Estate Planning Flashcards

Question

Fractional Interest Discount

Answer 1

Discount for minor ownership in real estate Discount for the cost of a partition action if there is no possibility the separately owned interests can be consolidated for marketing purposes.

Answer 2

Deals with valuation of certain lapsing rights and restrictions in closely held business entities If there is a lapse of any voting or liquidation right in a closely held business entity, and the individual holding the right and members of the individual's family control the entitiy both before and after the lapse, the lapse is treated as a gift from the individual holding the right

Answer 3

Premised upon the inability of the minority interest owner to influence business policy, compel income distributions, or force business liquidation, mergere, consolidation, or sale resulting in loss of balue.

Answer 4

discount for value of what would be the value of a similar bsuiness interest without the problems closely held business interests to sell (risky to own)

Answer 5

the inability of partners to withdraw from a partnership because of provisions in the partnership agreement and/or state law has been used to claim a valuation discount

Answer 6

Lifetime transfers of corporate or partnership interests where there is no established market for such interests Prerequisites 1) Must be a transfer of an equity interest 2) Transfer must be made to a member of the transferors family 3) Transferor or family memeber must keep an applicable retained interest in the coroporation or partnership 4) There are senior and junior equity interest in the entity

Answer 7

Deals with transfers in whic a trust or a term of years in involved. Applies only to lifetime transfers, and therefore, has an effect only on valuation for gift tax purposes. 1) There must be a transfer in trust or a transfer of a term interest to a family memeber 2) Transferor must retain an interest in the trust

Answer 8

1) Qualified Annuity Interest 2) Qualified Unitrust Interest 3) Qualified Remainder Interest

Answer 9

Grantor Retained Annuity Trust (GRAT) and Grantor Retained Unitrust (GRUT)

Answer 10

Allows transfers to be considered present interests qualifying for the annual exclusion if the following are met 1) Both the property and its income may be expended by, or for the benefit of, the beneficiary before the beneficiary reaches age 21 2) Beneficiary may be given the right to access all trust property on the minors 21st birthday 3) If dead before 21, property payable to minors estate or whomever minor may appoint under general power of appointment

Answer 11

1) Incomplete gifts 2) A personal residence trust (PRT) or qualified personal residence trust (QPRT) 3) Charitable remainder annuity trusts or unitrusts (CRATS or CRUTS) 4) Chartitable lead annuity trusts or unitrusts (CLATS OR CLUTS) 5) A polled income fund PIF 6) certain spousal propery settlements incident to a divorce where the transfer of property is deemed to be for full and adequate consideration under IRC Section 2516 7) A noncitizen surviving spouse's transfer or assignment of property to a qualified domestic trust under the circumstances described in Reg. 20.2056A-4(b)

Answer 12

Deals with valuation of certain lapsing rights and restrictions in closely held business entities If there is a lapse of any voting or liquidation right in a closely held business

Answer 13

1) Trasferor Spouse 2) Any ancestor of either the transferoro or the transferor's spouse 3) Spouse of any such ancestor

Answer 14

For transferors and interests in corporations 1) Tranferors spouse 2) Any lineal descendant of either the transferor or their spouse 3) Spouse of any lineal decedent For transferors in trusts 1) Individuals spouse 2) any ancestor or lineal descendant of either the individual or the individuals spouse 3) Any brother or sister of the individual or their spouse 4) Spouse of any ancestor, lineal decendent or brother / sister

Answer 15

1) Political Organization Exemption 2) Eduactional Exemption 3) Medical Exemption 4) Divorce

Answer 16

1) Titling property in joint names 2) Certain gifts of life insurance 3) Intrafamily transactions a) Forgiveness of a legally enforceable debt b) Intrafamily loans c) Bargain Loan d) Adding a name to a bank account e) Lapse of General Power of Appointment

Answer 17

a) Disclaim it b) Release it c) Exercise it 4) Let it lapse

Answer 18

Income payable mandatory Only a portion of each transfer to this type of trust will qualify for the annual exclusion

Answer 19

Giving a beneficiary the power to withdraw assets as they are being gifted into the trust Transfers to trusts are present regardless of whether they are pulled or not Gift exclusion

Answer 20

1) Qualified Joint Interests in Property 2) Life Estate with Power of Attorney 3) Qualified Terminable Interest Property 4) Income Interest in a Charitable Remainder Trust

Answer 21

GT: 1) Income interest gift taxable unless given solely to spouse 2) Remainder interest receives charitable deduction Payment: Income interest: fixed amount > 5% of INITIAL NET FMV of contributed assets to non charitable beneficiary Corpus: to a qualified charity at end of trust term

Answer 22

A gift tax return must be filed whenever a married couple elects gift splitting and whenever a gift of a future interest is made Original donee must file

Answer 23

escheat to state

Answer 24

Corporate recapitalization Partnership capital freezes Buy-sell agreements Grantor Related Trusts

Answer 25

it provides an annual income payment based on the market value of the trust assets as revalued each year and will provide a potential hedge against inflation

Answer 26

provides a fixed annual income payment

Answer 27

a transfer of property in exchange for less than full and adequate consideration

Answer 28

1) A legally and mentally competent grantor who must have intended to establish a transfer property to the trust 2) A legally and mentally compentent trustee 3) One or more beneficiaries who hold a beneficial interest in the trust property 4) Property owned by the trust (its corcus), whic can be real estate, cash, or other tangible or intangible assets

