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CFP - MJM Edits > Book 6 Pages 1 - 61 > Flashcards

Book 6 Pages 1 - 61 Flashcards

1
Q

the process of accumulation, management, conservation, and transfer of wealth, considering legal, tax, and personal objectives

A

estate planning

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2
Q

emotional issues such as ____ and ____ make estate planning difficult

A

control and affection

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3
Q

what are the costs associated with estate planning?

A

professional guidance

probate

transfer taxes

opportunity costs

cost of documents

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4
Q

estate planning objectives should include the ____ and ____ transfer of assets

A

efficient and effective

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5
Q

the efficient transfer of assets refers to ____

A

minimizing costs

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6
Q

the effective transfer of assets refers to ____

A

assets go to the desired beneficiary

efficiency would deal more with taxes / low cost

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7
Q

when someone dies without a valid will

A

intestate

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8
Q

true or false? when intestate occurs, the assets may not transfer to the desired beneficiary

A

true

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9
Q

a legal document that enables the testator (maker) to transfer property at the testator’s death in the manner the testator desires

A

will

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10
Q

what are some advantages of a will?

A
  1. can name an executor
  2. can transfer property to anyone desired
  3. can specify how estate taxes are apportioned
  4. can designate guardians for minors
  5. can name charitable beneficiaries
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11
Q

when a person dies without a will (intestate), who directs how the decedent’s property will be distributed?

A

the probate court based off state laws

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12
Q

true or false? in some states, a spouse’s share of the decedent’s estate will be equal to a child’s share. Example if 9 kids then each kid would get 1/10 and the spouse would get 1/10

A

true

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13
Q

true or false? if intestacy occurs, assets will still be left to charity

A

false

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14
Q

the person making a will must be ___ years old or older

A

18

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15
Q

the person making the will must be of sound mind, also known as_____

A

testamentary capacity

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16
Q

the person making the will must have absence of ______

A

undue influence

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17
Q

_____ is present when someone, such as a trusted advisor, friend, or family member, influences the testator to include provisions in the will the testator would not have included otherwise

A

undue influence

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18
Q

true or false? the absence of fraud is required for a will to be valid

A

true

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19
Q

the person making the will must: understand the ____ of the act of making a will understand the general nature of the will-maker’s ____ have the ____ to remember and ____ the nature of the ____ to the persons affected

A

nature ; property ; ability ; understand; relationship

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20
Q

a handwritten will

A

holographic will

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21
Q

true or false? holographic wills are recognized in all states

A

false

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22
Q

do holographic wills need to be witnessed?

A

false

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23
Q

a dying declaration before sufficient witnesses

A

nuncupative will

  • A nuncupative will, also known as an oral will or a verbal will, is instructions for distribution of personal property given by a person who is too sick to execute a written will. Nuncupative wills are not legal in most jurisdictions, but in jurisdictions in which they are legal, they require a set number of witnesses and must be written down by the witnesses as soon as possible.
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24
Q

true or false? noncupative wills are recognized in all states

A

false

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25
Q

an oral will

A

nuncupative will

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26
Q

a formal will

A

statutory will

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27
Q

true or false? an attorney should draw up a statutory will

A

true

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28
Q

true or false? a statutory will does not have to comply with the laws of the domiciliary state

A

false

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29
Q

any real property outside the state of domicile will be subject to ____ probate

A

ancillary

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30
Q

true or false? a valid will must include a revocation of all prior wills and codicils

A

true

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31
Q

true or false? a valid will must name an executor and successor executor

A

true

  • The appointed executor must contact the beneficiaries and creditors, make an inventory of the estate’s assets, pay any bills that are due and distribute the remaining assets to the beneficiaries as ordered in the will. If there is no will, the appointed executor distributes the assets according to the state’s law for intestate persons (persons who died without a will).
  • When no executor is named, the executor cannot be determined or the executor is unable or unwilling to serve, the probate court will appoint someone to be the executor. Usually, the court will allow any interested person to offer to serve as executor and will choose from those who volunteer. An interested person is someone who has something to lose or gain if the will is probated. Usually, a family member or beneficiary will be chosen to serve as executor, but a creditor may also be chosen, according to the Hampshire County, Massachusetts Probate Court.
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32
Q

states a beneficiary must survive a specific period beyond the testator’s death to receive the bequest

A

survivorship clause

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33
Q

to qualify for the estate tax marital deduction, the will cannot require the spouse to survive for more than ____ months to receive the bequest

A

6

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34
Q

bars transfer of beneficiary’s interest to a third party and stipulates that the interest is not subject to claims of the beneficiary’s creditors

A

spendthrift clause

For example, if you left $5,000,000 to your favorite nephew, and the trust account generated $250,000 per annum in income that was paid out to him, he couldn’t pledge the trust assets as collateral. If he did spend more than he was able to support–say he bought a $3,000,000 house–the creditors would be out of luck should he find himself unable to perform on the loan. The only cash they can collect from your nephew would be his $250,000 distribution. The principal of the spendthrift trust is still in place, generating dividends, interest, and rents safely and securely for decades to come.

