Estate Flashcards
(42 cards)
1
Q
Gifting of life insurance to public charity
Charitable deduction?
A
Cash value or basis … whichever is less
2
Q
When you gift more than 13,160,000 in a single year when is it taxed?
A
That same year:
Gift amount - 18k - 13.16 x 40%
3
Q
What is the total amount that can be given without incurring a gift tax?
A
Annual exclusion 18k + 13.61m
4
Q
What are the four future interest gifts that can count as current interest gifts?
A
- UGMA/UTMA
- 2503(c)
- Section 529 (qualified tuition program)
- Crummy provision/power
5
Q
CRAT
A
Charitable reminder annuity trust
- no additions
- payable to any charity(s)
- must get 10% ending value
- period for life or max of 20 yrs
- owner gets fixed % income from trust must be above 5% a year
6
Q
CRUT
A
-charitable reminder unitrust
-additions allowed
- payments are variable due to assets being revalued yearly
- payable to any charity(s)
- charity must receive 10% of value
- period for life or max of 20 yrs
7
Q
Charitable Lead Trust (CLAT CLUT)
A
-charity receives income
- benes receive corpus in the future
- donor receives upfront income tax deduction
- assets must produce income!
8
Q
What is a skip person
A
- Two or more generations younger
9
Q
Transfer for value
A
Life insurance is not included in gross estate is transferred for value (sold or owner receives something in return)
10
Q
What type of entities operates under conduit principle?
A
Sole props, dynasty trusts, llcs
11
Q
IRD
A
Income in respect to decedent:
Income person is entitled to at death that was not taxed in decedent’s life
12
Q
Type of gain appreciated inherited property receives
A
LTCG! …Always
13
Q
Net gift formula
A
Donor must have used 13.61m
When the donee pays the gift tax.
Basis/1.4
14
Q
PIGS - Intra Family and other business transfer techniques
A
Private Annuity
Installment Sale
Grat - Grantor Retained Annuity Trust
Self-canceling installment note
15
Q
Non-Community Property Interest
A
- Income earned by spouses prior to marriage
- Property received as a gift by one spouse
- Property inherited by one spouse
- Interest earned on separate assets held by one spouse as a sole
owner
16
Q
Joint Tenancy with Rights of Survivorship (JTWROS)
A
- Property can be held by husband and wife, parent and child or
children, siblings, and business partners - Control, ownership, and enjoyment shared equally by all joint
tenants - Upon death of each tenant, property immediately passes to
surviving joint tenants in equal shares. - Property NOT controlled by terms of the will
NOT subject to probate
17
Q
Tenancy by the Entirety
A
- Ownership can only be held by a husband and wife
Transfer of property can only occur with the mutual consent of both
parties - In most states, property is protected from the claims of each
spouse’s separate creditors, but NOT protected from the claims of
both spouse’s joint creditors
18
Q
Tenancy in Common
A
- Two or more owners each own an undivided interest in the property
- Any Income is distributed according to each owner’s respective
share in the property - Owners are free to transfer their respective share of the property to
other individuals - Ownership stake goes through probate upon death
19
Q
Assets NOT Subject to Probate
A
- Property conveyed by Deeds of Title (IRA)
- Property held by Joint Tenancy with Rights of Survivorship
- Government Savings Bond - co-ownership
- Revocable Living Trusts
- Payable on Death Accounts (PODs)
- Totten Trust
20
Q
Assets Subject to Probate
A
- “Singly” owned assets
- Property held by Tenancy in Common
- Assets where the beneficiary is the “Estate of the Insured”
- Community Property (CP)
21
Q
Assets Included in the Gross Estate
A
- Singly Owned Assets
- Tenancy in Common
- Beneficiary is the Estate
- Community Property
- JTWROS/Entirety
- Life Insurance
- General Powers
- 3-year gross-up on gift taxes paid (but NOT GST taxes paid)
22
Q
Life Insurance Added to the Estate
A
- Proceeds are paid to the Executor of the Decedent’s Estate
- Decedent at Death possesses an Incident of Ownership in the policy
- Decedent transferred a policy with an Incident of Ownership within
3 years of death
23
Q
Valuation of a Gift
A
The value of a gift for gift tax purposes is its fair market value (FMV) at the date of gift.
24
Q
Deductible Gifts (Not Taxable Gifts)
Also called Exempt Gifts or Qualified Transfer
A
- Gifts to a spouse, provided they are not a Terminal Interest
- Gifts to qualified charities
- Qualified payment in any amount made directly to an educational
institution for tuition - Qualified payment in any amount made directly to a medical care
provider on behalf of any individual - Gifts to American political parties
25
Summary of Rules Regarding Gifts and the Donor’s Estate
- Generally, gifts given are simply “Taxable Gifts” to the extent such
gifts exceed the Annual Exclusion.
- Taxable Gifts are added to the Taxable Estate
- Gift Taxes paid (or payable) are generally allowed as credit against
the Tentative Tax
- Gift Taxes paid on any gifts within three years of death are added to
the Gross Estate
26
Powers of Attorney
- Traditional, Non-Durable Power of Attorney: Power ceases when the
principal is no longer legally competent
- Durable Power of Attorney: Authority of agent continues when
principal become incompetent
- Springing Durable Power of Attorney: Main strength is the agent has
no authority over the principal’s assets until incompetency.