Answer 29

1) Manages assets 2) Investing for benefit of trust beneficiaries 3) Makes distributions of trust income and principal as directed by terms of trust document 4) Has fiduciary relationship

Answer 30

Aims to prevent the grantor of the trust from controlling the disposition of the trust property for an unreasonably long time

Answer 31

1) Flexibility or ability to benefit benficiaries 2) Management or investment expertise 3) Avoid probate 4) Protect from creditors 5) Income, gift, or estate tax savings

Answer 32

1) Powers relinquished by the grantor 2) Date at which trust becomes operative 3) Income taxation of the trust

Answer 33

created by the decedent's will and made effective at death

Answer 34

trustee granted the power to direct trust income to more than one beneficiary

Answer 35

prohibits the beneficiary from assigning the benficiaries interest to a creditor and denies creditors the right to demand that the trustee pay for the beneficiaries debts

Answer 36

certain estate freeze transactions, such as corporate recapitalizations, between family members. These rules also apply in the valuation of interests in certain trusts, such as grantor retained income trusts (GRITs)

Answer 37

1) included in the estate of the second spouse to die at the same percentage as the first spouse took as a marital deduction 2) QTIP trusts allow a terminable interest to be left to the surviving spouse and still qualify for the estate tax marital deduction 3) QTIP trusts are useful when the first spouse to die has children from a prior marriage

Answer 38

It's adjusted basis NOT its fair market value.

Answer 39

1) Annual exclusion 2) Gift tax is "tax exclusive" while estate tax is inclusive 3) Removal of potential future appreciation 4) Tax income may be moved from a high-bracket to low bracket tonee 5) May enable decedents estate to take advantage of special elections if the right assets are gifted

Answer 40

1) Gift tax due if annual exlusion is exceeded 2) Loss of step up in income tax basis for beneficiary 3) Loss of possiility that property values may decline, resulting in lower transfer tax 4) Loss of psossibility that tax law changes in the future 5) Does not provide for possible changed circumstances of donor and donee

Answer 41

1) Privacy 2) Reduction in probate and admin costs 3) Protection from creditors 4) Enjoyment 5) See how donee manages wealth 6) Provide for education, support, and financial well being 7) Incentive to run family business

Answer 42

1) Loss of use, possession, or income from the property 2) Psychological loss 3) Irrevocability

Answer 43

1) If placed in trust, may require grantor rules AKA some income to be taxed to the grantor 2) Gift assets may still be included in donors gross estate at death (Chapter 14 or IRC Sections 2036-2038) 3) Could deny marital deduction 4) Could deny charitable deductions

Answer 44

Donee - Inclusive | Donor - Exclusive

Answer 45

1) Funded under inter vivos trust | 2) Funded or unfunded life insurance trust

Answer 46

Irrevocable Trust

Answer 47

1) Splitting trust income among beneficiaries 2) Reducing gift tax with multiple annual exclusions and valuation discounts 3) Reducing estate tax by eliminating assets from grantors gross estate

Answer 48

Used when a donor has impoverished or incapaciated parents or when children are depenedent upon the donor for part or all of their financial support Irrevocable and has spendthrift clause

Answer 49

same as Support but assets are used to purchase supplemental items for a beneficiary at the discretion of the trustee , rather than for the beneficiaries support

Answer 50

Same as RLT except it is nominally funded at the time of creation. Executes power of attorney once a contingency happens

Answer 51

1) Annual exclusion 2) Removes asset from donors gross estate 3) Removes future appreciation from donors gross estate 4) Removes future income 5) No recognition of gain 6) Creditor protection

Answer 52

1) Loss of control 2) Loss of future income 3) Included in taxable adjustable gifts 4) Use of applicable credit used

Answer 53

1) No gift tax 2) Income tax deduction 3) If bargain, donor receives proceeds 4) If stock bailout, donor avoids the gain 5) If annuity, allows donor to receive income without trust 6) If remainder in farm, allows donor to get current income tax deduction while retaining some property for themself or someone else

Answer 54

1) If bargain, only gets tax deduction on gift portion 2) If annuity for someone else, interest will incur gift tax 3) If annuity, tax deduction will be smaller than the gift of total interest in the asset because charity is obligated to pay 4) If remainder in farm, tax deduction will be smaller than the gift of toal interest because of the reaminder interest constitutes a charitable gift

Answer 55

1) Same as outright 2) Donor retains property use 3) Business deduction for lease payments 4) If donor gives property to children, lease payments can be accumulated for education or other expenses.

Answer 56

1) Same as outright | 2) donor must make lease payments to keep use of the property

Answer 57

1) Same as outright 2) Step up in basis if there is more than one year between gift and death 3) Receives gift back in the process from donee

Answer 58

1) Same as outright 2) Donee may not give the property the donor by will 3) No step up in basis if there is less than one year

Answer 59

1) Same as outright 2) Donors pays no gift tax out of pocket 3) Donors estate gets credit for gift paid by donee 4) Purpose is to receive an obligation from donee

Answer 60

1) Loss of control over asset 2) Loss of future income from asset 3) Adjusted taxable gifts may be increased 4) Donor can incur capital gain if gift tax paid or mortgage assumed by the donee exceeds the donors basis

Answer 61

1) Annual exlclusion 2) no trust document needed 3) Removes asset from donors estate if he does not die while he is the custodian 4) Removes future appreciation from donors estate 5) No recognition of gain 6) Safe from creditors 7) Safe from minors creditors until distribution

