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45 Cards in this Set
- Front
- Back
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What are the 4 primary components of the decedent's gross estate
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1.2033= property owned (note CSV of life insurance policy on life of someone OTHER THAN decedent will be includable in decedent's gross estate if proceeds were receivable by estate or decedent possed incident of ownership); 2034 dower and curtesy (fully deductible un marital ded); 2035=gift tax on gifts made within 3 years of death as well as premiums paid on life insurance policy if decedent made a xfer of ownership within 3 years; 2036t/f with a retained life interest; 2037=xfers taking effect at death' 2038 revocable xfers; 21042=life insurance if at death proceeds were receivable y estate or decedent possessed incidents of ownership; 2039=survivorship annuities (note % in estate associated with % of ownership); 2040 JTWROS entire value unless surviving owner is spouse; 2041=powers of appointment
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What is Sec 2033 property
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Catch all provision in estate tax law. excludes court awards payable as a result of wrongful death. Includes home, personal property, business, collectibles and the inclusion of the pv of survivorship interests held by the decedent at death, such as in an annuity or qualified retirement plan.
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What is the gross up rule and how is it treated for the estate tax calculation?
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Gift tax paid on gifts made by decedent within 3 years b4 death must be added to gross estate--even if gift is not included in gross estate.
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When are death proceeds from life insurance included in gross estate?
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In three situations: 1)decedent posess incidents of ownership; 2) (revoke, assign, loan, etc.- everything except for paying premiums)
2)proceeds are payable to decedent's estate; 3) decedent made a gift of the policy within 3 years b4. death. If decedent owns policy is on life of another include in estate CSV or unused premium |
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What is the Gift tax formula
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GE gross estate
- A admn -B burial -C casualty loss -D debts adjusted gross estate -cd charitable deductions -md maritable deduction -state deate taxes =taxable estate |
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What are the allowable deductions from the adjusted gross estate to arrive at taxable estate.?
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charitable deduction, marital deduction, state death taxes paid.
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After arriving at taxable estate, how is estate tax liability calculated?
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Add adjust taxable gifts (post 1976) and related tax; subtract tax paid and credits included lifetime credit.
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What are the chapter 14 valuation rules
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Targets corporate recapitalizations; partnership capital freezes, grantor retained trusts, buy sell agreements--Prevents owners from overstating their retained interests by creating a zero value and maximum gift value.
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Under GSTT rules, what is a skip person
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1)a relative 2 or more generations below that of the transferor; 2) a trust when all beneficiaries are two or more generations below the transferor; 3) an unrelated per who is younger than the transferor by 37 1/2 years;
Does not include, spouses, grandchild if the donors child is deceased. |
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What type of transfers are subject to GSTT?
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direct skips, taxable distributions, taxable termination
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What are the "qualified transfers" that are not subject to GSTT
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educational expenses and qualified medical care expenses
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How is the GSTT calculated
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Multiply the inclusion rati by the GSTT rate.
The inclusion ration = 1 minus (annual exclusion and available exemption allocated to the gift / FMV of property transferred. |
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When does an overqualification of estate occur?
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Overqualification occurs when the estate owner does not take full advantage of the applicable credit amount by qualifying too much property for the marital deduction.
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Marcus, a widower, made the following transfers during the calendar year: $15,000 to an irrevocable living trust from which he receives the income with the remainder passing to his niece upon his death; $5,000 to his brother to help with his nephew's college tuition; $5,000 to the National Republican Party; $3,000 to Children's Hospital for the treatment of an indigent child; and a $12,000 contribution to the American Cancer Society. What is the total amount of Marcus' gifts for the calendar year?
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$32K Because the living trust is irrevocable, the $15,000 is included in the total of gifts. The $5,000 payment to his brother is also included. Marcus could have prevented this amount from being included as a gift if he had made the gift directly to the university. The $5,000 check to the National Republican Party is not included because a contribution made to a political party is not considered a gift. Because the $3,000 for the child's medical treatment was made directly to the hospital, it is excluded from the calculation of gifts. The contribution of $12,000 to the American Cancer Society is included in the calculation of gifts for the calendar year, although it will not be considered a taxable gift. Therefore: $15,000 + 5,000 + 12,000 = $32,000.
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Ten years ago, a donor transferred property worth $100,000. However, the donor retained the right to receive income from the property for life. The donor died last month when the property's fair market value was $500,000. What amount will be included in the donor's gross estate?
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$500K The full fair market value of the property at death will be included in the donor's gross estate because the donor retained a life estate in the property.
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Which of the following types of gifts are exempt from federal gift taxation?
1.Tuition payments made directly to an educational institution; 2. Payments made directly to a medical care provider; 3. Transfers to a political organization; 4. Gifts to a non-U.S. citizen spouse up to $143,000. |
All. Similar to tuition payments, anyone can make medical payments directly to a medical facility without incurring gift taxation. A transfer to a political organization is exempt. Gifts to a non-U.S. citizen spouse in excess of $143,000 per year (2013) are considered taxable gifts.
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How is the gift tax model like the estate tax model?
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Both use an applicable credit amount; use the same unified transfer tax schedule; provide for an unlimited marital deduction; provide for an unlimited charitable deduction
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How is the gift tax model different from the estate tax model?
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only the gift tax model: allows for an annual exclusion; allows for gift splitting; and is a tax exclusive system, meaning that not only is the gifted property removed from the decedent's estate in most instances, but so is the cash used to pay the gift tax.
