Federal Gift, Estate, And Generation Skipping Tax

Front 1

When is federal gift tax triggered?

Back 1

When a taxpayer makes a gift during taxpayer's lifetime.

Front 2

When is federal estate tax triggered?

Back 2

It is triggered upon a taxpayer's death.

Front 3

What is the applicable exclusion?

Back 3

The applicable exclusion is 5.43 million for 2015.

Front 4

Who is responsible for paying the federal gift tax?

Back 4

The donor (the person making the gift).

Front 5

What are some issues with whether a taxable gift is complete?

Back 5

1. A gift by Check - complete upon the earlier of: The date the donor no longer has any control over the check; or the date the donee deposits or cashes the check.

2. Gifts of stock - will be complete on the date the donor delivers the endorsed stock certificate or stock power document to the donee. If delivered to corporation

Front 6

What is the annual gift tax exclusion?

Back 6

Gifts per person - $14,000

Joint gifts by spouse - $28,000

Front 7

Can the lending of money at a low interest rate result in a gift?

Back 7

Yes, the loaning of money at a low interest rate can result in a gift by the lender of the funds to the borrower of the funds.

The amount of the gift is the amount of the foregone interest, the difference between the amount of interest that would have been payable t the Applicable Federal Rate and the interest actually paid.

Front 8

How is the power of appointment treated?

Back 8

The exercise or release of general power of appointment in favor of someone other than the donor/holder of the power is subject to gift taxation in the same manner as if the donor exercised the power in favor of themselves, and then gave the property away to someone else.

Front 9

What is a disclaimer?

Back 9

It is the refusal to accept property.

Must meet the following requirements:

1. refusal is in writing;

2. refusal must be received by the transferor (or representative) within 9 months after the later of the day the transfer was made or the day on which the claimant reaches 21.

3. disclaimant must not have accepted the interest or its benefits.

4. refusal must be irrevocable and unqualified.

Front 10

Does use of the annual exclusion use up any of the lifetime exemption?

Back 10

No.

Front 11

What is the present interest requirement?

Back 11

A present interest is a requirement in the gift, meaning that the donee has an unrestricted right to the immediate use, possession or enjoyment of property, or of the income from the property.

Front 12

What are some exceptions to the present interest requirement?

Back 12

Individuals under 21 if:

1. the property and income must be used for the benefit of the individual prior to the individual reaching the age 21.

2. property remaining when individual reaches age 21 must pass outright to the individual.

3. if individual passes then the property and any income transfers to the individual's estate.

Section 529 College Savings Plan

Under a special rule, up to 5 years of annual exclusions can be prefunded into such a plan and can be put in plan in year one and amortized over 5 years for gift tax annual exclusion purposes.

Front 13

What is the alien spouse exception?

Back 13

Gifts of present interests to donor's alien spouse are excluded from taxable gifts up to $147,000 in 2015. Transfers to joint ownership with an alien spouse with rights of survivorship may be taxable gifts.

Front 14

What are qualified transfers?

Back 14

IRC 2503 provides gift tax exclusion for qualified transfers which are amounts which a donor pays on behalf of an individual such as medical expenses or tutition to an education institution for the education or training of the individual; or as a medical care payment to any person who provides medical care to such individual.

Must be made directly to educational institution or medical care provider.

Front 15

How is a transfer that is incident to divorce treated?

Back 15

Transfers that are the result of divorce are not subject to gift taxes.

Front 16

What are the federal gift tax deductions?

Back 16

A deduction for gift tax purposes means that the value of the gift to a charity or spouse is deducted from the donor's total gross gifts during the year.

Charitable gifts - unlimited gift tax deduction for gifts to qualified charities.

Gifts to spouses - unlimited gift tax deduction for gifts to qualified charities.

Front 17

What is the carry over basis?

Back 17

The carryover basis, or selling at a gain, is the donor's basis (what they originally purchased the gift for) minus the sale proceeds.

So if you buy stock at $500 and then the donee sells it for $1,000, the donee's basis is $500.

Front 18

What is the donee's basis when the donee sells the gift for less than the donee's basis?

Back 18

If the donee is selling the property for less than or equal to the donor's basis

Front 19

What is the donee's basis when the FMV of the the gift is greater at time of gift than donor's basis but decreased by the time of the sale?

Back 19

The donee's basis is the lower of the donor's basis at the date of the gift or the fair market value at the date of the gift.

Front 20

What is the donee's basis when the selling price is higher than the gift value on the date of gift, but lower than the donee's basis? (This is pretty rare)

Back 20

When this occurs, the donee will have neither gain nor loss.

Front 21

When is the federal gift tax computed?

Back 21

The federal gift tax is computed using the fair market value of the gifted property as of the date of the gift.

Front 22

How does a basic gift tax calculation happen?

Back 22

Say we have a gift of $15,000. We then subtract the annual exclusion of $14,000. Means that we then have $1,000. We take 18% of that and get to $180. We subtract that from 5.43 million dollars and there is no tax to pay to the IRS.

Front 23

What sort of transfers are not subject to gift tax?

Back 23

Transfers to political organizations

Payments that qualify for the educational exclusion.

Payments that qualify for the medical exclusion.

Front 24

What are the SOL on gifts?

Back 24

The IRS has three years to assess additional gift tax. SOL begins tolling on the filing date or due date whichever is later.

Front 25

What are the exceptions to the SOL period?

Back 25

If the gift tax return omits more than 25% of the total amount of gifts, the statute of limitation period is extended to 6 years.