Answer 62

1) Same as outright 2) term is limited by state 3) trust income is taxed to the parent if used for their support 4) Kiddie tax rules apply 5) Property remains in the donor's gross estate if she dies as the custodian or successor custodian 6) One minor per account

Answer 63

1) Same us UGMA | 2) Fewer restrictions on types of property that can be gifted

Answer 64

1) Same as outright 2) Term is limited by state 3) Trust income is taxed to the donor if used to meet the obligation of support 4) Kiddie tax rules 5) Property Remains in donors gross estate if he dies as custodian 6) Only one minor per account

Answer 65

1) Present value of income entitled to exclusion 2) No recognition of gain (carryover basis) 3) Trust ends when beneficiary turns 21 4) Removes future income 5) one beneficiary 6) appreciation is removed from estate unless dead while trustee 7) discretionary distribution of trust assets 8) Remove reach from creditors 9) Removes reach from minors creditors until distritbution

Answer 66

1) Trust document must be drafted 2) Same as outright 3) Trust income taxed at grantor if used to meet the obligation of support 4) Kiddie tax rules apply 5) Property remains in estate if the grantor dies as the trustee 6) Must take out assets by 21 7)

Answer 67

1) Present value of income entitled to exclusion 2) No recognition of gain (carryover basis) 3) Removes future income 4) Multiple beneficiaries 5) beneficiaries not limited to minors 6) appreciation are removed from estate unless transfer sections are violated 7) Contributions qualify for annual exclusion8) Remove reach from creditors 9) Removes reach from minors creditors until distritbution

Answer 68

1) Trust document must be drafted Income distribution is mandatory 2) Part of contribution is taxable 3) Same as outright 4) Trust income taxed at grantor if used to meet the obligation of support 5) Kiddie tax rules apply 6) Property remains in estate if the grantor dies as the trustee

Answer 69

1) Same as irrevocable trust 2) Multiple beneficiaries any age 3) Qualifies for exclusion to the extent powers are granted 4) Distribution of income is discretionary

Answer 70

1) Donor may incur a gift tax on funding 2) Loss of control of assets 3) Possible loss of income 4) Trust document must be provided 6) Crummey powers may be exercised (unlikely)

Answer 71

1) Allows the donor to benefit charity without incurring a gift tax and retain eventual title or giving title to another beneficiary 2) Can be established for a term certain or one or more lives 3) Can give the charity an annuity or unitrust 4) Grantor can get deduction for present value 5) Charitable deduction for present value 6) Remainder interest to spouse qualifies for marital deduction 7) May be used to discount a gift to family members holding the remainder itnerest

Answer 72

1) Income deduction cannot exceed present value 2) If remainder interest not retained, gift tax will be incurred 3) Grantor will not have trust assets during trust term 4) Assets will be in grantors gross estate if he retains a reversion that is greater than 5% of the assets value at the time of the grantors death

Answer 73

1) allows the donor to benefit charity while retaining income or giving income to a designated beneficiary 2) Can be established for a term certain or one or more lives 3) Can give the charity an annuity or unitrust 4) Grantor gets a gift tax and income tax deduction for the present value of remainder trust 6) Remainder interest to spouse qualifies for marital deduction

Answer 74

1) If the income interest is not retained or given to the spouse, a gift tax will be incurred when the trust is funded 2) Trust assets will be included in the grantors gross estate if the grantor retains the income interest, but hte estate will receive an offsetting chartitable deduction 3) Trust amounts distributed are taxed to that beneficiary, accumulated income is not taxed since it will go to charity 4) Title to property passes to charity

Answer 75

1) Allows the donor to benefit the charity while still retaining income from the property 2) Can be established for one or more lives of income beneficiary 3) Grantor gets a gift and income tax deduction for the present value of the remainder interest 4) The income beneficiary gets income produced by a contributed share It's a form of a CRT

Answer 76

1) If income interest is not retained or given to spouse, gift tax will be incurred 2) Trusts assets will be included in the estate if income interest retained, 3) Trust amounts distributed are taxed to that beneficiary 4) Can only be established by 50% chartities 5) Title to property passes to charity

Answer 77

1) Allows grantor to retain INCOME from assets for a term certain 2) Grantor will be subject to an income tax on amounts to which she is entitled 3) Assets are removed from the gross estate if the grantor survives the trust term 4) Probate is avoided, unless the grantor dies during the term 5) Can contribute additional assets after first year

Answer 78

1) The entire amount will be subject to a gift tax if a chapter 14 rule applies 2) Gift tax on funding 3) Remainder interest does not qualify for annual exclusion 4) Assets are not removed from the grantors estate if the grantor dies during the term 5) Income interest is not protected from grantors creditors 6) Trust document must be provided 7) Loss of control over assets

Answer 79

1) Allows the grantor to retain an ANNUITY for a term certain 2) Grantor will be subject to an income tax on amounts to which she is entitled 3) Only remainder will be subject to a gift tax because grantor retains a qualified interest 4) Assets are removed from the gross estate if the grantor survives the trust term 5) Unless the trust assets revert to the grantor's estate if she dies during the trust term, probabte is avoided unless the grantor dies during the term

Answer 80

1) Cannot contribute additional assets after the initial year of funding 2) Gift tax on funding 3) Remainder interest does not qualify for annual exclusion 4) Assets are not removed from the grantors estate if the grantor dies during the term 5) Income interest is not protected from grantors creditors 6) Trust document must be provided 7) Loss of control over assets

