Estate Planning Tax Strategies

As a result of studying each assignment, you should be able to meet the objectives listed below each assignment. ASSIGNMENT SUBJECT Chapter 1 Estate Planning At the start of Chapter 1, participants should identify the following topics for study: * Build, preserve, & distribute * Legal documents * Estate planning team * Estate administr ation * Transfers within probate * Transfers outside probate * Transfers using a trust * Special planning tools * Facts Learning Objectives After reading Chapter 1, participants will be able to: 1. Identify basic estate planning elements recognizing the importance of well - drafted legal documents and specify the key team participants including their roles in the estate planning process. 2. Determine the major steps in the probate process, identify w ays to make transfers outside the probate system including the use of a trust, specify es- tate tax techniques that save death taxes while retaining maximum control, and identify estate - planning facts. After studying the materials in this chapter, answer the exam questions 1 to 6. ASSIGNMENT SUBJECT Chapter 2 Estate & Gift Taxes At the start of Chapter 2, participants should identify the following topics for study: * Taxable estate * IRS valuation * Estate tax return & payment * Tax basis for estate assets * Generation - skipping transfer tax * Application of gift taxes and valuation v * Gift tax annual exclusion * Gift tax marital and charitable deductions * Gift tax advantages and disadvantages * Shifting income & gain Learning Objectives After reading Chapter 2, participants will be able to: 1. Identify potential death taxes including federal estate tax as it applies to various size estates, specify the principal taxes that impact death taxation, and determine the expiration of the death tax credit. 2. Determ ine what constitutes a taxable estate under §2501 specifying what assets are included in a gross estate using basic categories of property and transfers. 3. Specify estate deductions allowed under federal estate tax law stating their tax advantages and di sadvantages. 4. Determine the value of a decedent’s assets using permitted elections, rec- ognize the use of Form 706 to pay any estate tax due, select the tax basis of estate assets stating how common transactions affect property basis under §1014. 5. Reca ll the advantages of gift planning including estate reduction recog- nizing the impact of the GST, specify the steps to compute gift tax identify- ing the gift tax exclusion amount, and determine the value of gifts including those that are split. 6. Identify t he various gift tax exclusions, specify the tax treatment of below - market loans, recall the gift tax marital deduction requirements, determine the tax consequences of giving various assets specifying factors to consider when gifting, and recognize the use of Form 709 to compute and pay federal gift tax. After studying the materials in this chapter, answer the exam questions 7 to 26. ASSIGNMENT SUBJECT Chapter 3 Wills & Probate At the start of Chapter 3, participants should identify the following topics for study: * Provisions of wills * Requirements of wills * Executors and guardians * Types of wills * Title implications * Changes to a will * Advantages of a will * Simple will * Probate pros and cons vi * Probate avoidance Learning Objectives After reading Chapter 3, participants will be able to: 1. Specify types of wills citing the functions a will can perform, identify types of bequests, determine the duties of executors and guardians, and recall ways to hold title and their tax ramifications. 2. Identify advantages of a properly drafted will, determine the distribution flow of simple wills, and specify the pros and cons of probate proceedings. After studying the materials in this chapter, answer exam questions 27 to 32. ASSIGNMENT SUBJECT Chapter 4 Trust s At the start of Chapter 4, participants should identify the following topics for study: * Purpose of trusts * Common elements of trusts * Types of trusts * Living trusts * Income tax & trusts * Gift tax & trusts * Estate tax & trusts * Identification, recital, & property transfer clauses * Income and principal & revocation and amendment clauses * Trustee & trust termination clauses Learning Objectives After reading Chapter 4, participants will be able to: 1. Identify the relationship of parties in a trust, reasons to establish a trust, and types of trusts specifying their estate planning function. 2. Specify recommended living trust provisions, identify the application of gift and income tax including the use of a grantor trust and an unlimited marital deduction, and determine what constitutes an “A - B” and “A - B - C” trust format. After studying the materials in this chapter, answer the exam questions 33 to 42. ASSIGNMENT SUBJECT Chapter 5 Entities & Title At the start of Chapter 5, part icipants should identify the following topics for study: * Individual ownership & sole proprietorships * Corporations * Trusts & co - tenancies vii * Co - tenancy taxation, percentage interests, & partition * Partnership taxation & recapitalization * Family partne rships * Limited liability companies * Retirement plans * Custodianship * Estate Learning Objectives After reading Chapter 5, participants will be able to: 1. Identify tax and legal title formats naming differences among these entity formats by: a. Specify ing the advantages and disadvantages of holding property individually and through a sole proprietorship or a corporation stat- ing how to avoid associated title pitfalls; b. Selecting primary groups of C corporations specifying the estate - planning problems associated with each; and c. Recalling advantages that partnerships can have over corporations. 