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OBJECTIVES OF ESTATE PLANNING
1. wealth preservation
2. client's use of wealth during lifetime
3. transfer to beneficiaries upon death (greatest possible amt, in approp form)
Transfer of Property:
During Life
1. by sale
2. by gift

(or a combination of the two)
Transfer of Property:
At Death
1. by probate
- testate (left valid will)
- total / partial intestacy
2. by will substitute
- takes precedence over will
- by right of survivorship ("pass by operation of law") OR
- by beneficiary designation
LEGAL INTEREST (in property)
person has right to manage and transfer the property
BENEFICIAL / EQUITABLE INTEREST (in property)
person has the right to use, consume, or enjoy the property
 1. present interest
(ie, income beneficiary of trust)
 2. future interest
(ie, remainder beneficiary of trust)
LIFE ESTATE
interest that will terminate upon someone's death

- as opposed to an interest for years or period certain
VESTED vs. CONTINGENT INTEREST
vested: interest is certain to occur

contingent: interest will only occur upon the happening of a contingency (other than passage of time)
GENERATION-SKIPPING TRANSFER TAX (GSTT)
*IRS got Congress to pass law to recoup it for money it felt it lost

*BOTH taxes will apply! GSTT AND either estate tax (if after death) or gift tax (if living)

*recipient owes this tax, must pay out of what they recvd

*note that a generation must be "skipped" in order for this to apply (ie, skip kids and give to grandkids)

*note also applies only to moving DOWN the lineage, not UP (older)

*KEY: transferee must be 37.5 yrs younger than transferor or spouse to be considered "skipped"

*SPOUSE (current or former) is ALWAYS a NON-skipped person, regardless of age difference

*usually property put into trust but doesn't have to be
GSTT EXEMPTIONS
*direct payment of medical xpns or tuition xpns

*xfrs to charity (most, not all)

*xfrs to spouse (current or former)

*indvs deemed to be less than 2 generations from transferor
GSTT: DECEASED PARENT/ANCESTOR SKIP RULE
*To Lineal Heir: transferee must be lineal descendant of parent (NOT grandparent)
*their parent must be deceased @ time of transfer
*then, GSTT may be eliminated (NOTE that still have to pay estate or gift tax, but not GSTT)

*can also apply to Collateral Heir (non-linear): in addition to above, transferor must have no living lineal descendants @ time xfr completed
GSTT: DIRECT SKIPS
*only skip parties have current beneficial interest in the xfrd property

*always report on tax rtn, only for direct skips do you ALSO calculate & pay tax (diff from indirect skip)
GSTT: INDIRECT SKIPS
*BOTH skip & non-skip parties have interest in xfrd property

*always reported on tax rtn, but cannot determine amt

*tax due only upon occurence of taxable distrib or taxable termination
REVERSE QTIP ELECTION
*this is ONLY a GSTT term (does not apply to gift or estate taxes)

*in spite of its name, this does NOT reverse regular QTIP election.

*QTIP election has been made; spouse is beneficiary. But remainder beneficiaries are grandkids (not kids).  Spouse pays estate tax; therefore IRS sees spouse as person who is giving the xfr to the grandkids.  But only transferor can use their exemption - so if spouse has used up their exemption, problem. 

the reverse QTIP election allows us to reverse this, to use the original grantor's (not spouse's) exemption.

*so, this is used to determine WHOSE GSTT exemption may be used.
GSTT EXEMPTION
*cumulative lifetime exemption for each transferor for current max amt
($5 mil)

*no absolute requirement that you used your GSTT exemption (but most people do)

*most people let Deemed Allocation amt b/c most people won't be over the $5mil limit
Calc for DONEE's ADJ BASIS
appreciation divided by taxable value, times gift tax pd out of pocket
Holding Period (for determining if property is "long term" or "short term" for tax purposes)
*if purchased, date of purchase

*if recvd as gift, donee may take donor's basis (long term) or ??

*if recvd from estate, considered LONG TERM regardless of how long held (beneficial)
PROBATE
"to prove" - that the dec is dead; that the dec left a valid, final, properly executed will; that this is what the dec intended

legal process of administering & distributing the probate estate
PROBATE ESTATE
Includes Assets that are:

-held in fee simple (sole ownership)
-held as tenancy in common (TIC)
-owned as community property
-if NOT held in valid form of will substitute
-if passed thru will or state laws of intestacy

NOT s/t probate:
-JTWROS
-JTE (entirety)
-will substitute
-beneficiary designation
GENERAL POWER OF APPT
holder of the power has UNLIMITED power to appoint another person's property to anyone, including:

1. holder (himself)
2. creditors of holder
3. holder's estate
4. creditor of holder's estate
SPECIAL POWER OF APPT
LIMITS the power to appoint
ADEMPTION
property specifically bequeathed to a person has been in some way lost, sold, or disposed of prior to death.
ABATEMENT
property bequeathed to a person is consumed to the extent necessary to pay estate debts and expenses
PER STIRPES
straight line:
ea branch of family inherits equal share of estate
PER CAPITA
"by the head": all those related to decedant take equal # of shares regardless of line of descent
(so grandkids could get equal to kids, reducing kids' share)
CODICIL
amendment to a will
(incl add a new provision or delete an existing provision)
FAMILY ALLOWANCE STATUTE
gives a surviving spouse and/or dependent children a stipend to live on during the period of probate administration
SPOUSAL ELECTIVE SHARE STATUTE
permits a surviving spouse to elect to take a percentage of the deceased spouse’s estate if he or she is dissatisfied by what the deceased spouse gave them in the will

*can alter what other bene's would have gotten under original will!
PER CAPITA @ EA GENERATION
first, pools the shares @ ea generation; then distributes them equally
(so: if 2 kids, estate goes half to ea.  if 1 kid predeceases, their HALF goes equally to the grandkids)
WAYS TO REDUCE THE GROSS ESTATE
-outrt gifts
-qualify prop for valuation discounts
-qualify prop for special use valuation

NOT xfr to revocable trust (will be incl in gross estate)
MINORITY DISCOUNT
(for estate tax purposes)
-applicable only when the decedent owned less than 50% of the stock of a CLOSELY HELD BIZ (NOT publicly held corporation)
CO-OWNERSHIP (FRACTIONAL INTEREST) DISCOUNT
applies only when the co-owners cannot agree on a disposition of the co-owned property

applies only when the co-owners are NOT close relatives or business associates
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