CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAM Estate Planning

1. CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAMEstate Planning Module 7 Estate Liquidity & Postmortem Actions

2. Learning Objectives 7–1 Analyze a situation to identify existing or potential estate cash requirements and/or sources of estate liquidity. 7–2 Identify the characteristics and purpose of a given premortem liquidity planning technique. 7–3 Analyze a situation to identify premortem planning techniques that could be used to meet estate liquidity needs. 7–4 Evaluate a situation to select a premortem planning technique that can be used to meet estate liquidity needs and that is consistent with a client’s stated objectives or situation. 7–5 Identify the characteristics and purpose of a given postmortem planning technique. 7–6 Analyze a situation to determine the eligibility of an estate or its beneficiaries to use a given postmortem planning technique. 7–7 Evaluate a situation to select the postmortem planning techniques that are available and advisable for an estate or its beneficiaries.

3. Questions to Get Us Warmed Up

4. Estate Liquidity: Cash Needs • estate administration expenses • estate debts and claims • death taxes • miscellaneous cash needs • cash bequests To avoid forced liquidation of estate assets and further shrinkage of the estate, these cash needs should be reduced in a manner consistent with other client goals.

5. Estate Liquidity: Cash Resources • cash and cash equivalent assets • life insurance • employee benefits • pre-death conversion of illiquid assets by sale or exchange for liquid assets • closely held business interests • postmortem elections To avoid forced liquidation of estate assets and further shrinkage of the estate, these cash resources should be increased in a manner consistent with other client goals.

6. Estate Liquidity: Reducing Cash Needs (premortem)

7. Estate Liquidity: Reducing Cash Needs (premortem)

8. Estate Liquidity: Reducing Cash Needs (premortem)

9. Estate Liquidity: Increasing Cash Resources (premortem)

10. Postmortem Actions Affecting Estate Tax

11. Postmortem Actions Affecting Estate Tax

12. Postmortem Actions Affecting Estate Tax

13. Postmortem Actions Affecting Estate Tax

14. Postmortem Actions Affecting Estate Tax

15. Postmortem Actions Affecting Estate Tax

16. Postmortem Actions Affecting GSTT

17. Postmortem Actions Affecting Income Tax

18. Postmortem Actions Affecting Income Tax

19. Miscellaneous Postmortem Actions: Qualified Disclaimers

20. Miscellaneous Postmortem Actions: Spousal Elective Share

21. Miscellaneous Postmortem Actions: Homestead, Exempt Property & Family Allowance

22. Miscellaneous Postmortem Actions: Will Contests & Family Settlement Agreements

23. Miscellaneous Postmortem Actions: Gift Splitting

24. Miscellaneous Postmortem Actions: Joint Final Income Tax Return

25. Question 1 Which of the following correctly explains why a beneficiary who received non-probate assets by will substitute may agree to the use of all, or part, of the assets to meet estate liquidity needs? • to avoid liquidation of probate assets to meet cash needs • to avoid a lawsuit by the personal representative (PR) for a prorated portion of the taxes • to avoid an IRS lien against the nonprobate property that the beneficiary received from the decedent • II only • III only • I and III only • I, II, and III

26. Question 2 Which one of the following is not a way to improve the liquidity position of an estate? • placing a non-exoneration clause in a client’s will • selling a client’s art collection prior to death • eliminating specific cash bequests from a client’s will • assuring that any real estate purchased in another state is titled solely in the client’s name

27. Question 3 Which one of the following is a postmortem action that the surviving spouse who is not the PR can take in a common law state without the mutual consent of any other party? • qualified terminal interest property (QTIP) election • election to take against the will • split gifts made by the decedent in the year preceding death for which a gift tax return has not been filed

28. Question 4 Which one of the following is a required characteristic of a qualified disclaimer? • The disclaimant must select another person to receive the disclaimed property. • The disclaimer must be irrevocable, stated in writing, and received by the estate’s personal representative. • The disclaimant may benefit from the property as long as the property is held no longer than nine months before it is disclaimed.

