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CFP > Estate > Flashcards

Estate Flashcards

1
Q

100% of ownership is referred to as ________?

A

Fee simple.

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2
Q

What does an ascertainable standard mean?

A

It implies that a trustee can make distributions to beneficiaries based on needs related to health, education, maintenance, and support (HEMS).

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3
Q

How is basis calculated on non-marital property titled JTWROS?

A

Basis is pro-rata.

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4
Q

How much can a Totten Trust lower a gross estate?

A

Totten Trusts do not lower gross estates. They do help avoid probate.

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5
Q

What can a spouse demand from a trustee regarding a QTIP?

A

They can demand that non-income producing assets be sold and income producing assets be purchased with the proceeds.

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6
Q

If a 529 Plan lives inside an UTMA/UGMA. Who owns the account?

A
  • *Th**e parents(s).
  • *Whi**le an UGMA/UTMA typically belongs to the child/minor, the 529 Plan remains an asset of the parent.
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7
Q

If a trust directed a trustee to pay estate taxes, what are the implications?

A

Trust assets are included in the gross estate.

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8
Q

Who pays the tax obligation on an intentionally defective trust?

A

The grantor.

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9
Q

What will allow a child with special needs to receive governmental assistance?

A

A special needs trust.

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10
Q

Is a bypass trust considered to be a marital trust?

A
  • *No**.
  • *Byp**ass trusts can have beneficiaries that are not the surviving spouse.
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11
Q

A credit shelter trust is also known as a ________?

A

Bypass trust.

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12
Q

What trusts are considered to be marital trusts?

A
  • *AC**E.
  • *A** Trusts: General Power of Appointment Trusts.
  • *C** Trusts: Qualified Terminable Interest Trusts.
  • *(E)s**tate Trusts.
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13
Q

________ require an invasion of corpus is income is insufficient to meet annual payments.

A
  • *CRA**Ts require invasion of corpus.
  • *CRU**Ts permit invasion.
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14
Q

What is a completed gift that still allows a grantor to retain control?

A

A 529.

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15
Q

Can a vacation home be included in a QPRT?

A
  • *Ye**s.
  • *Reme**mber that only one home can be included in a QPRT but each individuals can have up to 2 QPRTs.
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16
Q

What are two responsibilities of the personal representative of an estate?

A
  • *Inven**tory the estate.
  • *Prob**ate the will.
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17
Q

What is the gift value of a GRAT?

A

The fair market value of the property minus the retained interest of the grantor.

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18
Q

Who pays the income tax obligation in a 2503(c) trust?

A

The trust.

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19
Q

What types of trusts are exceptions to the terminal interest rule?

A
  • *Gene**ral Power of Appointment Trusts (GPOA).
  • *Quali**fied Terminable Interest Trust (QTIP).
  • *Chari**table trusts.
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20
Q

Who is responsible for conducting inventory of an estate?

A

The personal representative.

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21
Q

What is a requirement within a QPRT to realize estate tax savings?

A

The grantor must survive the trust term.

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22
Q

What is an advantage of a cross purchase plans compared to a entity purchase agreements?

A

There is a step up in basis within a cross purchase plan.

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23
Q

What percentage of income needs to be distributed annually from a CRAT/CRUT?

A

5-50% annually.

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24
Q

Does a QPRT lower a gross estate?

A

Yes.

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25
Q

How do you calculate the new basis when gift tax is being paid?

A
  • *Th**e total gain is divided by the FMV of the gift and multiplied against the gift tax paid. This amount is added to the grantors basis.
  • *Exam**ple. Rob gifts 500 shares to Jon (not related). The FMV at the time of the gift is $10,000 and Rob pays $1,000 in gift taxes. Rob’s basis in the shares is $2,000. What is Jon’s new basis?
  • *$8,000/**$10,000 =.8 | .8 * 1,000 = $800 | $800 + $2,000 = $2,800.
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26
Q

Who pays the tax in a grantor trust?

A

The grantor.

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27
Q

CRATs and CRUTs are ________ in the decedent’s gross estate.

A
  • *Inclu**ded.
  • *Whi**le included, the amount is deducted from the gross estate.
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28
Q

How is the basis of an asset determined in a gift?

A

Typically, the donor’s basis is carried over to the recipient.

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29
Q

What type of trust cannot distribute trust corpus?

A

Simple trusts.

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30
Q

The extension of time for payment of estate tax is completed by electing Section ________.

A

Section 6166.

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31
Q

What are the deductions from gross estate?

A
  • *ABC**DE.
  • *Administ**rative.
  • *Buri**al.
  • *Casu**alty losses.
  • *Deb**ts.
  • *Expen**ses, medical.
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32
Q

Who is responsible for probating a will?

A

The personal representative.

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33
Q

Who makes the alternative valuation date election?

A
  • *Th**e executor of the estate.
  • *Nee**ds to be elected within 6 months of death.
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34
Q

Can a living will help with incapacitation?

A

Yes.

