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82 Cards in this Set
- Front
- Back
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What are the two categories of the Gross Estate, conceptually, as the IRS divides it? |
1. The concept of the actual estate 2. The concept of the constructive estate. |
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Describe the concept of the actual estate. |
The actual estate includes all property interests held by the decedent at date of death, and she will be taxed on that interest for federal estate tax purposes. |
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Describe the concept of the constructive estate. |
The constructive estate includes former property interests so that the FMV either at the DoD or on the Alternate Valuation Date becomes taxable as part of the estate. |
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How much is the marital deduction that allows married individuals to pass their estate to their surviving spouses free of federal estate tax? |
UNLIMITED |
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Why must the federal estate tax be taken into consideration in planning an estate? |
1. The basic credit amount shelters up to $10.5 million from tax per married couple in 2013 2. The marital deduction is available only at the first death of a married couple, and presuming the survivor does not remarry. 3. Inflation may cause certain Estates to exceed the basic credit amount 4. The size of the federal deficit might in the future cause Congress to look for increased revenue from the estate and gift tax system. |
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While no plan should be implemented without an analysis of the tax consequences, federal estate taxes should not be the controlling factor, regardless of the size of the estate. |
TRUE |
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What is the name of the Act that established a unified estate and gift tax system? What does that even mean? |
Tax Reform Act of 1976 The Act prevents lifetime dispositions from escaping taxation or being taxed at lower rates. Adjusted taxable gifts are taken into consideration and added to the taxable estate in computing any federal estate tax due at death. |
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What is the name of the Act subsequent to the Tax Reform Act of 1976 that enacted some provisions that changed the unified system of the 1976 Act? What were it's provisions? |
The Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001 the gift tax exclusion became $1,000,000 through 2010. For 2010 the top gift tax rate was 35% |
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What Act came after EGTRRA and what did it do to gift, estate, and GSTs? |
Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TRA 2010). TRA allowed for $5million exclusion for gift, estate, and generation-skipping taxes for 2011 and went up as indexed for inflation in subsequent years. |
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What Act came after the TRA and what did it do? |
The American Taxpayer Relief Act of 2012 extended the basic exclusion of $5mm and continued indexing this act for inflation in 2013. After 2013 the art is $5.25mm and the max transfer tax rate is 40% |
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How did Congress view incomplete lifetime dispositions ( where the donor transferred property to another but continued to retain powers, controls, or interests over the transferred property for her lifetime)? |
As testementary transfers at death and therefore may cause the property to be included in the decedent's Gross estate. |
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What are four ways to transfer property at death?? |
1. By will 2. Intestacy 3. Contract 4. Operation of Law |
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To the extent that there are assets in the estate, who or what is responsible for the tax liability? IN the event that this first party cannot be responsible, to whom does the responsibility go? |
The estate is primarily responsible, and if not the estate, then the beneficiaries. |
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What is the Alternate valuation date? |
6 months after death |
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What kind of tax is the federal estate tax? |
It is a progressive tax similar to the federal income tax and based on a graduated rate schedule that increases with the size of the estate. |
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How are nonresident noncitizens taxed? |
ONLY The value of their property located in the US AND owned by them at the time of death is subject to federal estate tax. This property may also be subject to foreign death taxes; that just depends on the tax treaty between the US and their country. |
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How are US citizens or residents taxed? |
All property owned by citizens or residents of the United States at the time of their death is subject to the federal estate tax, regardless of where the property is located. |
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What is the IRC Section that defines Gross Estate? Which IRC Sections further define property? |
IRC Sec 2031 IRC Secs 2033-2046 |
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What is another name for IRC Sec. 2033? What does it indicate? |
The Catchall Provision In order to include property under this provision, the decedent must have possessed an interest in the property |
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How do we determine what an interest in property is? Why? |
The answer lies in state law because state law creates legal interests and rights. |
