Tax 2 Ch 22

Front 1

Calculating total taxable gifts

Back 1

Current year taxable gifts + Prior year taxable gifts = Total taxable gifts

Front 2

Calculate current gift tax owed

Back 2

Total taxable gifts >> Tentative gift tax - Unified Credit - Prior gift taxed Paid = Current gift tax owed

Front 3

Applicable exclusion amount

Back 3

How much we should be allowed to give away over our lifetime without owing taxes

Front 4

Unified Credit

Back 4

How much taxes you would owe on the applicable exclusion amount.

Front 5

A taxable gift is any transfer of property that is

Back 5

1) Not compensation 2) Not a donation to a charitable organization 3) Not made for educational or medical expenses 4) Not made to a spouse 5) In excess of $13,000

Front 6

Current year taxable gifts

Back 6

Figure out what gifts were actually made in the first place. Was it a gift or was it compensation?

Front 7

Supreme court case on compensation v gift

Back 7

Duberstein, car given as “gift” after making a lucrative introduction was considered compensation. Gift must be made in “state of disinterested generosity”

Front 8

Are engagement rings a taxable gift?

Back 8

No

Front 9

Calculation for Estate Tax Base

Back 9

Gross estate - Adjustments = Adjusted Gross Estate; - Deductions = Taxable Estate + All taxable gifts ever made = Estate tax base

Front 10

Adjustments

Back 10

1) Funeral expenses 2) Administrative expenses 3) Debts paid by the estate 4) Casualty losses incurred by the estate 5) State death taxes paid by the estate

Front 11

Deductions

Back 11

1) Marital deduction - amounts left to spouse 2) Charitable deduction - amount left to charitable orgs

Front 12

Calculate estate tax due

Back 12

Estate tax base yields tentative estate tax - Unified Credit - State death tax credit - Foreign death tax credit - Gift taxes paid = Estate tax due

Front 13

The gross estate includes

Back 13

everything that the decedent owned at the time of death. 1) Jointly held property (your share) 2) Property held in trusts (see cases in book) 3) Life Insurance proceeds, where… 4) Annuities 5) Balances in qualified retirement plans

Front 14

Property (including bank accounts)

Back 14

What gets included in estate depends if owners are married or not. If unmarried then full amount included in decedents estate unless other owner demonstrates that they paid for a portion of it.

Front 15

What basis does spouse take in the property if jointly held?

Back 15

Depends on where you live. If community property, full property gets stepped up basis. In common law state, each spouse owns half the property so half of it passes through the estate and gets stepped up basis, the other half doesn’t.

Front 16

What is a trust?

Back 16

Vehicle that allows you to break apart the ownership bundle. For instance, a “life estate” where another person owns the future income on a stock portfolio. (actuaries get involved to calculate this stuff). If it’s a “remainder interest” nothing is included in estate. Include if you owned the trust or you’re a beneficiary of the trust

Front 17

Life estate / Remainder interest -

Back 17

not included because you don’t get anything after your death, it goes to someone else

Front 18

Contingent remainder interest

Back 18

Set up portfolio, give mother life estate. When mother passes, the stock goes to sister as long as sister outlives mother. Otherwise it comes back to me. If I die first, do I have to include it in my estate? FMV of portfolio - (other stuff) * probability that mom will outlive sister

Front 19

Annuity

Back 19

Vehicle that you purchase that promises to pay a certain amount over time.

Front 20

Single life annuity

Back 20

Not included

Front 21

Fixed annuity

Back 21

Would have to include PV of remaining payments in gross estate

Front 22

Joint survivor annuity

Back 22

Always married couples.

Front 23

Life insurance

Back 23

generally not taxable to the beneficiary but can be included in decedent’s estate. If you owned the policy then proceeds are included in gross estate, even if payment is going to someone else.

Front 24

What does ownership mean?

Back 24

You have control over the policy. you can cancel it, transfer it, etc. (So in common law state it can be beneficial for one spouse to purchase policy on the other spouse so it’s not includable in estate)

Front 25

Specifics about life insurance

Back 25

1) The estate is the beneficiary 2) The decedent had incidents of ownership, or 3) The decedent gave away incidents of ownership within three years of death

Front 26

How are assets valued?

Back 26

fair market value as of the date of death

Front 27

Exception to FMV at date of death

Back 27

The executor can elect to use the alternate valuation date of six months after the date of death, so long as 1) The aggregate value of the gross estate is smaller then, and 2) The estate tax liability would be smaller then.

Front 28

Why shouldn’t you leave everything to the spouse?

Back 28

Doing so negates the advantage of the decedent’s unified credit.

Front 29

When must you have total assets appraised

Back 29

If total value exceeds $3,000. Doesn’t always happen in reality. Usually just have valuables appraised.

Front 30

Generation Skipping Transfer Tax

Back 30

This is a tax on transfers down more than one generation. The taxpayer is allowed to make up to $1 million in such transfers with no tax consequences. This tax is separate from the gift or the estate tax.