Estate Planning Principles & Strategies Flashcards

When using the annual gift tax exclusion, which type of gift does NOT qualify for the present interest requirement?

Answer: Gift of a future interest in a trust

The annual exclusion applies only to gifts of present interests; future interests — such as a remainder interest in a trust — do not qualify for the annual exclusion.

What is the primary purpose of a pour-over will in an estate plan that includes a revocable living trust?

Answer: To transfer any assets not titled in the trust at death into the trust through probate

A pour-over will directs assets not previously titled in the revocable trust to 'pour over' into the trust at death, though those assets still pass through probate.

A family limited partnership (FLP) is commonly used in estate planning primarily to:

Answer: Transfer business interests at a discounted value while retaining management control

FLPs allow senior family members to transfer limited partnership interests at valuation discounts (lack of control, lack of marketability) while retaining management control as general partners.

Which of the following is an advantage of holding assets as community property rather than joint tenancy in states that allow both?

Answer: Both halves of community property receive a step-up in basis at the first spouse's death

Under IRC § 1014(b)(6), both halves of community property receive a step-up in basis to FMV at the first spouse's death, reducing capital gains on a subsequent sale.

A client with a large IRA wants to reduce the income tax burden on heirs. Which strategy allows a charity to receive the IRA (avoiding income tax) while heirs receive other assets?

Answer: Designating the charity as IRA beneficiary and using life insurance to replace wealth for heirs

Naming a charity as the IRA beneficiary avoids income tax on distributions (charities are tax-exempt), while a life insurance policy funded with premium savings replaces the wealth for heirs income-tax-free.

The estate tax marital deduction is an example of which type of estate tax planning strategy?

Answer: Deferral technique

The marital deduction defers — not eliminates — federal estate tax; tax is postponed until the surviving spouse's death, when the combined estate may be taxed.

Under the 'reciprocal trust doctrine,' mirrored SLATs created by spouses may be disregarded for estate tax purposes. What is the primary result?

Answer: Assets in each trust are included in the creating spouse's gross estate

Under the reciprocal trust doctrine, if spouses create substantially identical cross-trusts, the IRS may 'uncross' them, causing each grantor's assets to be included back in their own gross estate.