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If there is a factual or legal question about a decedent's property interest, which court rules on such questions (federal or state)? The principles of what type of law are applied (federal or state?) |
Federal State |
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What type of interest is inclusive in an estate? |
Beneficial |
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Why is a life estate created by another not includible in one's estate? |
Because the decedent must have the right to transfer the property at death and his interest ceases at his death. |
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What are the trees factors that apply to al, property in determining whether it is includible in the decedent's Gross estate under Sec. 2033? |
1. What types of property are includible under state or federal law? 2. Was the decedent's interest in the property large enough to warrant its inclusion in the estate? 3. Did the decedent possess this interest at the time of death, and to what extent? |
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If the decedent is personally liable for indebtedness against a property, the full value of the property is included in the gross estate. |
TRUE |
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Any proceeds to which the decedent was entitled before death are includible but the proceeds of a wrongful death suit are not includible, why? |
Because thendec3dent was not entitled to them prior to his death. |
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If a shareholder dies after the record date but bedore the dividend is paid, what happens and why? |
The dividend is included in the shareholder's estate because the shareholder was an owner of record as of the record date. |
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If the shareholder dies after the dividend declaration date but before the record date, what happens and why? |
The shareholder gets no dividend because the shareholder was not an owner of record. |
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What is income in respect of a decedent (IRD)? |
Assets that were due to or earned by the decedent but not yet received by him |
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Examples of income in respect to of a decedent |
1. Fees earned but not yet paid/collected 2. Royalties earned but not yet paid/collected 3. Rents accrued up to the date of the decedent's death on property the decedent owned 4. Bonuses, unpaid salary previously earned by the decedent but on yet paid 5. Dividends on stock owned by the decedent at time of death but payable subsequent to death 6. IRA accounts in excess of basis 7. Business accounts receivable 8. Vested amounts in qualified retirement plans |
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what is the IRA Sec that allows an income tax deduction for that amount of estate tax to the parry who receives and reports the income for federal income tax purposes? what other income tax deductions are allowed? |
Sec. 691 (c) for any generation-skipping tax attributed to IRD assets included in a taxable termination, or a direct skip resulting from the decedent's death. |
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what are some other property rights under Sec. 2033? how are they computed? |
1. Vested rights to receive property in the future such as reversionary interests and remainder interests. they are computed actuarially 2. Entitlement to future income 3. Postdeath partnership income |
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Assets included in Sec. 2033 |
1. Real Property 2. Cash/money equivalents 3. Stocks/bonds 4. Notes 5. Mortgages 6. Outstanding loans by decedent to others 7. Income tax refunds due 8. Patents/copyrights 9. Damages owed decedent 10. Dividends declared and payable 11. Income in respect of decedent 12. Partnership/unincorporated business interest 13. Tangible personal property 14. Vested future rights 15. Decedent's share of property held with others 16. Insurance owned on life of another |
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What does IRC Sec 2034 refer to? |
Dower or Curtsy Interests - it says that the amount of a property interest includible in a decedent's gross estate is not diminished by the fact that the property is subject to a dower or curtesy or a statutory interest created in lieu of a dower or curtesy |
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What are dower or curtesy interests? |
Property rights created under state law to protect a widow or widower's claim of right in the decedent-spouse's property. Dower is for a widow and curtesy is for a widower. |
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Gifts made within how ,many years of death are not included in the gross Estates of the decedents dying after what date? What are the exceptions? What IRC Sec. Does this generally pertain to? |
3 years After 12/31/81 Except for 1. transfers with retained interests for life, 2. transfers taking effect at death 3. Transfers in which the decedent reserves the right to alter, amend, revoke, or terminate the transfer or the power to affect the beneficial interest in the transferred property 4. transfers of life insurance policies by the insured 5. Gift taxes paid
IRC Sec 2035 |
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If the INITIAL transfer of property be outside of the 3 year period can the property still be excluded under the gross estate under IRC Sec 2035? WHY? |
Yes, as long as the disposition of the retained interest happens within 3 years of death. |
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Specifically Transfers Effective at Death are includible in the estate according to IRC Sec. -? |
2037 |
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Transfers within 3 years of death in which the decedent reserves certain rights are includible in the estate per IRC Sec-? |
2038 |