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35
Q

if both spouses die simultaneously it creates a presumption as to the the order of death (the other spouse dies first)

A

simultaneous death clause

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36
Q

discourages heirs from contesting the will by substantially decreasing or eliminating their bequest if the file a will contest

A

no contest clause

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37
Q

a separate document that amends a will

A

codicil

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38
Q

what is the default method a court will use to determine where inherited property will go if there is not a valid will in place?

A

per stirpes

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39
Q

Give an example of per stirpes

A

Stephen had 3 children 1 of his children had two kids the other two children had no kids the child who has 2 children of their own passes away Stephen then passes away with $300k of assets the $300k would get distributed as 1/3 to each of Stephen’s own kids ($100k and $100k) and then 1/3 to the 2 grandkids ($50k and $50k)

  • Whatever bequest a parent would have been entitled to receive from your estate moves to her children if she predeceases you.
  • If you have two children, each of them might receive a one-half share of your estate. Your grandchildren will receive nothing – at least while their parents are living. But if one of your children should predecease you, her one-half share would pass in its entirety to her children.
  • If she is the parent of three of your grandchildren, each of those grandchildren would receive 1/3 of her 1/2 share of your estate, or 1/6.
  • Your other child would still receive his one-half share and your deceased child’s one-half share would be divided equally among her three children. One-half divided by three equals 1/6 of your overall estate, so that’s what each these three grandchildren would receive.
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40
Q

give an example of per capita

A

Stephen had 3 children 1 of his children had two kids 1 of his children had one kid 1 of his children had no kids the child who has 2 children of their own passes away Stephen then passes away with $300k of assets the $300k would be split up into 5 equal parts 1/5 to each remaining living person

  • Contrast this to “per capita,” which translates loosely to “by headcount.” You might see this presented in your will or trust as something like, “I leave XYZ to my then living descendants, per capita.”
  • If you have two children and five grandchildren who survive you, all would receive a 1/7 share of your estate in a per capita distribution because there are seven of them.
  • If one of your children predeceases you, each of the others would receive a 1/6 share because now there are only six of them.
  • Her share effectively returns to your estate; it doesn’t pass to her descendants. The right of representation becomes moot because your grandchildren are already receiving a share.
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41
Q

per capita provides for an ____ share to each beneficiary

A

equal

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42
Q

a will that leaves everything to the surviving spouse

A

sweetheart or I love you wills

This type of Will may have the actual effect you want regarding the disposition of your assets, but did you know there may even be a better way to accomplish your goals? Instead of having your Will leave your assets “outright” to your spouse, you can alternatively leave your assets “in trust” for the sole benefit of your surviving spouse. So long as your surviving spouse does not need long term care, the assets left “in trust” may be used to pay for pretty much any need your surviving spouse requires . . . house payment, vacation, etc. However, should your surviving spouse need long term care, then s/he can apply for government benefits to assist in payment of such and the assets left “in trust” are not countable for eligibility purposes.

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43
Q

true or false? a sweetheart or I love you will may cause over-qualification of an estate

A

true

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44
Q

synonyms for prenuptial agreement

A

antenuptial married property agreement

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45
Q

___ avoids cluttering the will with small details or assets such as photos and other items of only sentimental value

A

letter of personal instruction (side letter)

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46
Q

states the writer’s wishes regarding tangible possessions of nominal pecuniary value and other matters such as funeral arrangements

A

letter of personal instruction (side letter)

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47
Q

true or false? a letter of personal instruction is a legally binding document

A

false

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48
Q

establishes the medical situations in which the maker no longer wants life-sustaining treatment

A

living will/medical directives

Nailing down the differences between advance directives and living wills can be tricky for a few reasons. For one, they overlap: A living will is a type of advance directive. Second, laws governing these legal orders vary quite a bit from state to state. This means that it’s difficult to give a definition of either one that is valid in every state. (For instance, some states allow for verbal advance directives, while some do not.) Finally, even within a given state there’s no set template for what must be included in a living will or advance directive. Either one may be wide-ranging and comprehensive, or limited to a few select circumstances.

With that all said, here’s how these two legal orders generally differ.

What Is an Advance Directive?

