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CFP 6 Estate > 6 Gifting > Flashcards

6 Gifting Flashcards

1
Q

2503(b) Trust
- benefit?
- income?
- principal?

A
  • benefit: qualifies as a gift of “present interest” that hence receives annual exclusion
  • income distrib’d to at least one bene. annually. (“B brings benes bucks”)
  • principal can accumulate to bene’s death

(donor takes annual excl. for present value of bene’s income interest)

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2
Q

2503(c) Trust
- benefit?
- income?
- principal?

A
  • benefit: qualifies as a gift of “present interest” that receives annual exclusion (there’s an exception in the IRC that states gifts into a 2503c qualify)
  • income: can aCCumulate
  • principal: all (plus accumulated income) must distrib’d by age 21

(donor takes annual excl. for present value of bene’s income interest)

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3
Q

Gift of remainder interest in property qualifies for…
- Lifetime exemption?
- Annual exclusion?

A
  • Yes (lifetime exemption)
  • No (annual exclusion)

(is a “future interest” gift)

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4
Q

Gift to trust that accumulates property qualifies for…
- Lifetime exemption?
- Annual exclusion?

A
  • Yes (lifetime exemption)
  • No (annual exclusion)

(is a “future interest” gift)

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5
Q

Gifts of non-income producing property in trusts qualifies for…
- Lifetime exemption?
- Annual exclusion?

A
  • Yes (lifetime exemption)
  • No (annual exclusion)

(is a “future interest” gift)

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6
Q

Gifts to trusts with a sprinkle or spray provision qualifies for…
- Lifetime exemption?
- Annual exclusion?

A
  • Yes (lifetime exemption)
  • No (annual exclusion)

(is a “future interest” gift)

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7
Q

If spouses do gift splitting that exceeds annual exclusion, who files what?

A

Both spouses file Form 709 separately

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8
Q

If couple does gift splitting lower than the annual exclusion, who files what?

A

Donor spouse files Form 709, and other spouse shows consent on it

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9
Q

If couple does a gift lower than the annual exclusion (≤ $18K), who files what?

A

They don’t have to file anything (no Form 709 required)

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10
Q

Gift splitting

A

When spouses use each other’s annual exclusions to double the excluded gift amount (does NOT apply to lifetime exemption)

If you elect to split gifts, all gifts made during the year by either spouse must be split

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11
Q

When do spouses have to file gift tax returns?

A
  1. ≤ $18K - No filing
  2. $18K - $36K - No form 709 if both make separate gifts ≤ $18K; one form 709 if donor spouse does the gift > $18K and they elect to do “gift splitting”, and other spouse has to approve
  3. > $36K - Two form 709s required
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12
Q

Lifetime Applicable Credit
- What is?
- Another name for it?

A

Aka the “Unified Credit”, the gift tax that would be payable on the lifetime exemption (approx $5.4M™ in 2024)

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13
Q

Name four non-taxable gifts

A

Gifts to…
2. …A US citizen spouse
2. …IRS-approved charities
3. …Medical service providers (directly) for someone’s medical expenses
4. …Educational institutions (directly) for someone’s tuition expenses

Remember “SMEC”

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14
Q

Portability (in context of gift/estate tax)

A

Transfer of the leftover lifetime exemption amount to a surviving spouse (via a “DSUE” election)

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15
Q

DSUE Election

A

Deceased Spouse Unused Exclusion (DSUE) - An election to transfer any unused lifetime exemption amount to the surviving spouse (aka, “portability”)

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16
Q

The 3 considerations with taxes on gifts

A
  1. Exclude non-taxable transfer (spouse, charity, medical, ed)
  2. Apply annual exclusion, if relevant (is it a “present interest” gift? Is it a split gift?)
  3. The remainder is a “taxable gift” and lifetime exemption and GSTT applies
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17
Q

Qualified Disclaimer requirements & benefits

(in context of gifting)