27
Power of Appointment (Trusts)
- Special Power: Exercisable only with the consent of the creator of
the power or a person having a Substantial Adverse Interest
- Ascertainable Standard: Relating to health, education, maintenance,
or support (HEMS)
- General Power: Holder may exercise the power in any manner
he/she wishes
28
Gift and Estate Tax Implications (General Power)
- Gift Tax Implications (General Power)
-Exercised, Released, or Lapsed → Taxed
-Lapsed with a “5 or 5” power →Not Taxed
-Estate Tax Implications (General Power)
-Exercised, Released, or lapsed →Taxed
-Exercised, Released, or Lapsed with a “5 or 5” power → Greater of
the “5 or 5” is taxed
29
“5 or 5” Power
Property subject to a General Power will be included in a donee decedent’s Estate (or considered a “Taxable Gift”) only to the extent that the property exceeds the greater of:
- $5,000, or
- 5% of the total value of the fund subject to the power as measured
at the Time of Lapse
30
Grantor Trust Rules (Tainted / Defective Trusts)
Income Tax & Estate
- Trust may be Defective / Tainted for Income Tax and Estate Tax
purposes if the Grantor retains:
- A Right to Income or the Right to Use/Enjoy Trust property
(Beneficial Enjoyment)
- A Reversionary Interest exceeding 5% (Retained Interest)
31
Elements of a Trust
- In order for a Trust to exist, there must be Property (also known as
Principal, RE, or Corpus)
- There must be a Grantor. This is any person who transfers Property
to and dictates the terms of a Trust.
- There must be a Trustee who received legal title to the Property
placed in the Trust, and who generally manages and distributes
income according to the terms of a formal written agreement (Trust
Instrument).
- There must be a Beneficiary who has Equitable Title to the property.
- The Grantor and Trustee must be legally competent.
32
Simple
vs.
Complex Trusts
Simple Trusts (2503(b), Marital, QTIP) are considered merely a “conduit” for forwarding income to the Beneficiaries (Pass-Through)
- Spits out income
Complex Trusts (2503(c)), are separate Tax Entities and taxed as such if it meets two requirements:
- It is irrevocable, and the Grantor has not retained any control
- Income is accumulated
33
Crummey Trust
- Irrevocable Trust with Demand Rights
- Demand Right given to a minor through his/her guardian
- Beneficiary has Temporary Right to Demand a withdrawal from the
Trust that is the lesser of the amount of the Annual Gift Exclusion or
the value of the gift transferred
34
Non-Marital “B” Trust
(Family, Bypass, Credit Shelter, Unified Credit Shelter)
- Property transferred to the Trust at the time of the decedent’s death
- Can be structured to provide a Stream of Income to surviving
spouse or other individual
- Decedent has post-mortem control
35
QTIP “C” Trust (Current Income Trust)
- Provides surviving spouse with a Stream of Income for life, but
decedent has post-mortem control of Trust property
- Property qualifies for Marital Deduction
- Mainly used for second marriages
Keyword for QTIP - L.A.M.E.:
- Lifetime income for the spouse
- Annual payments to spouse
- Mandatory payments to spouse
- Exclusively for spouse
36
Qualified Domestic Trust (QDT / QDOT)
- No Unlimited Marital Deduction
- However, no Estate Tax due
- Jointly held property between spouses is not considered one-half
owned
- Limited gift between spouses of only $100K (Indexed) per year
37
Present Interest Gift Vehicles
- UGMA
- UTMA
- 2503(c) Trust
- Section 529 College Savings Plan
Gift to a 2503(b) Trust is a gift of a future Interest
38
Charitable Contributions/Transfers
Income to donor until donor’s death:
- Charitable Remainder Annuity Trust (CRAT) - 5%
- Charitable Remainder UniTrust (CRUT) - 5%
- Pooled Income Fund - no 5% required
- Charitable Gift Annuity - no 5% required
Income to the charity:
- Charitable Lead Trust (CLAT/CLUT) - no 5% required
- Private Foundation - 5% - can give money to individuals
39
Intrafamily Transfers
(Property owner wants to gift assets and/or income to family members)
- Partnership / S-Corp
- Family Limited Partnership (FLP)
- Gift Leaseback
- Qualified Personal Residence Trust (QPRT)
40
Disclaimer
In order to Disclaim Property, the following requirements must be met:
- Disclaimer must be an Irrevocable Refusal to accept the interest
- Refusal must be in writing
- Refusal must be received within 9 months
- Intended donee cannot have accepted any interest in the benefits
- As a result of refusal, the interest will pass, without the disclaiming
person’s direction, to someone else
41
Post-mortem Planning Techniques
(Estate Liquidity)
Stock Redemption (Section 303):
- Business must be Incorporated (Closely Held)
- Value of business must exceed 35% of the decedent’s Adjusted
Gross Estate
- Redemption cannot exceed the sum of the estate taxes plus
administrative expenses
Installment Payment of Estate Taxes (Section 6166):
- Value of business must exceed 35% of decedent’s adjusted gross
estate
- During the first 4 years (of 14 years) can pay interest only on taxes
due
42
Port-mortem Planning Techniques
(Estate Tax Reduction)
Special Use Valuation (Section 2032A):
- 25% of the Gross Estate consists of real property
- Must be in Qualified Use: 5-out-of-8 year rule before death and 10
years after death.
