Estate Planning - Federal Gift Tax

Front 1

What makes a valid gift?

Back 1

1. donor must be legally competent; 2. dDonor must have a donative intent. 3. constructive delivery; 4. Acceptance;

Front 2

What gifts are not considered gifts?

Back 2

a. Qualified transfers, i.e., a. transfers to educational institutions; b. transfers to health care providers; c. property settlement transfers that are part of any written divorce agreement.
In addition gifts to qualified charities, gifts to a spouse, and gifts to a political organization

Front 3

What is the gift tax annual exclusion and gift splitting

Back 3

Exclusion=annual $14K per donee. If married elect split gift, exclusion=$14K/ each spouse Consenting spouse must sign form 709

Front 4

What is the gift tax lifetime exemption amount

Back 4

$5.250 million or tax credit of $2.045.8 million with portability. Surviving spouse may use any portionof predeceased spouse's exemption amount that remained unused if 1) predeceased died 2011 or after; 2) predeceased spouse filed timely estate tax return and made election to permit the surviving spouse to use the deceased spouses unused exemption. 3) can use for only one spouse

Front 5

What are the three most popular gift strategies?

Back 5

1. Systematic annual gifting. 2. Net gifting--done is responsible for gift tax; and 3. reverse gifting--transfer of appreciated property to a donee who is expected to die shortly where the same property is than transferred back. Donor gets a step up in basis but must hold property 1 year

Front 6

What is the gift tax formula or model to calculate the amount of any gift tax due.

Back 6

Total current gifts
Less, 1/2 of value of gifts split with spouse, annual exclusions, marital deduction and charitable deducations
Equals taxable gifts in current year
Add post 1976 gifts
calculate tax and subtract prior tax.....

Front 7

How do you calculate the value of a gift of securities that are frequently traded?

Back 7

Calculate the average between the high and low price on the date of gift.

Front 8

How do you calculate the value of a gift of securities that are NOT frequently traded?

Back 8

1. SP following date of gift multiplied by the number of days from the date of gift to the previous stock trade b4 the date of gift. 2. Add to this the SP directly preceding the gift, multiplied by the number of trading days between the gift date and the next trading day. 3. This sum should be divided by the sum of the days before and after the gift.

Front 9

What is necessary in order to qualify for the gift tax annual exclusion?

Back 9

The gift must be of a present interest.

Front 10

If spouses agree to gift split for the year and no gifts in excess of $28K (2013) are made for the year, who must file a Form 709?

Back 10

Only the donor spouse (and especially in noncommunity property states). The consenting spouse must sign giving consent to the gift splitting on that form. If the slit gift is larger than $28K, then both spouses must file a form 709 for the year and each must sign a consent on the other's return.

Front 11

Janet made the following gifts in 2013: Cash to nephew $12K; a CD to niece $8K; an antique rifle to friend $20K, Bonds gifted to an irrevocable trust with her father receiving a life estate with a present value $60Kand her niece receiving a remainder interest with a pv of $18K. What is the amount of Janet's taxable gifts in 2013?

Back 11

$70K ($6+$46+18). Note that the gift of the remainder interest in a trust is a future interest gift and does not qualify for the gift tax annual exclusion)

Front 12

Which type of property may NOT be appropriate to gift and why?

Back 12

Loss property (better to sell and take loss); property not yet fully depreciated (take adv of income tax benefits)

Front 13

Which type of property may be appropriate to gift and why?

Back 13

Life Insurance (low basis, high estate tax value); out of state real property (avoid ancillary probate), appreciating property(removes appreciation from donor's estate); property that is fully depreciated (may consider sale-leaseback)

Front 14

What is a qualified transfer?

Back 14

transfers to educational institutions; b. transfers to health care providers; c. property settlement transfers that are part of any written divorce agreement. They are not taxed

Front 15

What are some methods of making gifts to minors?

Back 15

Uniform Gift to Minors Act; Guardianships; Section 2503b trust (mandatory income trust); section 2503c trust.

Front 16

What are some of the characteristics of the Uniform gift to Minors act UGMA?

Back 16

1) Adopted in all states; 2) gifts can include cash, securities and life insurance but NOT real property; 3) No bonding or accounting required; 4) donees usually must receive property by age of majority

Front 17

What are some of the characteristics of the Uniform Transfers to Minors act UTMA?

Back 17

1) Adopted by MOST states; 2) more flexible than uniform gift to minors act; 3)allows property interests including real estate

Front 18

What are the three popular irrevocable minor's trusts:

Back 18

2503b; 2503c; and Crummey minor trusts

Front 19

What are some of the characteristics of the 2503b "bad boy" trust (mandatory Income trust)?

