Estate Flashcards
(7 cards)
Giacomo passed away on 12/15 with the following assets. Estate valuation will be established as of the date of death.
$850,000 death benefit from a life insurance policy purchased in an ILIT last year
$700,000 Mountain Cabin (Tenancy in Common, 20% ownership share)
$900,000 Primary Residence (JTWROS, spousal; $100,000 purchase price)
$850,000 Second Residence (JTWROS, non-spousal; 30% initial contribution, $150,000 purchase price)
$250,000 in jewelry, art, and furniture
$700,000 in a Grantor Annuity Trust with a 10 Year term, established 4 years ago.
Calculate the value of the assets that will be included in Giacomo’s gross estate.
$1,095,000
$1,965,000
$1,795,000
$2,645,000
Since the ILIT purchased the $850,000 life insurance policy, it will not be included in the gross estate.
20% of the Mountain Cabin titled Tenancy in Common will be included in the gross estate. $700,000 x 0.20 = $140,000.
50% of the Primary Residence titled JTWROS will be included in the gross estate (since this is spousal JTWROS property). $900,000 x 0.50 = $450,000.
30% of the Second Residence titled JTWROS will be included in the gross estate (since this is non-spousal JTWROS & Giacomo purchased 30% of the property initially. $850,000 x 0.30 = $255,000.
All the $250,000 of personal property will be included in the gross estate.
The GRAT had a ten-year term & Giacomo was only two years into the trust term. As a result, the FMV of the trust on the date of death will be included in the gross estate. $700,000.
$140,000 + $450,000 + $255,000 + $250,000 + $700,000 = $1,795,000
Charles, age 93, made the gifts listed below in the current year. He has used $0 of his unified lifetime gift and estate tax exemption and $0 of his GSTT exemption to date. Each gift below was the only one given to the noted recipient this year.
$18,552,000 gift to his son, Arthur, in April 2024
$10,018,000 gift to his grand-daughter, Elizabeth, in July 2024
Calculate the total gift tax that Charles must pay in 2024.
$5,982,400
$1,145,600
$4,006,400
$5,969,600
Since Charles has used $0 of his unified lifetime gift and estate tax exemption and the gifts listed were the only ones given to Arthur & Elizabeth this year, the annual exclusion amount & lifetime gift exemption must be applied.
Arthur’s gift was transferred first. The total gift of $18,552,000 must be reduced by the annual exclusion amount of $18,000 to find the taxable gift. $18,552,000 - $18,000 = $18,534,000.
Then, the lifetime gift exemption of $13,610,000 (2024) can reduce the taxable gift further. $18,534,000 - $13,610,000 = $4,924,000. The remaining taxable gift of $4,924,000 is taxed at a 40% gift tax rate. $4,924,000 x 0.40 = $1,969,600 of gift tax due on the transfer to Arthur.
Next, the total gift for Elizabeth must be reduced by the annual exclusion amount to find the taxable gift. $10,018,000 - $18,000 = $10,000,000. Since the lifetime gift exemption was fully depleted with the gift to Arthur earlier in the year, the entire $10,000,000 is taxable at a 40% gift tax rate. $10,000,000 x 0.40 = $4,000,000 of gift tax due on the transfer to Elizabeth.
Total gift tax due = $1,969,600 + $4,000,000 = $5,969,600
Maya, age 70, owns a property she wants to transfer to her daughter, Elise, age 50, using a private annuity. The property is currently valued at $1,500,000. Under the terms of the private annuity, Maya will receive $80,000 per year with a term of 20 years.
If Maya dies at age 92, what amount will Elise have paid for the property?
$1,600,000
$1,760,000
$1,750,000
$1,500,000
Payments under a private annuity are for the life of the seller. If Maya lives to age 92, she will have paid $1,760,000 for the property.
Which of the following transfers would trigger the imposition of a generation-skipping transfer tax (GSTT) if no allocation of the grantor’s GSTT exemption is made?
A client, age 72, pays the state university $50,000 for their 18-year-old paper carrier’s college tuition cost.
A client, age 90, gives their great-grandchild, age 15, a check for $17,000 for a birthday present.
A client, age 69, gives their business partner’s child, age 26, a $70,000 graduation present.
A client, age 65, who has no children, transfers $40,000 to their niece, age 2.
For GST purposes, all persons are assigned to a generation. In the case of related persons, this is done by reference to the ancestral chain relating back to the grandparents of the transferor, except that the transferor’s spouse or a descendant is always assigned to the same generation as the transferor or descendant.
Related skip persons are two or more generations below the transferor.
An unrelated skip person is at least 37½ years younger than the transferor.
The transfer from the 90-year-old client to a great-grandchild is below the $18,000 GST annual exclusion amount (2024) and will not be considered subject to GSTT.
The $40,000 transfer to the niece is not subject to GSTT because she is a related party & the niece is only one generation below.
The payment to the state university for tuition costs is a direct transfer, not subject to GSTT.
The business partner’s child is an unrelated party at least 37½ years younger than the transferor (i.e., 43 years younger) and is, therefore, a “skip person.” Since the transfer exceeds the $18,000 GST annual exclusion amount (2024), it WILL be considered subject to GSTT.
