Estate Planning & Probate Flashcards

An interest in property (an asset)

consists of total real and personal property interests owned by individual, whether during life or at death

Process of preserving ind's assets w 2 ultimate goals:

1) meeting financial lifetime needs of ind and

2) maximizing the value of assets transferred at death by minimizing estate and death taxes

Total collective assets owned by ind, w/o regard to whether those assets are classified as probate or non-probate property

ownership is key factor in determining; if has control over, then asset is part of gross estate

1916 REvenue Act formed basic framework of modern fed estate tax--applied graduated tax rate schedule to decedent's taxable estate-gross less deductions, incl debts, exp & losses (constitutionality was upheld)


1st 60 yrs: Congress intro gift tax, option to value prop on date other that DOD, deductons for bequests to surv spouse & qualified charities; marginal tax rates and brackets adj fr time to time in resp to rev needs


1976 Tax Reform Act (TRA-76) comprehensive tax modifications :larger marital deduction, combine esate & gift tax, orphan's deduct, spcl valuation for farmland & closely held biz realty, carryover basis instead of stepped-up income; liberalization of ext for pmt of tax

1980 Windfall Profits Tax Act - repealed carryover retroactively

1981 Economic Recovery Tax Act (ERTA) --unltd marital deduct, qualified terminable int prop (QTIP), incr to $10,000 ann gift tax exlusion, incr unified credit, reduce upper rate brackets, repeal orphan's deduct

1982 Tax Equity & Fiscal Responsibility Act (TEFRA)--est tax exclu for qualified plan benefits (Keogh, IRA, some annuities) reduced to $100,000

1984 Tax Reform Act (Deficit Reduction Act of 1984) (DEFRA)--alt valuation of assets reported on est tax rtn restricted, $100,000 est tax excl for ret plans eliminated, I.R.C. sec 6166 (install pmt of est tax) slightly liberalized, procedures for reforming charitable trusts established

1986 Tax Reform Act - prev gen-skipping transfer tax repealed and replaced by new tax structure; added est tax on excess accumul of ret benefits, tax on unearned income of youth under 14 at parent's tax rate

1987 Omnibus Budget Reconciliation Act (OBRA)--5% surtax on taxable estates over $10M & added I.R.C. sec 2036(c) to eliminate esate "freeze" techniques; surtax imposed on dec estates coming into existence after 1987

1992 Unemployment Comp Amendments--sig changes in treatment of lump sum distr fr qual ret plans; imposed mandatory 20% w/h tax on distributions not directly transferred to another qual ret plan, eliminated prev distinctions btw partial and total distributions

1997 The Taxpayers Relief Act-incremental incr of unified credit to $345,800 by 2006 (raised est tax filing threshold to $1M); added fam biz deduct for estate wher biz made up at least 50% of gross est; deduction ltd to $1.3M when combined w unified credit; gift tax excl & lifetime gen-skipping transfer tax exempt indexed to inflation

2001 Economic Growth & Tax Relief Reconciliation Act--changes to unified credit; revised timetable for incr est tax threshold or credit; filing exemp incr to $1M for dying after 12-31-01, to $3.5M in 2009; dying after 1-1-10, provision for est tax & gen-skipping transfer tax repealed; in 2011 on, est tax excl reverts back to $1M

2001 Act brought sweeping change in est tax arena; most provisions exp after 12-31-10; allowed beneficiary to add up to $1.3M to decedent's basis for calculating cap gain tax liab on inherited prop; st death taxes pd to any st or D.C. reduced beg 2002 & repealed 12-31-04 (decoupling fr fed est tax table); lifetime gift tax exemp=$1M for gifts made after 12--31-01

B4 1976 TRA, separate tax tables for gift taxes and estate taxes

unified system est that combined gift tax tables and est tax tables; act made gifts subject to tax under unified rat, replacing specific lifetime gift exemptions w unified credit

Method used by estate planners to maximize value of ind estate during life and maximize assets transferable at death to heirs and beneficiaries

Owned solely be deceased; subject to juris of probate ct; distr according to intestacy laws or to terms of will; probate proceedings necessary to transfer ownership

title of ownership is key element

in deceased's name alone = probate property
life ins where est is beneficiary - probate

Tenancy in Common

Community Property

Prop owned by decedent if disposition/transfer is made automatically or by oepration of law at death; valued as of date of death and incl in decedent's gross estate

joint tenancy property

payment on death (POD)

tenancy by entirety

TENANCY IN COMMON--ea owner holds undivided int in prop; that int can be sold, transferred or devised separately fr ints of other owners w/o destroying tenancy of property; value of dec owner's share part of estate

COMMUNITY PROPERTY--all prop acquired during marriage auto marital prop & owned 50-50 by ea spouse; ea spouse has undivided right to 1/2 prop acquired by other spouse during marraige; ea spouse has complete control over his half; =probate property

JOINT TENANCY - 2 or more inds own single asset jointly & may contribute to total value; during life, law assumes asset belongs to parties equally, regardless of contr made by each; at death of 1 owner, surviving jt tenants own equal shares of total prop (share vests or transfers by op of law to surviving jt tenants)

Payment on death (POD) (Totten Trust)

ind who establishes called original payee; retain ownership & receives income during his lifetime, but is bale to designate specific individuals to receive proceeds at his death

there may be 2 or more orig payees, but no proceeds paid to POD bene until death of survivor of orig payees

Right of survivorship under express contract terms (whether a jt acct, beneficiary designation, or a POD payee designation) CANNOT BE ALTERED BY A WILL

Similar to jt tenancy, EXCEPT can exist only between people who are married to each other

terminated upon divorce

couples can terminate by transferring prop or by mutual agreement

upon death, auto & immediately vest in surviving jt owner = non-probate property

Precludes any type of post-mortem control by estate of deceased jt tenant; survivor has complete control of jt property