Chapter 6 Flashcards
(31 cards)
What has a state planning traditionally been focused on?
The distribution of the estate after death
What is the current philosophy of estate planning?
It is the lifelong process dealing with the accumulation, conservation and distribution of an estate.
What are the advantages to having a well planned estate?
- Maximize wealth.
- Efficient use of a state capital.
- Tax savings.
- Appropriate asset ownership.
- Assurance that a state property will be distributed according to the decedent’s wishes.
- Adequate estate liquidity
What are some arguments for estate tax?
- The tax assist in the distribution of wealth from the route to the poor vehicle government programs, providing assistance and opportunities, not normally available to the economically deprived.
- The tax provide provides meaningful financial support for American Democratic institutions of government and national programs.
- The tax encourages support for the charitable gifting as a strategy for reducing the taxable estate.
What are arguments against the estate tax?
- The tax disproportionately affects societies most successful and productive citizens. It also penalizes business entrepreneur is looking to save their lives work and passive intact to their heirs.
- Money and financial resources removed from the general economy via the estate tax cause a loss of jobs.
- Tax supported government institutions are generally less effective at promoting economic prosperity than a free market economy.
How do you compute the taxable estate?
By subtracting certain allowable deductions from the gross estate
What is the gross estate?
It is the true starting point for the computation of the estate tax. It is defined as the value of all property interest, real or personal, tangible or intangible, of individuals on the date of death to the extent of their interest in the property.
How was most property valued?
Fair market value
What is special use valuation
It is designed to value the property, according to its current use not its potential value if it were used for other purposes
List some special valuation situations
- Publicly traded stock in corporate bonds are valued on the date of the death.
- US government bonds are valued at the data of death redemption price
- Closely held corporation stock, not subject to special use evaluation is valued, according to either of the adjusted book value method or the capitalization of adjusted earnings method.
- Life insurance proceeds aside for the benefit of the decedent estate or proceeds from policies owned by the decedent or taxed as part of the estate note many techniques exist to remove life insurance benefits from the taxable estate.
What are the allowable deductions used to arrive at the adjusted gross estate?
- Allowable debts (such as mortgages).
- Funeral expenses.
- Medical expenses
- Administrative expenses.
- Losses during a state administration (such as the decline in value of an asset while the estate was being settled.).
- Marital and charitable deductions.
What is a challenged underwriters and dealing with estate growth?
Determining the appropriate timeframe and interest rate assumptions for any given estate.
It is desirable to choose a state growth, projections that:
- Scribe to adopt a reasonable rate of return measurement with the average return on assets in the estate overtime.
- Reflect the types of investments that make at the estate.
- Adjust to the age of the estate owner.
- Assume that at least some investment income will be consumed by the estate owner and will not be completely reinvested.
Do former citizens and ex patriot have to pay estate tax?
Foreign assets owned by former US citizens will generate a decreasing proportional estate tax for 10 years after US citizenship is renounced.
How is residency or domicile proven?
Physical presence and the intention to remain in the country
What rules govern the imposition of estate tax on foreigners
- The estate tax exclusion amount for nonresident aliens is $60,000.
2 the charitable deduction applies, but only to US charities - There is no marital deduction at the spouse is not a US citizen.
- Foreign death tax credits can be applied against the US estate tax.
What is a trust?
A legal arrangement whereby property is held and managed for the welfare of a beneficiary
Why is life insurance a desirable asset to have in a trust?
The internal value of a life insurance policy accumulates in a tax-free manner and creates no income tax liability to the trust. In addition, the cash value can be made available to the beneficiaries before death of the insured or the death benefit itself can be the primary funding vehicle for the trust.
What is a revocable trust?
It is a type of living trust and is set up before the death of the grantor.
What is an irrevocable trust?
Requires that the trust assets be removed completely from the guarantor control. They retained no incidents of ownership and cannot change the trust. Undo the trust, managed, trust assets, or make arrangements to reclaim trust assets in the future.
What are the advantages of an irrevocable trust?
- Assets removed from the estate and put into the trust reduce the size of the estate and most the estate tax.
- Any appreciation in the trust asset happens outside the estate. This also helps reduce the ultimate size of the estate of death.
- Income generated by the trust assets is taxed to the trust often at a lower rate than received by the guarantor.
- The trust assets are not vulnerable to the grantors creditors
What is a charitable trust?
They are irrevocable and must not name a specific individual or individuals. Instead, they must name a class of beneficiaries.
What are generation skipping and dynasty trust?
A trust in which assets can be held for distribution to grandchildren, and later descendants
What is a special needs trust
They are designed to improve the quality of life of a person with special needs. They allow for additional financial support for the special needs individual without risking possible disqualification from various government. Disability benefits, such as Medicaid and supplemental security income.
