[h] CPCU 553 – Module 8
[a] The total of all types of property owned by a person at the time of death.
[q] Estate planning
[a] A process that results in the efficient transfer of an individual’s estate at the time of their death (or during lifetime).
[q] Estate shrinkage
[a] A decrease in the value of an estate due to estate taxes, debts, and administrative costs.
[a] The transfer of property through a decedent’s Will or through intestacy laws.
[q] Goals of estate planning
Distributing assets according to wishes.
Minimizing estate and inheritance taxes.
Minimizing income taxes.
Creating needed liquidity.
Minimizing probate costs – include costs to distribute the estate and costs to defend against challenges to a Will.
[q] Professionals potentially included in an estate planning team
[q] Steps in the estate planning process
Evaluating existing plan.
Creating and testing a new plan.
Implementing and monitoring the new plan.
[a] A party named in a Will that is responsible for administering a decedent’s estate as prescribed in the Will.
[q] Gross estate
[a] The total value of a decedent’s assets, before considering any deductions such as debts and administrative costs. Used in the estate tax calculation.
[q] Annual gift tax exclusion
[a] An amount that permits individuals to give away a small amount each year without incurring a gift tax liability.
[q] Unified credit
[a] A federal tax credit that can be used to reduce or eliminate the gift and estate tax. Also referred to as the applicable credit amount or the basic credit.
[a] An election by spouses to treat gifts given as being given equally by both spouses (even if the property gifted was owned exclusively by one spouse).
[q] Estate tax
[a] An excise tax imposed on transfers of property at death.
[q] Steps in calculating the estate tax
Determine gross estate.
Determine taxable estate.
Determine tentative tax before credits.
Determine tax payable.
[q] Fractional interest rule
[a] A rule used to determine the amount included in a decedent’s gross estate when property is owned jointly between spouses. In general, 50% of the value of the property is included in the estate of the first spouse to die.
[q] Consideration furnished rule
[a] A rule used to determine the amount included in a decedent’s gross estate when property is owned jointly between non-spouses. In general, the gross estate inclusion is based on the consideration furnished by the decedent when the property was originally purchased.
[q] Deductions from the gross estate in calculating the taxable estate
Burial (funeral) expenses.
[q] Tentative tax
[a] The tax imposed on an estate before taking into account any available tax credits.
[a] A document that represents the legal expression of wishes about the disposition of property at death.
[q] Responsibilities of an executor
[a] Responsibilities include:
Collecting the deceased’s assets.
Determining and paying legal claims against the estate.
Distributing remaining assets to the proper individuals.
[a] An arrangement by which legal title of property is held for the benefit one or more other persons or organizations.
[a] The individual or organization that establishes and transfers property to a trust.
[a] An individual or organization that has legal title to trust property and manages that property for the benefit of one or more other individuals or organizations.
[q] Inter vivos trust
[a] A trust that is created (and becomes operative) during the grantor’s lifetime. Can be established as either a revocable or irrevocable trust.
[q] Testamentary trust
[a] A trust that is created at the time of the grantor’s death by the grantor’s Will.
[q] Charitable remainder trust
[a] An irrevocable trust created to provide the grantor with income for a period of time, with the trust assets passing to charity at the end of the trust term or at the time of the grantor’s death.
[q] Life insurance trust
[a] A trust designed to hold a life insurance policy for the purpose of removing the policy death benefits from the insured’ gross estate, and for controlling the policy’s death benefit after the insured’s death.
[q] Sprinkle trust
[a] A trust that provides the trustee with discretion to determine the amount of payments from the trust to the beneficiaries.