Front 26

Simplified calculation of Federal Gift Taxes

Back 26

Donor's Total Gifts during Calendar Year

- Less annual Exclusions

- Less Marital deduction gifts

- Less Charitable deduction gifts

+ All accumulated prior taxable gifts

= Current Taxable Gifts

- Less applicable gift exclusion

= Adjusted taxable gifts * Gift Tax

Gift Tax Owed

- Gift Tax paid on prior gift tax returns, if any

- Applicable Credit (5.43 M)

= Gift Tax Due - we hate to write checks to the IRS for gift tax and thus usually plan for this number to equal zero

Front 27

What is federal estate tax?

Back 27

Federal estate tax is imposed on the decedent's transfer of his or her estate upon death.

Front 28

How is federal estate tax calculated?

Back 28

Total Gross Estate

- Less deductions (administrative expenses, debts, transfers to spouse and/or charity)

= Taxable Estate

+ Prior Taxable Gifts

= Adjusted Taxable Estate

* Estate Tax Rate

= Estate Tax

- Applicable Credit (5.43 M)

= Estate Tax Due

- Gift tax paid during life

= Amount due IRS

Front 29

What is the applicable exclusion amount for estate tax?

Back 29

5.43 Million

Front 30

How is the applicable exclusion handled between married couples?

Back 30

Any applicable exclusion amount that remains unused as of the death of a spouse, generally is available for use by the surviving spouse, as an addition to the surviving spouse's applicable exclusion amount.

Front 31

What are the requirements of the portability between spouses?

Back 31

1. Election made on timely filed estate tax return.

2. Must file return to make election, even if there is no need otherwise to file.

Front 32

For estate tax purposes what does the gross estate include?

Back 32

It includes probate property and nonprobate property.

Front 33

What expenses are subtracted from the gross estate?

Back 33

1. Funeral Expenses

2. Administrative Expenses

3. Secured claims against the estate

4. Unsecured claims against the estate

This equals the taxable estate

Front 34

What are the deductions from the taxable estate?

Back 34

1. The marital deduction

2. The charitable deduction

3. Uninsured losses that were incurred after the decedent's death.

Front 35

How is the gross estate valued?

Back 35

At death transfer is the fair market value of the property on the day the decedent dies.

Front 36

What is the alternate valuation?

Back 36

A decedent's personal representative may elect to value the separate interests of property in the decedent's gross estate at the earlier of the day on which the property is disposed of or six months after the decedent's death.

In order to elect the alternate valuation date for estate tax valuation purposes, the value of the decedent's gross estate and the amount of the decedent's estate tax must decrease due to such election.

Front 37

How are transfers intended to take effect at death treated?

Back 37

If a decedent transfers property, during the decedent's life, and if the following three conditions are met, then the value of the property is includible in the decedent's estate.

The three conditions are:

1. Possession or enjoyment of the property can be obtained only by surviving the decedent;

2. The decedent retained a reversionary interest in the property;

3. The value of the reversionary interest immediately before death exceeds 5% of the value of the entire property.

Front 38

What powers, if held by the decedent, will caused the transferred property to be included in the decedent's estate?

Back 38

1. The power to revoke or terminate a trust;

2. The power to control and manage the corpus of a trust.

3. The power to change beneficiaries or alter amounts distributable.

4. The power to appoint by Last Will and Testament.

5. The power to invade the corpus or a trust created by another for whose benefit the decedent created a similar trust.

Front 39

What happens if the decedent dies with three years of relinquishing rights?

Back 39

If withing 3 years of the decedent's date of death, the decedent transfers property which would have o/w been included in the decedent's taxable estate the decedent relinquishes the right described in the particular section w/in 3 years of death, the value of the property subject to the relinquishment is added back to the decedent's estate.

Front 40

Which transfers are subject to the three year rule?

Back 40

Transfers with a retained interest;

Transfers intended to take effect at death;

Transfers subject to decedent's right to alter, amend, revoke or terminate

Front 41

Is a general power of appointment included in a decedent's gross estate?

Back 41

Yes, the decedent's gross estate includes the value of the property at the decedent's death, which the decednet could have appointed by the general power of appointment.

If the decedent has a limited power of appointment than that is not included in the power of appointment.

Front 42

How do we determine whether a piece of real property is for valuation under the special use valuation?

Back 42

"LUPOPPA"

1. Location - the property must be located in the United States

2. Use - the decedent or a member of the decedent's family must have used the real property in a business for five out of the eight years immediately preceding the decedent's death.

3. Participation - a member of the decedent's family must have "materially participated" in the operation of the business for 5 out of 8 years preceding the decedent's death.

4. Ownership - decedent or a member of the decedent's family must have owed the real property for 5 out of 8 years immediately preceding the decedent's death.

5. Percentage - 50% or more of the adjusted value of the decedent's gross estate must consist of the adjusted value of real property and personal property that was used for a qualified use and was acquired from the decedent by a qualified heir.

6. Pass - the interest in the qualified real property, which interest qualifies for reduction in value, must pass to a member of the decedent's family who acquires of acquired an interest in the qualified real property, which is involved.

7. Agreement - the personal representative must file an agreement to continue using the property for its special use for 10 years, or otherwise agree to repay some or all of the tax savings realized from the application of Section 2032A. This agreement must be signed by each person who has an interest in the property.

Front 43

What are the four items that are allowed for estate tax deductions?

Back 43

1. Funeral Expenses

2. Administration Expenses

3. Unsecured claims against the estate

4. Secured claims on property that is included in the decedent's gross estate.

Front 44

How much is the charitable deduction for estate tax purposes?

Back 44

The estate tax charitable deduction is unlimited.

Front 45

What is a generation skipping tax?

Back 45

When a gift or estate transfer is made to a person more than one generation below the transferor to a grandparent or grandchild.

The tax is in addition to estate tax and gift tax.

Front 46

What is the tax rate for the GST?

Back 46

It is taxed at 40%.