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CPCU 556 > Ch 8 > Flashcards

Flashcards in Ch 8 Deck (34):

What are the goals of estate planning?

-distribute assets according to wishes (people who don't receive property under intestacy laws)
-minimize estate and inheritance taxes
-minimize income taxes
-create needed liquidity
-minimize probate costs


What are the steps in the estate planning process?

-gather data
-evaluate existing plan
-creating and testing a new plan
-implementing and monitoring the new plan


How is estate planning data gathered?

-list of assets and liabilities
-intentions for transferring property must be stated
-executor must be identified


What happens in the "evaluate existing plan" phase of estate planning?

The plan is tested as if the estate owner died immediately. Attorney typically classifies property as being included in the gross vs. probate estate.


How can probate be avoided?

Naming beneficiary
Titling property as JTWROS or tenancy by the entirety
Pay on death arrangement (bank account)


What kind of scenarios are run during evaluating the existing plan?

Husband dies
Wife dies
Both die simultaneously


What steps are involved in the "implementing the new plan" phase of estate planning?

-purchasing additional life insurance
-drawing up new legal documents
-revising existing legal documents
-making gifts m


Which class(es) of property does the Federal gift tax apply to?

Both tangible and intangible.


What does proper estate planning do?

-prevent estate shrinkage
-lets people have estate distributed according to wishes-preserves value of estate and passes the preserved value to heirs


How does gift splitting work. Provide an example.

If I want to give a $20,000 gift but the exclusion amount is $14,000, I can treat this as two separate gifts of $10,000; one from each spouse.


Are gifts to pay for tuition subject to a limit?

As long as it is paid directly to school there is no limit. This only covers tuition (not books, room & board, etc)


Are gifts made to cover medical expenses subject to a limit?

No; as long as they are made directly to a provider.


Are charitable gifts subject to a limit?



What is the gift limit to a spouse?

None. There is a marital deduction.


What is the Federal Estate Tax?

It is a tax imposed on property transferred at death.


How is Federal gift tax calculated?

1) Determine gross estate
2) Determine taxable estate
3) Determine tentative tax
4) Determine tax payable
*Review BDU Handout


What does the gross estate include?

Assets owned at death.


What is the alternate valuation date for estate tax purposes?

Using a date six months after the date of death. The default is value of estate at death.


This estate valuation rule states that half the value of property owned jointly with a spouse is included in the gross estate of the first spouse to die.

Fractional interest rule.


This estate valuation rule states that property owned jointly by non-spouses is included in the estate based on consideration furnished.

Consideration furnished rule


What are the allowable deductions from the gross estate?

Casualty Losses
Marital Deduction
Charitable Deductions


What is the tentative estate tax reduced by?

Unified credit
Foreign death taxes
Credit for taxes paid on prior transfers


Why is a will important?

Can provide income to surviving family members during the probate process

Allows decedent to select the executor

Can minimize problems arising from distributions to minor children.


What should be done for a will to be properly drafted?

Be in writing and signed by the creator and at least two witnesses.

Identity heirs and property to be received.

Name the executor.

Be reviewed periodically with an attorney's help.


A trust that gives surviving spouse rights in property but not enough to cause inclusion in their gross estate.

Marital trust


No marital trust

Designed to take advantage of the decadents unified credit.


Trust that provides income to an individual wile alive and when they die it goes to charity.

Charitable remainder trust


Life insurance that pays benefit when second spouse dies.



What happens if you have incidence of ownership in your life insurance (ability to change beneficiary or surrender or borrow from cash value)

Included in gross estate


What does someone do to not have incidence of ownership in their life insurance policy.

Put it in life insurance trust.


If someone has a universal life policy that names their child as a beneficiary how will it be treated for estate planning purposes upon his death?

Will be part of the gross estate but not part of the probate estate.


This is an estate tax that equals the credit for death taxes available under the federal estate tax

Sponge tax


This type of trust is usually funded at your death with any amount in excess of a person's available federal estate tax exemption amount and would be eligible for the unlimited marital deduction.

marital trust


What is a QTIP (qualified terminable interest property)?

A trust often used in order to take advantage of the marital deduction and still control the ultimate distribution of the assets at the death of the surviving spouse. The surviving spouse is given the right to receive all income from the property at least annually for life. The executor of the donor spouse must make an irrevocable QTIP election and income and property can be provided only to the surviis often used in order to take advantage of the marital deduction and still control the ultimate distribution of the assets at the death of the surviving spouse as long as they are alive