Answer 81

1) Allows grantor to retain a UNITRUST INTEREST from the assets for a term certain 2) Grantor will be subject to an income tax on amounts to which she is entitled 3) Only remainder will be subject to a gift tax because grantor retains a qualified interest 4) Assets are removed from the gross estate if the grantor survives the trust term 5) Probate is avoided unless the grantor dies during the trust term 6) Can contribute additional assets after the initial year of funding

Answer 82

2) Gift tax on funding 3) Remainder interest does not qualify for annual exclusion 4) Assets are not removed from the grantors estate if the grantor dies during the term 5) Income interest is not protected from grantors creditors 6) Trust document must be provided 7) Loss of control over assets

Answer 83

1) Allows the grantor to retain the use of her PERSONAL RESIDENCE 2) The remainder will be subject to a gift tax because the trust is not subject to Chapter 14 rules 3) Assets are removed from the gross estate if the grantor survives the trust term 4) Probate is avoided unless the grantor dies during the trust term

Answer 84

1) The grantor will have to move or pay rent if he survives the trust term 2) Gift tax on funding 3) Remainder interest does not qualify for annual exclusion 4) Assets are not removed from the grantors estate if the grantor dies during the term 6) Trust document must be provided 7) Loss of control over assets

Answer 85

1) Funded assets avoid probate 2) No gift tax on funding 3) retain control over trust assets 4) retain income from trust assets 5) can be used for incompetency

Answer 86

1) Income is taxed to the grantor and trust assets are still part of the grantor's gross estate 2) There is no protection from the grantor's creditors 3) Trust document must be provided

Answer 87

Funded assets avoid probate 2) Assets are removed from the gross estate 3) Can shift taxation of income 4) Potects assets from grantors creditors

Answer 88

``` Gift tax on funding Loss of control over assets Possible loss of income from assets Taxed on income if the grantor trust rules apply A trust document must be drafted ```

Answer 89

1) Funded assets removed from estate 2) Trust can buy assets without capital gain 3) Trust assets pass to remainder beneficiaries 4) Income taxed to the grantor removes further assets from the estate 5) Trust assets not included in estate

Answer 90

1) Gift tax on funding 2) Grantor is still taxed on income 3) Cost of drafting trust document 4) Provides little asset protection from creditors 5) promissory note received by the grantor on the sale of assets is included

Answer 91

1) Same as a irrevocable trust 2) If drafted by a bypass trust, trust assets will not be included in estate of surviving spouse 3) Can be funded with a policy only or with other assets as well 4) Can give beneficiaries Crummey powers to make contributions eligible for exclusions 5) Trustee can be given voluntary authroity to use insurance deaht benfits to purchase assets from the estate of either spouse or to make loans to either estate

Answer 92

Trust document must be drafted 2) Taxation of income can be shifted unless income is used to pay premiums on policy 3) Loss of control 4) 3 year rule applies if funded with an existing policy 5) Crummey power may be exercised and may cause income tax

Answer 93

Same as revocable Not immediately funded upon creation

Answer 94

1) Requires execution of durable power of attorney 2) Possible needless expenditure 3) No protection against grantors creditors 4) assets not removed from grantors estate 5) Income is taxable to the grantor

Answer 95

UGMA UTMA 2503 (c) Trust

Answer 96

revocable trust | contingent / standby trust with a springable power of attorney

Answer 97

All irrevocable gifting techniques | The grantor must not retain any interest

Answer 98

``` Outright gift Gift leaseback Reverse Gift Net Gift Revocable Trust Bargain Sale ```

Answer 99

``` UGMA UTMA 2503 C trust 529 Account Coverdell ```

Answer 100

Crummery TRust | ILIT with crummey powers

Answer 101

``` 2503 b trust Irrevocable Trust CRAT's and CRUT's CLAT's and CLAT's PIFs Power of appointment trust QTIP Trust ```

Answer 102

Outright sales Bargain sale Sale-leaseback

Answer 103

Installment sale self-canceling installment note (SCIN) sale leaseback

Answer 104

installment sale private annuity sale-leaseback

Answer 105

sale-leaseback

Answer 106

All cited sales techniques unless between related parties and purchase price does not equal FMV or bargain sale

Answer 107

Gift, sell, or place in trust to avoid ancillary probate

Answer 108

Better to transfer at death for step up

Answer 109

Gift if donee is in lower bracket

Answer 110

Not good. Better to sell and take loss deduction

Answer 111

1) Assures the owner of a market for business interest 2) Assures all owners that business ownership will not fail into the hands of third parties without their consent 3) No gift tax implications unless Chapter 14 applies 4) No immediate surrender of business interest 5) Does not require change in business form

Answer 112

1) Purchase price stipulated in agreement may not be applied for transfer tax purposess if Chapter 14 applies 2) Requires expenditure of money for life insurance 3) Cost of drafting agreement 4) May require a business owner to purchase even if she does not want to

Answer 113

1) Allows multiple ownership of business entity 2) Allows the owner to maintain control, preference in the payment of income, and freeze the value of the business for estate taxes-while admitting new owners 3) Enables the owners to interest family members in the business 4) Enables the owner to create a market for his business interest 5) Allows some business income to be taxed at a lower marginal rate 6) Asset protection by frationalizing ownership Potential use of gift tax annual exclusion and minority and marketability discounts 7) Owner retains control over retained interests

