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Danko: CFP Prep > Estate > Flashcards

Estate Flashcards

(96 cards)

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1
Q

Community Property: ownership & tax advantage

A

Ownership: separate, undivided, equal interest
Tax advantage: full step-up in basis of entire property

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2
Q

Estate Tax Form

A

706

“six feet under”

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3
Q

Is premium paying an incident of ownership?

A

NO

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4
Q

Policies in ILITs in gross estate?

A

Policy issued to ILIT: not included

Policy transferred to ILIT: if transferred within 3 years of death it is included

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5
Q

Gift Tax Form

A

709 must be filed if:
- more than $19k to non-spouse
- Gifts of future interest
- split gifting (unless it comes from joint account)

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6
Q

Gifts of future interest that the IRS says qualifies as a gift of present interest (& therefore you can claim $19k per year deduction)

A

1) UTMA/UGMA
2) 529
3) Crummey Trust
4) 2503(c) Trust

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7
Q

Tainted Trusts

A
  • reversionary interest that exceeds 5%
  • right to income or right to use or enjoy property

=tainted irrevocable trust is double taxed @ grantor and estate rates

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8
Q

When does a trustee become a fiduciary?

A

when the trustee controls the assets

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9
Q

Crummey Trust

A

Gift of present interest.

Irrevocable trust w/ demand rights (lesser of $19k or vlue of gift). 30 days to make demand

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10
Q

Are Ascertainable standards distributions taxed?

A

No. Distributions for ascertainable standards are not subject to estate or gift tax

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11
Q

Wealth Replacement Trust

A

Protects kids’ inheritance after gifting to charities.

Ex: ILIT. Allows donor to boost $ to charity (CRAT, CRUT), give $ to kids (Wealth Replacement Trust), and disinherit IRS (no estate tax

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12
Q

Installment Sale

A

Client NOT WORRIED about estate taxes (do not choose if over estate exemption)

  • PV of remaining payments is included in owner’s estate.
  • Gain is capital gain.
  • DO NOT USE if property is subject to RECAPTURE (1245 prop)
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13
Q

Self-Cancelling Installment Note (SCIN)

A

use if client IS WORRIED about estate taxes

  • No value in owner’s estate
  • This ADDS COST to buyer
  • Higher payout than installment
  • Capital gain
  • Assets CAN be depreciated
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14
Q

Private Annuity

A

sale of property in exchange for payments

-ALL the GAIN it taxed to seller in year PA is created
- Not included in estate
- transfer is a promise

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15
Q

Grantor Retained Annuity Trust (GRAT/GRUT)

A

STRING: if you die during the term, included in your estate

APPRECIATED ASSET: best asset

  • end of term corpus distributed to remainder person
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16
Q

Partnership / S Corp

A

(Gifting Shares)

DO NOT choose if bene subject to Kiddie Tax

  • family member receives conduit income
  • business must be capital sensitive (not service related)
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17
Q

Family Limited Partnership

A

Gift interest to limited partners to reduce estate

General partner MAINTAINS CONTROL

Valuation discounts

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18
Q

Qualified Personal Residence Trust

A

STRING: if you die during the term, included in your estate

after term residence is excluded from your estate

gift is discounted

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19
Q

Section 303 stock redemption

A

ESTATE LIQUIDITY

Business must be incorporated

Stock must exceed 35% of decedent’s AGI

amount of stock redeemed cannot exceed the sum of estate taxes

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20
Q

Installment Payment of Estate Taxes (6166)

A

ESTATE LIQUIDITY / SAFE ANSWER

property must be in a sole proprietorship, partnership, corp

Stock must exceed 35% of decedent’s AGI

Pay taxes over 14 years

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21
Q

Special Use Valuation (2032A)

A

ESTATE REDUCTION

Family Farm / Real Estate

50% of estate real/personal prop. 25% is real prop

$750,000 ($1,230,000) reduction gross estate, then must be used for 5/8 years before death and 10 years after

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22
Q

Six fully deductible gifts (i.e. exempt gifts) no matter how much you pay during your lifetime

A

Payments to:
1) School for tuition
2) Doctor for medical care
3) Charity
4) Spouse
5) political organization
6) POTUS

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23
Q

Parent gives puts $119,000 into an irrevocable trust with Crumey provisions that state she can only spend it after she graduates from college in two years. What is her taxable gift?

A

$100,000.