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What are the various valuation discounts that may apply to the business interests included in a decedent's gross estate;
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1. Lack of marketability discount-typically 15-35% but may be as high as 50%; minority interest; 3) fractional interest discount (like in a joint tenant situation); 4)key person discount and 5) blockage discount a discount attributable to the value of large blocks of corporate stock that are list on a public xchange--which if liquoidated has a probability of depressing the stock price.
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What are the provisions of Section 2037--transfers taking effect at death?
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It attempts to reach lifetime transfers in which the decedent has retained a reversionary interest or property that will come back to the decedent in the event that certain other conditions occur.
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Per Section 2037, when does a transfer taking effect at death occur?
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Under two circumstances: 1) the enjoyment of property through ownership may only be obtained by surviving the decedent; AND 2)the decedent, at the time of the transfer, retains a reversionary interest which exceeds 5% of the value of the xferred property.
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What happens if the decedent is the owner, insured of insurance policy.
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Death benefit will be included in gross estate. Work around is ILIT or name child as owner of policy. The value of life insurance included in the gross estate of decedent will be the proceeds received. If settlement option is chosen by the beneficiary, the amount includable in the gross estate will be the amount that would have been payable as a lump sum
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What happens to any GSTT paid on a transfer
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The GSTT will be added to the value of the gift in determining the gift tax due
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Who pays the GSTT on a direct skip
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transferor
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Who pays the GSTT on a taxable distribution from a trust
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the recipient
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What is a taxable termination and who pays the taxes on a taxable termination
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Taxable termination occurs when an interest in a trust terminated because of death or lapse of time or release of a power. Any resulting gstt is paid by the trust.
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What are the GSTT calculations
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$14K annual exclusions, lifetime GSTT $5,250,000
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What is a reverse QTIP
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QTIP property included i the SS gross estate is considered transferred by the SS not decedent--thus losing the decedent's GSTT exemption. The reverse QTIP election treats the QTIP property as if the QTIP election was not made for GSTT purposes--allowing decedent to utilize GSTT exemption. The marital deduction will be available for estate tax purposes but not for GSTT purposes. When a reverse QTIP election is made, the assets xferred to the qtip will still qualify for the marital deduction for estate tax purposes but not for GSTT purposes. Therefore with a reverse, QTIP one could fully utilize the gstt exemption in the year if death
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How are direct payments of premiums for policy owned by aother treated
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as a gift
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What is the valuation of an insurance policy at date of gift
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Generally it is FMV at date of gift. However if policy premiums remain to be paid, the value is the interpolated terminal reserve plus any unearned premium plus dividend minus loans
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When one spouse is uninsurable, what is the best type of policy to buy
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Second to die.
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How is the income tax deduction for IRD calculated
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1)Determine the estate tax attribuable to IRD. 2) calculate the deduction on the basis of the recipients proportionate amount of IRD. The deduction is available on Form 1041 or may flow to the beneficiary of the property which generated the IRD, by the way of the form K1 from Form 1041. If the deduction is claimed by an individual, it is a miscellaneous itemized deduction NOT subject to the 2% floor
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What is Alternative valuation date, when can you use it and what are te requirements
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6 months after date of death. It must reduce taxes. Does not include items sold since death, must apply to all assets except for wasting assets like patents, IRD, annuities (assets that value change just with time)D
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What is section 2032A (Special Use Valuation)
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new in 2013. Instead of valuing at highest or best use, can reduce it by $1,070,000. Usually applies to RE used in farming or business. Req: material participation prior to death for 5 of 8 years; reduction goes to qualified heirs (relatives or business partners); election form made on 706. Subject to recapture if disposed of w/n 10 years
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What is section 303 for illiquid estates
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Used by closely held corporations. allows $$ to come out and is not considered a dividend Req: stock must be > 35% of adjusted gross estate. Redeemed amount must be </= death taxes, funeral costs and administration
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What is section 6166 for illiquid estates
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defers payments o estate yax for 5 years at 2% interest. Interest payments due during deferral period Requirements: 1)asset value > 35% of estate;
2) debt for estate tax must be secured |
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What are the exceptions to the terminal interest rules for estate tax purposes
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1) condition is that survivor lives for period not exceeding 6 monthsl 2)life estate with power if attorney; 3) CRTs; 4) marital trusts A and C
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What is the marital deduction for alien spouses and what are alternatives
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No marital deduction. Alternatives=citizenship b4 return due date and QDOT. Requirements of QDOT="LAME" life time income; Annual; Mandatory, Exclusively to spouse (cannot dip in corpus unless estate taxes set aside. one trustee must be citizen
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What is the GSTT exclusion
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$14K per year, plus same exemption and tax rate as estates
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What are some major differences between revocable testamentary and irrevocable trusts
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revocable living trusts avoids probate but is included in gE of grantor. An irrevocable living trust avoids probate and is EXCluded from grantors gE.
Testamentary trusts are created by will and includible in estate, |
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If a decedent dies in 2010 what basis is used
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a modified carryover basis if they elected NOT to be subject to reinstated estate estate
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What is the holding period acquired from a decedent
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Deemed to be long term--applies regardless of whether the property is disposed of at gain or loss and regardless of decedent's actual holding period
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What happens when the estate has insufficient liquidity
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Estate may be forced to liquidate assets at a time when value is low--fire sale.
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What are liquidity sources for an estate
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Life insurance death benefits, Section 303 may minimize income tax impact from a sale;
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What is the donee basis of appreciated property received as a gift.
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The donor's carryover basis adjusted by a prorated gift tax
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