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35
Q

What’s the difference between heir and legatee?

A
  • *Hei**rs inherit under state law.
  • *Lega**tees inherit based on the provisions of a will.
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36
Q

Estate tax portability is not ________?

A
  • *Autom**atic.
  • *Nee**ds to be elected by the executor.
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37
Q

Fee simple is not presumed in what states?

A

Community property states.

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38
Q

A bypass trust is also known as a ________.

A

Credit shelter trust.

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39
Q

What is one of the primary differences between a SCIN and a private annuity?

A

A SCIN (self-cancelling installment note) is for a fixed period of time while a private annuity indicates payments for life.

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40
Q

Does power of appointment survive death?

A

Yes.

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41
Q

A revocable standby trust will ________.

A

Take effect at incapacitation.

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42
Q

An ILIT (irrevocable life insurance trust) must adopt a ________.

A

Calendar year.

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43
Q

Does ownership constitute control in a FLP (family limited partnership)?

A
  • *No**.
  • *On**ly general partners have control of the FLP.
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44
Q

Which form of ownership will receive a full step up in basis when one of the owners passes.

A

Community property.

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45
Q

A spouse cannon be given ________ in a QTIP.

A
  • *Gene**ral power of appointment.
  • *Doi**ng so would disqualify the spouse for the unlimited marital deduction.
46
Q

Are testamentary trusts subject to probate?

A

Yes.

47
Q

QDOT (qualified domestic trusts) must ________.

A

Distribute all income annually.

48
Q

A client purchases a $50 raffle ticket at a charitable event. Her AGI is $50,000. How much can she deduct as a charitable contribution?

A
  • *$0**.
  • *Raf**fle tickets are not considered to be a charitable deduction.
49
Q

For reverse gifts, how long must the recipient survive for the property to pass back to the original owner and receive a step up in basis?

A

At least 1 year.

50
Q

What is an example of property passing via law?

A
  • *Prop**erty passing according to titling.
  • *Assoc**iate passing by contract with beneficiaries. Associate passing via law with titling (ex. JTWROS).
51
Q

Is fee simple assumed in community property states?

A

No.

52
Q

A grantor is also known as a ________.

A
  • *Trus**tor.
  • *Crea**tor.
  • *Sett**lor.
53
Q

Who makes a QTIP election?

A

The executor.

54
Q

Where is income taxed in a QPRT?

A

Taxed to the donor.

55
Q

If you give someone the power to pay their own creditors, what have you granted?

A
  • *Gene**ral power of appointment.
  • *B**e careful of how these questions are worded. You may see a question that asks you to identify which action would be a power of appointment. You’re looking for a situation that has the power holder pay for something outside of an ascertainable standard (HEMS).
56
Q

QTIPs are also known as ________.

A

C Trusts.

57
Q

How is income treated in a 2503(b) trust?

A
  • *Inc**ome is distributed annually.
  • *Howe**ver, income can be accumulated in a 2503(c) trust.
58
Q

The term “sum certain” is found in what type of trust?

A
  • *A** Charitable Remainder Annuity Trust (CRAT).
  • *CRA**Ts pay out a specified amount each year while CRUTs can vary in their pay out amounts.
59
Q

Who owns the policy in an entity purchase agreement?

A
  • *Th**e business.
  • *Prem**iums are not deductible.
60
Q

When would a cross-purchase plan become too cumbersome?

A
  • *Wh**en there are a high number of owners of the business.
  • *Cross-p**urchase plans require each owner of the business to own a policy on the other owners. As the number of owners increase so do the number of policies.
61
Q

What is an example of property passing via contract?

A
  • *A**n account passing via beneficiary designation.
  • *Assoc**iate passing by contract with beneficiaries. Associate passing via law with titling (ex. JTWROS).
62
Q

How can a grandparent pay for their grandchild’s education without paying gift taxes or using any of their lifetime exemption?

A

Pay the institution directly.

63
Q

How many residencies can be held in a QPRT?

A
  • *On**ly one.
  • *Howe**ver, remember that each spouse can have two QPRTs.
64
Q

How should you treat overhead expenses in in relation to a charitable gift?

A

Overhead expenses are not included in the value of the gift.

A good example here would be an artist who donates a piece of work. They may give you the value of the artwork but also include things like rent, utilities, etc., make sure not to include those additional amounts.

65
Q

A QDOT is a ________?

A
  • *Quali**fied Domestic Trust.
  • *Assoc**iate this with a spouse that is not a U.S. citizen.
66
Q

What are some of the common items included in the 3-year lookback period?

A
  • *Gi**ft taxes paid.
  • *Trans**fers of life insurance policies.
  • *The**se are important to know as you may be asked to calculate the gross estate of a client. In the list of assets, you may see “a life insurance policy that was transferred to an Irrevocable Life Insurance Trust last year,” as an option. Transfers of policies within 3-year of death come back into the gross estate of the deceased.
67
Q

Which type of trusts give immediate income to charity?

A

Charitable Lead Trusts.