Answer 114

1) Costly 2) May require change in entity and capitalization 3) Requires the owner to immediately surrender part of the buiness interest 4) can be a large gift tax cost if Chapter 14 rules apply 5) If business interests are sold to family members, can cause recognition of gain 6) If business interests are gifted to family members, may require use of gift tax credit

Answer 115

BS- Ensures a market by making purchase at death, disability or retirement Recap- does not absolutely ensure market, but does increase the likelihood that donees or purchasers of an interest will become more interested in the busines

Answer 116

BS- Does not achieve this Recap- achieves this only this for business interest gifted or sold to another`

Answer 117

BS- will avoid gift tax because it is a sale transaction unless Chapter 14 applies Recap - avoids if business interest is sold at FMVl gift tax is usually reduced by annual exclusion and valuation discounts if business interest is gifted

Answer 118

BS- does not achieve Recap- achieves if owner retains only interests with a fixed liquidation value; gifted interests are frozen at the date of gift value for purposes of original owner's estate tax calculation

Answer 119

BS- does not achieve this Recap- achieves this for business interests that are gifted or sold

Answer 120

BS- avoids this until a sale occurs; if a sale is completed soon after death, the stepped=up basis will reduce/eliminate gain Recap- there should be no recognition of gain on formation of new entity or recapitalization there could be gain if interest is sold rather than gifted

Answer 121

1) The trust must be established inter vivos to handle the grantor's financial affairs when he becomes incompetent. 2) The trust is only minimally funded upon creation. 3) Full funding will occur only when the grantor becomes incompetent. 4) If the grantor is incompetent, he cannot act as trustee.

Answer 122

1) The purchaser's basis in the asset purchased is limited to the payments that are actually made to the seller before death. 2) The purchaser's basis is the agreed upon purchase price even if some of the anticipated payments are never made because of the cancelation provision

Answer 123

The purchase price established for an owner’s interest in the agreement will be accepted for transfer tax purposes by the IRS if more than 50% of the value of the property subject to the agreement is owned directly or indirectly by individuals who are not members of the transferor’s family.

Answer 124

The transfer of the limited partnership interests to the junior family members may qualify for both a minority interest discount and a lack of marketability discount for federal gift tax purposes.

Answer 125

Execute a promissory note for the balance of the purchase price Basis is full purchase price Right to the installment recognition of gain is automatic if at least one payment is made in any year other than year of sale

Answer 126

The sellers gross estate must include the present value of the principal balance of the note plus accrued interest as of the date of the death Payments forgiven may be subject to gift tax and eligible for tax exclusion

Answer 127

Installment note but payments cancel at death Purchaser pays more in premium and interest as a result Allows transfer of wealth at a discount without transfer tax if the seller dies before his actuarial mortality date

Answer 128

One party sells business-realted property to a buyer and then the seller's closely held business leases the same property from the buyer

Answer 129

1) Immediate receipt of entire purchase price 2) Present value of asset, future appreciation, and future income are removed from the seller's gross estate 3) There is no gift tax if it is sold at FMV 4) Little paperwork

Answer 130

1) Seller may have to realize capital gain 2) Sale proceeds are included in the sellers gross estate if not disposed prior to death 3) Loss of control of asset

Answer 131

1) Seller will not incur capital gain on the gift portion 2) Asset is removed from the sellers gross estate 3) Little paperwork 4) Seller recives some value for the asset

Answer 132

1) Seller does not receive FMV for asset 2) The seller may owe a gift tax if exceeds the annual exclusion 3) Seller may have to recognize capital gain 4) Sale proceeds are included in the seller's gross estate if not disposed of prior to death

Answer 133

1) Asset removed from the sellers gross estate 2) No gift tax if the purchase prices equals FMV 3) A promissory note can be secured 4) Payments under note do not end at the seller's death 5) Gain can be recognized on an installment basis unless the taxpayer elects otherwise

Answer 134

1) No immediate receipt of the entire purchase price 2) Unconsumed sale proceeds and unpaid balance of note are included in the seller's gross estate 3) Second disposition rule may require recognition of gain without receipt of funds

Answer 135

1) Same as installment note except payments end at death 2) Not included in estate even if there is debt remaining at the seller's death if proper premium is paid for cancellation 3) Sale can turn a non income producing asset into a income producing one 4) If SCIN premium was paid, the buyer's basis will be the entire purchase price

Answer 136

1) Same as for an installment except the canceled note is not included in the seller's gross estate if the SCIN premium was paid 2) Possibility of an estate tax if there is cancellation of debt at debt without payment of proper premium for cancellation right 3) Gain must be recognized even if debt is canceled at death

Answer 137

1) Asset removed from estate 2) Payments due only until annuitant dies 3) Annuitant is paid more than FMV of the asset he exceeds life expectancy 4) No gift tax if the asset is valued correctly 5) Asset not subect to probate

Answer 138

1) Seller must pay gain in the year of sale 2) No immediate receipt of entire purchase price 3) Annuitant is paid less than FMV of the asset if he dies before expectancy 4) Unconsumed sale proceeds and present value of payments are included in the sellers gross estate

Answer 139

1) Asset removed from the seller's estate 2) No gift tax if the sale is for FMV 3) Seller retains use of the property as lessee 4) Income tax deduction for lease payments if property is used for business and payments are reasonable and neccesary 5) Purchase price can be paid in a lump sum or in insttallments 6) Sale turns non-income producing property into an income producing property

Answer 140

1) Seller may incur capital gain 2) Unconsumed sale proceeds are included in sellers gross estate 3) Seller loses control of the asset as an owner

Answer 141

The business entitiy has the obligation or option to purchase if death, disability, or retirement comes If not exerceised, owners have the option to purchase remaining proportionate shares

Answer 142

The business entitiy has the obligation or option to purchase if death, disability, or retirement comes If not exercised, owners have the option to purchase remaining proportionate shares

Answer 143

one that must pay out all of its income to the beneficiaries at least annually and cannot distribute any trust principal A simple trust cannot accumulate trust income, make charitable distributions, or make distributions in excess of its income.