$100,000 = gift of future interest. File 709
$19,000 = gift of present interest. No filing of 709

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24
Q

A trust that kicks out all of the income and only the income

Ex: 2503(b), QDOT, QTIP

A

Simple Trust definition and examples

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25
If a trustee can withhold income from the beneficiary, is the trust a simple or complex?
Complex trust
26
What is the effect of beneficiary designation on assets like IRAs and life insurance?
They avoid probate and pass directly to the named beneficiaries.
27
What is the elective share?
In all states, a surviving spouse can elect against the estate if they are written out.
28
What is a Totten Trust?
A revocable trust in a bank account where depositor is named as trustee for another’s benefit.
29
What is the tax advantage of community property?
Everyone receives a 100% step-up in basis on long-term capital gain property.
30
What is the basis of non-community property upon the death of a spouse?
Living spouse gets no step-up in basis.
31
True or False: JTWROS property is subject to probate.
False. JTWROS is exempt from probate.
32
What are the characteristics of Tenants by the Entirety?
Not subject to probate, cannot be disclaimed, and can only be severed by mutual consent of spouses.
33
What is included in the gross estate?
I - individually owned C - community property (1/2) E - estate named as beneficiary T - tenants in common (my share)
34
What is the 3-year clawback rule on life insurance?
DB included in gross estate if, within 3 years, you are 1. Owner 2. Insured 3. Gifted policy
35
What are retained life estates?
Giving away something with the condition to use it during one's life.
36
What is the taxable estate formula?
Taxable Estate = Adjusted Gross Estate - Charitable & Marital deductions.
37
What are General and Special Powers of Appointment in trusts?
General Power of Appointment is included in gross estate; Special Power is not.
38
Fill in the blank: Gifts of Future Interests require filing ______.
Form 709.
39
What is the flat tax rate for Generation-Skipping Transfer Tax (GSTT)?
40%.
40
What defines a skip person?
Someone related to you and removed from you at least 2 generations or someone unrelated and 37.5 years different in age.
41
What is a Qualified Domestic Trust (QDOT)?
A way to qualify for the marital deduction if survived by a non-US spouse.
42
What must be included in a gross estate if incidents of ownership exist?
Life insurance death benefits.
43
What happens with life insurance if the decedent possessed incidents of ownership?
It is included in their gross estate.
44
What is the consequence of gifting a life insurance policy within 3 years of death?
The policy is included in the gross estate due to the clawback rule.
45
What is the consequence of a gift exceeding the annual exclusion amount?
You must file Form 709.
46
What is the impact of gift taxes paid within 3 years of death?
They are added to the gross estate.
47
What is the effect of gift splitting?
IRS assumes gifts are equally from both spouses if from a joint account.
48
What is a special needs trust?
Allows a beneficiary to continue receiving public benefits while paying for supplemental needs.
49
What is the significance of the 40% GSTT?
It is imposed on direct skips and taxable distributions.
50
Who is the owner and beneficiary in an Irrevocable Life Insurance Trust (ILIT)?
The owner and beneficiary are the same person.
51
What happens to life insurance proceeds upon the decedent's death?
Proceeds are paid to the executor of the decedent’s estate.
52
What is the clawback rule in estate taxation?
If the decedent possessed incident of ownership and gifted the policy within 3 years of death, it may be included in the estate.
53
What is the marital deduction for estate taxes?
Unlimited if you have a U.S. spouse.
54
What is a Qualified Domestic Trust (QDOT)?
A way to qualify for the marital deduction if survived by a non-U.S. spouse.
55
Name three strategies for deferring and minimizing estate taxes.
* Exclude property from your gross estate * Lifetime gifting strategies * Net Gift Technique
56
What is a Charitable Remainder Trust?
- Charity gets highly appreciated assets - Donor gets current year deduction for FV of gift (not PV) - 5% of corpus must go to donor each year - 10% has to go to charity @ end - 20 years or life
57
What is a Wealth Replacement Trust?
A trust to buy an ILIT with income not used to prevent disinheritance of children.
58
What are differences between a Charitable Remainder Unitrust (CRUT) and a Charitable remainder Annuity Trust (CRAT)
CRUT - takes more $ - $ can vary CRAT - can’t accept more $ - $ doesn’t change
59
What is a Charitable Lead Trust (CLAT)?
- Donation to Trust - Charity gets income every year - no 5% rule - Remainder to heirs (corpus), but small cut to coupon
60
What is a Charitable Gift Annuity?
- property given to charity (not to a trust) - charity gets $ now - income stream goes to donor for his life - deduction = gift - annuity value
61
What are elements of Pooled Income Funds? - investments not allowed - how is it funded? - who manages? - how does donor get paid?
