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Flashcards in Estate Deck (18)
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1

Life Insurance added to the Estate

1) if I own the policy at time of death or did own within 3 years before death

2) if the DB is payable to my estate.

3) For Buy/Sell: If I own policy on other and then I die, the replacement value (interpolated reserve + unused premium) is in my estate

2

Powers of Attorney (POA)

Traditional, non DPOA: power ceases when the principal is no longer legally competent

DPOA: authority continues after incompetent

Springing DPOA: main strength is agent has no authority over the principals assets until incompetent

DPOAHC: DPOA but only for medical decisions. The power is always springing.

3

5 or 5 Power

This power helps get principal out of the trust. If grandpa sets up a trust that I get the income from, and I need more than that, I have the power to take out greater of 5% or $5k per year. Tax rules:

- If I take $$ and use it, nothing in my estate
- If I take $$ and don't use it, $$ in my estate
- If I don't take money but have right, $$ in my estate

(only available after crummy right is settled)

4

Tainted Trusts

When a trust produces income from investments, there are three possible taxpayers (Grantor, Trust, Beneficiary). Normally, people do not want the trust to pay because of the 37% tax. A tainted trust is just one where the trust is set up so that the trust does not pay the taxes. The trust is always irrevocable and I have some benefit like:

1) A right to income or the right to use/enjoy trust property (beneficial enjoyment)
2) A reversionary interest exceeding 5% (retained interest)
3) the trust pays for my life insurance policy

5

Simple Trust

Simple Trusts (2503b, marital, QTIP) are considered merely a "conduit" for forwarding income to beneficiaries
- income is distributed (taxed to bene)
- corpus distributed at termination
- no charitable gifts

6

Crummy Power

Usually found with an unfunded life insurance trust. Grantor pays money into the trust to pay the life insurance premium. The Crummy powers allow the gift to be one of present interest. The whole point of Crummy is to fund this ILIT (which gets the LI DB out of the estate).
The Crummy comes with a demand right where the beneficiary can withdraw lesser of 15k or the amount added to the trust that year (grantor typically tells beneficiaries not to use this right so that the money can go towards paying the premium

7

Non-marital B Trust (family bypass, credit shelter, unified credit shelter)

- property transferred to the trust at the of decedents death
- can be structured to provide a stream of income to surviving spouse or others
- decedent has postmortem control
- the amount transferred to trust is normally the exemption (11.58m)
- at the surviving spouses death/termination of the trust, remaining assets pass tax free to trust beneficiary

8

QTIP C Trust (current income trust) (Spousal Trust)

- provides surviving spouse with a stream of income for life, but decedent has postmortem control of trust
- property qualifies for a marital deduction
- mainly used for second marriages
- key word- LAME
Lifetime Income to spouse
Annual payments to spouse
Mandatory payments to spouse
Exclusivity for spouse

- reverse QTIP: A QTIP for grand kids. The GSTT exemption is not lost if the reverse QTIP is elected

9

Qualified Domestic Trust (QDT/QDOT)

- no unlimited marital deductions

- the exemption amount (11.58m) generally remains available. So put everything over that amount in the QDT

- jointly held property between spouses is not considered 1/2 owned

- limited gift between spouses is $157k per year

- QTIP for non citizens (transferor needs to be US cit)

10

Marital Trust (Second Spouse to Die; "A" Trust)

- Property transferred to the surviving spouse at decedents death
- The surviving spouse has control of assets
- Property in this trust qualifies for marital deduction in gross estate of decedent

11

Dynasty Trust

Simple B Trust (conduit)

- benefits multiple future generations
- free of estate, gift, and gst taxes
- can last for the lives of being plus 21 years and 9 months or as long as local laws allow

12

2503(b) vs 2503(c) Trusts

B: "bad boy"
- can be used for minors but also adult children
- only income needs to be distributed; corpus stays
- income is present gift, corpus is future gift
- may be subject to kiddie tax
C:
- "minors trust" (specifically gifting to minor)
- passes at age 21
- gift of present interest
- subject to trust tax rules
- grantor should not be trustee

13

Amount of taxable gift (simple)=

total gift-retained interest

14

Increasing the basis of a gift

The recipient of an appreciated gift is permitted to increase the basis in the asset by the amount of the gift tax actually paid by the donor that is attributable to the appreciation of the gift

15

Living Will Basics

Directs client's physician to discontinue life sustaining treatment of the client is in a terminal condition

16

Testamentary Trust

Trust created by a will. Assets first go through probate before entering the trust. The trust itself is not in the gross or probate estate and is only generated after the estate settlement process is complete

17

Complex Trust

Complex Trust (2503c) are separate tax entities and taxed as such if irrevocable and income is accumulated:
- accumulated income taxed to trust
- corpus distributed per trust terms
- charitable gifts permitted

18

HEMS

The Ascertainable Standard (HEMS) allows a beneficiary to dip into trust principal if they need the money for Health, Education, Maintenance, or Support. These assets will not be in the beneficiaries estate as long as they use the money for a HEMS purpose.