Round 2 Flashcards
1
Q
Estate Freeze
A
= retain some interest for owner control and cash flow
- installment note (gift business to heir)
- lifetime gift (gift stock to son)
- Charitable Remainder Trust
2
Q
TCJA
A
= $11.18MM
sunsets in 2025 (and goes back to $5MM)
3
Q
minority discount
A
50% or less
4
Q
interest on installment note
A
= deductible from income of buyer
payments pass to estate at death
5
Q
private annuity
A
no payments due at seller death
6
Q
compensate key employee of corporation
A
= nonqualified deferred compensation
Section 162 bonus insurance plan
7
Q
sprinkle trust
A
trustee can determine if income distributed to bene or not
(bene can be trustee)
* CAN continue in death
8
Q
grantor trust
A
grantor pays income tax on assets
= REVOCABLE (avoids probate)
grantor treated as owner
9
Q
709 gift tax return
A
= only when file taxes and when EXCEED annual exclusion ($15k)
* do NOT need for annual exclusion/ gifts excluded
10
Q
endowment effect
A
prefer what’s ours
11
Q
EMH
A
- prices reflect ALL available info instantly
- trade at fair market value
- outperform market, increase risk/ beta
12
Q
CAPM
A
=RISK (diversification)
13
Q
MPT
A
how risk fist into neoclassical
14
Q
illusion of control
A
= hold undiversified assets
private equity premium puzzle
15
Q
limit to arbitrage
A
impacts investor to force down price of overprices stock
16
Q
family harmony
A
avoid keeping score
17
Q
prenup
A
waive rights to property/ business
preserve for KIDS
18
Q
child support
A
taxed to GIVER
*ends at 18 or “emancipated” = military
19
Q
community property
A
CA, WI, LA, AZ, TX, WA, ID, NV, New Mexico
20
Q
social security
A
= ANNUITY only
not lump sum
21
Q
live off of 30% less in retirement
A
= anchoring
22
Q
GRAT
A
= gift of FUTURE interest
= appreciating asset out of estate to avoid estate tax
*does NOT allow for GST exemption
23
Q
divinity trust
A
preserve as much principal through generations
24
Q
retirement planning goal
A
= accumulate assets for decumulation
- available assets to replace/ secure post-retirement
- meet retirement objectives
- elim/ minimize risks that disrupt plan
- plan to address shortfalls
*at least 5 years prior to retirement
25
QDRO
= COURT order
26
volatility puzzle
stock prices vary based on future earnings & interest rates
27
QDOT
surviving spouse to take marital deduction is NOT U.S. citizen
28
gift tax within 3 years of death
back into estate
29
installment sale (buy/sell)
defers capital gains
30
establish connection then?
gather data
31
NOT qualified distribution for ROTH IRA
= work car
| CAN use ROTH IRA from dead spouse
32
lease payments for LLC- how taxed?
taxed as ordinary income to partners
33
NOT in retirement planning process
POLST
34
buy sell death benefits
tax free to business
35
loan from life insurance cash value
NO income tax at time of loan
36
effective tax rate
= predictable/ stable income (simple)
37
lump sum insurance
- burial, travel, bereavement
- 6/12 living expenses
- legacy plan, inheritance
- buy/sell
38
estate planning changing due to?
technology
39
state law
can override will (community property) and interpret provisions
40
life insurance w/ estate as bene
does NOT avoid probate (brings into estate)
41
JTWROS
```
probate AVOIDENT
(title passes by deed)
```
42
gift tax =
| estate tax=
gift tax = exclusionary
| estate tax = inclusionary
43
life insurance proceeds included in estate
incident of ownership or payable to estate
44
DSUE
| decedent survivor unused exemption
unused marital deduction available to survivor ($11.18)
| - at survivor's death, estate can use
45
residuary trust planning
= 2 trusts
1. assets qualify for exclusion ($11.18)
2. assets qualify for marital deduction
46
gift to closely held business
NO annual exclusion (future interest)
47
Fed Estate tax steps
1. gross
2. AGI
3. AGI- maritable, charitable, state death
4. deductions/ credits
5. calculate
48
gain from property sale
sale amount - basis
49
capital loss
$3,000/ year against ordinary income
50
charitable deduction on AGI
60% of AGI
51
reimbursement of medial expenses in following year
same/ all included as income for that year
52
qualified adoption expenses
credit in year adoption FINALIZED
| claims from previous years also included
53
social security threshold
= substantial gainful activity levels of earnings
| * needs based
54
SSI income limits (poor)
$2,000 single
| $3,000 couple
55
if NOT given N
= perpetuity
PV = cash flow/ R
R= (1+ROR/ 1+ inflation) -1
56
2503 (c)
child trust w/ income/ corpus distributed at 21
| * IS present interest
57
expend
= spend down
58
spousal support (alimony)
TAXED to RECEIVER
DEDUCTION to contributor
*after 1/1/19 not taxed or deductible
59
divorce rental property
original basis and new basis taxed as ORINDARY INCOME
60
UTMA and 2503(c)
permits annual exclusion on gifts to these
61
first $100,000 in ABLE
NOT counted as resource for SSI eligibility
| * many states have Medicaid payback at death
62
1041
= property transfer for divorce NOT taxed (must be within 6 years)
* even if to 3rd party, not HSA/ MSA
* NOT if nonresident alien
63
section 736
husband/ wife divorce and both partner of business:
- distributive shares
- payment of partnership property
64
312 (I) plans
1. money-purchase
2. tandem
3. target-benefit
65
reserved jurisdiction method
= employee spouse receive stock options vesting at later date
66
spousal support
no designation of payment from 1 to other
| *ex-spouse CANNOT file joint tax return
67
QTIP
- hold property for surviving spouse and income distributions
- passed to bene
* blended family
68
neoclassical economic theory
full info, utility max, rational preference
69
status quo basis
avoid moving from current situation because might be negative
70
amygdala
= emotional (system 1)
71
medical expenses are an example of
= essential/ discretionary
72
raise money from outsiders?
