Estate Flashcards

Question

Gifts: Strategies for Present Interest

Answer 1

UGMA/UTMA - kiddie tax - part of donors estate if die before distribution 2503(c) - children's trust (complex trust) - trust pays taxes on retained income at trust rates - distributed by 21 - can be part of grantor's estate - distributions subject to kiddie tax 529 accounts - tax deferred for education Present Interest: direct use for the person's full use - present interest gift can use the $17,000 annual exclusion Future Interest: held out of the person's hands and subject to rules in the future to which it becomes a present interest - future interest cannot use the $17,000 annual exclusion

Answer 2

Income to Donor Until Death - Income paid, then assets transfer to charity at death - CRAT/CRUT - 5% required, max 20 years or until death, deduct for PV of remainder interest. NIMCRUT allows for makeup income years if 5% income not earned or exceeded. - Pooled Income Fund - no 5% required,. deduction based on PV of remainder interest, paid out over life expectancy, distributions can be variable based on investment team managing the fund. - Charitable Gift Annuity - no 5% required Income to Charity Until Death - Income paid to charity until death, then assets go to non-charity beneficiaries (children, etc.) - Charitable Lead Trust (CLAT/CLUT) - no 5% required, passes to non-charity after SPECIFIC period of time - Private Foundation - 5% required, can give to individuals, subject to 2% tax on net investment income, 15% penalty if don't distribute 5% 5% required payout for assets the donor controls. Not required for structures where income is paid to the charity (CLAT/CLUT), that are managed by others (pooled income, donor advised fund) or fixed payout (Charitable Gift Annuity) from others. Paid To Specific Charities - pooled income fund - charitable gift annuity

Answer 3

Types - Installment Sale: could be stuck in estate if die before sale complete. If related person sells within 2 years, pay full capital gains. - Self Cancelling Installment Note (SCIN): out of estate at death, if die before payments the remaining payments are forfeited, sell the asset at a premium and get higher income payout than installment sale. - Private Annuity: out of estate, transfer property for income as an unsecured life estate, usually between family members - Grantor Annuity Trusts (GRAT/GRUT): pulled back into estate if die before term has ended, needs a specific term defined. Assets given to beneficiary after term ends. No $17,000 exclusion as the assets are held until the future.

Answer 4

Donor wants to reduce estate and pass income and assets to family Types - Partnership/S-Corp: can't be a service related company, needs to be capital sensitive. gift of shares at $17,000 exclusion - Family Limited Partnerships: general partner can still retain control, rest gifted to limited partners (family), qualified for valuation discounts, get $17,000 annual exclusion with the added discount valuation benefit - Gift Leaseback: gift property to family member, pay lease money to family member to use the property for the business, take a tax deduction on the lease expense, better to do after leased property is fully depreciated - Qualified Personal Residence Trust (QPRT): pulled back into estate if die before term period, at the end of the term the property is out of the estate. Can have 2 properties. - Bargain Sale

Answer 5

In order to disclaim property to keep out of estate - must be an irrevocable refusal - in writing - received within 9 months of death - no interest/benefits received - can pass freely to anyone else without the disclaimer direction

Answer 6

Usually so people don't have to sell the family business, farm, etc. Stock Redemption (Section 303) - can sell the stock for stepped up basis cap gains instead of a dividend paid (so less taxes for estate and get some liquidity) - needs to be closely held corporation - total value of company must be 35%+ of total ADJUSTED Gross Estate - redemption can't exceed the total estate taxes and estate admin expenses Installment Payment of Estate Taxes (Section 6166) - needs to be sole proprietorship, partnership or corporation - allows for deferral (4 years) and installment payments (10 years) of estate taxes - used if business is valued at 35%+ of ADJUSTED gross estate - 2% interest

Answer 7

Special Use Valuation - can reduce estate taxes if business has real property, farming or ranch - 50% of gross estate must be real and personal property - 25% of the gross estate needs to be real estate - must be in qualified use 5 out of 8 years before death and 10 years after death - get an exemption to reduce gross estate (up to $1.31 million value of real estate) and the associated taxes. It's a direct exemption on the real estate value - if 2032A is available then 6166 installment estate taxes is available

Answer 8

Normally funded at death by will, but can be established while living. Assets go through probate before they are placed in a testamentary trust After the estate pays the decedent's expenses, taxes, and debts, the remainder goes into the testamentary trust. The trust is not funded until all aspects of the probate estate are settled The trust itself is not in the probate or gross estate. it does not operate until the estate is settled and all the taxes are paid.