- no munis allowed - group of donors pool $ together & give to a common trust fund - charity manages asset - each donor gets pro-rated share of income generated by the fund annually for life
62
What is a Private Foundation?
- A non-profit created for family charitable purposes - Must distribute at least 5% each year. - Exempt from taxes - Can support individual people
63
What is a Donor Advised Fund?
A fund controlled by a sponsoring organization and funded by an individual donor.
64
What is a charitable bargain sale?
When a charity buys property for less than fair market value.
65
What is an Alternate Valuation Date (AVD) in estate taxation?
An election that can lower the estate tax, applicable only if it reduces the estate tax.
66
What is an irrevocable disclaimer?
A refusal to accept property or benefits from an estate.
67
What is a Disclaimer Trust?
A trust where the corpus can be disclaimed but provides income for life.
68
What is a Sect 303 Stock Redemption?
A distribution of decedent’s stock at capital gains rates to pay off debts.
69
What are the requirements for Installment Payment (6166) for estate tax?
* Closely held business * Value must exceed 35% of decedent’s adjusted gross estate.
70
What is Special Use Valuation (2032A)?
A provision allowing a reduction in gross estate for family farms.
71
What is the difference between Per Stirpes and Per Capita distributions?
* Per Stirpes: goes to surviving generation of pre-deceased heirs * Per Capita: only goes to surviving generation
72
What is a simple trust?
A trust that distributes all income but no corpus.
73
What characterizes a complex trust?
Can distribute corpus and make charitable gifts.
74
What is a Crummey Trust?
Gift of present interest. Allows beneficiaries to withdraw amounts equal to the lesser of $19k or the current year’s contribution.
75
What is the purpose of a Gift Leaseback?
To gift depreciating property and lease it back, allowing the donor to write off lease payments.
76
What is a Qualified Personal Residence Trust (QPRT)?
An irrevocable trust that allows a person to transfer a residence while retaining the right to live there for a term.
77
What is the Kiddie Tax?
A tax on unearned income for persons under 24 year sold with specific thresholds. ($1,350) $0 - $1,350: 0% $1,350 - $2,700: 10% $2,700 + : parent's tax rate
78
What is a Dynasty Trust?
A trust that benefits multiple generations by providing income over a long period.
79
What is the Freezing Technique in intra-family business transfers?
A method to remove future appreciation of an asset from the estate.
80
What is a Self-Canceling Installment Note (SCIN)?
A note where payments are canceled upon death, avoiding inclusion in the estate.
81
What does a Grantor Retained Annuity Trust (GRAT) allow?
The donor receives income for a term while making gifts of appreciating property.
82
What is the primary benefit of a Family Limited Partnership?
Gifting interests to limited partners to reduce the estate.
83
What is a 2503(c) trust?
A trust for minors that allows annual gift tax exclusion. (Gifts of present interest)
84
Elements of a bypass trust: - who controls - Amount needed to fund - what assets to put into it - how is $ spent? - beneficiaries
- First spouse to die controls. - first $13.99M of estate - highly appreciating assets - Kickout income - postmortem control (to kids after spouse dies)
85
Elements of a marital trust (A trust) - purpose - who controls
- Spouse's $. Spouse has outright ownership - Spouse controls final disposition
86
A Qualified Terminal Interest Property (QTIP) is also known as what letter trust? Who controls it?
C Trust. First to die.
87
Purpose of a QTIP
L.A.M.E. L - lifetime income interest for spouse A - annual payments to spouse M - mandatory payments E - exclusively for spouse. provide current income to the surviving spouse for the remainder of surviving spouse's life
88
2503(b) Trust
Trust established for benefit of adult children that provides a stream of income. No corpus is distributed & incomeis a gift of present interest. Corpus = gift of future interest.
89
Explain the Distributive Net Income deduction
A simple trust gets to deduct from its return all income it pays to a beneficiary (income isn't double taxed)
90
What gets a full step up in basis in a community property state?
Long term capital property
91
Estate tax implication of holding property in JTWROS with a non-spouse
Full value of jointly held property is included in gross estate of first to die u less survivor can prove consideration.
92
Explain how Option 1 and Option 2 are importantly for gross estate inclusion of DB of decedent
Option 1: death benefit only Option 2: death benefit and cash value
93
Explain five or five power. - amount - power - taxation - how to get
Annual demand right. Donee has outright ownership of $5k or 5% of total value of fund (whether demanded or not)
94
What is HEMS - demand or discretionary - taxation
- Health, Education, Maintenance, Support | Ascertainable Standard - Discretionary right. Trustee can deny - tax free distributions
95
In charitable transfers, which entity is subject to the 5% rule?
CRAT, CRUT, Charitable Gift, Private foundation
96
Which charitable transfers are not subject to 5% rule?
Pooled income funds CLAT/CLUT

Danko: CFP Prep (6 decks)

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