Answer 144

the surviving spouse must receive a general power of appointment, so the first spouse to die does not control the ultimate disposition of the property

Answer 145

Granting her spouse a special power of appointment over the trust assets would allow Sandra to provide a lifetime income to her spouse and give him the right to withdraw limited amounts of principal for emergencies. A general power of appointment would allow the spouse to appoint all of the trust principal to himself or to his children. Section 2503(b) and Section 2503(c) trusts are used to make gifts to minors.

Answer 146

also known as a minor's trust, provides for the discretionary distribution of annual trust income on the minor's behalf with the principal being made available to the minor when the minor attains age 21

Answer 147

also known as a mandatory income trust, is an alternative to the Section 2503(c) trust. It must distribute income each year to the trust beneficiary and does not require distribution of the principal (corpus) when the beneficiary attains age 21.

Answer 148

All but themselves {n x (n-1)}

Answer 149

Business entity itself purchases the interest of an owner who dies

Answer 150

when trustee is granted the power to direct trust income and can sprinkle income to more than one beneficiary

Answer 151

denies creditor right to demand that the trustee pay the beneficiaries debts

Answer 152

distribute only as much income or principal from the trust as trustee deems necessary for the support or education of the beneficiary

Answer 153

1) Yes 2) Yes 3) Yes 4) No 5) No

Answer 154

responsible to the probate court for keeping the proceedings in motion and ensuring completion of the entire process in a timely manner

Answer 155

1) Collect money 2) Notify everyone and receive future communucations 3) Secure property against theft 4) Collect amounts due from others (rent or notes) 5) Collect amounts due to death (SS or life insurance) 6) Provide notice to creditors 7) File Return 8) Keep assets inured and invest assets 9) Manage assets 10) Distribute probate estates (will)

Answer 156

1) Lodge Will with Court 2) Appoint PR 3) Notice to Creditors 4) Inventory and Manage Assets 5) Pay Debts, Taxes, and Expenses 6) Distribute Assets

Answer 157

Provided by common law states to provide for a surviving spouse by giving the spouse the right to take a percentage of the probate estate - usually a maximum of 50%

Answer 158

gives a dependent spouse or children either an ownership or occupancy interest in real property that is used by these parties

Answer 159

Pays family members for the maintenance of estate process. Has priority over creditors

Answer 160

When asset was left to beneficiary, but the asset is not there anymore

Answer 161

Giving away real property prior to death or placing the property in a will substitute form, such as a trust or joint tenancy

Answer 162

must be written entirely in the will marker's handwriting and signed by the testator

Answer 163

Made orally by the testator, have a least one witness

Answer 164

Transfer estate assets into a trust

Answer 165

Every person in the class to receive the same amount regardless of their degree of relationship

Answer 166

Every decendent family line gets equal

Answer 167

Per stirpes except each generation will be treated the same

Answer 168

When two different lower generations split their share so they can get more from the distributed at each split

Answer 169

Must be exe

Answer 170

transferring property at death that avoid subjecting estate property to the probate process JTWROS & TBE

