HS 330 Fundamentals of Estate Planning
The transfer system
Start with how property passes: wills and intestacy (probate), beneficiary designations and transfer-on-death accounts, joint tenancy with right of survivorship, and trusts (nonprobate). Intestacy statutes control when no valid will exists, and the result rarely matches client intent.
Trusts and documents
Know the revocable living trust (avoids probate, no tax savings, grantor trust taxation), the bypass or credit shelter trust, the QTIP trust for surviving spouses, the irrevocable life insurance trust, GRATs, charitable remainder and lead trusts, and dynasty trusts. Supporting documents include durable powers of attorney, health care proxies, and living wills.
The transfer tax computation
Gross estate includes all property owned or controlled at death, including life insurance proceeds when the decedent held incidents of ownership, retained interests, and powers of appointment. Subtract debts, expenses, and the marital and charitable deductions to reach the taxable estate. Add adjusted taxable gifts, apply the unified credit, and tax the remainder at the top rate. Portability allows a surviving spouse to use a deceased spouse's unused exclusion. The annual gift exclusion is indexed (for example, $19,000 per donee in 2025) and does not use lifetime exemption.
Traps
- Allowing a marital deduction for a noncitizen spouse without a QDOT.
- Forgetting the three-year rule when a decedent gave away a life insurance policy.
- Mixing up carryover basis (gifts) with stepped-up basis (inheritance).
- Ignoring state estate or inheritance taxes with lower thresholds.
- Assuming a revocable trust works when it was never funded.
Worked example
A taxable estate of $16,000,000 with an available exclusion of $14,000,000 leaves $2,000,000 taxable at 40%, or $800,000 of federal estate tax.