1))
68
What is a stock redemption (entity purchase) agreement for a closely held business
- Business entity owns the life insurance policies on each owner
- estate of each owner then commits to selling their ownership back to the company
- Cost is predetermined based on a set amount or formula
69
Who owns the life insurance policies in a stock redemption (entity purchase) agreement
- company owns the policy on each owner
70
Are the premiums on a stock redemption (entity purchase) agreement deductible and who purchases the deceased owners interest
- Premiums are nondeductible
- Company purchases deceased owners interest
71
Can the life insurance proceeds be attached to the companies creditors in a stock redemption (entity purchase) agreement
- yes because the company owns the policy
72
How are the remaining owners interest affected in a stock redemption (entity purchase) agreement
- No step up in basis of remaining owners interest
- does not allow for an altering of ownership ratios
73
Who receives the tax free death benefit in a stock redemption (entity purchase) agreement
- The company receives the tax free death benefit
74
What are the advantages with a entity purchase (stock redemption) agreement
- requires that the company purchase one policy on each owner which significantly reduces the number of policies required if there are several owners
- provides relief to younger owners having to purchase policies with high premiums on older owners
75
What are disadvantages of a stock redemption (entity purchase) agreement
- largest disadvantage is that the remaining owners do not get a step up in basis on their ownership interest
- life insurance can also be attached by the companies creditors
76
What are the safe harbor provisions of IRC 2703 that allow a buy sell agreement to establish a purchase price of a business entity
- agreement must be part of a bona fide business agreement
- cannot be a device designed to transfer the property to members of the decedents family for less than adequate consideration
- terms of the agreement must be comparable to one that would be entered into by parties who would be involved in an arms length transaction
77
What are items that require the need for liquidity in an estate
- last medical costs
- funeral costs
- transition or adjustment period costs
- administrative costs
- income, estate, and GSTT taxes
78
What are some sources of liquidity for an estate
- sale of assets
- life insurance
- Tax Advantage accounts
- Corporate redemption from closely held businesses
- Distribution of Assets
- Loans for payments of taxes and other costs
79
What do the income in respect of decedent (IRD) rules state
- that when an individual has chosen to defer income during the lifetime, the value of those deferrals at death will not qualify for a set up in basis
- whoever receives the decedents income tax deferred accounts must pay income tax on the distributions received from the accounts
80
What happens if the IRD causes the estate to be subject to estate tax (included in decedents gross estate)
- the beneficiary of the tax advantage account will be eligible for a deduction in the form of a misc. itemized deduction not subject to the 2% AGI floor
- deduction is equal to the estate tax attributable to the net IRD
81
What happens if an executor takes a distribution from a tax advantage account to pay the estate taxes and admin expenses
- the distribution is taxable income to the estate requiring the executor to take a distribution equal to the amount necessary to pay the estate taxes and the administration expenses plus the income tax liability generated by the distribution
82
What does IRC Section 303 redemption state about corporate redemptions to pay for death taxes, funeral expenses, and administrative expenses of the decedent
- the shares redeemed for this purpose will qualify for capital gains tax treatment
83
What estates qualify for Section 303 redemption treatement
- more than 35% of the decedents adjusted gross estate must consist of the closely held businesses
- closely held business interest can be aggregated to meet the 35% test provided that the decedent owned at least a 20% of each companies outstanding stock
- shareholder redeemed must be responsible for the payment of the estate taxes, admin expenses, and funeral expenses
84
What is done about income taxes after a individual dies
- a final income tax return must be prepared and filed
- final return will include all of the decedents taxable income and deductions until the date of death
85
How many years can a surviving spouse file as qualified widower
- 2 years following the decedents death
86
What are the requirements to file as qualified widower
- surviving spouse has not remarried
- the surviving spouse is maintaining a home for one or more dependent children
87
What happens to passive loss carryforwards in the year of a decedents death
- losses can be claimed on the decedents final income tax return
88