Answer 171

Same as POD except with pubicly traded securities

Answer 172

Revocable (Not JTWROS) Expensive

Answer 173

``` Government Savings Bond POD Account TOD Account Life Insurance Revocable Living Trust Irrevocable Living Trust JTWROS ```

Answer 174

Transferring Control Removing Estate

Answer 175

Yes No Yes if A payable to B, No if A or B No

Answer 176

Yes No Yes No

Answer 177

Yes No Yes No

Answer 178

Yes, if revocable No, unless revocable Yes, in most cases No, unless irrevocable

Answer 179

Yes No Yes No

Answer 180

No, if completed gift Yes, if certain rights are not retained No Yes, if certain rights are not retained

Answer 181

No, unless to spouse Yes, if to spouse, NO if to nonspouse unless he contributes funds No Yes, if to other than spouse

Answer 182

Yes Yes No No

Answer 183

bequest any remaining property not listed in a will

Answer 184

Instrument usedd to modify or amend an existing will Less expensive and cumbersome than writing an entire will

Answer 185

died without a will

Answer 186

9 months after the later of when the interest was made, or the day on which the person disclaiming the interest reaches age 21.

Answer 187

avoids probate, may qualify for the marital deduction, transferred to the survivor(s) listed in the title

Answer 188

Real- according to the laws of the state in which they are located Non-Real - probated according to the laws of the decedents state of residence Intangible assets can be probated in any state

Answer 189

1) Subtract $1 Million 2) Multiply 40% 3) Add $345,800 (Tax on first million) 4) Subtract Lifetime Credit ($4,577,800)

Answer 190

co-ownership discount normally is applied to estates that contain real estate that cannot be sold because the surviving contenant refuses to sell his partial interest to the estate, refuses to buy the partial interest held by the executor of the state, and refuses to join in a sale to a third party

Answer 191

Given when can't influence business policy

Answer 192

1) Name the beneficiary 2) Cash in 3) Surrender or Cancel 4) Receive policy dividends 5) Borrow against policy cash values 6) Pledge the policy as collateral for a loan 7) Assign any of the foregoing rights or the policy itself 8) Revoke an assignment Right to pay premiums is NOT included

Answer 193

1) When the decendent gifted property to another but retained the right to enjoy the property that was gifted 2) If donor-grantor establishes a lifetime irrevocable trust and retains the right to specify or designate who will subsequently enjoy of possess the trust property or its income

Answer 194

1) Transfers of a retained interest within three years of death 2) Transfers of life insurance in which the original owner is also the insured (within 3 years) 3) Gross Up Rule (gifting within 3 years)

Answer 195

1) Lapse of a general power of appointment over the greater of 5% or $5,000 2) NQSO to charity, they exercise it, value of NSQO added on estate of value date of death

Answer 196

1) Funeral 2) Administrative 3) Debts 4) Theft and Casualty 5) Marital 6) State Death Taxes Paid 7) Charitable

Answer 197

An amount passing to a surviving spouse that is a terminable interest is not entitled to a marital deduction Terminable Interest is an interest in property that will terminate with the mere lapse of time upon the occurence or nonoccurence of a stated contingency or event, and at that time it will pass to a third party named by the decendent

Answer 198

1) Life estate with a general power of appointment 2) QTIP Election 3) Charitable Remainder Trusts 4) Survival Conditioning

Answer 199

to allow the grantor's spouse to receive some benefit from the trust assets without qualifying for the marital deduction, thus using some or all of the grantor's applicable credit amount Uses a bypass trust to avoid martial deduction

Answer 200

1) Yes 2) Yes - if elected by decedents executor 3) No

Answer 201

1) Yes 2) Yes 3) No

Answer 202

1) Yes 2) Yes 3) No

Answer 203

1) Yes - mandatory 2) Yes - mandatory 3) Yes - discrestionary

Answer 204

1) No 2) No 3) Can, but not required

Answer 205

1) Maybe 2) No 3) No

Answer 206

1) Yes 2) No 3) No

Answer 207

1) Any amount for which decedent wants the marital deduction 2) Any amount for which decedent wants the marital deduction and any other property for which the marital deduction is not desired 3) Usually an amount at least equal to applicable exclusion amount

Answer 208

1) Yes 2) Yes 3) Yes

Answer 209

Installment Notes Joint and Survivor Annuities

Answer 210

Includible in their gross estate!

Answer 211

Stepped up to FMV

Answer 212

A donor-advised fund is an arrangement in which the donor makes a gift to charity and then makes future recommendations regarding who should receive grants or future monies from the charity. The major advantage of a donor-advised fund to the donor is the ability to name several charitable recipients. Low Cost

Answer 213

Tax attributable to the value of the closelt held businesss or businessess

Answer 214

Could place JTWROS

Answer 215

FLP or LLC

Answer 216

Def: Value diminishes as a function of time 1) Annuities 2) Installment Notes 3) Joint and Suvivor Annuities 4) Patents 5) Copyrights

Answer 217

All assets pass to the surviving spouse and qualify for the martial deduction, thus resulting in no estate tax payable Tax base does not exceed exemption amount

Answer 218

Protects families home from creditors

Answer 219

Dower / Curtesy

Answer 220

Allow a surviving spouse to elect to receive a speficified share of the decedent's assets in lieu of the share provided under the will

Answer 221

Allows shareholder of closely held corp to tell shares for estate taxes and admin expenses taxed at capital gains versus ordinary income.

Answer 222

Value of closely held business interest in estate must exceed 35% of her adjusted gross estate All closely held business interests owned by the decedent may be aggregated, but the decedent must own at least 20% of the total value of each business at the date of death Federal Estate Tax that may be deferred is limited to the tax attributable to the value of the closely held business

Answer 223

If requirements of installment are met, may defer for 5 years of any estate tax payment relating to the closely held business

Answer 224

Value must exceeed 35% of owners AGE Only an amount equal to the total of decedent's estate taxes plus admin expenses is eligible for this favorable treatment, any amount in excess of this total must be treated as a dividend.

Answer 225

Land used as a family farm can be valued as farmland rather than at its value if it were converted to commercial use Lowers valuation and therefore lower estate taxes

Answer 226

Net value of the real and personal property devoted to this qualified use must be equal to at least 50% of the adjusted value of the gross estate Separately real property must be at least 25% Must have been owned for at least 5 of 8 years prior to death Passed to a qualified heir that will use it for the same use Will lower by $1.18 million!

Answer 227

Gross income to which the decedent was entitled at the date of death but had not yet received Examples: Rent, IRA, annuities, deferred comp, installment notes, and tax deferred accounts Not eligible for step up

