Term
| Unlimited Marital Deduction |
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Definition
1. Allows for a deduction from the gross estate for transfers to a US citizen spouse because they are considered a single economic unit.
2. Must be married at the date of death, can only deduct property that will eventually be taxed to the surviving spouse (terminable interest rule)
3. Defers estate taxes, funds the applicable estate tax credit of the surviving spouse and ensures the surviving spouse has sufficient assets to support his lifestyle. |
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Term
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Definition
1. Qualified Domestic Order Trust created for the benefit of a noncitizen spouse which qualifies the for the unlimited Marital Deduction.
2. Allows the US govt to tax the property at the death of the surviving spouse.
3. Four requirements - one trustee is a US citizen, prohibit a distribution of principal unless the US citizen trustee can withhold estate tax, trustee must ensure payment of estate taxes and the executor must elect to have the marital deduction apply to the trust. |
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Term
| Credit Shelter Trust (Bypass Trust) |
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Definition
1. A trust created at the death of the first spouse that fully utilizes the applicable estate tax credit.
2. Allows the surviving spouse to still benefit from the property while minimizing tax liabilities, preserves the property for descendants, and protects assets from future creditor claims.
3. Must give the surviving spouse the right to all income, 5 or 5 rule, and distributions for HEMs (health, education, maintenance, or support - ascertainable standard). |
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Term
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Definition
1. Protect income stream for beneficiaries.
2. A source of funds for education
3. Provide liquidity at death
4. A source for retirement income
5. Create or sustain family wealth |
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Term
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Definition
1. Pays out if the insured dies within the term.
2. Funding temporary needs (ex. college education)
3. Cheaper premiums than whole life insurance |
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Term
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Definition
1. Pays out at the death of the second individual
2. If one party is uninsurable the insurance company will still offer a policy based on the life of the other individual
3. Provide liquidity at the death of the second spouse (therefore usually owned by an ILIT) |
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Term
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Definition
1. A term insurance policy with a cash accumulation account.
2. Premium is flexible as long as there is cash in the account to cover it you don't have to pay or you can pay more
3. Pure cost increases therefore should also be used for temporary needs. |
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Term
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Definition
1. As long as a specified premium is paid, the insurer guarantees the policy will remain in force.
2. Useful when the client wants such guarantees - middle aged and older clients. |
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Term
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Definition
1. Occurs when the owner, beneficiary, and insured are three different people.
2. A problem because when the insured dies, a gift has been made from the owner to the beneficiary. |
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Term
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Definition
1. Irrevocable Life Insurance Trust - a trust that is formed to hold ownership of a life insurance policy.
2. Excludes the death benefit from the estate.
3. Use a crummey provision and the annual exclusion to make gifts of the policy premium. Annual exclusion x number of beneficiaries - if it is less than the greater of 5% of the trust corpus or $5000 then when the power lapses he won't be deemed to have made a gift to the other beneficiaries which would be includable in his gross estate.
3. Also allows the insured to govern the disposition of the property and a degree of asset protection. However if made available to the executor then still includable - must specifically disallow the executor to pay estate taxes. |
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Term
| Advanced Medical Directive/Living Will |
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Definition
1. Legal document expressing an individual's last wishes regarding life sustaining treatment.
2. Allows individuals who are terminally ill to die on their own terms and avoids the expense of sustaining life artificially. |
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Term
| DNR - Do Not Resuscitate Order |
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Definition
| Avoids CPR in the event the heart stops beating. |
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Term
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Definition
| Second probate process conducted in a non-domiciliary state in which the decent owns property |
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Term
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Definition
1. The legal process through which the decedent's assets that are not automatically transferred to their heirs by contract or law are retitled in the name of the heirs.
