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34 Cards in this Set
- Front
- Back
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Nontax Advantages of Lifetime Gifts
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(1) Privacy as opposed to testamentary gifts
(2) Potential reduction of probate and admin costs (3) Protection from the claims of creditors (4) Enjoyment of seeing others use it (5) Opportunity to see how well or poorly the donee manages business or other property (6) Provision for the donee's education, support, or financial well-being |
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Gift
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A voluntary transfer without consideration for common law; or
Value of property less consideration received |
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Taxable Gift Requirements
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(1) Was the donor competent to make the gift
(2) Was the donee capable of accepting (3) Was it clear the donor wanted to completely divest ownership of the gift If so, then there must be: (1) An irrevocable transfer of legal title (2) Delivery of the gift (3) Acceptance of the gift |
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Sufficiency of Consideration Test
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Consideration received by the transferor must be equal in value to the property transferred, otherwise the excess value of the property is subject to a gift tax
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IRC Section 2516
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Provides that transfers of property made under the terms of a written agreement between spouses are deemed to be for adequate and full consideration and thus exempt from gift tax
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Determining if a Transfer is a Taxable Gift
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(1) Donor and Donee were respectively competent to make and accept the gift
(2) Donor fully gave up all ownership and control of the property (3) Property was transferred for less than its value in money or money's worth (4) Property value exceeded the federal annual exclusion amount (5) Delivery of the gift is made to the donee |
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Types of Gifts
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Direct Gifts
Indirect Gifts |
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Indirect Gifts
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Payment of another's expenses, shifiting property rights; not giving them a gift outright
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Life Insurance Subject to Gift Tax
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(1) The purchase of a policy for another's benefit
(2) The assignment of an existing policy (3) Payment of premiums for another |
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Life Insurance Taxable as Gift if All These Met
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(1) Beneficiary named other than estate
(2) Does not retain reversionary interest (3) Cannot change beneficiary |
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Categories of Gratuitous Transfers that Are Not Gifts
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(1) Property or interest in a property that has not been transferred
(2) Certain transfers in the ordinary course of business (3) Sham gifts |
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Gratuitous Services Rendered
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Not a taxable gift because it is not property nor an interest in property
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Disclaimers (Renunciations)
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A complete and unqualified refusal to accept property or an interest in property to which one is entitled
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Qualified Disclaimer
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A person who disclaims rights to property and is not subject to any gift taxes when the property passes on to another party
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Requirements for a Qualified Disclaimer
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(1) Refusal to accept property must be in writing
(2) The writing must be received by the transferor no later than 9 months after the later of the date on which the transfer creating the interest is made or the date the person disclaiming becomes 21 (3) The person disclaiming must not have accepted the interest or any of its benefits (4) Someone other than the disclaimer must receive the property interest, and the person disclaiming may not influence this decision |
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Ordinary Business Transaction
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A sale, exchange, or other transfer of property made in the ordinary course of business- must be bona fide, at arms length, and free from donative intent
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Bad Bargains
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Non-gratuitous transfer for less than adequate money's worth
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NOT Taxable Gifts
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(1) Transferor receives consideration equal to transferred property
(2) Transfers made due to court orders (3) Transfers made to dispute compromises (4) Promises to make a gift (5) Gratuitous Services (6) Qualified Disclaimed Property (7) Transfers in ordinary course of business (8) Transfers within the annual exclusion amount (9) Certain transfers between spouses pursuant to divorce (10) Transfers to providers of educational or medical services (11) Transfers to political organizations (12) Incomplete Gifts |
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Sham Gift
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A transfer with no economic significance other than to shift the burden of income taxes from a high- to a relatively low-bracket taxpayer while keeping the income within the same family
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Exempt Gifts
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(1) Qualified Disclaimer
(2) Educational Tuition (3) Medical Care (4) Political Organization Contributions |
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Completed Transfer
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Property is beyond donor's recall
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Gift Causa Mortis
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A gift conditional upon a person dying
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Totten Trusts
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A revocable transfer in which the donor makes a deposit in a bank savings account for a donee; the donor acts as trustee of the account and no gift occurs until the donee makes a withdrawal
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Pay on Death Account
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A non-probate arrangement in which a savings or bank account is controlled by the contributor (depositor) account during lifetime, but any deposits remaining at death pass to a surviving party
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Incomplete Transfers for Gift Tax Purposes
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(1) Checks until paid/accepted/certified
(2) Anticipation of imminent death (3) Stock until endorsed/delivered and titled for donee (4) US Govt Bonds until federal registration requirements are met or surrendered for cash (5) Joint Bank Accounts until withdrawals (6) Deeds until delivered/recorded (7) Forgiveness/cancellation of debt (until debt or property is cancelled) (8) Incomplete Gifts (those gifts where donor still retains rights in property) |
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Fair Market Value
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The amount a willing buyer and a willing seller would accept and pay with neither being obliged to buy or sell and both having knowledge of relevant facts
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Gift Tax Property Valuation Problem Areas
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(1) Encumbrance of debt or obligation
(2) Restrictions in use or disposition (3) Transfers of large blocks of stock (4) Mutual Fund Shares (5) Life Insurance |
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Gift tax treatment of encumbrance of debt or obligation
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Only the net value of the gift is subject to taxation, assuming the donor is not personally liable for the debt
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Net Gift
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A taxable gift requiring the donee to pay the gift tax on the transferred asset
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Gift tax treatment of restrictions in use or disposition
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Fair market value is decreased based on the limitations
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Blockage Discount
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Discount percentage attributed to the value of large blocks of corporate stock for estate and gift tax purposes, premised on the theory that a large block of stock is less marketable than smaller amounts of stock
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Gift tax treatment of transfers of large blocks of stock
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Valuation discount may apply
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Gift tax treatment of mutual fund shares
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Generally valued at their public redemption price per share
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Gift tax treatment of Life Insurance and Annuity Contracts
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When life insurance is the subject of a gift, the value is the policy's replacement cost (the cost of similar or comparable policies issued by the same company)
Policy-----Value (1) New----Gross premiums paid (2) Paid up or single premium----RC (3) Premium paying whole life----Unearned portion of last premium plus interpolated terminal reserve (4) Term----Unused Premium |
