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what is estate planning?

distribution of the estate after death, dealing with the acquisition of wealth and estate maintenance as well as the delivery of estate assets upon death to beneficiaries.


What are some advantages to having a well-planned estate?

1. max wealth
2. efficient use of estate capital
3. tax savings
4. appropriate asset ownership
5. assurance thay estate property wishes
6. adequate estate liquidity


define the federal estate taxation rules

typically applies to large estates. Small estates been exempt by means of the exclsuion amount which allowed small estates valued below a certain amoutn to go untaxed.


What are some arguments for the estate tax?

1. assist in the redistributuion of wealth via goverment programs
2. financial support for american democratic institutions of government and national programs
3. encourages support for charitable gifting as a strategy for reducing the taxable estate.


What are arguments against the estate tax?

1. disproportionally affects society's most succesful and prodcutive citizens and penalizes business entrepreneurs looking to safe guard their lifes work and passit to their heirs.
2. money and financial resources removed from the general economu via the estate tax cause a loss of jobs
3. tax-supported institutions are generally less effective at promoting economic prosperity than a free-market economy.


during the estate planning process, what is the purpose of "net worth"

used as a basis from which to estimate an individual is subject to estate tax.
its computed on the taxable estate which is an amount determined by subtracting certain allowable deductions from the gross estate.


What is the gross estate?

starting point for the computation of the estate tax. Defined by the IRS as the valye of all property interest, real or personal, tangible or untangible of an individual on the date of death to the extent of his or her interest in the property.


Most property is valued at Fair market value (FMV) what is this?

the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion.


What are some exceptions to FMV asset valuation?

1. Real property may not always have a ready market from which to estimate a FMV.


How can real property be valued?

at the higher of the highest prices available or its salve valye.
1. may be subject to a special use valuation which is designed to value the property according to its current use, not its potential vlaue. ie farms or small family businesses that are passed to an heir with no intent to change its function of the property


What are some examples of special valuation situations.

1. publicly traded stock and corporate bonds that are valued on the date of death as an alternate valuation date.
2. US state bonds are valued at the date of death redemption price
3. closely closely held corporation stock not subjected to special use valuation is valued according to either the adjusted book valye method of the capitalizatrion of adjusted earnings method.
4. life insurance proceeds set aside for the benefit of the decedents estate or proceed from policy owned by the decedent are taxed as part of the estate.


From the gross estate certain allowable deductions are made to arrive at the adjusted gross estate. What are they (5)?

1. allowable debts (such as mortgages)
2. funeral expenses
3. medical expenses
4. administrative expenses.
5. losses during estate administration


How are MArital and charitable deduction applied to estate calculations?

they are substracted from the adjusted gross estate to arrive at the taxable estate.
1. property passing to the spouse of the decedent can be deducted completely from an adjusted gross estate.


What is the purpose of the marital deduction?

acts to PP the imposition of any estate tax until the death of the surviving spouse.


What are factors to consider when using a marital deduction?

1. value of property rights, (power of appointment)
2. partial interest in property, where property is owned/cotnrolled by +1 person
2. charitab le remainder trusts, where beneficiary receives income from the property, but charity gets property on the death of the beneficiary
4. guarentee anuitity interrest.
5. split gifts


What is a power of appointment

a property right reserved by the property donor that allows the donor to control who receives the property or benefits from the property


What is estate growth.

the side of the taxable estate dertermines the amount of the estate tax and the insurance policy needed to cover this expense.
- estamate of estate growth is a function of time and the interest rate by which the estate assets are expected to grow.


What is the u/w challange in dealing with estate growth?

determining the appropriate time frame and interest rate assumptions for any given estate.


When chossing/evaluating estate growth projections in a developeping global economy which is not entirely stable, what should you be looking for?

1. strive to adopt a reasonable rate of return commensurate with the average return on assets in the estate over time
2. reflect the types of investments that make-up the estate
3. adjust to the age of the estate owner
5. assume that at least some investment income will be consumed by the estate owner and will not be completely reinvested.


Define estate taxation in Canada

there is no estate tax.
- the Canadian income tax act provides that a deceased tax payer is considered to have "sold" all capital property at fair market value immediately before death.
-any capuital gain thus realized will be subject to tax on the terminal income tax return of the deceased.


Capital property is broken down into two categories. Name and define them

1. depreciable capital property: the value of which declines over time, (buildings/furniture/machinery)
2. non-depreciable capital property, such as land, stock and mutual funds.


When would you see a Capital gains tax?

will be incurred in situations where the FMW exceeds the owner's adjusted cost basis of the property.
50% of the gain will be included on the deceased's estate terminal income tax return, beyond that the estate canuse any remaining portion of a lifetime capital gain exemption of 750k available for farms properties and shares of small business.


What happens if a property is actually worth more than its depreciated value?

some or all of the depreciation can be added back to the value of the property through a tax provision called the recapture of captial cost allowance. The "recaptured" depreciation is taxable as income on the terminal tax return.


Does estate growth impact both capital gains and recaptures of capital cost allance?



How is marital duductions deplicted in canada?

law provides that property "rolled-over" to a spouse directly or through a spousal thrust does not incur capital gains tax until the death of the second spouse.


Why has chariatable donations for estate planing purposes received attendion from financail planners in canada?

result of canadian legislation intended to shift support for charities frm the public to private sector.
- people can claim a federal tax credit of 15% on the first 200$ charitable donation and 29% on any donation above that amount.. when combinated with an insurance plan, the donations (as premiums) can provide a tax benefit and bequest for charitable foundations.


What are the 3 seperate jusristictional premises employed by the internal Revenue Service, of which can trigger the imposition of the estate tax?

1. US citizenship
2. residency or domicile
3. situs or location of estate assets.


the IRS code states that "a tax is hereby imposed on the transfer of the taxable estate of every decendent who is a citizen or resident of the US". Citizens of the US are taxed on the value of their estate assets worldwide. What is the definition of a citizen?

1. all native-born citizens
2. all naturalized citizens
3. all citizens living abroad.
4. all individuals who have multiple citizenship status, as long as one of those citizenships is that of the U.S
5. former citizen and expatriates- .


What is a resident? As per the US treasury Department Regulations and how is a Residentcy or Domicile proven?

a resident decedent is a decedent who at the time of his death had his domicile in the US.
1. Physical presence
2. Intention to remain in the country


The IRS tax code states that : the value of the gross estate of every decedent nonresident noncitizen of the US shapp be that part of his gross estate which at the time of his death is situated in the US" what does this mean?

assets owned in the US by foreign decedents are subject to estate tax, even if the decedent has never visited the US and has no residence in the country.