Estate Planning Chapter 15

Front 1

Net Value for Marital Deduction

Back 1

Gross value of a property interest passing to a spouse must reduced by
(1) Taxes payable out of the interest
(2) Mortgages or liens against the interest
(3) Administration expenses against the interest

Front 2

Requirements for Marital Deduction

Back 2

(1) The recipient spouse is a US citizen at decedent's death or will be a US citizen at the the decedent's tax return filing
(2) Property interest transferred is in decedent's gross estate
(3) Property must pass or has passed
(4) Decedent married at date of death to spouse/recipient
(5) Transfer may not be of terminable interests

Front 3

Qualified Domestic Trust

Back 3

QDOT
A trust that meets the requirements for a marital deduction for property left to a surviving resident-alien-spouse by a decedent citizen-spouse; preserves marital deduction

Front 4

Pass or Have-Passed Rule Implications

Back 4

(1) Surviving spouse must receive the property by means of a transfer from decedent as opposed to a transfer from someone else
(2) Surviving spouse must be beneficial owners, no just trustee or agent

Front 5

Transfers Qualifying for Marital Deduction

Back 5

(1) Will, intestacy, or similar law
(2) Election against will
(3) Transfer during life and still includible in estate (life estate)
(4) Life insurance death proceeds (assumes decedent had incidents of ownership) & Contracts
(5) Survivorship
(6) Power of Appointment
(7) Qualified Disclaimer

Front 6

Married Requirement

Back 6

(1) Married at date of death
(2) Survived by the spouse receiving the property in question

Front 7

Terminable Interest Rule

Back 7

Allows marital deductions only when the property passing, if retained until the surviving spouse's death, will be taxed in the surviving spouses ESTATE

Front 8

Nondeductible Terminable Interests

Back 8

(1) Interest will terminate, fail, lapse upon some contingency
(2) Another interest exists in the same property being passed to some other person other than the surviving spouse or surviving spouse's estate for less than money's worth
(3) "Other Persons" above is entitled to enjoy or possess property at termination of recipient spouse's ownership
(4) Having trustees/admins/executors purchase terminable interests for surviving spouse with bequests left to that spouse

Front 9

Exceptions to Terminable Interest Rule

Back 9

(1) Conditional upon spouse surviving the decedent by 6 months, but only if they survive this time
(2) Life estate if coupled with general powers of appointment
(3) Interest passing to survivor for life with remainder payable to their estate
(4) Life insurance policy payable for life if includes general power of appointment over the proceeds
(5) Qualified terminable interest property election (QTIPs)
(6) Power of Appointment Trust

Front 10

Power of Appointment Trust Requirements that Allows for Deductible Marital Transfer

Back 10

All 5 must be met

(1) Surviving spouse entitled to all income from interest in question
(2) Income payable annually or more frequently
(3) General powers of appointment included
(4) Powers held alone and may be exercised in any event
(5) No one else holds any such powers for any part of the property

Front 11

Bypass Trust

Back 11

Testamentary trust designed to keep property transferred to it by the decedent-spouse out of the surviving spouse's gross estate; may provide income to the surviving spouse and generally holds assets not qualifying for marital deduction

Front 12

Credit Exclusion or Equivalent Bypass Trust

Back 12

CEBT
A trust generally funded with assets equivalent to the testator's exclusion amount

Front 13

Estate Trust

Back 13

Surviving spouse given an interest for life and the remainder is payable to the surviving spouse's estate

Front 14

Estate Trust vs. POA Trust

Back 14

Both potentially allow for marriage deduction.

POA: All income must be payable annually or more frequently to spouse; may not hold non-income producing assets

EST: May accumulate income within the trust; May hold non-income producing assets and still qualify for the marital deduction

Front 15

Interest in Life Insurance Proceeds Deductible to Spouse

Back 15

BOTH conditions must be met:

(1) The surviving spouse is entitled to all of the interest for life
(2) The spouse has the right to appoint himself or herself or his or her estate any proceeds of the policy

(This is similar to a trust's general power of appointment)

Front 16

QTIP Requirements

Back 16

ALL must be met:

(1) Decedent spouse must make a transfer of property
(2) Surviving spouse must be given the right to all income (at least annually, for life)
(3) No one other than surviving spouse (and deceased before death) can direct the property anywhere
(4) Irrevocable election made on decedent's estate tax return that QTIP property's (not consumed or disposed of during lifetime of surviving spouse) date of surviving spouse's death value will be included in surviving spouse's estate.

Front 17

Overqualification

Back 17

Underutilization of the estate owner's basic exclusion/credit amount; more property than necessary to reduce the estate owner's federal estate tax to zero goes to the surviving spouse

Less should have gone to the marital deduction

Front 18

Underqualification

Back 18

Overutilization of an estate owner's basic exclusion/credit amount; less property passed to the surviving spouse in a qualifying manner than should have passed tax free

More should have gone to the marital deduction

Front 19

Deceased Spousal Unused Exclusion Amount

Back 19

DSUEA
Allows for any or all of a first-to-die spouse's unused exclusion amount to be carried over for use by the surviving spouse

Front 20

Means of Obtaining a Marital Deduction

Back 20

(1) Outright Transfer
(2) POA Trust
(3) Estate Trust
(4) QTIP Trust

Understand the advantages/disadvantages of each