2. Determine S corporation rules stating tax advantages and disadvantages an d also specify disadvantages and advantages of incorporating a farm. 3. Identify title holding benefits of trusts, co - tenancy, partnerships, and lim- ited liability companies and the tax characteristics of each. 4. Specify types of retirement plans used to p rovide lifetime benefits to a business owner and to employees, identify how title can be held on behalf of minors and the tax treatment of custodianships, and recall the tax treatment of a probate estate. After studying the materials in this chapter, answe r the exam questions 43 to 50. ASSIGNMENT SUBJECT Chapter 6 Life Insurance, Annuities & Buy - sell Agreements At the start of Chapter 6, participants should identify the following topics for study: * Types of life insurance * Life insurance trusts * Deferr ed annuities * Private annuities * Buy - sell agreements * Purchase price & terms * Community property * Professional corporations * S corporations viii * Sole shareholder planning Learning Objectives After reading Chapter 6, participants will be able to: 1. Spec ify persons in which rights are placed by life insurance and reasons to purchase life insurance. 2. Identify the tax treatment of life insurance proceeds by: a. Determining the treatment of premiums for personally owned life insurance and related benefits and specifying exceptions to this treat- ment including the transfer for value rule; b. Select variables that influence whether life insurance is taxable for federal estate tax purposes; and c. Recalling the gift tax associated with the transfer of life i nsurance policies. 3. Specify the pros and cons of various types of life insurance policies to guide clients in choosing a suitable policy. 4. Identify reasons for establishing an irrevocable life insurance trust to achieve estate tax planning advantage, specify considerations in establishing life insurance trusts, and determine the differences between deferred and pri- vate annuities. 5. Determin e what constitutes an entity purchase agreement and a cross - purchase agreement recognizing tax and legal advantages. After studying the materials in this chapter, answer the exam questions 51 to 64. ASSIGNMENT SUBJECT Chapter 7 Special Business Issues At the start of Chapter 7, participants should identify the following topics for study: * Business valuation of tangible & intangible assets & goodwill * Business valuation of qualified family - owned businesses * Business valuation of land subject to a conser vation easement * Business valuation discounts * Redemptions * Buy - sell agreements * Death of spouse * Stock redemptions * Stock recapitalization * Deferred compensation agreements Learning Objectives After reading Chapter 7, participants will be able to: ix 1. Identify reasons why a business interest must be valued in an estate that is subject to federal estate tax, specify factors used to determine the net value of a business under the regulations, and recall the valuation factors in R.R. 59 - 60 specifying th eir impact. 2. Determine how tangible assets are normally valued identifying those as- sets whose valuation is based on values other than book value, and specify the steps in R.R. 68 - 609’s valuation formula for intangible assets specifying the effect such am ount can have on the total value of a business. 3. Identify special business valuation issues including redemptions under §303 by: a. Determining what constituted the now repealed qualified family - owned business estate tax deduction; b. Recalling the terms of the election that allows clients to exclude from their taxable estate 40% of the value of land subject to a qualified conservation easement; c. Determining the value of a minority stock interest and fractional interests in order to obtain applicable va luation discounts, and d. Citing the §303 exception to the dividend treatment of redemptions stating qualifications. 4. Determine the tax consequences in leaving an estate to a surviving spouse, specify the elements of buy - sell agreements, stock redemptions, and stock recapitalizations in order to dispose of business interests before death, and identify deferred compensation agreements recognizing their estate planning impact. After studying the materials in this chapter, answer the exam questions 65 to 73. ASSIGNMENT SUBJECT Chapter 8 Estate Tax Freeze Rules At the start of Chapter 8, participants should identify the following topics for study: * Application of estate tax freeze rules * Corporations, partnerships & exceptions * Qualified payment exception to zero value rule * Minimum valuation of a junior interest * Capital contributions, redemptions, & recapitalizations * Attribution rules * Transfers of interests in trust * Term interests & joint purchases * Buy - sell agreemen ts & options * Lapsing rights & restrictions Learning Objectives x After reading Chapter 8, participants will be able to: 1. Determine the benefits of an estate freeze and its ability to reduce the value of a business interest, identify transactions to which Chapter 14 rules apply and terminology used in the Chapter 14 valuation rule that applies to corpo- rations and partnerships, and specify exceptions to §2701. 