BU - Estate Planning Flashcards

Question

Gift Splitting

Answer 1

Spouses only & would apply to **_ALL gifts_** that calendar year Form 709 is filed separately by each spouse if the split value exceeds the annual exclusion; Form 709 is filed by the donor spouse if the split gifts are less than the annual exclusion (ex: 20K), and the other shows “consent” Form 709 is not filed if the entire gift is less than the annual exclusion

Answer 2

Treated as if the property went directly from the original transferor to the person who ended up receiving the property Requirements: refusal or rejection in writing The writing must be received no later than nine months after the later of: * the date on which the transfer creating the interest is made, or * the date the person disclaiming reaches **age 21**. * The person disclaiming must not have accepted the property interest or any benefits of the property. * Someone other than the disclaimant receives the disclaimed property interest. The person making the disclaimer cannot in any way influence the potential recipient of the property.

Answer 3

Transfers involving large gifts Tax-free to the contingent donee Spouse is donee and doesn't want the gift You cannot benefit from the gifted property first, and then elect to treat the property as a qualified disclaimer. The election to use a qualified disclaimer to transfer the property is permanent and cannot be undone.

Answer 4

The donee will assume the donor's basis & holding period If gift taxes are paid by donor, there is a gift tax adjustment made to the donee's basis Gift tax adjustment = (FMV-OG basis / FMV or FMV-annual exclusion) x gift tax pd + basis

Answer 5

Wait and see what happens with the final sale Need to know FMV on date of gift, original basis and final sale price If Final Sale \> original basis → original basis and holding period are used If Final Sale \< FMV on date of gift → FMV and date of gift are used If Final Sale is between original basis & FMV on date of gift → no gain or loss

Answer 6

Has to be elected by the executor When the ADV will reduce gross estate value AND reduce gross estate tax and GSTT Form 706 has to be filed by 1 year of date of death

Answer 7

Medical bills paid directly to the medical facility Tuition paid directly to the school

Answer 8

Gross Estate - expenses, debts, taxes losses Adj. Gross Estate - marital deduction - charitable deduction =Taxable Estate

Answer 9

Skip person is 2 or more generations below the transferor GST task is addition to gift tax and estate tax GSTT annual exclusion of $16k and exemption of $12MM Flat tax is 40%

Answer 10

Direct skips Taxable Distributions Taxable Terminations

Answer 11

Subject to an estate and gift tax - direct, no trusts involved Transferor pays GST tax

Answer 12

A distribution of income or corpus from a trust to a skip person, not otherwise subject to estate or gift tax G1 creates trust and G3 receives income Transferee pay GST

Answer 13

Death, lapse of time, release of power or an interest in property held in a trust resulting in a skip person holding all the interest in the trust G1 creates trust, G2 can receive income, upon G2’s death, the G3s hold all the interest Trustee pays GST

Answer 14

1. Determine the value of the gross estate (everything owned and owed) 2. Arrive at the adjusted gross estate 3. Determining the taxable estate 4. Calculating the federal estate tax payable before credits 5. Apply allowable credits to arrive at the net federal estate tax

Answer 15

Form 706 Filed by the executor and due within 9 months of the death $12MM exclusion = $4.7M in taxes

Answer 16

Gross Estate - Expenses, debts, taxes & losses Adjusted Gross Estate - Marital deduction - Charitable deduction Taxable Estate

Answer 17

Unlimited for most gifts made to a spouse Except non-citizen spouse is limited to $164k Also not available for Terminable Interest Property

Answer 18

Donor transfers cash or property to a charity and the charity pays the donor (or other donees) an annuity payment each year for life Gift tax charitable deduction is the PV of the charity’s remainder interest Gift annuities payments to others: gift tax is the PV of the annuity payment

Answer 19

A donor gifts property to a charity and receives an annual pro-rate share of income from the charity’s commingled funds, for life Add’l gifts can be made to the fund to increase donor’s income stream Charity manages the fund and cannot invest in tax-exempt securities Donor takes an income tax deduction for the PV of the charity’s remainder interest Donor pays income tax on the income received from the fund

Answer 20

Separate legal entity, either a not-for-profit or tax-exempt trust Family members who make gifts to the foundation may take an income tax deduction limited to 30% for cash and 20% for LTCG property Foundation must distribution 5% of the assets to public charities annually

Answer 21

Maintained by charities, community foundations or mutual fund companies Donor may contribute cash, stock or other property to their individual fund accounts and select the charities they want to receive grants

Answer 22

1. Gather significant data from the client. 2. Establish and prioritize estate planning objectives. 3. Identify the factors that limit or affect the selection of estate planning techniques. 4. Identify estate planning weaknesses before selecting a technique. 5. Select an appropriate estate planning technique. 6. Implement the estate planning technique. 7. Monitor the plan for revisions and modifications.