An advance directive encompasses all legal orders which concern your wishes surrounding future medical care. The document will come into play in the case of severe medical situations in which you’re not able to communicate your wishes or make decisions. These may include such conditions as a coma, stroke or dementia. It will explain your preferences regarding specific medical treatments, resuscitation efforts and life-sustaining efforts. This may include directions regarding the use of mechanical ventilation or feeding tubes, as well as certain surgeries and medications.

An advance directive could also include a do-not-resuscitate (DNR) order or even instructions surrounding organ donation. The bottom line is that advance directives encompass a whole range of instructions pertaining to medical care. It may not even be a formal document; in some cases, verbal instructions to a healthcare provider could have the legal force of an advance directive.

An advance directive, also known as a “living will,” expresses your wishes as to how your designated agent should proceed in certain specific circumstances such as how and when you wish to receive medical treatment in the event of a terminal illness. For example, you can choose if you want or do not want feeding tubes, CPR, or antibiotics.

An advance directive works in conjunction with a health care proxy. If the advance directive does not address a treatment or procedure that a doctor is considering, the proxy could make the decision based on what he believes the patient would want.

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49
Q

true or false? a medical directive gives permission to another person to make health care decisions on behalf of the incapacitated

A

false, it just lays out the incapacitated persons wishes that were made prior to becoming incapacitated

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50
Q

true or false? durable and nondurable powers apply to medical directives

A

false

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51
Q

appoints a person to make health care decisions for the principal

A

durable power of attorney for health care

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52
Q

____ means the power remains effective even if the principal becomes incapacitated

A

durable

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53
Q

a durable power of attorney for health care may be ____ which means it becomes effective on incapacity

A

springing

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54
Q

a written document in which one individual designates another person or persons to act as attorney in fact

A

durable power of attorney

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55
Q

true or false? you must be 18 years old to be a durable power of attorney

A

true

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56
Q

a durable power of attorney survives the principal’s ____ but not ____

A

incapacity ; death

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57
Q

a nondurable power of attorney does not survive the principal’s ____

A

incapacity

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58
Q

what types of people is having a durable power of attorney important for?

A

nontraditional couples such as cohabitating couples who haven’t married or same sex couples. It is important to have a durable power of attorney in place for them because if they didn’t the powers to make crucial decisions may fall to unintended family members

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59
Q

includes rights and interest associated with ownership in things other than real property

A

personal property

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60
Q

personal property can be ____ or ____

A

tangible or intangible

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61
Q

give examples of tangible property

A

cars, jewelry, furniture

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62
Q

give examples of intangible property

A

stocks, patents, copyrights, bonds

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63
Q

what are the two property rights?

A

right to possession and enjoyment right to make disposition by sale, gift, other conveyance

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64
Q

personal property that is affixed to real property

A

fixtures

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65
Q

true or false? even if the contract of sale specifically states that fixtures are not to be included in the sale of real property, they will still be sold

A

false, if they are specifically excluded by contract then they won’t be sold

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66
Q

a property interest where the is complete ownership with all rights

A

fee simple

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67
Q

true or false? under fee simple interest, the property will pass through probate

A

true

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68
Q

fee simple property is also referred to as _____ ownership property

A

sole

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69
Q

the holder of the ______ has an exclusive right to the use and enjoyment of the property for the remainder of her life or for the life of another person

A

life estate

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70
Q

has the right to possess and use the property during the specified life

A

life tenant

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71
Q

the life tenant has an obligation to ______, ________, and _____

A

pay taxes make repairs not commit waste

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72
Q

similar to life estate except the interest is for a specific amount of time/specific period

A

interest for term

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73
Q

a right to ownership or enjoyment of property at some point in the future or upon the occurrence of a specified event

A

future interest

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74
Q

if the future interest goes to someone other than the grantor it is called ____

A

a remainder

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75
Q

if the future interest goes back to the original grantor, it is called _____

A

a reversion

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76
Q

the interest retained by a grantor who transfers a life estate to another without making a disposition of the interest remaining after the life estate terminates

A

reversion

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77
Q

a reversion is a ____ future interest

A

vested

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78
Q

interest that exists at the termination of a prior interest, such as a life estate

A

remainder

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79
Q

a remainder may be ___ and ____

A

conveyed and inherited

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80
Q

two or more persons holding an undivided interest in the whole property

A

tenancy in common

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81
Q

true or false? under tenancy in common, each tenant’s interest can be sold, donated, willed, or pass through intestate

A

true

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82
Q

true or false? when one tenant in common dies, the others automatically receive the dead tenant’s interest

A

false

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83
Q

two or more persons owning the same fractional interest

A

joint tenancy with right of survivorship (JTWROS)

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84
Q

true or false? under JTWROS the interest of property passes to surviving owners if one were to die

A

true

85
Q

does JTWROS property go through probate?