68
Q

What happens if a grantor retains an interest in a trust?

A

Any incident of ownership of a trust will force the trust assets back into the decedent’s estate.

69
Q

How does property titles tenants in the entirety pass?

A

Outside of probate.

70
Q

Can a spouse sever ownership in a property titles tenants by the entirety?

A

Not without permission of the other spouse.

71
Q

Are CRATs included in the gross estate?

A
  • *Ye**s.
  • *Bu**t they are deducted from the gross estate as a charitable deduction.
72
Q

What is the type of interest that a trustee holds in a trust?

A

Legal interest.

73
Q

QTIPs qualify for ________?

A

The unlimited marital deduction.

74
Q

What happens to the loan payment on a SCIN when the creator passes?

A

The loan is essentially cancelled.

75
Q

If a client transfers property to an irrevocable trust but retains income from the trust, what happens when the client dies?

A

The property is included in the gross estate of the deceased.

76
Q

Why would a testamentary trust be a bad idea for non-married couples?

A

The will can still be contested.

77
Q

Who is taxed on interest and dividends inside of a GRAT?

A

The Grantor.

78
Q

What does a power of attorney fail to cover compared to an advanced medical directive?

A

Life-sustaining treatment at end of life.

79
Q

What title of assets is an automatic passing of title?

A

Tenants by the entirety and Joint Tennant with Right of Survivorship (JTROS).

80
Q

What can a surviving spouse demand regarding a QTIP?

A

That non-income producing assets be converted into income producing assets.

81
Q

A taxable gift occurs when a GRAT is ________?

A

Created.

82
Q

Parties to a power of attorney include _______ and _______?

A
  • *Princ**ipal.
  • *Princi**pal’s agent.
83
Q

Gift tax paid within three years of death will ________ the gross estate.

A
  • *Incre**ase.
  • *Gi**ft taxes paid and transfers of life insurance policies within three years of death are the two important items to remember on the exam.
84
Q

What is the main purpose of estate planning?

A
  • *T**o ensure that property goes to the intended party after death.
  • *Th**is is considerably subjective as estate planning has many useful features.
85
Q

Property that is acquired by either spouse during marries is equally owner by both parties. What is this describing?

A

Community property.

86
Q

Are testamentary trusts revocable or irrevocable?

A

Irrevocable.

87
Q

What is the minimum amount a charity will receive from a CRAT/CRUT?

A

At least 10% of the value of the trust.

88
Q

A residuary clause covers what?

A

Disperses any items that have not addressed in the will.

89
Q

Tenants in the entirety can only be used by ________?

A

Married couples.

90
Q

What are the two primary ways to avoid probate?

A
  • *La**w (think titling).
  • *Cont**ract (think beneficiaries).
91
Q

Form 709 refers to ________?

A

Gift tax returns.

92
Q

What’s the dollar limit of property that can be given to a spouse that can be included from the gross estate?

A

Unlimited.

93
Q

What must happen for a GRAT to stay out of a gross estate?

A

The grantor must outlive the term of the trust.

94
Q

Complex trusts can ________.

A
  • *Accum**ulate income.
  • *Sim**ple trusts must distribute income annually.
95
Q

Between a SCIN and a private annuity, which option includes collateral?

A

SCIN.

96
Q

When would a springing power of attorney come into effect?

A

At incapacitation.

97
Q

When would a 529 plan be included in a bankruptcy estate?

A

If the plan was created within 24 months of bankruptcy.

98
Q

Legal title is held by the ________?

A

The trustee.

99
Q

A Rabbi Trust avoids ________?

A

Constructive receipt.

100
Q

Who can pay the tax on income received from a trust?

A
  • *Th**e grantor.
  • *Th**e remainderman.
  • *Th**e trust.
101
Q

Is a springing power of attorney considered to be durable?

A
  • *Ye**s.
  • *I**t survives incapacitation.
102
Q

Crummey provisions are typically found in ________?

A

Irrevocable life insurance trusts (ILITs).

103
Q

What is a C-Trust?

A

A QTIP.

104
Q

Tenancy by the entirety can be terminated by ________? (3 ways)

A
  • *Dea**th.
  • *Agree**ment (mutual)
  • *Divo**rce.
  • *Reme**mber DAD as an acronym.
105
Q

Regarding income, what is the difference between a 2503(b) trust and a 2503(c) trust?

A
  • *2503**(b) trusts must pay out income annually.
  • *2503**(c) trusts can accumulate income.
106
Q

Relate the term, “in terrorem” with?

A

No-contest.

107
Q

Can a disclaimant disclaim only part of a bequest?

A
  • *Ye**s.
  • *Th**ey have the right to disclaim part of or the entire bequest.
108
Q

Can a will establish a testamentary trust?

A

Yes.

109
Q

A reduction of a bequest is called a ________?

A

An abatement.

110
Q

At what age must a 2503(c) trust be terminated?

A

By age 21.

111
Q

A ________ must adopt a tax calendar year.

A

An ILIT.

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