Estate Flashcards
What is the 121 exemption for a widow/widower?
Sale of primary residence
- Within 2 years of death: $500k
- After 2 years (and still single): $250k
More on Tenancy by Entirety (TBE)
- Only spouses
- No probate
- CANNOT BE DISCLAIMED
- Not available in community property states
Probate Reminder
ICE T
I - Individually Owned
C - Community Property
E - Estate as Beneficiary
T - Tenants in Common
Key Elements of form 706 (estate tax calculation)
[Gross Estate]
Less funeral expenses, administration expenses, debts, taxes and casualty losses
[Adjusted Gross Estate (AGE)]
Less marital and charitable deductions
[Taxable Estate]
Plus adjusted taxable gifts
(amounts exceeding annual gift tax exclusion)
[Tax Base]
Less estate tax deduction ($12,920,000 for 2023)
Remainder at 40%
[Tentative Tax]
Less gift taxes paid
[Net Estate Tax]
Gross Estate Includes The Following
All probate assets:
- Singly owned (fee simple) assets
- Tenancy in common
- Estate as beneficiary
- Community property
All non-probate assets:
- JTWROS and tenancy by the entirety
- Life insurance - With Incidents of Ownership
- General powers of appointment
- Gift taxes paid within 3 years of death*
*Generation Skipping Transfer Tax (GSTT) paid within 3 years of death are not added back into the gross estate.
Life insurance in estate and Incidents of Ownership
There are three circumstances causing life insurance to be included in the decedent’s estate:
- The proceeds are paid to the executor of the decedent’s estate
- The decedent at death possessed an incident of ownership in the policy
- The insured transferred a policy with an incident of ownership within three years of death.
Incidents of ownership
- Incidents of ownership include the right to assign, to terminate, to borrow against the cash reserves, to name beneficiaries, and to change beneficiaries.
- Premium paying is NOT an incident of ownership.
Basis on gifted appreciated securities
(When gift taxes are paid)
If you pay gift tax on a gain, the tax paid adds to your basis.
Example - Gifting Appreciated Stock
Basis - $1,017,000
FMV - $1,117,000
(Excl - $ 17,000)
—————————
$1,100,000 Taxable Gift
x 40% Tax Rate
——————
$440,000 Gift Tax
$40,000 of that tax was on the gain
New basis - $1,057,000 (old basis plus gift tax paid on gain)
Deductible gifts for GIFT TAX PURPOSES
Also called exempt gifts or a qualified transfer. Reduce estate tax to zero
Gifts to:
- U.S. citizen spouse
- Qualified charities
- American political parties (organizations)
Qualified payments in any amount made directly to
- an educational institution for tuition (only)
- a provider of medical care
Form 709 (gift tax form) must be filed by individual donor who gives
- More than $17,000 (2023) to any non-spouse donee
- A gift of a future interest in any amount
- A gift from a non-community/individual account for which spouses elect gift splitting
Federal Gift Taxation
Not a Completed Gift
Examples:
- revocable trusts
- disclaimer
- disclaimer trust
Federal Gift Taxation
Completed Gift
Transferor gives up dominion and control of the property
Gift of a future interest
- doesn’t qualify for the $17,000 annual exclusion.
- Must use $12.92mm exemption
- Examples:
- 2503 (b) trust “bad boy”
- remainder interest
- a trust in which income will be accumulated for a period of years
Gift of a present interest
- qualifies for the $17,000 annual exclusion and gift splitting
- Examples:
- 2503 (c) trust
- direct gift
- Crummey trust
- 529 plans
- UGMA/UTMA
Powers which cannot be given to another
- Power to execute or revoke a will
- Power to execute a living will (right to die)
Crummey demand right amount
The annual right of withdrawal is equal to the lesser of:
- the amount of the annual exclusion ($17,000)
OR
- the value of the gift transferred
Ascertainable standard
- HEMS - health, education, maintenance, and support
- it is a limited, not a general, power
- The terms “maintenance” and “support” are synonymous and not limited to the necessities of life.
- The grantor can specify “support in reasonable comfort,” “support in his or her accustomed manner of living,” “maintenance in health and reasonable comfort,” as well as “medical, dental, hospital, nursing expenses, and expenses of invalidism.”
- Distributions for ascertainable standards are not subject to estate tax or gift tax
Five or five power
- This is a general power (limited to $5k or 5% of the property), this included in the donee’s estate (or considered a taxable gift)
- the $5,000 or 5% ARE ANNUAL
- This withdrawal is available only after Crummey right is settled
Bypass Trust (B Trust)
- bypass, non-marital, “B,” non marital “B,” family, applicable credit amount, and applicable credit amount shelter trust
- can be simple or complex
- First spouse to die controls
- contains property transferred to the trust at the time of the decedent’s death.
- Amount of property transferred to the trust is usually an amount equal to the exemption ($12,920,000)
- Can be structured to provide a stream of income to the surviving spouse only.
- Unlike the QTIP trust, the income stream can also be split among the spouse and other individuals if the decedent so chooses.
In special circumstances, the surviving spouse may be able to exercise limited rights of invasion over the corpus and income of a bypass trust. As long as the spouse is not given more than a 5 or 5 provision and/or HEMS withdrawal right, the bypass trust will not be included in the surviving spouse’s estate.
At the surviving spouse’s death or termination of the trust, the remaining assets pass estate tax free to the remainder beneficiary.