A

no

86
Q

does tenancy in common property go through probate?

A

yes

87
Q

true or false? if two or more unmarried individuals purchase real property as JTWROS, there are no gift tax consequences if each individual contributed the same amount toward the purchase price

A

true

88
Q

who would pay the gift tax if two or more unmarried individuals purchased property as JTWROS but with unequal contributions

A

the person who made the highest contribution

89
Q

true or false? when two or more unmarried individuals purchase property as JTWROS but with unequal contributions, the resulting gift tax is eligible for the annual exclusion

A

true

For a gift to qualify for the annual exclusion, it must be a gift of a “present interest.” That is, the donee’s enjoyment of the gift can’t be postponed into the future. For example, if you put cash into a trust and provide that donee A is to receive the income from it while he’s alive and donee B is to receive the principal at A’s death, B’s interest is a “future interest.” Special valuation tables are consulted to determine the value of the separate interests you set up for each donee. The gift of the income interest qualifies for the annual exclusion because enjoyment of it is not deferred, so the first $12,000 of its total value will not be taxed. However, the gift of the other interest (called a “remainder” interest) is a taxable gift in its entirety.

Exception to present interest rule. If the donee of a gift is a minor and the terms of the trust provide that the income and property may be spent by or for the minor before he reaches age 21, and that any amount left is to go to the minor at age 21, then the annual exclusion is available (that is, the present interest rule will not apply). These arrangements (called Code Sec. 2503(c) trusts because of the section in the Internal Revenue Code that permits them) allow parents to set assets aside for future distribution to their children while taking advantage of the annual exclusion in the year the trust is set up.

90
Q

Joey owns a piece of real estate he purchased outright several years ago. When the value of the real estate increased to $300k he added his daughter’s name to the title as a JTWROS. What is the value of the gift that Joey just gave to his daughter?

A

$150k half of the value at the time of addition of daughter’s name to title

91
Q

when is a gift made if one unrelated person creates a joint bank account for his/herself and another person?

A

when the donee draws the funds (when the person who didn’t create the account draws the funds)

92
Q

does JTWROS property avoid probate?

A

yes

93
Q

if the joint tenants are not married, the _____ rule determines what portion of the property will be included in the decedent’s gross estate

A

percentage of contribution

Including checking, savings, money markets, and CDs. If the account is in your sole name (including payable on death accounts) or in your Revocable Living Trust, the entire value is included; if the account is in joint names with your spouse with rights of survivorship, only 50% of the value is included; if the account is in joint names with someone other than your spouse with rights of survivorship, 100% of the value is included unless it can be proven that the other account owners made contributions to the account; if the account is in joint names as tenants in common, only your proportionate interest is included.

94
Q

Joey owns a piece of real estate he purchased outright several years ago. When the value of the real estate increased to $300k, he added his daughter’s name to the title as JTWROS. If Joey dies before his daughter, how much of the value will be included in his gross estate? What if the daughter dies before Joey?

A

$300k for joey (he contributed all of the purchase) $0 for daughter

95
Q

true or false? if the joint tenants are married, one half of the property is included in the gross estate of the first spouse to die regardless of the amount each spouse contributed to the property

A

true

96
Q

Joey and his daughter purchased a piece of real estate as JTWROS several years ago for $300k. They each contributed in equal share to the purchase price. At joey’s death the value was $1million. How much is included in his gross estate and what will his daughter’s new basis be?

A

$500k $650k

97
Q

a JTWROS only between spouses

A

tenancy by the entirety

98
Q

true or false? under tenancy by the entirety, one spouse can sever interest without the consent of the other spouse

A

false

In order to form a tenancy by the entirety, five conditions must be met:

  1. Requires marriage
  2. Husband and wife must acquire the property at the same time
  3. Husband and wife must acquire title by the same will or deed
  4. Husband and wife must have identical interests in the property
  5. Husband and wife must an equal right to possession

There are four ways a tenancy by the entirety may be terminated:

  1. Divorce- Upon divorce, tenancy by the entirety is terminated because the condition of marriage no longer exists. The terms of the divorce will dictate what happens to the property.
  2. Joint Conveyance- Husband and wife can agree to convey title to the property to a third party. This can be done through gift or deed.
  3. Express or Implied Agreement- Husband and wife can agree to terminate the tenancy by the entirety. In most cases, a tenancy in common will be formed.
  4. Death- Upon the death of a spouse, the surviving spouse inherits title to the whole property.
99
Q

states that married individuals own an equal, undivided interest in all property accumulated during the marriage

A

community property

100
Q

true or false? one half of community property is included in the probate estate and gross estate of the first spouse to die

A

true

101
Q

true or false? both halves of the community property receive a step up in basis to FMV on the date of death of the first spouse

A

true

102
Q

what happens to the property if you move from a common law state to a community property state?