Answer 23

Simple: No distribution of principal _MUST distribute all income_ $300 Income exemption No charitable beneficiary/deduction permitted Complex: Yes distribution of principal is permitted No all income doesn't have to be distributed $100 income exemption amount Yes allowed a charitable beneficiary/deduction

Answer 24

Grantor has the right to terminate Transfer of assets does NOT constitute a completed gift Assets in the trust are subject to estate tax at grantor's death Used for estate planning, avoiding probate and fully amendable

Answer 25

Can not revoke once created Transfers of assets are generally considered a completed gift Assets in the trust are generally not subject to estate tax at grantors death Uses: estate planning, asset protection, avoids probate, medical planning, tax deductions, amendable somewhat\*

Answer 26

Living (Inter-Vivos) Trust - established during grantor's lifetime and effective immediately, avoids probate Testamentary Trust - created _through a will, funded after death_, reduces estate taxes, provides professional investment management Revocable Trusts Irrevocable Trusts - property not included in gross estate If you make a revocable trust, irrevocable and then die within 3 years, the property is brought back into the gross estate Standby Trust - manages assets if creator becomes incapacitated, grantor is the trustee and beneficiary

Answer 27

Form 1041 by the fiduciary if there is any taxable income, gross income of $600 (regardless if taxable) or beneficiary is a non-resident Use Trust Tax tables on income THAT REMAINS IN THE TRUST, otherwise the beneficiary will pay taxes on the income received

Answer 28

Items of income and expense that are used to determine the amount the income beneficiaries are entitled to receive from the trust each year Does not determine the trust's taxable income or who will pay Trust document will usually specify what account income is

Answer 29

Determined by subtracting from income deduction such as distributions, charitable contributions, investment interest, investment fees In addition, the trust is entitled to the appropriate personal exemption

Answer 30

Allocated the taxable income between beneficiary and the trust DNI represents the max that can be taxed to the beneficiary The beneficiary will be responsible for taxes on the lesser of the DNI allocation, or the amount required to be distributed Example: if trust earns $10k, and distributions $12k, the first $10k is income and taxed, the remaining is tax free distribution of corpus

Answer 31

Trustee Holds LEGAL Title Beneficiary Holds EQUITABLE Title

Answer 32

Irrevocable trusts which the grantor places assets and retains interests for set term The principal at the end of term pass to non-charitable beneficiaries GRAT - Grantor retained annuity trust Fixed payment at least annually based on % of initial valuation No add’l assets permitted Conservative GRUT - Grantor retained unitrust Fixed payment at least annually based on % of annual valuation Add’l assets permitted Moderate to aggressive

Answer 33

Transfer property in the trust at a reduced (or zero) gift tax value Pass appreciation to beneficiaries without incurring add’l gift tax Reduce value of the grantor’s gross estate

Answer 34

If “grantor-CLT” there is a large, front loaded tax deduction, non-grantor gets no deduction Charity lead - means charity gets benefit of trust first, then beneficiaries get remaining corpus CLAT - annuity payment, risk-averse. CLUT - % payment, annually revaluated, can add additional assets and inflation hedged. Moderate to aggressive risk tolerance

Answer 35

Charity benefits after set term. FMV - PV of income stream CRAT - annuity payments CRUT - % payment, revaluated annually, can add additional funds and inflation hedgeing

Answer 36

Terminable Interest Property Interest in property that may terminate on the happening or failure of some event or contingency Example: spouse receives income interest in trust for life or a term of years, afterwards the trust passes on to beneficiary Marital deduction is not available except for 2 exceptions Exception 1. Surviving spouse is given a life estate and given general power of appointment over corpus Exception 2. donor spouse “qualifies” the TIP or the executor elects Q-TIP

Answer 37

Gift: Donor spouse cannot take a marital deduction for gifting TIP, but can take annual exclusion for the present interest Estate: surviving spouse will not include in their estate at death, donor spouse will remove the property from their estate

Answer 38

Estate is dived into two parts and taxed at a lower rate rather than remaining as a whole and taxed at a higher rate. This division may be necessary because of the progressive nature of the federal estate tax

Answer 39

marital trust that provides the surviving spouse with general power of appointment, access to income and ability to invade the corpus during life

Answer 40

spouse trust that avoids “over-qualifying” the decedent spouse's estate for the marital deduction by utilizing the maximum unified credit. Allows the surviving spouse to obtain income as needed. Trust assets are not included surviving spouse's estate at death

Answer 41

privies the beneficiary spouse with income for life, qualifies the trust for the marital deduction and gives the trust corpus to children from a previous marriage

Answer 42

estate planning technique where married couple incorporates an irrevocable trust which is funded if the surviving spouse chooses to “disclaim” or refuse to accept the outright distribution of certain assets following the deceased spouse's death

Answer 43

added to trust to give the trustee guidance as far as when and how they need to make distributions to the beneficiaries. A trustee can make distributions to a beneficiary for health, education, maintenance, and support

Answer 44

qualifies property for a marital deduction in the decedent's estate. Used if the beneficiary spouse has substantial wealth and does not need the trust income or corpus.