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Gift taxes paid within 3 years of death is effective with tax paid on gifts made after what year? |
1976 |
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What is the gross-up rule? |
The gross estate of a decedent includes any gift taxes paid by either the decedent or the decedent's estate on any gift made by the decedent or the decedent's spouse within 3 years of the decedent's death. The gross-up rule includes any taxes attributable to the decedent's consent to split a gift made by the decedent's spouse within 3 years of the decedent's death. Gift taxes paid by the spouse of the decedent on gifts split with the decedent are not includible in the gross estate of the decedent. The effect of this rule is to discourage deathbed gifts that would otherwise remove the amount of gift taxes paid from the donor's estate. |
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How does the annual exclusion work? |
It is indexed for inflation and it allows gifts of present-intereet property to be transferred by a donor to an unlimited number of donees per year. Therefore, no gifts worth less than the a,out of the annual exclusi9n are included in the gross estate, since no gift tax return need be filed. |
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What are the exceptions to the 3 year rule, where transfers will NOT be included in the gross estate? |
1. Deferral of estate tax under Sec 6166 2. Redemption of stock to pay administrative and funeral expenses and estate taxes under Sec 303 3. Special-Use valuation under Sec 2032A 4. Determining the amount of property subject to federal estate tax liens |
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What is the IRC Sec # that relates to transfers with retention of life interest? |
IRC Sec. 2036 |
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Retention of rights for benefit of transfer or is taxable.in the gross estate of the transferor |
TRUE |
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The retained interest or powers that result in the inclusion of property in a decedent's gross estate need not be expressly provided for in the instrument of transfer, but may be inferred from the conduct of the parties. |
True |
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What is the reciprocal trust doctrine? |
Each grantor is treated as having created a trust under which he/she retains a life interest for himself/herself. This approach results in inclusion of the corpus (of Party A) in the gross estate (of Party B). |
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If the decedent retains or reserves decedent property for a period not determinate without reference to the decedent's death then the property is in udine in the decedent's estate. |
True |
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If a decedent retains or reserves property for a period that does not, in fact, end before the decedent's death, then the property is include in the decedent's estate
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true |
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if the decedent had the right to designate who shall possess ornenjoy the property, then that property is includible in the estate. |
True |
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As a general rule, property placed in an irrevocable trust is not included in the grantor's gross estate if the grantor merely retained the right to appoint a successor-trustee other than herself upon resignation of the original trustee. |
true |
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what does pecuniary bemefit mean? |
Economic benefit |
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Amount including in gross estate under Sec2036 is entire property value, not just value of income stream. |
true |
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what is IRC Sec 2037? |
This pulls transfers of reversionary interests taking effect at death into the decedent's gross estate. |
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What are some conditions of Sec. 2037, transfers that tale effect at death? |
1. Possession or enjoyment of the transferred property is conditional on surviving the decedent-transferor |
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For the value of the property subject to the reversionary interest to be includible in the decedent's estate it must be worth more than 5% of the value of the property transferred as of the moment preceding the decedent's death. |
yes |
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What does IRC Sec 2038 pertain to |
Revocable transfers that are includible in the gross estate. |
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what types of powers would a decedent have that would enable her to draw the property back? |
1. power to change beneficiaries 2. to hasten time that beneficiary can receive the property 3. to change the amount of property a beneficiary can receive |
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what are two exceptions to Sec.2038? |
1 if the decedent's powers.can be exercised only with the consent of all parties having an interest in the transferred property 2. if this power adds nothing to the rights of the parties under local law |
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what are the Sec 2038 inclusion powers? |
1. change beneficiaries for income or corpus 2. increaae/decrease a beneficiary's status 3. Terminate the trust 4. Revoke the trust 5. Manage/control trust property 6. Replace the trustee with self/spouse |
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What are NOT Sec 2038 inclusion powers? |
1. Power in others than the grantor to revoke the transfer or return part of it to the grantor 2. Certain powers contingent on the occurrence of a particular event 3. Powers as to mechanics or details only 4. Power to add to corpus 5. Power over trusts created by others with funds not derived from the decedent and not supported by similar trusts created by others. |