A

the property remains separate if it was separate originally

103
Q

what happens to the property if you move from a community property state to a common law state?

A

the property remains as community property

104
Q

proves the validity of a will

A

probate

  • Probate is the process of transferring legal title to property from a person who has died to that person’s heirs or beneficiaries. The probate process is supervised by a court and can include paying any taxes or debts that are owing, gathering and accounting for assets, determining the validity of a will, settling disputes over who is to inherit and distributing assets. The legal term for the probate process is testate proceedings.

Probate with a Will

  • If the deceased has left a valid will, probate may be made easier and shorter. The person named in the will as executor will organize the legalities and handle much of the probate process including accounting for assets, paying debts and distributing the deceased’s assets to the people named in the will. If no executor is named in the will, the deceased’s relatives can appoint an executor, or the court can appoint one. The executor then submits the will to the probate court in deceased’s state, along with a petition asking the court to accept the will as valid. If the will is not disputed and the estate is not complicated, the probate process may take less than a year, depending on state law.
105
Q

enables title of property to be transferred from a decedent to the rightful beneficiaries

A

probate

Probate is a legal process that takes place after someone dies. It includes:

  1. proving in court that a deceased person’s will is valid (usually a routine matter)
  2. identifying and inventorying the deceased person’s property
  3. having the property appraised
  4. paying debts and taxes, and
  5. distributing the remaining property as the will (or state law, if there’s no will) directs.
106
Q

verifies the orderly distribution of assets to the heirs

A

probate

107
Q

true or false? probate protects creditors by ensuring debts of the estate are paid

A

true

108
Q

true or false? probate can be costly and complex

A

true

109
Q

true or false? probate is not open to public scrutiny

A

false, it is

110
Q

true or false? if assets pass to heirs by a will, then the will goes through probate

A

true

111
Q

real property passes under law of the state where ____

A

the property is located

112
Q

personal property passes under law of the state where the _____ is

A

decedent’s domicile

113
Q

true or false? assets passing to heirs by contract will avoid probate

A

true

114
Q

what is the applicable exclusion (exemption) amount for gift tax, estate tax, and generation skipping transfer tax for 2017?

A

$5,490,000

In 2018 and 2019, the annual exclusion is $15,000

The Tax Cuts and Jobs Act (TCJA) spiked the exemption up to $11.18 million in 2018—effectively doubling it from the year before. It was adjusted to $11.4 million in 2019 to keep pace with inflation.

115
Q

the maximum tax rate for gift tax, estate tax, and generation skipping tax in 2017 is ____

A

40%

116
Q

a completed transfer of an interest in property by an individual in exchange for less than full and adequate consideration

A

a gift

117
Q

true or false? gifts from an individual are usually excluded from the recipient’s gross income

A

true

118
Q

true or false? gifts from a business to employees may be included in the employee’s gross income

A

true

119
Q

gifts effective at death are not actually called gifts, they are called ____ transfers

A

testamentary

120
Q

true or false? for the gift tax to apply to a person the property received must be tangible, but if it’s intangible no gift tax will be paid

A

false, it can be tangible or intangible

121
Q

true or false? the gift tax applies to non resident aliens who receive tangible or real property only

A

true

122
Q

when does a revocable trust become a completed transfer?

A

when the grantor releases the power of revocation and the trust becomes irrevocable

123
Q

a donor may exclude from taxable gifts the first $_____ for 2017 to each donee

A

$14,000

124
Q

to use the annual gift tax exclusion of $14k, the gift must be of a ____ interest

A

present

125
Q

true or false? gifts of future interest are eligible for the annual exclusion of $14k

A

false

126
Q

for gifts in trust that contain a ____ power, the annual exclusion applies to each beneficiary or contingent beneficiary of the trust

A

Crummery

127
Q

the annual exclusion can be doubled to $28k by electing gift ____ with a spouse

A

splitting

128
Q

true or false? when gift splitting occurs, the spouses must file a gift tax return

A

true

In general. If you are a citizen or resident of the United States, you must file a gift tax return (whether or not any tax is ultimately due) in the following situations.

