Ch 12 - Procedural Principles Of Estate Planning Flashcards Preview

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Flashcards in Ch 12 - Procedural Principles Of Estate Planning Deck (15):
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●Adequate future income

●Distribution patterns

●Estate liquidity

●Excessive transfer costs

What are the Organizational Categories in Estate Planning Procedural Principles

1

Asset valuation

Size of gross estate

Gross estate reduction

Marital deduction

What are the Excessive Transfer Costs considerations?

2

Special-use valuation

Alternate valuation date

What are the Asset Valuation Excessive Transfer Costs?

3

Apply Code Sections 2033-2042

What are the Size of the Gross Estate Excessive Transfer Costs?

4

Gifting program

Removal of life insurance from estate

Estate freezing techniques

What are the Gross Estate Reduction Excessive Transfer Costs

5

Optimal marital deduction should be beneficial and a high net worth couple should plan for equalization of estates

What are the Marital Deduction Excessive Transfer Costs

6

6-month extension

12-month extension [Section 6161(a)]

10-year extension [Section 6161(a)(2)]

14-year extension for closely-held business or farm interest [Section 6166]

What are the 4 Filing and Tax Payment Extensions

7

•easily granted

•interest on estate tax due commences to run 9 months after death

What are the details of the 6-month Filing and Tax Payment Extensions

8

•granted for “reasonable cause”

•pending estate litigation (not lack of liquidity)

What are the details of the 12-month Filing and Tax Payment Extensions

9

●difficult to marshal assets

●assets providing future payments

●only higher than normal rate of interest for loan available

What are the details of the 10 –yr Filing and Tax Payment Extensions

10

14-year extension for closely-held business or farm interest [Section 6166]

What are the details of the 14-yr Filing and Tax Payment Extensions

11

●Installment Payment of Estate Taxes

What is the Code Section 6166 Election apply to?

12

●14-year 9-month payout

●Greater than 35% of Adjusted Gross Estate

●2% interest on estate tax during deferral period on first $1,390,000 (2012) of business value •(excess business value taxed at 45% of federal interest rate on tax underpayments)

●Tax installment payments begin in 5th year

How does the Section 6166 Election work?

13

Example: Sec. 6166 Installment Payment of Taxes for Closely Held Business

Sam’s estate has the following facts:

  • Personal Residence $1,200,000
  • Brokerage Account $2,000,000
  • Samco, Inc. stock $2,500,000
  • Roth IRA $1,500,000
  • Funeral & Admin Expense $ 300,000
  • Sam’s Recourse debt $ 250,000
  • Charitable bequest $1,000,000

Does Sam’s estate qualify to defer estate taxes?

  • Gross Estate is $7,200,000 = (1,200,000+2,000,000+2,500,000+1,500,000)
  • Adjusted Gross Estate is $6,650,000 or 7,200,000 – (300,000 + 250,000)
  • Samco stock is what % of AGE= 2,500,000 ÷ 6,650,000 = 37.6
  • IT QUALIFIES -- 37.6 > 35%

14

●Creates problems with banks and creditors (may discourage lenders due to federal tax lien)

●Causes estate to be kept open longer

●Generates ongoing/extra administrative fees (attorney, accountant fees, etc.)

●Hampers estate liquidity planning

●Inflexible

What are the disadvantages to Code Section 6166