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Flashcards in Estate Deck (30)
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Non-Community Property Interest

  • 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


Joint Tenancy with Rights of Survivorship (JTWROS)

  • 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


Tenancy by the Entirety

  • 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


Tenancy in Common

  • 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


Assets NOT Subject to Probate

  • 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


Assets Subject to Probate

  • "Singly" owned assets
  • Property held by Tenancy in Common
  • Assets where the beneficiary is the "Estate of the Insured"
  • Community Property (CP)


Assets Included in the Gross Estate

  • 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)


Life Insurance Added to the Estate

  • 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


Valuation of a Gift

The value of a gift for gift tax purposes is its fair market value (FMV) at the date of gift.


Basis of a Gift

  • If FMV on the date of gift is greater than the donor's Adjusted Basis, use the donor's Adjusted Basis.
  • If FMV of the gift is less than the donor's basis, use the chart below:

Client's Subtituted Basis/Dual/Double Basis      

Above $2,015,000 Gain

Between $2,015,000 and $1,515,000 NO Gain or Loss

Below $1,515,000 Loss                                          


Deductible Gifts (Not Taxable Gifts)

Also called Exempt Gifts or Qualified Transfer

  • 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


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


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. 


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


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


"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


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)


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.




Complex Trusts

Simple Trusts (2503(b), Marital, QTIP) are considered merely a "conduit" for forwarding income to the Beneficiaries (Pass-Through)

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


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


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


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


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


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


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


Intrafamily Transfers

(Property owner needs income)

Remember: PIGS Need Income

Private Annuity

Installment Sale

Grantor Annuity Trusts (GRAT/GRUT)

Self Canceling Installment Note (SCIN)


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)



  • 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


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


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.