  1. If you gave gifts to someone in 2018 totaling more than $15,000 (other than to your spouse), you probably must file Form 709. But see Transfers Not Subject to Gift Tax and Gifts to Your Spouse, later, for more information on specific gifts that are not taxable.
  2. Certain gifts, called future interests, are not subject to the $15,000 annual exclusion and you must file Form 709 even if the gift was under $15,000. See Annual Exclusion, later.
  3. Spouses may not file a joint gift tax return. Each individual is responsible for his or her own Form 709.
  4. You must file a gift tax return to split gifts with your spouse (regardless of their amount) as described in Part 1—General Information, later.
  5. If a gift is of community property, it is considered made one-half by each spouse. For example, a gift of $100,000 of community property is considered a gift of $50,000 made by each spouse, and each spouse must file a gift tax return.
  6. Likewise, each spouse must file a gift tax return if they have made a gift of property held by them as joint tenants or tenants by the entirety.
  7. Only individuals are required to file gift tax returns. If a trust, estate, partnership, or corporation makes a gift, the individual beneficiaries, partners, or stockholders are considered donors and may be liable for the gift and GST taxes.
  8. The donor is responsible for paying the gift tax. However, if the donor does not pay the tax, the person receiving the gift may have to pay the tax.
  9. If a donor dies before filing a return, the donor’s executor must file the return.
129
Q

Kelly makes the following gifts this year: cash $14k to nephew 6 month CD $8k to niece antique rifle $20k to friend bonds in an irrevocable trust (life estate to father) $60k remainder $18k to cousin what is her total gifts made and total taxable gifts for the year?

A

total gifts made = $120k total taxable gifts = $70k (the full $18k to cousin is included because it is a remainder gift and therefore not a present interest gift

130
Q

John and Mary made the following present interest gifts this year (they are married): Son $40k and $16k Daughter $40k and $6k Grandaughter $30k and $6k what are their taxable gifts with and without gift splitting?

A

without gift splitting = $70k with gift splitting = $54k (add up both of their gifts and then divide by two. Then apply the exclusions to get to the taxable gift. For example for the son they gave $56k, divide by 2 = $28k (split gift). $28k each is over the annual exclusion by $14k each. So for the son the taxable gift is $28k

131
Q

if your mom owns a condo and then adds you and your two siblings to the tile as JTWROS, has you mom made a gift? what if any gift would result from a $200k house in this situation?

A

yes ; $66.6k gift to the children

Unity of interest: Each tenant or owner has an equal interest in the property. For example, three tenants would each have a one-third ownership share. This is the case even if one of them paid for the entire property—he would not be given an additional ownership stake.

Joint tenancy can only be created if the four people obtain their interest at the same time. In other words, if three people own a building, they cannot add a fourth person to the deed and create a joint tenancy. That creates tenancy in common. The three people have two choices to create joint tenancy. One is deed the property to another person and that person would deed the property to the four people. The other choice is for the three people to deed the property to the four people as joint tenancy with right of survivorship.

Unity of possession: Each tenant has a right to possess and enjoy the entire property even though he does not have a 100 percent ownership interest.

Unity of title: They must take title by the same “instrument.” An instrument is any document that legally transfers property, such as a deed or a will.

132
Q

true or false? a transfer of any amount to a qualified educational institution for the payment of tuition is not subject to gift tax

A

true

133
Q

true or false? a payment of any amount to a provider of qualified medical expenses is not subject to gift tax

A

true

134
Q

gift loans under $_____ are not subject to gift tax unless the loan proceeds are used by the donee to purchase income producing property

A

$10k

Income Tax

  1. If the loan is under $10,000, there is no problem. You can ignore the imputed gift and the imputed interest if the aggregate amount of loans between you and the individual is less than $10,000. Note that all loans outstanding between you and the individual when added up, must be less than $10,000. If the loan is over $10,000 but less than $100,000, there is another exception to the application of the imputed interest rule which may save you. Taxable imputed interest income to you is zero as long as the borrower’s net investment income for the year is no more than $1,000. That takes care of the income tax.

Now for the gift tax. Unfortunately, there is no similar $100,000 exception for the gift tax. The best way to structure the loan for gift tax purposes is as a “demand loan,” that is, a note that can be called for full payment by the lender at any time. With a demand loan, the imputed gift amount is computed every year and will fluctuate with the annual blended AFRs published each July. The annual imputed gift will be well under the $13,000 annual exclusion for gifts until the loan exceeds $2 million with the current rates. If the loan, rather than being a demand loan, is a term loan, the gift tax results are less favorable. When the loan is made you are treated as making an immediate gift of the whole terms’ worth of below market interest. This will likely exceed the $13,000 annual exclusion and require filing a gift tax return and use of part of your unified credit or actual payment of gift tax if your credit has already been used.