What expenses can be claimed on the decedents final income tax return
- executor can elect to deduct unpaid medical expenses as of the date of the decedents death on either the final income tax return or estate return
- limited to 7.5% AGI floor
89
What year can be selected for an estate
- executor can elect to have the estates tax year end on the last day of any month during the year
90
Where can expenses of administering the decedents estate and any casualty losses be deducted
- on either the fiduciary income tax return for the estate (1041) or the decedents estate tax return (706) but not both
91
Where is the executors fee deductible
- on the fiduciary income tax return (1041) or the estate tax return (706) but not both
92
Are the executor fees taxable
yes they are taxable income to the recipient and will require the recipient to pay income, and potentially self employment taxes on the amount received
93
(1040/1041/706)
Is the below expense deductible on the above returns:
Unpaid Medical Expenses
1040: Yes
1041: No
706: Yes
- not both but may be split
94
(1040/1041/706)
Is the below expense deductible on the above returns
Casualty Losses
1040: No
1041: Yes (if they occur during the administration of the estate)
706: Yes (if they occur during the administration of the estate)
- Casualty floor is $500
95
(1040/1041/706)
Is the below expense deductible on the above returns
Executor Fees
1040: No
1041: Yes
706: Yes
96
Do IRD assets receive a step up in basis at the owners date of death
- No
97
What is the IRD deduction for a IRD asset
- deduction is equal to the estate tax attributable to the value of the IRD asset
98
Who is a good individual to give IRD assets to
Charity
99
What assets are considered IRD assets
- Qualified plans
- IRAs
- US Savings Bonds
- Installment Notes
- Annuitization Annuities
- Accrued Dividends
- Accrued Wages
100
What does the gift splitting election require
- each spouse to sign the others gift tax return
- applies to gifts made by either spouse during the year
101
What happens if a spouse elects gift splitting in a year that they die
- the surviving spouse can elect gift splitting on the gifts made by the decedent in the decedents final tax year
102
What is the definition of FMV of a property for a gross estate
- is the value that would be paid for the property in an arms length transaction where there is a willing buyer and willing seller, where neither party is acting under compulsion, and where both parties have full knowledge of the facts
103
Does a small estate benefit from a higher or lower value of its assets
- Higher value since they will receive a step up in basis but no tax will be due
104
Does a Large estate benefit from a higher or lower value of its assets
- lower value since they will be subject to tax
105
What is the alternate valuation date value
- the FMV of the assets six months after the decedents date of death is included in the gross estate
106
What to qualifications must be met for an alternate valuation date to be used
- the value of the assets included in the gross estate 6 months after decedents date of death must be lower than the value of the assets on the date of death and
- there must be a reduction in the total estate tax due as a result of the election
107
Which assets do not qualify for the alternate valuation date
- assets distributed before the 6 months which are valued at the date of distribution or sale and
- wasting assets (Annuities, patents, royalties, installment notes, lease income) which are valued at the date of death value
108
What is the Section 6166 election for paying estate tax
- the payment of estate taxes attributable to the closely held business can be extended over a 14 year period
- first 4 years of payments are of interest only followed by 10 payments that amortize the estate tax liability over the payment period (May be paid over a shorter period)
109
What are the three requirements for an estate to qualify for a Section 6166 deferral of estate tax
- value of the business interest must exceed 35% of the value of the decedents adjusted gross estate
- business interest must be a closely held business (at least 20% of the capital interest is included in the decedents gross estate, 45 or fewer partners, or for a corporation it holds at least 20% of voting stock and 45 or fewer shareholders)
- entity must have been actively engaged in the conduct of a trade or a business at the date of the decedents death
110
What is considered a closely held business for the Section 6166 estate tax payment election
Partnership:
- at least 20% of the capital interest is included in the decedents gross estate
- 45 or fewer partners
Corporation:
- it holds at least 20% of voting stock
- 45 or fewer shareholders)
111
What is the special use valuation (2032A) election for estate tax
- if the election is made the value included in the decedents gross estate will be the current use value of property subject to a limitation that the highest and best use value cannot be reduced more than $1,190,000