2. Identify the “zero value” rule under §2701 by: a. Recalling the qualified payment exception an d the consequence of being excepted; b. Specifying variables that impact the application of §2701 stating how to avoid taxable events when valuing a distribution right; c. Determining the transfer tax when a taxpayer fails to make a quali- fied payment on ti me identifying the appropriate election into or out of qualified payment treatment; and d. Specifying a junior equity interest according to §2701 rules and de- termining the value of other rights held together with an extraordi- nary payment right. 3. Determin e the application of §2701 provisions by: a. Recalling the treatment of a capital contribution, a redemption, or a recapitalization under §2701; b. Identifying when an individual is deemed the owner of an interest that is held indirectly through a corpora tion, partnership, trust , or other entity based on the §2701 attribution rules; c. Specifying when transfer tax adjustments will be made to transfers or inclusions in the gross estate; d. Identifying the split of an applicable retained interest allowing value to be given to a participating feature of a participating preferred interest ; and e. Specifying the stepped computation under the subtraction method to determine an amount of a gift r esulting from a transfer to which §2701 applies. 4. Recall the terms used in §2702 concerning transfers of interests in trust, identify the application of the zero value rule to a transfer of interest in trust, and specify exceptions to §2702, determine th e transfer of an interest in property when there are one or more term interests as a transfer of an interest in a trust, and specify the treatment of joint purchases. 5. Recognize the requirements and exceptions of §2703 to ensure property is valued approp riately, identify lapses as a transfer by gift or as includible in the decedent’s gross estate under §2704, recall the key terminology of §2704 under the evaluation rules, specify the amount of the transfer stating which lapses or restrictions qualify as a n applicable restriction. After studying the materials in this chapter, answer the exam questions 74 to 91. xi ASSIGNMENT SUBJECT Chapter 9 Elderly & Disabled Planning At the start of Chapter 9, participants should identify the following topics for study: * Managing the estate * Medicare * Medicaid & countable assets * Medicaid & non - countable assets * Medicaid & inaccessible assets * Private insurance * Healthcare decisions * Supplemental security income * Income & assets * Disability benefits Learning Obje ctives After reading Chapter 9, participants will be able to: 1. Recall estate management techniques for the elderly and disabled by: a. Identifying joint tenancy and the benefits and drawbacks of using such a method for asset management; b. Specifying le vels of conservatorship that can influence management and protection of an estate and/or personal care and disadvantages of this tool; and c. Determining what constitutes a durable power recognizing advantages of establishing a revocable living trust as a way to manage assets in an estate. 2. Cite the eldercare benefits of Medicare, Medicaid, and Supplemental Se- curity Income, identify disadvantages of the Medicaid program stating how to divide income into asset groups, specify the dangers and benefits of gifting to family members, including how individuals might use private insurance for catastrophic illness. 3. Identify tools that can allow patients to refuse treatment even when in- competent, determine Supplemental Security Income specifying how it re- lates to elderly and disability planning, and specify the requirements that must be met in order to receive disabi lity benefits. After studying the materials in this chapter, answer the exam questions 92 to 101. ASSIGNMENT SUBJECT Chapter 10 Post - mortem Planning & Tax Return Requirements At the start of Chapter 10, participants should identify the following topics f or study: * After death planning xii * Federal returns * Decedent’s estate tax * Preparation of Form 706 * Estate income tax return * Filing requirements of decedent’s final income tax return * Included income * Exemptions & deductions * Filing the gift tax re turn * Special applications & traps of the gift tax return Learning Objectives After reading Chapter 10, participants will be able to: 1. Determine post - mortem estate planning action in the face of funeral and administrative expenses using elections and di sclaimers. 2. Cite the due dates of post - mortem federal forms, specify the filing require- ments of a decedent’s estate tax return, and identify exceptions to the general rule of estate tax payment. 3. Determine the processes and procedures necessary in the preparation and filing of Form 706. 4. Identify the filing requirements for estate income tax and decedent’s final income tax returns by: a. Determining the estate income tax under available tax accounting methods and tax years; and b. Specify the use of F orm 1310 for a decedent or a joint return for a decedent and his or her surviving spouse. 5. Determine total income to be included on the decedent’s final income tax return using available exemptions or deductions. 6. Identify how to avoid penalties when f iling a gift tax return, recognize gift splitting to reduce gift taxes, and recall special gift applications and traps stating ways to avoid their tax consequences.