Fin 3720 Exam 1 - Essay

3 types of Wills (see E-learning Hand-out)
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3 types of Wills (see E-learning Hand-out)
Formal will ;
- This document is the one most often admitted to probate. Its formal requirements are mandated by MCL 700.2502. It must be in writing and signed by the testator (person making the will) or in the testator's name by some other person in the testator's conscious presence and by his or her direction. It shall be signed by at least 2 individuals, each of whom signed within a reasonable time after he or she witnessed either the signing of the will or the testator's acknowledgment of that signature or acknowledgment of the will

Holographic will
- This document is valid as a holographic will whether or not witnessed, if it is dated, and if the testator's signature and the document's material provisions are in the handwriting of the testator

Statutory will
- MCL 700.2519 prescribes a form of will and sets forth its terms. It is essentially a "fill-in-the-blanks" type of document. A will which is executed in the form prescribed and which is otherwise in compliance with the terms of the statute is a valid will. The requirements of the statute are contained in the printed document which may be obtained from your state legislator or at a stationery store.
Per stirpes vs per capita (this will be question with a fact pattern which you will need to diagram as part of your explanation)
Picture on elearning
Discuss/describe the duties and responsibilities of a trustee, personal representative, agent, patient advocate (also Chapter 4)
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Compare TIC and JTWROS, along with their advantages and disadvantages
TIC (tenants in common):
•An interest in property held by two or more related or unrelated people
•Each tenant holds an undivided interest in the whole.
•Tenants do not necessarily own equal interests.
•Each tenant's interest can be severed without the other tenant's consent.
•Each tenant generally shares in income and expenses.
•Upon death, tenant's interest transfers via probate either testate or intestate.

TIC = Fee simple for each severed part after severance. Included in both gross estate and probate estate

JTWROS (joint tenant with right of survivorship)
•We do not need probate to pass title; it passes by operation of law due to the survivorship feature.
•If the tenants disagree, they each have the right to partition or sever the property.
•If they sever, each owner then owns his share fee simple.
•Discuss common changes in ownership, such as a change from JTWROS to a TIC arrangement.
Types of property which can pass outside of the probate process: 1) contract law; 2) trust law; and 3) titling law
State Contract Law Retitles to Named Beneficiary Directly:
o Life insurance contracts
o Annuity contracts
o IRAs, SEPs, SIMPLEs, & qualified plans
o Pay-on-Death (bank accounts) & Transfer-on-Death accounts (investment accounts)
o Consequences: Outright transfer to heirs/legatees (with certified death certificate) regardless of capacity of the beneficiary

State Titling Law (survivorship features)
o Joint tenants with rights of survivorship
o Tenancy by the entirety
o Consequences: Outright transfer to heirs/legatees (with certified
death certificate) regardless of capacity of the survivor

State Trust Law (property already retitled to trust)
o Revocable or irrevocable
o Consequences: Can provide for management of assets and creditor protection for the beneficiary
Powers of appointment - limited and general and the potential impact on an appointee's gross estate
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Crummey Powers - type of power, as well as its impact and relevance, how it qualifies as a gift of a present interest for a future benefit.
•"Crummey" power or provision derives from Crummey v. US (1968); also called a power to lapse.
•May limit to AE or less, converting a future interest in trust to a gift of present interest.
•The donee does not have to withdraw, the mere right creates the present interest.
Describe a Private Annuity vs SCIN. What are their gift tax consequences?
Private Annuities
- Transaction between two private (but usually related) parties
- Unsecured promise from the buyer to make payments to the annuitant for the remainder of the annuitant's life
- Effective when the actual life expectancy is less than the IRS life expectancy table
- Risk that the seller/annuitant will live longer
2006 proposed regulations are problematic for private annuities

Self-Canceling Installment Note (SCIN)
- Installment sale with payments of interest and principal over term
- SCIN premium paid to cancel note at seller's death
- No gift if the present value of the note is equal to the value of the underlying property and the SCIN premium is appropriate
- Interest can be deductible
- Used when the seller is in poor health
What is a GRAT and what is a GRUT and how they differ. What are their tax consequences?
Grit :
•Pays income to grantor for defined term
•Remainder to non-charitable beneficiary at the end of term
•Risk - grantor dies too early
•Problem - IRC 2702 values retained interest at $0 for transfers to family members.
- Exceptions

Grat :
•Pays fixed annuity to grantor for defined term
•Remainder to non-charitable beneficiary at the end of term
•Gift = Present value of remainder interest
•Risk - grantor dies too early
•Use property that is expected to appreciate at a rate greater than the Section 7520 rate
What is a QPRT and its gift tax consequences
Qualified personal residence trust :
•A specialized form of a GRIT for personal residence
•Grantor receives use of the house transferred
•Gift = PV of the remainder interest
•If grantor dies during QPRT term, then the entire asset is included in grantor's gross estate.
•QPRT is ideal if house is appreciating faster than the Section 7520 rate and family plans to keep the home