= LLC
73
3.8% tax
= net investment income (interest, dividend capital gain)
74
S corp taxation
losses DEDUCTIBLE by stockholder
75
when business owner retires
- reduce owner's taxable estate
| - increase estate liquidity
76
included in gross estate of decedent (dead owner):
- PROPERTY owned at death (business interest)
- life insurance within 3 YRS
- transfers W/ RIGHT
- JOINT property
- benefit w/ qualified retirement plan
- property interest w/ GENERAL POWER OF APPOINTMENT
- life insurance w/ BENE PAY COST OF SETTLING ESTATE
77
applicable credit amount
tax created by exclusion for lifetime and transfer @ death
78
blockage discount
more sellers than buy = reduce price
79
installment note @ death
included in SELLER gross estate
80
6166 - installment PAYMENT
= business value INCLUDED in seller's gross estate
decedent must own 20% (corp, LLC, partnership)
closely held = no more than 15
81
buy/sell w/ life insurance
```
policyowner = purchaser
beneficiary = transferred to dead owner's estate
```
*premiums = NOT deductible
82
cross-purchase
policyowner = purchaser
premium = after-tax dollars
income tax = purchaser equal to sale price
capital gains = seller
83
entity purchase
policyowner = business on life of each owner
| business transfers proceeds to dead owner's estate
84
straw man
intermediary ignored (buying from someone else)
85
miscellaneous expense
= Schedule A (2% AGI limit)
86
value effect
| small stock effect
NOT consistent with CAPM
87
applicable credit
= annual exclusion
88
self-canceling installment note
NOT included in seller's gross estate
89
annual exclusion gifts
NOT included in estate tax computation
90
LLC key employee retention
company buys key person life and disability insurance
91
GST
| GSST
```
GST = MONEY to grandchild
GSST = TAX on the money to grandchild
```
92
child support tax
taxed to GIVER
93
Alimony tax
deductible to GIVER
taxed to RECEIVER
*after 1/1/19 = taxed to GIVER
94
buy/sell liquidation
**** assume ENTITY
| = distributive share = capital gain = ordinary income
95
cross purchase buyer tax
basis = purchase price
96
ABLE
automatically eligible if:
- receive SSI only
- disability before 26
- disabled
97
charitable
= DEDUCTION (not adjusted)
98
Adjusted (gross income) examples
- business expenses of own business
- loss of sale
- alimony
99
charity gift
gift tax return and qualified for gift tax (completed gift)
| * DEDUCTION (not adjustment)
100
DONOR for marital deduction
must be U.S citizen
| * SURVIVING spouse does NOT have to be U.S. citizen
101
QTIP
deceased spouse (1st to die) decides who remained bene is (remainder interest)
102
above-the-line
= ADJUSTMENT = deduction whether or not taxpayer itemizes
103
below-the-line
= DEDUCTION (standard/ itemized)
104
lease of business
LLC (business) lease to LLC (building)
| lease payments taxed to owner's as ordinary income
105
related party installment sale
if family member sells business within 2 years and in trust term --> all deferred tax IMMEDIATELY TAXED to owner
106
self-cancelling installment note
out of your estate
107
private annuity
= no estate taxes
108
6166 installment payments
first 10 years NOT interest only
109
divorce retirement plan discovery process
questionnaire asking all plans from previous jobs
