Estate Planning Ch 7

In determining eligibility for Medicaid, what assets are counted and what assets are excluded?

- Assets that are counted include checking and savings accounts, stocks and bonds, CODs, real property other than primary residence, and any additional vehicles if there is more than one. - Assets excluded are the primary residence, personal property and household belongings, one vehicle, life insurance with face value under $1,500, up to $1,500 in funds set aside for burial, assets held in specific types of trusts.

List the disadvantages of using a family limited partnership to transfer interest in property.

- Attorney setup fees - Appraisal fees - Operational requirements

List 3 of the major differences in the gross estate treatment of transfers during life and bequests at death.

- Support transfers are excluded from the gross estate if it is a transfer or gift during life, but included in the estate if it is a bequest at death. - Future appreciation is excluded from the gross estate in a lifetime transfer or gift, but included in the estate in a bequest at death. - Income on transferred assets is excluded from the gross estate in a lifetime transfer or gift, but included in the estate in a bequest at death.

Is Medicaid planning ethical?

- This is a debate amongst people where some consider planning unethical while others feel that it is ethical. For example, some choose to plan by preserving assets for a spouse or children who will survive them, or additional care on top of Medicaid coverage, thus they reduce these assets through transfers in order to be eligible for Medicaid. The argument on whether this is ethical or not is determined by the fact that Medicaid is generally designated for the poor or less fortunate and should be left for them. Some believe doing this is unethical because theoretically they have enough to be able to sustain themselves without the aid of Medicaid.

List the transfer techniques most commonly used with loved ones.

-transfers not subject to gift tax - gifts outright and in Trust - Partial sale-gift transactions -full consideration transfers/sales

How does a GRUT differ from a GRAT?

A GRUT pays a fixed percentage of the trust's assets while a GRAT pays a fixed annuity.

What is the SCIN premium?

A SCIN is a self-canceling installment note which states that if the seller dies before all installment payments are made, the note is cancelled freeing the buyer from all future obligations. The premium feature is in that because of the risk of death before receiving all payments that the seller incurs, the buyer pays a premium to compensate the seller for this risk.

What is a qualified personal residence trust (QPRT)?

A qualified personal residence trust is a type of GRIT where the grantor contributes their personal residence to a trust and instead of receiving the trust income, the grantor receives use of their personal residence as the income.

This is because of the large exemption of $11,180,000. If the combined household is below this single exemption, it is unlikely that transfer taxes will be incurred, thus there is no need for estate equalization.

Due to an increase in the exemption individuals may be less likely to make gifts as frequently as when they did the exemption was lower. This is assuming that the gross estate will not exceed the exemption amount. Gifts will also be limited to those with lower appreciation potential such as cash gifts. This is done to reduce the potential tax paid by the beneficiary on any capital gains.

What are the tax consequences if the grantor of a GRAT dies before the trust term ends?

If the grantor dies before the term ends, the amount of the annuity payments until term end as specified in the GRAT will be included in their gross estate.

If the seller outlives the term of the SCIN, how is the buyer affected?

If the seller outlives the term of the SCIN, the buyer will pay end up overpaying for the property due to paying all installment payments plus the SCIN premium.

Discuss the discounts available when valuing the interests of a family limited partnership?

Limited partnership interests are usually valued at discounts ranging from 20 to 40 percent. The grantor uses these discounts to begin an annual gifting program, thus transferring limited partnership interests at reduced transfer costs.

Which property transfers at death by contract?

Property transfers at death by contract include life insurance, annuities, qualified plans, IRAs, TODs, Totten Trusts and PODs.

Discuss why small estates continue to have a need for estate planning following TCJA 2017.

Small estates still need an estate plan to ensure the effective transfer and protection of assets during life and at death. Also to ensure the reduction of any administrative costs associated with transfers.

Explain the gift tax consequences of a GRAT.

The annuity portion is not subject to gift tax as it is being paid to the grantor. The remaining interest, since it will be gifted to a beneficiary, will be subject to gift tax.

What is the buyer's adjusted basis in property purchased through a private annuity?

The buyer's adjusted basis is equal to the total of all annuity payments actually paid.

What is the buyer's adjusted basis in property purchased through a SCIN?

The buyer's adjusted basis will be the original sales price.

Explain how an intra-family sale of property can be an advantageous strategy for reducing an individual's gross estate.

The first advantage is that the asset is removed from the seller's gross estate and replaced with cash or a receivable. This allows the seller to reduce taxes on the property in the case that the property will appreciate in value, thus escaping taxation on the appreciated value. Another advantage is that any future income on the property will not be included in the transferor's gross estate and income, thus again reducing the future taxes payable.

What is the usual primary purpose of establishing a family limited partnership?

The primary purpose is to transfer assets to younger generations using valuation discounts.

What is the term of a private annuity?

The term of the annuity is equal to the life expectancy of the seller based on the seller's age at the date of sale.

Explain the gift tax consequences of a QPRT.

The transfer of a residence is treated as a gift in the event that the fair market value of the residence exceeds the present value of the grantor's retained interest or use or the property.

Explain the gift tax consequences of a SCIN and a private annuity.

There is no gift taxes involved assuming that the fair market value of the property is equal to the present value.

What is a GRIT?

This is a grantor retained income trust where the grantor retains an income interest in the trust for the term of the trust.

What is a Grantor Retained Annuity Trust (GRAT)?

This is an irrevocable trust in which the grantor receives a fixed annuity payment from the trust for a specified period of time. The remaining interest of the trust is paid to a beneficiary at the end of the GRAT term.

Explain why estate equalization in small estates is no longer necessary under TCJA 2017.

This is because of the large exemption of $11,180,000. If the combined household is below this single exemption, it is unlikely that transfer taxes will be incurred, thus there is no need for estate equalization.

Discuss why most small estates do not have to be concerned about estate tax following TCJA 2017.

This is because the exemption for transfer taxes is set to $11,180,000 and most individuals will not surpass this amount in transfers.