29. Question 5 Carol owns 80% of IGU Corporation (one-half of the value of the stock is attributable to real estate owned by IGU). Currently, the value of Carol’s stock in IGU is 64% of her projected adjusted gross estate. Carol is examining the implications of transferring three-quarters of her IGU shares to her children from her current marriage. Her will leaves specified property valued at 10% of her estate to her husband and the remainder of her estate to her children from her former marriage. Which one of the following postmortem elections would not be adversely affected due to the proposed transfer of the IGU shares from Carol to her children from her current marriage? • a partial stock redemption under IRC Section 303 • special use valuation • the alternate valuation date • deferral and installment payment of estate tax under IRC Section 6166

30. Question 6 Bob died with a gross estate valued at $11.6 million in 2012. The majority of his estate consists of personal use assets and publicly traded stock, which has rapidly declined in value since his death. Bob appointed his wife, Ann, as the PR for his estate. She also will receive half of his estate. His estate is the highest marginal estate tax bracket. During the last year of his life, Bob incurred medical expenses of $40,000, all of which were reimbursed through health insurance. Two years before his death, he gifted $20,000 to his nephew and filed a gift tax return without Ann’s consent to split gifts. Bob and Ann were in the 28% marginal income tax bracket immediately prior to his death. Which one of the following is a postmortem election that will minimize tax liability for Bob’s estate? • a claim of medical expenses on his final income tax return • a waiver of personal representative commissions from the estate by Ann • filing a gift tax return with Ann’s consent to split gifts for Bob’s gifts to his nephew • an election to use the alternate valuation date for valuing Bob’s estate

31. Question 7 Which one of the following is a qualifying requirement for Section 2032A special use valuation of real property used in a business? • The business must be engaged in farming or ranching. • The family member-owner of the business must have been a material participant in the business for at least 10 years prior to his or her death. • The value of the decedent’s business interest, minus secured debts and unpaid mortgages on such property, must equal 50% or more of the decedent’s gross estate as adjusted for secured debts and unpaid mortgages on all property included in the gross estate. • The real property used in the business must exceed 35% of the adjusted gross estate.

32. Question 8 When Joe died in 2012, he was a widower with a gross estate of $5.2 million, which included a 50% partnership interest valued at $1.8 million. The partnership owned real estate valued at $1.4 million. His adjusted gross estate was $5,050,000. Joe’s will left $100,000 to a qualified charity and the balance of his estate, including the business interest, to his two nephews. They currently participate in the business and plan to hold the business interest indefinitely. Joe made no taxable gifts during his lifetime. Given the facts stated above, which one of the following correctly states why Joe’s estate cannot qualify to use the installment method of paying the estate tax (Section 6166)? • His nephews are not considered qualified heirs. • His estate does not contain any closely held shares of stock. • The value of the business interests included in Joe’s gross estate is not more than 35% of his adjusted gross estate. • His estate will not owe any estate taxes. • The closely held business does not have the prerequisite real estate ownership.

33. Question 9 Rodger, a U.S. citizen, has died in the current year. His gross estate is $6 million. His estate has a severe liquidity shortage. He was a widower and his will makes no charitable bequests. Rodger has operated this farm as a sole proprietor for the last six years. The farm real estate has a date of death FMV of $1.3 million, and the farm related personal property has a FMV of $800,000. There are secured debts of $150,000 against the farm real estate, and $100,000 against the farm related personal property. Rodger had unsecured debts of $80,000 and administrative and funeral expenses of $70,000. The farm is left to Rodger’s son in his will, and the son wishes to continue working on the farm. Rodger made no lifetime gifts. Which one of the following postmortem elections can Rodger’s estate qualify for to help ease its liquidity shortage? • Special use valuation • Section 303 stock redemption • Section 6166 installment payment of estate taxes

34. CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAMEstate Planning Module 7 End of Slides