Assume that Xavier files his taxes Single and his AGI this year is $100,000. He’s received a $50,000 bonus at work. In addition to the listed donations, he would like to give $32,500 of the bonus this year to a qualifying charity. He wants the donation to create a large tax deduction that will reduce his gross tax for the year.
Which of the following giving strategies will result in the greatest tax deduction in the current year?
Donating the portion of the bonus to the Jon Swansong campaign.
Adding the portion of the bonus with the existing Year 3 Donor Advised Fund (DAF) distribution for a combined donation.
Treating the portion of the bonus as a new contribution to a Donor Advised Fund (DAF).
Making a cash contribution with the portion of the bonus to the Presley Trope Foundation. .
When the owner of a donor-advised fund makes a gift to the fund, it can create an immediate tax deduction to apply against current income. The deduction for a gift made in cash is limited to 60% of the giver’s adjusted gross income. For Xavier, the current year ceiling for deductible donations is $60,000 (his AGI of $100,000 x a 60% of AGI ceiling, since the contribution will be in cash). Therefore, a new donation to a Donor Advised Fund (DAF) will generate a $32,500 deduction in the current year.
Tax deductions into DAFs are taken during the year of contribution. There are no deductions available when funds are later distributed to qualified charities. Therefore, Xavier is unable to combine a current-year contribution with an existing-year distribution to maximize the deductible amount.
A cash gift to the Presley Trope Foundation would have a current-year deductible ceiling of $30,000 (AGI of $100,000 and a private foundation cash contribution ceiling of 30% of AGI). This would create a $30,000 limit for this year’s contribution, with a carryover of $2,500, beginning in the next tax year.
Charitable contributions to political campaigns or candidates are not eligible for deduction.
In addition to attending the Presley Trope Foundation fundraiser in 2024, Xavier offered 5 hours of one-on-one business consultations held at the Foundation’s headquarters in Queens, NY. His normal rate for consulting is $750/hour.
Xavier traveled from Akron, OH, 450 miles away, spending $125. He also paid out-of-pocket for three meals while traveling, totaling $175, plus $50 in tips. Prior to traveling, Xavier paid $150 to renew his car registration. His spouse, Renada, also came along on the trip, and they went sightseeing in Manhattan for four days before heading back home to Akron.
Identify the allowable deductions for Xavier’s contributions to the Presley Knope Foundation in 2024.
A portion of the cost of the fundraiser tickets.
Five hours of Xavier’s rate for the contribution of his services.
The full cost of meals, including tips.
Travel costs at the per-mile rate for charitable contributions of services.
Xavier will receive a deduction for the auction item. Only the excess of the amount paid above the FMV of the meals and costs incurred by the charity is considered deductible to the individual. In Xavier’s case, he paid $2,500 each for two tickets, for a total of $5,000. The market value of the meals and services provided at the event was $750/person. Therefore, the deductible amount to Xavier is $5,000 - $1,500 ($750 x 2 tickets) = $3,500
The IRC states that the value of donated time and services is not considered a charitable contribution.
Because a substantial amount of time was spent sightseeing with his spouse in Manhattan, the IRS would likely treat Xavier’s travel expenses and out-of-pocket expenses to be more personal in nature. Therefore, he would not be eligible for deductions related to the contribution of services
Aaliyah is a 73-year-old, high-net-worth client who has worked with a CFP® professional over the past decade. Her estate is currently comprised of:
$14 MM whole life insurance policy
$15 MM investment portfolio
$12 MM primary residence
$22 MM family business
Recently, Aaliyah was diagnosed with a terminal illness and her team of physicians believes her life expectancy is 1 year. Serena, one of Aaliyah’s two adult children, is now serving as the agent under a durable power of attorney and working on estate planning matters with the CFP® professional.
Which of the following would result in the largest reduction to Aaliyah’s gross estate value?
Setting up a Generation-Skipping Trust, funded with the investment portfolio.
Creating a Family Limited Partnership (FLP) and using the annual exclusion to gift ownership of the small business to her children.
Funding a Qualified Personal Residence Trust (QPRT) with her home.
Transferring her life insurance policy into an Irrevocable Life Insurance Trust (ILIT)
A Qualified Personal Residence Trust (QPRT) can be established with a trust term that runs shorter than Aaliyah’s life expectancy of 1 year. The $12MM residence would transfer into the QPRT and allow Aaliyah to reside in the home throughout the trust term. By living beyond the trust term, the home would be removed from her gross estate and ownership would pass to her beneficiaries.
Transferring an existing life insurance policy into an Irrevocable Life Insurance Trust (ILIT) would create a situation in which the ‘three-year rule’ could apply, potentially pulling the life insurance face value back into Aaliyah’s gross estate. Since her life expectancy is 1 year, this is not the best option.
Creating a Family Limited Partnership (FLP) for the transfer of the family business using the valuation discounts and annual exclusion amounts would reduce the value of the business in Aaliyah’s gross estate, however, with only one potential year’s worth of transfers it is unlikely to create the largest gross estate reduction.
A Generation-Skipping Trust would not apply to Aaliyah’s situation since the beneficiaries of the trust must be ‘skip persons’ and she only has two daughters, one generation removed from her.