112
What is the must a special use valuation election can reduce the value of an estate
- $1,190,000
113
What conditions must be met for the special use valuation to apply
- decedent at the time of death a citizen or resident of US
- property must be used in farming operation or trade or business that was actively managed by the decent or family for 5 out of 8 years immediately precedent the decedents death
- real and personal property must equal or exceed 50% of the decedents gross estate
- value of real property used in a qualifying manner must equal or exceed 25% of the value of the gross estate
- property must be in US and pass to qualifying heirs who must actively participate in the farming activity or trade or business and
- executor must file the election with the estate tax return complete with a recapture agreement
114
How long must the qualifying heirs operate the business after the election to qualify for special use valuation
- must continue to use the property in its qualified use as stated in the election included with the return for a period of a least 10 years following the decedents death
115
What happens if the heirs sell the qualifying property or stop using it in the qualifying manner before the 10 year period
- an additional amount is imposed
- The additional amount that is imposed is the lesser of:
- the estate tax savings from special use valuation or
- an amount equal to the proceeds from the sale of the property less the special use valuation amount
116
What requirements must a qualifying disclaimer make for estate tax purposes
- disclaimer must be in writing
- disclaimer must be made within nine months of the date on which the transfer creating the interest was made or the day on which the disclaiming party reaches the age of 21
- disclaimant cannot specify the party to whom the property will be transferred as a result of the disclaimer
- the disclaimant cannot accept any interest or benefit in the property prior to disclaiming
117
What is the special rule for a surviving spouse disclaiming property
- surviving spouse may disclaim a bequest yet still receive benefits in the disclaimed property
118
What is a disclaimer in favor of surviving spouse
- occurs when the property passing to the surviving spouse is insufficient and the other heirs of the estate want to ensure that their surviving parent is well provided for
- to the extent this is executed the property passing to the spouse will qualify for the unlimited marital deduction
119
What is a disclaimer in favor of charities
- the property transferred using this will qualify for the unlimited charitable deduction in the transferors estate
120
Who decides what property qualifies for the QTIP election at the decedents death
- the executor or administrator of the estate
- postmortem planning device
121
Who elects any allocation of GSTT exemptions
- Executor of the estate
122
What is the generation skipping transfer tax
- is an excise tax
- imposed on the transfer of property to a donee who is two or more generations younger than the donor
123
What is the annual exclusion and lifetime exemption for GSTT
- same as estate and gift tax system
- annual of $15,000
- $11,700,000 lifetime exemption
124
What is the GSTT rate
- highest gift tax rate of a flat 40%
- not progressive
125
Who is the transferor for GSTT
- when property transferred during life the transferor is the donor
- when transferred during death the transferor is the decedent
126
Who is the transferee for GSTT
- is the individual who receives the property
127
What are the two categories of people for GSTT
- nonskip persons and
- skip persons
128
Who is a skip person for GSTT
- defined as any lineal descendant of the transferor who is two or more generations younger then the transferor or
- any person who is not a lineal descendant who is 37 1/2 years younger
129
What is a generation defined as for GSTT
- as a 25 year period so includes individuals 12 1/2 years older than him and 12 1/2 years younger than him
130
When is a trust considered a skip person
- if all interests in the trust are held by skip persons or
- if the trust distributions can only be made to skip persons
131
If charitable organization holds an interest in the trust what happens for GSTT
- if a charity holds a trust then the trust cannot be a skip person
132
When is a charity deemed to have an interest in a trust for GSTT
- if it has a present, non discretionary right to receive income or principal or
- if the organization is the remainder beneficiary of a qualified charitable remainder trust or pooled income fund
133
What is the predeceased ancestor exeption
- if a child of the transferor is deceased at the time of a transfer then that Childs descendants are moved up one generation for purposes of determining whether any transfer constitutes a GST
134
Who is a nonskip person for GSTT
- is any person or trust that is not a skip person