Answer 9

Need approval to allow other spouse to split a full gift of $34,000 If gifts above the $17,000 annual exclusion for each spouse, each spouse needs to file gift tax returns.

Answer 10

A decedent that has general powers on a trust would have that trust included in the gross estate. A general powers trust does not go trough probate (by will, the courts). It goes to beneficiaries named in the trust. General powers (ability to do something) can't be transferred automatically through probate (the courts)

Answer 11

Minimum amount of inheritance for spouse

Answer 12

Insurance is part of estate but can bypass probate if named beneficiary on it. In community property, insurance is half owned and half in estate.

Answer 13

Only gift taxes paid and insurance ownership transfers have a 3 year look back period Any other gift does not have a look back period

Answer 14

Life Estate that doesn't allow power during life and ends at death not included in gross estate Retained Life Estate that allows retained power through life is included in gross estate

Answer 15

Gross Estate - expenses, debt, etc. = Adjusted Gross Estate - unlimited marital and unlimited charity deductions = Taxable Estate + taxable gifts exceeding annual $17,000 exclusions = Tax Base - $12.92 million exemption = Taxable Amount x 40% = Tentative Tax - Gift Taxes Paid = Net Estate Tax

Answer 16

If Gift Tax is paid right away, the recipient of the gift gets a higher basis in the gifted property rather than just the donor"s original lower basis Basis increased by the gift taxes paid on the amount of the appreciation = (FMV - Original Basis) x 40%

Answer 17

The gift given with debt has the debt considered forgiveness so the debt is a capital gain for the donor.

Answer 18

If gifting over $34,000, both spouses needs to file with the other spouse signing the form 709 - same for community and common law property If under $34,000 and gifts sourced from joint property/accounts, don't need to file If under $34,000 and not from joint property, then one spouse filed and the other signs

Answer 19

Legal document that directs the physician to follow the directions of the person

Answer 20

Has a 5 year look back, if give away before that, can't get Medicaid

Answer 21

OBRA Payback Trust:an irrevocable twut. good for those that have assets. Can pay back the government at death. No 5 year look back for Medicaid. Special Needs Trust: disabled has no assets, trust funded and can have a beneficiary

Answer 22

Per Stripes: passes to beneficiaries children if beneficiary dies Per Capita: equal to all beneficiaries

Answer 23

Sprinkling/Spray Provision: income only Discretionary Provision: income or principal Support Trust: income or principal

Answer 24

Only used if spouse gets assets or if in a marital trait, QTIP, or QDOT for the benefit of the spouse.

Answer 25

Net Gift: when recipient pays the gift tax Requires full $12.92 million exemption to be used up The purpose is to get the appreciated property out of the estate and the donor not having cash to pay the gift tax but the recipient does Net Gift Tax Paid by Recipient = Normal Gift Tax Paid / 1.40

Answer 26

Gift low basis property to dying person that has plenty of room under estate gift tax exemption Dying person names you beneficiary Dying person needs to live at least 1 year You get property back with a step up in basis

Answer 27

An estate freeze is an asset management strategy whereby an estate owner seeks to transfer assets to his or her beneficiaries, without tax consequences.

Answer 28

GSTT Payable = Taxable Gift - Gift Taxes Paid (40%) x 40% GSTT Tax Direct Skip: donor pays GSTT Taxable Termination: trust (trustee) pays GSTT. No $17,000 exclusion Taxable Distribution: beneficiary (transferee) pays GSTT

Answer 29

Income still payable to the decedent Added to Gross Estate Get income tax deduction by comparing the estate tax with and without the IRS If estate tax greater with IRD, get an income tax deduction by the difference between IRD added and regular estate tax without it.

Answer 30

Up to 6 months after death Needs to reduce estate taxes Can't include assets that fall in value over time Can't use if there is no estate tax anyway If asset sold before AVD, use sale date.

Estate Flashcards

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