Term
| What is the form for an estate tax return and when is it due? |
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Definition
| Form 706; 9 months after death |
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Term
| What is the form for a gift tax return and when is it due? |
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Definition
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Term
| Who files the tax return for an estate and who pays the taxes? What happens if the estate doesn't have enough money to pay taxes? |
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Definition
| The executor of the estate must file the 706 and pay the taxes. The executor must pay even if the estate doesn't have enough money to pay. |
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Term
| Do doees and beneficiaries ever have to pay tax? |
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Definition
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Term
| How is transferred property's value measured? |
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Definition
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Term
| What are the five computational steps for calculating transfer taxation? |
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Definition
1. FMV of property transferred
2. Deductions are subtracted
3. Prior lifetime gifts are added
4. Tentative tax is calculated using a unified rate schedule
5. Credits are subtracted to arrive at next tax due |
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Term
| What are the two dates that FMV of transferred property may be calculated at? |
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Definition
DOG-Date of Gift
DOD-Date of Death |
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Term
| What amount does the unified credit shelter at death? |
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Definition
| The first $2,000,000 transferred |
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Term
| What amount of lifetime gifts does the unified credit shelter? |
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Definition
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Term
| When does the generation skipping tax happen and what does it do? |
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Definition
| Heppens when lifetime gift or estate tax is given to descendant more than 1 generation below (Ex. grandparents giving to grandchildren). This causes double taxation |
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Term
| What are the two unlimited deductions for transferring wealth? |
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Definition
| Marital and chartitable deductions |
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Term
| What is the annual exclusion for lifetime gifts and what is the stipulation to receive this exclusion? |
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Definition
| $12,000 per year; it is for present interest only gifts |
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Term
| What disqualifies the annual exclusion for lifetime gifts? |
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Definition
| Keeping a string attached to the gifts or limiting use; keeping control over transfer or what donee does with gift |
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Term
| What is the amount of tax on $2,000,000? |
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Definition
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Term
| Do you file a form 706 even if estate tax is not due? |
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Definition
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Term
| What is the difference between joint and survivor annuities and single life annuities? |
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Definition
| In joint and survivor: when one dies survivor recevies annuity. In single life: company keeps what is left in annuity and nothing goes to estate |
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Term
| Who can qualified joint interests be between? |
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Definition
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Term
| In a joint qualified interest, how much is included in each person's estate? |
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Definition
| 1/2 of the amount in the account |
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Term
| What is power of appointment? |
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Definition
| Beneficial right given by 1 party (usually trustor) to another party (usually trustee), allowing that second party to direct beneficial interest |
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Term
| What is general power of appointment and what tax consequences does it hold? |
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Definition
| Allows party to appoint anyone they want (permissable appointees) or just themselves; even their creditors. The full value of the trust is included in this person's estate at death, even if they let power lapse and never use the money. |
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Term
| What can you do to make a power of appointment non-general? |
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Definition
1. Include ascertainable standards (limited to health, education, maintenance, and support).
2. Require adverse party approval-You can do what you want if you get at least written approval from permissable appointees.
$0 included in holder's gross estate at death |
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Term
| Whose estate receives life insurance proceeds? |
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Definition
| The decedant's esate, assuming he has incidents of ownership |
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Term
| If a decedent owns policy on the life of another what value must he include in estate? |
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Definition
| CSV-cash surrender value; Term life insurance would have a $0 CSV |
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Term
| What if you transfer incidents of ownership on life insurance policy, but die within 3 years? |
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Definition
| It is as if the transfer was never made |
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Term
| How can you avoid the 3 year rule with life insurance? |
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Definition
| Set up a trust and have the trustee buy the policy |
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Term
| Give an example of a transfer with retained life estate |
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Definition
| You have a right to live in a home or right to receive rent from a home |
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Term
| Do transfers taking effect at death count as retained interest? |
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Definition
| Yes, greater of 5% or reversionary interest would have to be included in estate |
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Term
| Do revocable transfers count as a retained interest? |
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Definition
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Term
| What is gift causa mortis and what are the consequences? |
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Definition
| Death mortis-cause gift. No annual exlusion is received. 100% of the value of the gift at the time of death is included in estate of person making transfer |
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Term
| Is estate tax inclusive or exclusive and what does this mean? What about gift tax? |
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Definition
| Estate tax is inclusive because you pay tax out of amount taxed. Gift tax is exclusive becuase you pay the tax out of the estate |
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Term
| What are benefits to making lifetime gifts? |
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Definition
Value is reduced by annual exclusion;
DOG value is used instead of DOD;
Gift taxes paid are not included in gross estate if you survive > 3 years |
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Term
| What is the difference between an estate tax deduction and an estate tax credit? |
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Definition
| Deduction is dollar-for-dollar offset against the estate. Credit is dollar-for-dollar offset against tax check you write |
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Term
| What are some examples of estate tax deductions? |
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Definition
| Funeral expenses (clothes for decedent, flowers, airline tickets ot fly to funeral), administrative costs, debts and claims against estate (lawsuits, liens..), unreimbursed losses (home or car related), charitable bequests, marital transfers (spouse must have immediate use of property and must not be revocable) |
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Term
| What are some examples of estate tax credits? |
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Definition
| Unified credit, gift tax credit, credit for prior transfers, foreign death tax credit |
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Term
| What are the two ways gifts can be made? |
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Definition
Outright-usually cash or cash related
In Trust:
-totally complete-only irrevocable trusts where donor has no dominion or control
-totally incomplete-revocable trust:not a gift; included in gross estate
-partially incomplete-2 separate interest within trust. Donor has control over 1 but not the other |
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Term
| Can trusts or trustees make gifts? |
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Definition
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Term
| Who must pay federal gift tax? |
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Definition
| U.S. citizens or residents, non-resident aliens, persons gifting U.S. property |
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Term
| What is the date for valuation of gifts? |
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Definition
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Term
| What are some examples of deductible or excluded gifts called "qualified transfers"? |
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Definition
| Gifts of tuition(made payable directly to school), Gifts of medical care (paid directly to provider), Gifts to political organizations |
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Term
| What is the 1 exception to the present interest only gift tax exclusion? |
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Definition
| If we are creating an irrevocable trusts for the future benefit of a minor, this would be treated the same as present interest |
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Term
| What is gift splitting and who can do this? |
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Definition
| Can only be between spouses; Occurs when we spouses give a gift to a party, and use both of their annual exclusions together. Only 1 spouse has to file a gift tax return, but the other must sign (unless the amount of gift exceeds both of the exclusions) |
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Term
| When is the donor of a power of appointment taxed? |
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Definition
| Upon creation of the power |
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Term
| When is the holder of a power of appointment taxed? |
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Definition
| Upon the exercise, release, or lapse of power |
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Term
| What is 5&5 power, and what is the benefit? |
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Definition
| You may have access to the greater of $5,000 or 5% of value of estate on day the window opens without tax. Must be in the original plan and cannot be added later. The amount of estate will not be included in holder's gross estate |
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Term
| What is unholy trinity regarding life insurance? |
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Definition
| When we have one person who is owner of a policy, one who is beneficiary, and one who is insured. Owner is seen to have given gift to beneficiary. You should transfer the ownership to the beneficiary before the insured's death. |
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