135
Q

gift loans of $_____ or less where the donee’s net investment income does not exceed $____ are not subject to gift tax

A

$100k ; $1k

136
Q

Grace made an interest free loan to her daughter for $90k. On the basis of applicable federal rates, the interest would have been $7200. The daughter’s net investment income is $3k. The imputed interest is $3k. What is the amount of the gift that Grace made to her daughter?

A

$3,000 net investment income was over $1,000 so you have to take the difference between the federal interest $7200 and the actual interest $0. But that gets capped by the total net investment income which is $3,000

137
Q

a refusal by a person to accept property that is designated to be transferred or passed to him/her

A

disclaimer

138
Q

for a disclaimer to be effective for federal transfer tax purposes, it must be in ____ and be ____

A

writing ; irrevocable

139
Q

for a disclaimer to be effective for federal transfer tax purposes, it must be made within ____ months of the later of the date the interest came into being or the date the person named to receive the property reached age ___

A

9 ; 21

140
Q

for a disclaimer to be effective for federal transfer tax purposes, the disclaiming party cannot have ______ from the interest disclaimed

A

previously benefited

141
Q

for gifts to a noncitizen spouse, only the first $_____ per year of gifts of a present interest are not subject to gift tax

A

The gift tax annual exclusion to a non-citizen spouse has been increased from $152,000 to $155,000

142
Q

the value of a gift for gift tax purposes is the ____ on the date of the gift

A

FMV

143
Q

for securities, the value of the gift is the average of the ____ and ___ prices on the date of gift or date of death

A

high and low

144
Q

a ____ is an interest in property that begins in the future

A

remainder

145
Q

what is the gift tax value of a remainder?

A

the present value of the interest on the date of gift

146
Q

the ___ is liable for any gift tax due

A

donor

147
Q

true or false? if the donor fails to pay gift tax, the donee may become liable

A

true

148
Q

___ gifts occur when the donor and donee agree, prior to the gift, that the donee will pay any gift tax due

A

net

149
Q

form ___ is used for gift tax purposes

A

709

150
Q

if gift splitting is selected form ___ must be filed

A

709

151
Q

true or false? if a gift of future interest has been given, you must file a gift tax return form 709

A

true

152
Q

true or false? if the gifts to one donee for one calendar year exceed the annual exclusion amount then you must file a gift tax retrun

A

true

153
Q

when net gifts occur, the donor may need to realize taxable income. What amount would they realize?

A

an amount equal to the gift tax paid by the donee - adjusted basis of the donor

154
Q

gift taxes paid are not included in gross estate except when gifts are made within ___ years prior to death

A

3

155
Q

transferee receives both legal title and beneficial (economical) ownership

A

outright gift

156
Q

transferee only receives legal title

A

legal gift

157
Q

transferre only receives beneficial (economical) ownership

A

beneficial gift

158
Q

true or false? the uniform gifts to minor act allows for gifts to include real property

A

false

159
Q

true or false? the uniform transfers to minors act allows for transfers to include real property

A

true

160
Q

true or false? a crummery minor’s trust requires distributions to begin once the child is age 21

A

false

161
Q

under a section 2503(c) trust, principal distribution is discretionary until the minor reaches age ___

A

21

162
Q

a trust set up for a beneficiary composed of an income interest and a remainder interest

A

2503(b) trust

163
Q

true or false? under a 2503(b) trust, income must be distributed annually

A

true

164
Q

when the donor gives appreciated property to the donee, generally the basis to the donee is equal to ____

A

the basis of the donor

165
Q

chelsea gave virgina stock with a FMV of $60k and paid gift tax of $15k. Chelsea originally acquired the stock for $20k two years ago. What is Virginia’s basis in the stock?

A

$33,043 $20k + ($40k/$60k) x $15k

166
Q

Bill received an acre of land from his father as a gift. at the time of the gift the land had a FMV of $700k. His father purchased the land 4 years ago for $800k. His father paid gift tax of $100k. If Bill sold the land one week later for $850k, what is his gain or loss? if he sold it for $550k, what is his gain or loss? if he sold it for $730k, what is his gain or loss?

A

$50k long term gain ($850 - $800) (use original basis as his own basis when there is a gain) $150k short term loss (use the FMV on date of gift as basis) no gain or loss because it was sold for a value between FMV on date of gift and original basis

167
Q

last year melisa gave her daughter melanie stock with a FMV of $20k. Melisa paid gift tax of $5k. Melisa purchased the stock several years ago and had an adjusted basis of $12k. In the current year Melanie sold the stock for $24k. What is Melanie’s basis and gain on the sale?