Answer 228

A special election made by an executor to treat qualified terminable interest property as if the QTIP election had not been made for generation-skipping transfer tax purposes. An election that allows better utilization of a decedent's GSTT exemption.

Answer 229

1) a lineal descendant transferee who is two or more generations younger than the transferor 2) A non lineal 3) Unrelated transferee who is more than 37.5 years younger than the transferor GSTT rules apply to skip persons only

Answer 230

the transferor's unused GSTT exemption, if any, must be allocated to lifetime direct skips, to the extent neccesary to prevent the actual payment of any GSTT rules unless the transferor elects otherwise

Answer 231

1) Timely allocation of unused exemption, if any | 2) Deductions such as gift splitting, annual exclusions, state death taxes, debts, and expenses

Answer 232

Gifted back within ONE year

Answer 233

1) Donor gets a deduction for FMV of initial contribution and lesser the FMV at the time of initial contribution of subsequent contribution 2) Charity must have right to take possession of the asset in proportion with initial contribution. All remaining interests must be transferred to charity within 10 years or death 3) Deductions recovered with interest and a 10% penalty if the charity fails to take possesssion, use the propoerty for its exempt purpose, or receive all remaining interests within 10 years or death

Answer 234

1) Donor gets deduction for the FMV up to 50% of base over the amount of all contributions for the year. 15 year carry forward if the entire deduction amount cannot be taken in contribution year 2) Charity has the right to use contributed property for conservation purposes 3) Purposes must include outdoor recreation and other outdoor activities on land

Answer 235

1) Deduction for present value of remainder interest 2) Income interest: fixed amount > 5% of initial value of trust assets paid at least annually to noncharitable beneficiary Corpus: to a qualified charity at end of trust term 3) no additions permitted Invasion of corpus is mandatory to meet income payout Term is lifetime of certain 20 years or less

Answer 236

1) Donor gets a deduction for the present value of the remainder interest 2) Income interest: to a noncharitable beneficiary annually; variable amount depending on investment success and percentage of total fund contributed Corpus: to a qualified charity at the end of the term 3) Additions are permitted No invasion of corpus; no amount of income payout is promised The term is the LIFETIME of income beneficiary

Answer 237

1) Donor gets deduction for present value of income interest if grantor trust rules apply. Otherwise, taxed to the trust with an unlimited deduction for contributions to charity 2) Income Interest: fixed amount of intiial value of trust assets to qualified charity at least annually Corpus: one or more noncharitable beneficiaries at the end of trust term 3) No additions are permitted Invasion of corpus is mandatory to meet income payout The term is the lifetime of persons in being or term certain

Answer 238

1) Donor gets a deduction for the present value of income interest given to a charity if grantor trust rules apply 2) Income Interest: fixed amount of intiial value of trust assets to qualified charity at least annually Corpus: one or more noncharitable beneficiaries at the end of trust term 3) The term is for the lifetime of persons in being or term certain < state laws against perpetuities

Answer 239

1) Donor gets a deduction for the present value of remainder interest given to charity 2) Life estate: noncharitable beneficiary gets use of and income from asset Remainder: qualified charity at end of life estate 3) It does not require a trust The term is for life or lives of noncharitble beneficiaries

Answer 240

1) Transfers to the insured 2) Partner, partnership, or corporation where they are a shareholder 3) trasnfers to transferee whose adjusted basis is determined in the whole or in part by reference to the transferors adjusted basis 4) Trasnfers between spouses or incidental to a divorce

Answer 241

Only CRUTs permit additional contributions of property subsequent to inception

Answer 242

a taxable distribution as any distribution from a trust to a skip person other than a taxable termination or direct skip

Answer 243

A deduction is available to a trust for distributions made to trust beneficiaries. A charitable deduction is allowable for complex trusts but not for simple trusts. The 10% income tax bracket applies to trusts. Tax-exempt income is not taxable to a trust.

Answer 244

when a legal indebtedness owned by an individual is discharged or satisfied, and the individual's net worth has been INCREASED the same as if the individual had earned income in the same amount

Answer 245

Heirs with whom an individual shares a common ancestor but who are in a different line than the individual are known as

Answer 246

GSTT for a taxable distribution is reported and due on April 15 of the year after distribution. GSTT for an inter vivos direct skip is reported and due at the same time as the gift tax return.

Answer 247

IRD is considered an asset for estate tax purposes and is reported on IRS Form 706. IRD is income for income tax purposes and is reported on either Form 1040 or Form 1041.

Answer 248

a major disadvantage of a supporting organization is that its activities must be controlled by the public charity it supports and not by the donor or the donor's family.

Answer 249

G- fiduciary relationship created by the law to enable one person to manage the personal care and well being of another C fiduciary relationship created by law for the purpose of enabling one person to manage property of another

Answer 250

Set forth how to make DNR decisions, resolves, disputes, and protect a patients rights in such emergency situations

Answer 251

Super annual exclusion - $100,000 transfers No marital deduction No gift splitting No joint held

Answer 252

The only exception for a surviving alien spouse to receive the marital deduction

Answer 253

similar to marital property agrement except for non spouses most states recognize this

Answer 254

A durable power of attorney survives the principal's legal incapacity (but not the principal's death).

Answer 255

A nondurable power of attorney becomes legally invalid at the onset of the principal's incapacity

Answer 256

Estate - Yes Gift - Not always, but is when gift splitting

Answer 257

Transfers estate liability and avoids gift tax

Answer 258

This type of clause is used when a close family member is disinherited in a will. This type of clause imposes a penalty for contesting the validity of provisions in a will.

Answer 259

her physicians are informed of her wishes regarding end-of-life care (living will)

Answer 260

The property is separate property so long as the spousal agreement is valid (i.e., recognized by local law and entered into with the requisite intent)

Answer 261

A durable power of attorney takes effect upon its execution and delivery to the agent unless a different effective date is expressly stated in the instrument

Estate Planning Flashcards

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