Domain 6 - Estate Planning
Domain 6 - Estate Planning
This domain tests what is included in the gross estate, which deductions and credits reduce the tax, how property title controls transfer, and how trusts solve specific problems - liquidity, control, creditor protection and skipping a generation.
The transfer tax computation
Gross estate (§2031–2044: all property owned at death, plus includible transfers such as life insurance where the decedent held incidents of ownership, retained interests, and property transferred within three years of death into an ILIT) → §2053 debts and administration expenses, §2054 casualty losses, §2055 charitable and §2056 marital deductions → taxable estate → tentative tax → credits (unified credit, state death tax, prior gift tax).
Gifts and exclusions
The annual exclusion (indexed; $19,000 per donee per year in 2025) requires a present interest. Lifetime exemption is shared with the estate tax; portability lets a surviving spouse use the deceased spouse's unused exclusion, but only if a Form 706 is timely filed. GST exemption is separate and must be affirmatively allocated.
Title and documents
- Joint tenancy with right of survivorship: one-half of the value is included in the first decedent's estate regardless of who paid; community property gets a full step-up on both halves at the first death.
- Probate assets pass by will; jointly held property, beneficiary-designated accounts and trust assets pass by contract or operation of law.
- Core documents: will (guardian nomination), durable power of attorney, health care proxy and living will, HIPAA release.
Trusts
Revocable living trust (avoids probate, no estate reduction), ILIT (removes insurance proceeds if the three-year rule is satisfied), GRAT, QPRT, charitable remainder trust, dynasty trust. IRD assets such as IRAs do not get a step-up and should be spent or converted before other assets.
Worked example. Decedent owns $2,000,000 of securities, a $1,500,000 home titled JTWROS with the spouse, a $1,000,000 policy the decedent owned, and a $500,000 IRA payable to the spouse; debts are $300,000. Gross estate = $2,000,000 + $750,000 (half the home) + $1,000,000 (incidents of ownership) + $500,000 = $4,250,000. Marital deduction = $750,000 + $1,000,000 + $500,000 = $2,250,000; debts are $300,000. Taxable estate = $1,700,000, covered by the unified credit.
Traps. Excluding insurance the decedent did not own but including a policy transferred within three years; forgetting portability is elective; assuming IRAs receive a step-up; confusing the GST exemption with the estate exemption.