Estate Liquidity at Death Flashcards
(26 cards)
How does the use of will substitutes reduce administrative costs at death?
It reduces the amount of property in probate that requires administrative handling.
Reducing potential litigation, potential attorney fees, hard to value or manage assets, and the use of will substitutes, accomplish what?
The reduction of administrative costs post-mortem
What is key about sections 2036-2038 regarding whether or not the 3 year rule applies?
The retention of some sort of control. Use, income, designation of user, reversion, termination, etc.
What is included in the 3 year rule?
Paid gift taxes out of pocket, transferred life insurance incidents of ownership on own life, or gave up a retained right.
Why does gifting, rather than selling, reduce the gross estate?
Selling receives the PV of the asset back immediately. Therefore there is no reduction in the estate. It’s a trade of one asset for another of equal value.
What is a non exoneration clause?
It is a way to reduce debts by willing both the real estate and its mortgage to the beneficiary
What are critical to ensuring life insurance is available for post mortem liquidity?
3 year rule if transferring to ILIT
Beneficiary is someone who has an interest to use the insurance to pay estate charges
How would a closely held business offer liquidity?
Buy-sell arrangements, income from the business, selling of shares, etc.
What are the three rules to AVDs?
The election must result in a decreased gross estate
It is all or nothing
The election must result in a decrease in fed taxes owed
What are wasting assets?
Survivor annuities, patents, copyrights, installment notes
If the AVD is selected, what is the basis for beneficiaries?
The AVD, 6-month later basis. Still stepped-up, but probably reduced from date of death FMV.
What is “dower” and “curtesy”?
Dower is a surviving wife’s right to a life estate interest - Curtesy is a husbands. These have mostly gone away in favor of a spouses right to elect against the will.
What are the 3 tax forms required at death?
706 - estate and GSTT form
1041 - fiduciary income tax return
1040 - individual income tax return
What are the requirements for a qualified disclaimer?
Must be irrevocable
The beneficiary must not have previously enjoyed the asset
The disclaimer must be in writing
Disclaimer must be made w/I 9 months from date of asset granting or turning 21
What is a reverse QTIP election?
It allows both the marital deduction to be used AND for the remainder gift to appear as though it came from the decedent (and not the surviving spouse) so that the gift can take advantage of the GSTT exemption (if gifting to grandchildren)
Being a US resident and actively carrying on business
The owner interest value of the closely held business exceeds 35% of her AGE
The owner owns greater than 20% of the business
Applies only to tax attributable to the business
These are requirements for…
A Section 6166 installment payment of taxes
How are Section 6166 installment payments made?
Deferred for 5 years only paying interest during that time
10 year, annual installments after that
What does a Section 303 stock redemption do?
Allows a closely held business to redeem shares and treat the transaction at the capital gains rate vs ordinary income
Max amount = death taxes + admin expenses
What are the requirements for Section 303?
Only closely held stock
Value of stock must exceed 35% of decedent AGE
Only against an amount equal to decedent estate taxes plus admin expenses
What are the requirements for a Section 2032a special use valuation?
-Must be reflective of qualified use on date of death
-Net value of real and pers prop must be 50% of adjusted value of gross estate
-Net value of qualifying property must be at least 25% of the adjusted value of gross estate
-Qualifying prop must be owned by family for 5 of last 8 years
-Prop must pass to a family heir who will keep the same business
-Must tick the box on form 706
What is significant about IRDs?
No step up in basis
Can be a misc itemized tax deduction on income tax return wherever that income is reported
What is the difference between adjusted gross estate (AGE) and gross estate adjusted (GEA)?
AGE is the GE minus A, B, C, D
GEA is the GE minus only secured debts (mortgages)
What is the formula to determine if 2032A works?
Determine GEA
Full bus equity (assets-debts) must be greater than 50% GEA
Bus real estate equity (land-mort) must be greater than 25% GEA
BOTH MUST BE SATISFIED
What is the formula to determine if 6166 works?
Determine AGE
All bus interests must be greater than 35% AGE
