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Flashcards in Strategies to Transfer Property Deck (27):

The Probate Process

-any property that a person has the complete power to dispose of at death is subject to probate
-the deceased property is transferred according to the instructions of a will; or, if there is no will, the property is distributed according to the rules of the state's intestacy laws.


Operation of Law

-property owned JTWROS passes automatically to the other joint tenant(s).
-this property passes outside of probate, and a will is ineffective for transferring this property.



-property placed in either a revocable or irrevocable trust is subject to the provisions of the trust document, and does not pass through probate, and is not affected by the provisions of a will.
-testamentary trusts created by the will are subject to probate.



-life insurance contracts provide for payment by the insurance company to the designated beneficiary, so death benefits do not pass through probate
-exception is when the trust is named as the beneficiary, then the death proceeds are added to the probate estate.


Testamentary Distribution

-property transferred at death either by testamentary distribution or by intestacy are subject to probate



-Any property that does not pass by operation of other laws, by contract, or by will passes to the persons specified by the intestacy statutes.
-under the Uniform Probate Code adopted by some states, a surviving spouse inherits the entire intestate estate even when all of the decedent's children are also descendants of the surviving spouse.


Inadvertent Intestacy

-If the will does not meet the state law requirements for a valid will, the will is unenforceable, and the state's intestate succession laws will determine the distribution of the estate.


Partial Intestacy

-arises when a testator fails to provide directions in a will as to the disposition of a particular item of property.
-can be avoided by means of a residuary clause that disposes of any remaining property not specifically mentioned in the will.


Probate Process

-major feature is judicial supervision of the decedent's estate
-the court is given the responsibility for overseeing the administration and distribution of the deceased owner's property until it is transferred to beneficiaries


Ancillary Probate

-if a decedent dies owning real estate in a state other than the decedent's state of residence, ancillary probate is required.
-this is an additional probate proceeding administered in any state in which the decedent owned real estate.


Assets Subject to Probate

-property over which the decedent has a power to transfer to heirs at their death, either through the direction of their will or by intestacy, is subject to probate
-property placed in revocable or irrevocable trusts is NOT subject to probate
-in community property states, the decedent's share of community property is subject to probate.


Techniques For Avoiding Probate

-Titling Assets as JTWROS
-Joint Bank Accounts
-Revocable Living Trusts
-Government Savings Bonds (EE Bonds)
-Contract provisions taking effect at death


Advantages of Probate

-provides systematic, orderly, and judicially supervised method of distributing a decedent's estate
-court supervision provides fair treatment of the parties and proper administration of the estate
-useful to establish the title to property when disputes are anticipated.
-can bring closure to claims and disputes


Estate Tax Impact of Joint Tenancy

-at the death of the first joint tenant, the entire joint asset is included in the decedent's estate when the joint owners are not spouses unless there is proof that the surviving joint tenant contributed to the purchase price.
-a gift is not counted as a contribution
-if the surviving joint tenant is the decedent's spouse, one-half of the joint tenancy asset will be included in the decedent's estate, regardless of the decedent's contributions to the acquisition of the asset.


Advantages of a Revocable Living Trust

-significant savings on the probate process
-control is maintained
-management can be observed
-provide for incapacity


Disadvantages of a Revocable Living Trust

-Titling assets to the trust is often forgotten
-there is no income splitting or income tax reduction


Estate Planning Weaknesses and Pitfalls

-Leaving everything to the spouse and not taking advantage of the unified credit (all JTWROS titling)
-Lack of liquidity
-Failure to have a buy-sell
-inappropriate ownership of life insurance
-failure to name contingent beneficiaries and alternated fiduciaries
-failure to avoid ancillary probate
-excessive use of joint ownership of property
-failure to write or update a will
-failure to execute durable powers of attorney
-selection of wrong executor
-failure to leave separate funeral instructions


Inter Vivos Gifts

-gifts made during the lifetime


Bargain Sales

-in a bargain sale, the owner sells an asset below the FMV, so a gift is made of the difference


Uniform Gifts to Minors Act (UTMA)

-no restrictions on the type of property permitted to the transfer
-can provide lifetime and testamentary gifts
-broad investment powers to the custodian
-if the parent is selected as the custodian and is serving in the capacity at the time of death, the assets will be subject to inclusion in the parents gross estate, due to the retained power of the custodian-parent over the assets.
-the transfer to the child is an irrevocable gift. The minor is deemed to have both legal and equitable title to the account assets
-the gift is a completed gift of present interest, which will be eligible for the gift tax annual exclusion
-the income from the account will be taxed to the minor and is subject to the kiddie tax until the minor reaches age 19 (24 if student).


Gifts Subject to Debt

-the value of the gift of property subject to indebtedness is the donors equity in the property
-if the donor remains personally liable on the debt, the amount of the gift is the entire value of the property, without the reduction of the debt.


Reverse Gift

-giving property with a low adjusted basis to a less wealthy donee who is likely to predecease the donor and leave the property to the donor
-there is a one year look back
-Estate planners can avoid the one year look back by having the donee leave the property by will to the donor's child or to another person so the property receives a step-up in basis.


Property Below Basis as a Gift

-This should be avoided
-IRS rules do not permit an owner to make a gift of a tax loss


Gifting Depreciated Property

-the donee will carry over the donor's adjusted cost basis, but the full amount of the donor's recapturable depreciation or cost recovery must also be passed on to the donee. When the donee sells the property, the recapture rules require that any cost recovery be added as taxable ordinary income.
-the donor receives the benefit of depreciation deductions and the donor will pay tax in a lower taxable marginal bracket


2503 (b) Trusts

-required to distribute all income each year to the minor beneficiary, who will pay taxes on the income.
-The value of the gift for gift tax purposes is the full market value of the assets passed to the trust.
-the present value of the income interest will be a present-interest gift, eligible for the annual exclusion, and the remainder is a future-interest gift not eligible for annual exclusion.


2503 (c) Trusts

-a gift to the minor under age 21 of age is not treated as future interest gift if the income and property will pass to the beneficiary when he or she reaches age 21.
-thus a gift for a minor will be eligible for the annual exclusion even when the trust accumulates income


Crummey Trusts

-by giving the beneficiary a concumulative right to withdrawal the annual contribution to the trust, the donor will be able to take advantage of the annual exclusion.
-the crummey powers give the trust beneficiary the right to withdrawal the annual contribution to the trust. These powers are often limited to the annual exclusion amount or the greater of $5,000 or 5% of the corpus.

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