Back 19

1)all income is required to be distributed annually to beneficiary or to a custodial account; 2) not required to end at age 21; 3) the right to the income qualifies as a present interest--therefore can be annually excluded. The income interest is calculated on the basis of the age of the beneficiary and the current interest rates at the time of the gift. The remainder interest is not eligible for annual exclusion.

Front 20

What are some of the characteristics of the 2503C "Corvette" trust (mandatory Income trust)?

Back 20

1)Income distribution is discretionary; 2)principal distribution is discretionary until the minor reaches 21; 3)not a present interest but IRS provides an exception 2503c that makes gifts to 2503b present interest; 4)If done dies before 21, goes to donee's estate; 5)trust pays income tax on undistributed income

Front 21

What are some of the characteristics of the Crummey minor's trust?

Back 21

1)advantages over both 2503b and c; 2)allows a right to withdraw for a brief period; 3) beneficiary usually allowed to withdraw the lesser of amount of available annual exclusion or value of gift property transferred; 4)if the trust has more than one beneficiary, demand right should not exceed greater of $5K or 5% of value of property to avoid taxable gift to remainderman. 5) Present interest is created by the right to withdraw.

Front 22

Matt gives Jim securities in the current year. Matt's adjusted basis for the securities is $48,000, and the fair market value is $40,000. Matt pays $2,000 in gift tax. What is Jim's basis for the stock for gain and for loss?

Back 22

$48,000 for gain and $40,000 for loss. Because the FMV of the property at the time of the gift was less than Matt's (the donor's) adjusted basis, Jim's basis depends on whether he sells the property for a gain or for a loss. His basis for determining gain is Matt's (the donor's) adjusted basis, which is $48,000. His basis for determining loss is the FMV of $40,000. Because this is a gift of loss property, none of the gift tax paid will be added to the donee's (Jim's) basis.

Front 23

What are some of the objectives of a funded buy-sell agreement?

Back 23

1)provide liquidity for the decedent’s estate.
2) identify who or what entity is going to purchase the ownership interests in the business.
3)provide a method for determining the price at which shares are to be exchanged.

Front 24

What are some of the xteristics of a private annuity?

Back 24

1)The transfer of property does not trigger immediate recognition of all gain to the annuitant.
2)If the present value of the annuity promised is equal to the fair value of the property transferred, there is no gift and, as a result, no gift tax due.
3)Each annuity payment will generally consist of a partial return of basis, capital gain, and ordinary income.
4)For purposes of depreciation, the buyer's initial tax basis is equal to the present value of all projected annuity payments.

Front 25

What was the affect of the American TP relief act of 2012

Back 25

Max tax=40%, portability of applicable exclusion. NOTE Decedent spouse must have died after 12-31-2010, and executor must have filed a timely estate tax return. SS may apply decesed spouse's unused exemption to lifetime transfers and to estate and gift tax

Front 26

When is a gift complete

Back 26

Donor is competent, donative intent; constructive delivery, valid acceptance. No gift tax on incomplete tas

Front 27

What are two important considerations that should be made before and after giving a gift

Back 27

liquidity before to detrmine which assets should be given, and availability of funds after making gift

Front 28

Is giving joint ownership a gift?

Back 28

Generally yes. However if a bank account, gift not made until funds are withdrawn by donee

Front 29

How is interest on gift loans treated?

Back 29

Loans less than $10K no tax Gift loans of $100K or less where the donee's net investment income does not exceed $1K no tax. If unearned income of borrower is greater than $1K, the inputed interest is the difference between federal rate less interest charged limited to borrowners unearned income. Loans to EEs considered compensation

Front 30

What amount of gifts can be given to a noncitizen spouse without tax

Back 30

$143K of present interest gifts. All future interest are subject to tax

Front 31

What is a reminder interest

Back 31

An interest in a property that begins in the future

Front 32

How do you avoid gift taxes

Back 32

make optimal use of qualified educational transfers and exclusions, pay for medical costs directly, use marital deduction, and last use exemption $5,250 or $2,045,000 taxes

Front 33

What happens when the donee sells gifted property

Back 33

If selling at a gain-use donor basis. If selling at a loss--use FMV. If selling between donor's FMV and basis--no gain or loss.

Front 34

What are exceptions to the gross up rule

Back 34

Section 2036 xfers with retained life estate
2037=transfers taking effect at death
2038 revocable xfers
2142 life insurance proceeds

Front 35

What is the gross up rule

Back 35

Section 2035--any gift TAX paid on gifts made within 3 years of death must be added to the gross estate

Front 36

What is an ATG

Back 36

adjusted taxable gifts--taxable gifts made by decedent after 12-31=1976

Front 37

What is the difference in value of gifts in gross estate versus gifts added to the taxable estate

Back 37

gross estate is at FMV at date of death or AVD. The value of a gift for gift tax purposes if FMV at date of gift. Gift value of the remainder interest is PV at date of gift