- trust is a nonskip person if any nonskip person holds an interest in the trust
135
What three types of transfers does GSTT apply to
- Direct skip
- taxable distribution
- taxable termination
136
Who is liable for the GSTT on a direct skip
- the transferor is liable for the GSTT on the transfer unless it is from a trust
- if it is made from a trust the trustee is liable for the GSTT
137
What is a taxable termination
- is any termination of a trust interest unless at the termination of the trust the trust property transferred is subject to:
- federal estate or gift tax
- a non skip person receives an interest in the property transferred out of the trust or
- the distribution from the trust will never by made to a skip person
138
Who is liable for the GSTT on a taxable termination for a trust
- Trustee is liable
139
What is a taxable distribution for GSTT
- is any distribution from a trust to a skip person that is not a taxable termination or a direct skip
140
Who is responsible for paying the GSTT on a taxable distribution
- Transferee is liable for the GSTT
141
When are transfers between September 25, 1985 and October 23, 1986 not subject to GSTT
- transfer was to an irrevocable trust that was in existence on or before September 25, 1985 to the extent no additions were made to the trust after September 25 1985
- transfer was pursuant to certain wills and revocable trusts executed before October 22, 1986 and the decedent died before January 1, 1987
- transfer was from a person who was under a mental disability to change the disposition of his property continuously from October 22, 1986 until the date of their death
142
Transfers to a trust deemed a skip person are only considered nontaxable gifts for GSTT purposes to the extent the transfer is equal to or less than the annual exclusion and if
- beneficiaries are given a Crummey power over the contribution to the trust and
- trust assets can only be distributed for the benefit of the beneficiaries during the beneficiaries lifetime and
- if the trust does not terminate before the beneficiaries death the assets must be included in the beneficiaries gross estate
143
Does gift splitting apply to GSTT
yes when an individual elects on the gift tax return to split gifts for gift tax purposes any GSTs are also deemed split gifts
144
What happens if a direct skip occurs during a transferors lifetime
- the transferors GST exemption that has not been used is automatically allocated to the direct skip
145
What happens if a transferor does not want to utilize their GST exemption, the transferor must
- describe on a timely filed federal gift and GSTT return (709) the transfer and the extent to which the automatic allocation does not apply or
- timely file the federal gift and GSTT return (709) with the payment of the GSTT due without the automatic allocation
146
What happens if any GST exemption remains after the allocation to any direct skips
- the exemption is allocated pro rata to any taxable terminations or taxable distributions from the decedent
147
What must be listed on the gift tax return to allocate GST exemptioon
- must detail the name of the trust
- the amount of the allocation
- the value of the trust assets at the date of the allocation
- the inclusion ratio of the trust after the allocation
148
What happens if an individual allocates GST exemption to a trust in excess of the amount necessary to create a zero inclusion ratio
- the allocation of the exemption is void and available for subsequent allocations
149
What happens if an individual dies with unused GST exemption
- the executor of their estate allocates the GST exemption on the decedents federal estate return (706)
150
After it is determined that GST applies what happens next
- the value of the GST is multiplied by the applicable rate
151
What is the applicable rate for GST
- the maximum estate tax rate in effect at the time of the GST (40%) times the inclusion ratio which is the difference between the applicable fraction and minus one
152
What is the formula for the applicable fraction
Applicable fraction = GST Exemption allocated/ (Value of property transferred - death taxes - charitable deductions - nontaxable gift portion)
153
What is the formula for the inclusion ratio
Inclusion Ratio = 1 - Applicable Fraction
154
What is the formula for applicable rate
Applicable Rate = Inclusion Ratio x Maximum transfer tax rate
155
What is a reverse QTIP election
- is a QTIP election made for estate purposes but not for GSTT purposes
- asset would then qualify for the unlimited marital deduction for estate tax purposes and utilize the GST exemption for GSTT purposes at the death of the first spouse
156
Is a partial reverse QTIP election permitted
- no so an executor may wish to create two QTIP Trusts for the same spouse and make a Reverse QTIP for one of them to accomplish the below two goals:
- the elimination of estate tax at the death of the first spouse and
- full utilization of the decedents GST exemption