2. Prove validity of an existing will, supervise the orderly distribution of assets, assure heirs receive clear title, nontraditional relationships, private, and protect creditors. |
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Term
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Definition
1. Pay On Death Account - a bank account with a beneficiary designation.
2. Avoids probate |
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Term
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Definition
1. An exclusion from gift taxes for present interest transfers less than or equal to $13000 per year per donee.
2. Does not use up the gift tax lifetime credit.
3. Must be present interest - or use a crummey power. |
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Term
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Definition
1. The explicit right of a trust beneficiary to withdraw some or all of any contribution to a trust for a limited period of time.
2. Turns a future interest into a present interest which qualifies it for the annual exclusion and creates a GPOA for estate tax purposes.
3. If there is more than one beneficiary then the 5/5 lapse rule comes in to play: if gift is less than the greater of 5000 or 5% of the trust corpus then no gift has been made to the other beneficiaries. |
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Term
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Definition
1. Political Organizations
2. Qualifies Transfers - medical and eduction
3. Payments for support
4. Payments between divorcing spourses
5. Transfers within a business setting |
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Term
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Definition
1. The estate is valued 6 months after death or when an asset is disposed of, whichever is sooner.
2. Give relief if a decedent happened to die on a day when the estate is valued high due to temporary market conditions.
3. Total value must decline after the date of death and the total estate tax must be less. |
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Term
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Definition
1. Minority Discount: for a non-controlling interest
2. Lack of Marketability Discount: for an inherent lack of marketability (ex. closely held business and partnership interests)
3. Blockage Discount: large blocks of corporate stock
4. Key Person Discount |
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Term
| SCIN (Self Canceling Installment Note) |
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Definition
1. Sale for full FMV plus a risk premium
2. If the seller dies during the term of the note, it is cancelled
3. Good if the seller is in poor health, they hold the risk. Removed from the sellers estate and no gift involved but there is income tax. Can hold a security interest in case of default. |
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Term
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Definition
1. Arms length transaction
2. No estate or gift tax as long as no interest security or otherwise
3. Risk of living too long |
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Term
| FLP (Family Limited Partnership) |
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Definition
1. A limited partnership created under state laws with the primary purpose of transferring assets to younger generations using valuation discounts.
2. Use highly appreciating property put in a trust in return for one percent general and 99 percent limited interests - then gift the interests.
3. Allows for continued asset control by the grantor. Also protects family assets o judgments or liens will not jeopardize the assets of the partnership. |
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Term
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Definition
1. An alternative to the probate process where all of assets are put into a revocable trust that is managed by the grantor and for the benefit of the grantor.
2. At death the assets pass according to the terms of the trust.
3. All assets are included in the estate. |
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Term
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Definition
B = may hold property in trust for the lifetime of the beneficiary but must make inscome distributions on an annual basis
c = allows income to be accumulated but must terminate at age 21 or at least have the right to withdraw. |
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Term
| PIF (Pooled Income Funds) |
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Definition
1. Contributions are pooled into a trust and each donor receives an allocable share of the trust's income for life.
2. No defined terms or investing in tax-exempt securities.
3. Receives income deduction for the PV of the remainder interest. |
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Term
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Definition
1. At least 5% of initial FMV transfer distributed annually.
2. Can have sprinkling provision and do not have to notify the beneficiary and therefore changeable.
3. Tax relief is greater in a higher interest rate environment. |
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Term
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Definition
| Use highly appreciating assets because the future appreciation is removed from the estate. |
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Term
| Split Dollar Life Insurance |
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Definition
1. A form of ownership for a life insurance policy
2. One party owns the cash value (pays increase in cash value amount) and another owns the death benefit protection (pays pure life insurance cost) |
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Term
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Definition
1. Allows property to pass to someone other than the primary beneficiary named in the decedent's will or intestacy laws.
2. Does not allow you to skip GST - but does allow use of the martial deduction. Can be used to fill the applicable credit.
3. Must be in writing within 9 months of the date of the transfer or reaching age 21, cannot specify the party to whom the property will be transferred to - then it will not count as a gift. |
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