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What is an ascertainable standard? |
There are cases where transferred property ottherwise subject to Sec.2038 escapes gross estate inclusion, and this is when there is an ascertainable standard, or an external standard imposed upon the decedent the limiting the exercise of the power strictly to provide for thesupport, maintenance, health, or education of thebeneficiary |
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What are some examples of estate administration expenses? |
1. Court costs 2. Executors commissions 3. Attorney's fees 4. Accounting fees 5. Appraisers fees 6. The expenses incurred on the sale of the estate property if the sale is necessary to pay the decedent's debts, expense of administration, estate taxes, or to preserve the estate 7. Selling expenses such as brokerage fees 8. Any expenditure essential to the proper settlement of the estate |
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In community property state, to what extent are administration costs and claims allowable deductions? To what extent are expenses and debts of community property deductible? |
Depends upon the particular community property state's law. 50% |
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How are medical expenses related to the decedent's last illness treated? |
They are deducted on either the estate tax return or the decedent's last income tax return if the estate files a statement waiving the right to an estate tax deduction. |
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How are claims against the estate handled? |
Deductible against the gross estate to the extent that they are based on adequate and full consideration. Interest is deductible limited to the amount accrued to the date of death. |
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What kind of taxes are deductible on the estate tax return? |
Deductible - -income taxes on income reported by the decedent, unpaid gift taxes, real property taxes accrued prior to the date of death as long as the property taxes are enforceable obligations at the time of the decedent's death. |
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Where are federal income taxes owed to the date of death deductible? |
On the federal estate tax return |
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After 2004, what types of taxes are a permissible deduction on the federal estate tax return? |
State death taxes |
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Are death taxes paid to a city deductiible on the federal estate tax return? |
No |
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Which taxes can be deducted on either the federal estate income tax return or the federal estate tax return? |
1. State income taxes 2. Local income taxes 3. Foreign income taxes 4. Property taxes |
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What types of taxes are deductible on the income tax return of the estate? |
1. Real estate taxes not accrued before death 2. Local income taxes on estate income 3. Foreign income taxes on estate income |
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What tax is deductible on neither the estate tax return nor for income tax purposes? Are there any exceptions to this? |
Any federal income taxes Exceptions- taxes, interest, and business expenses accrued at the date of the decedent's death that are attributable to income in respect of a decedent are deductible both on the decedent's final income tax return and also the estate tax return as administration expenses. |
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The decedent can deduct the full unpaid balance of a mortgage or other indebtedness including interest accrued to the date of death if two conditions are met: |
1. The full value of the property that is not reduced by the mortgage or indebtedness must be included in the value of the gross estate 2. The decedent's estate must be liable for the mortgage or indebtedness |
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What is another term for "property that is not subject to claims"? |
Nonprobate estate |
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What are typical examples of nonprobate assets? |
1. Jointly held property 2. Life insurance |
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Are expenses for administering nonprobate assets that are included in the gross estate deductible? |
Yes, under the condition that they are paid before the time for filling the federal estate tax return. |
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When can casualty loss and theft losses be deductible expenses of the estate? |
1. Only to the extent that these losses are not compensated by insurance. 2. The loss must have occurred during the estate settlement process and before the estate was closed 3. The loss is reduced by any restitution or compensation |
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If casualty losses or theft losses are determined to be deductible, which return would they go on? |
They can go on either the estate tax return or the estate income tax return, but not both. |
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With many Estates not being taxable due to the marital deduction and basic credit amount, where are many deductions most useful? |
On the estate's income tax return. |
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If an executor's commission is deductible on the federal estate tax return, is it received as taxable income? Does the answer change whether or not the executor is a beneficirary? |
Yes No |
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When would the executor's commission not be considered deductible by the estate? |
When it is a bequest |