A

Basis = $8k / $20k x $5k + $12k = $14k gain is $10k long term

168
Q

the holding period for gain basis starts on the date the ____ acquired the property

A

donor

169
Q

the holding period for loss basis starts on the date of the ___

A

gift

170
Q

property owned by the decedent

A

section 2033 property

171
Q

is section 2033 property included in a decedent’s gross estate?

A

yes

172
Q

is a court award for wrongful death paid to a decedent’s family included in his/her gross estate?

A

no

173
Q

are state income tax refunds included in a decedent’s gross estate?

A

yes

174
Q

dower and curtesy interest

A

section 2034

175
Q

true or false? dower and curtsey interest are fully deductible under the marital deduction

A

true

176
Q

certain gifts made within 3 years of death

A

section 2035

177
Q

transfers with a retained life estate

A

section 2036

178
Q

transfers taking effect at death

A

section 2037

179
Q

revocable transfers

A

section 2038

180
Q

proceeds of life insurance

A

section 2042

181
Q

this type of annuity pays the annuitant until his death

A

straight life annuities

182
Q

are straight life annuities included in a decedent’s gross estate?

A

no

183
Q

what type of annuity would be included in the decedent’s gross estate?

A

survivorship annuities

184
Q

if a decedent has ownership interest in a life insurance policy on the life of another person, will there be anything included in their gross estate?

A

yes, likely the cash surrender value

185
Q

section ___ states that some annuities most be added to a decedent’s gross estate

A

2039

186
Q

as a general rule, jointly owned property will be fully included in a decedent’s gross estate unless 1. ___ 2. ____

A

the other joint owner is the spouse then only half of the value gets added to gross estate the other joint owner has documentation that can prove what amounts each of them contributed to the purchase

187
Q

section ___ states that some joint interests in property will be included in a decedent’s gross estate

A

2040

188
Q

true or false? assets under a limited or special power of appointment are not included in a decedent’s gross estate

A

true

189
Q

section ___ states any assets under a general power of appointment held by the decedent at the time of death are included in their gross estate

A

2041

190
Q

the alternate valuation date is = to ____

A

the FMV as of 6 months after the date of death

191
Q

wasting assets are valued as of the ____

A

date of death

192
Q

give some examples of wasting assets

A

annuities copyrights patents cash accounts installment notes

193
Q

Ben died recently and left the following assets: land with FMV of $5mil and Alternate val of $4.5mil stock with FMV of $3mil and alternate val of $3.1mil annuity with FMV of $100k and alrernate val of $95k condo with FMV of $300k and sold 2 months after death for $295k if we use the alternate valuation date, what amount is included in his gross estate?

A

$7,995,000 the annuity is a wasting asset and can’t use the alternate valuation date the condo is valued as of sale date

194
Q

what value is reported on Bill’s estate tax return if he dies on August 29th and the stock he owned was trading at a high of $60 for that day and a low of $58 for that day?

A

$59 per share

195
Q

what value is reported on Bill’s estate tax return if he dies on June 5th but the stock doesn’t trade that day, it trades on the following dates? Monday 6/2 $27 Wednesday 6/4 $25 Monday 6/9 $28 Tuesday 6/10 $29

A

(1 x 28 + 2 x 25) / 3 = $26 per share

196
Q

when is the estate tax return due?

A

generally 9 months after the date of death

197
Q

is there an extension allowed for the estate tax return?

A

yes, 6 months

198
Q

under _____, both spouses’ halves receive a step up in basis to FMV at the death of the first spouse

A

community property

199
Q

the date the board of directors approves and declares that a dividend will be paid to shareholder

A

date of declaration

200
Q

the date the market price of the stock adjusts for the dividend

A

ex dividend date

201
Q

true or false? if the stock is selling ex dividend on the date of death, the amount of the dividend is added to the ex dividend price in valuing the stock on the estate tax return

A

true

202
Q

the date the company determines who owns the stock in the company and is entitled to a dividend

A

date of record

203
Q

the date the company pays the dividend to its shareholders

A

date of payment

204
Q

can life insurance be included in a uniform gift to minors?

A

yes

205
Q

can securities be included in a uniform gift to minors?

A

yes

206
Q

under the double basis rule, if the donee disposes of the property at a higher price than the donor’s adjusted basis, the donee determines the gain based off ___

A

the donor’s basis

207
Q

under the double basis rule, if the donee disposes of the property at a lower price than the donor’s FMV at the time of the gift, the donee determines the loss based off ___

A

the FMV at the time of the gift

208
Q

true or false? you never add gift tax to a gift of loss property

A

true

209
Q

true or false? you always add gift tax to a gift of property that has gain

A

true

CFP - MJM Edits (30 decks)

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