Answer 45

estate equalization

Answer 46

A Trust or QTIP

Answer 47

B or Estate Trust

Answer 48

A Trust QTIP Estate Trust Outright gift to spouse

Answer 49

A Trust Estate Trust

Answer 50

disclaimer trust

Answer 51

Ascertainable standard

Answer 52

Qualified domestic trust unlimited marital deduction does not apply to non-citizen spouses UNLESS assets go into a QDOT QDOT ensures that the assets will not ultimately leave the US without being taxed

Answer 53

Irrevocable Life Insurance Trust Provides liquidity for payment of all death taxes with life ins policy If grantor transfers an existing policy into the trust, there is a 3 year rule, otherwise policy is included in grantor’s estate Owner of the policy is the trust Beneficiary of the policy is the trust Insured in the grantor

Answer 54

Includes only the life insurance policy Grantor transfers money into the trust each year to pay the premiums Crummy powers are given to beneficiary’s to qualify for the annual gift exclusion

Answer 55

Includes a life insurance policy and income producing property like bonds Does not require crummy powers Grantor is taxed on trust income

Answer 56

Used to preserve eligibility for government benefits and pay for extra services not covered Can be funded with assets or life insurance premiums Covers medical expenses not covered by Medicaid, supplemental attendant and custodial care, add’l therapies and respite for family caregivers Also pays for telephones, computers, cable, basic household furnishing and travel + companion

Answer 57

Bring Beneficiaries Bucks Income must distribute at least annually Corpus may be withheld form the beneficiary until death Income interest is eligible for annual exclusion Corpus will be excluded from donor’s estate, if not a trustee Corpus may also be excluded from the beneficiary if the income interest terminates at beneficiary’ death

Answer 58

Cease Current Cash Income is not required to be distributed Corpus must be distributed no later than age 21 Entire gift is eligible for annual exclusion Income accumulated in the trust is taxed to the trust If beneficiary dies before 21, accumulated trust income and corpus must go to their estate

Answer 59

Pass-through entity established under state law - consisting entirely of family members Allows senior family members to transfer property to junior family members at significant reduced costs

Answer 60

Advantages: Control - general partners (senior family) retain control of property Income tax reduction - shares are shifted to junior family members at lower tax brackets. Earnings from the assets in the FLP are taxed at the recipient's income tax bracket. Protection from creditors Valuation discounts- 30-70 for lack of marketability and minority owners Gifting - ease of gifting assets that are difficult to distribute - transfers qualify for annual exclusion Disadvantages: Income shifting to younger family may be limited to kiddie tax Add'l costs for setting up FLP Gifts do not receive step up basis Retained interests continue to appreciate in senior family member estates

Answer 61

Must be irrevocable and based on FMV Must be legally enforceable lease agreement with reasonable lease payments 1. to provide income stream to family members 2. to remove the business property from the owner's estate

Answer 62

Business owner sells the business property to an adult child and then leases it back Owner receives lump sum payment or installment payments from the child and continues to use the property in the business Owner deducts monthly lease payments made to the child as an expense Lease payments are taxed in the child's lower tax bracket Business property is removed from the business owner's estate

Answer 63

Owner gifts property into an irrevocable trust then leases the property back Owner receives business deductions for the lease payment made to the trust Trustee distributes lease payments to family beneficiaries in lower tax brackets Business property is removed from the owner's estate

Answer 64

Used to sell the business to a family member or a 3rd party and provide a secured income for the seller. The promissory installment note is secured and does not require a set sale price The buyer does not need a down payment and payment amounts can vary, even skipped or spread out over several years At least one payment must be made to the owner after the taxable year in which the sale occurs The PV of any outstanding installments are included in the seller's gross estate

Answer 65

Partially or fully cancels the installment note before the note matures The seller can cancel the installment note in the will - the unpaid balance of the note is NOT included in the seller's gross estate The seller can cancel the entire note at once, which is subject to capital gains and gift taxes The seller can cancel the note in increments of $16k per year to avoid or reduce taxable gifts

Answer 66

A seller receives a fixed annuity income stream for life and removes the property from their gross estate Payments from the sale are structured as an annuity and are either single life or joint and survivor annuity Single annuity: remaining payments are not included in the seller's estate Joint and survivor annuity: payments continue for two lives. The PV of the survivor's future annuity payments is included in the seller's estate, but the marital deduction is available to offset tax NOTE: if the buyer dies before the seller - the buyer's estate must make payments to the seller for life. If the seller outlives their calculated life expectancy, the buyer must continue to pay the seller

Answer 67

Private Annuties has no collateral SCINs cancel at death and removed from the estate of the seller Installment Notes unpaid may be included in seller's estate

Answer 68

property acquired by spouses while residing in a common-law state, which is treated as community property after they move to certain community property states

Answer 69

No step up

Answer 70

The blockage rule

Answer 71

Administrator

Answer 72

manages both the ward's property and personal affairs

Answer 73

revocable inter-vivos trusts grantor is also the trustee and beneficiary

Answer 74

* Convenient * Simple * Inexpensive

Answer 75

sprinkle = income spray = both income and corpus

Answer 76

estate and income tax

Answer 77

allows fiduciaries to make distributions within 65 days of the new tax year and be counted for the previous year (April 6th)

Answer 78

allows the executor of an estate and the trustee of a revocable trust to elect to treat the estate and the trust as one for tax purposes

BU - Estate Planning Flashcards

(102 cards)