A

Requirements:
1. Must be in writing (and received by transferer/their legal rep/holder of legal title)
2. Made within 9 mos after later of (a) transfer date or (b) date you turn 21
3. Can’t accept gift or receive benefits before disclaiming
4. Can’t control where the property goes (no undue influence)

Benefits: The gift skips the disclaimant and is treated as a direct transfer to the new recipient(s)

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18
Q

Disclaimer Trust

A
  1. Surviving spouse disclaims assets
  2. Deceased spouse’s will directs assets to an irrev “disclaimer” trust (using their exemption)
  3. Avoids estate tax for surviving spouse
  4. Surviving spouse can receive income
19
Q

How long do you have to make a qualified disclaimer of a gift/inheritance?

A

9 mos after later of (a) the transfer date or (b) day you turn 2

(in writing)

20
Q

How to calc recipient’s basis & holding period for a gift of appreciated property?

A

If no gift tax paid, then basis = donor’s basis.
If gift tax paid, then basis…
- = Donor Basis + Gift Tax Adjustment
- = Donor Basis + Gift Tax * Appreciation Factor
- = Donor Basis + Gift Tax * (Appreciation ÷ Taxable Amount)

Holding period = Donor’s holding period

21
Q

Appreciation Factor (in context of a gift of appreciated property)

A

= Appreciation ÷ Taxable Amount

(for calculating the new basis)

22
Q

Gift Tax Adjustment (in context of a gift of appreciated property)

A

= Gift Tax * Appreciation Factor
= Gift Tax * (Apprecation ÷ Taxable Amount)

(for calculating the new basis)

23
Q

New basis & holding period after a gift of depreciated property

A

New basis depends on the price when the recipient eventually sells the property, the orig basis, and the FMV at the time of gift (gift value).

If sale price is…
- < gift value, = gift value (the “loss basis”) (and holding period starts on gift date)
- Between gift value & orig basis, no gain/loss (and holding period is N/A)
- > orig basis, = orig basis (and inherits donor’s holding period)

24
Q

Age gap between non-relatives to pay GSTT?

A

37 1/2+ years younger

(technically skip person is 37 1/2 to 62 1/2 years younger)

(this is 25 years plus 12.5 years

25
Can distribution of trust or change of trust beneficiary trigger GST tax?
YES, if it's to a skip person
26
Skip person (in context of gift/estate tax)
A person who is 2 or more generations below that of the transferor
27
Taxable Distribution (in context of gifting)
any distribution of income or corpus from a trust to a skip person that is not otherwise subject to estate or gift tax
28
Taxable termination (in context of gifting)
Termination of interest in property held in a trust resulting in a skip person(s) holding all the interests in the trust (by death, lapse of time, release of power, or otherwise)
29
Direct skips (in context of gifting)
A transfer to a skip person subject to regular estate or gift tax
30
Generation-skipping transfer (GST)
A transfer of property by gift or at death to any person who is 2+ generations below
31
How long after death is estate tax return due? What form?
9 mos Form 706
32
Estate Tax Formula
## Footnote it's similar to the income tax flow.. **Gross Estate** – "above-the-line" **Deductions** (funeral expenses etc) = **Adjusted Gross Estate** – "below-the-line deductions" (**marital & charitable**, from Magnanimous *SMEC*) = **Taxable Estate**, then weird post-1976 add on gifts to get to **Total Taxable Transfers** and multiply by tax rate to get **Tenative Estate Tax** then subtract taxes paid for **Gross Estate Tax** and then subtract applicable credit amount and other credits to get your final **Estate Tax Liability**
33
Life Estate - definition - estate status
a form of property ownership where one person (the life tenant) has the right to use, live in, or receive income from a property for their lifetime, while another person (the remainderman) has the right to take full ownership of the property after the life tenant’s death Status: Often included in the estate of the life tenant
34
Three-year rule for estate tax
The 3-Year Rule - can pull certain sorta-retained-interest assets back into a deceased person’s taxable estate if they were given away ≤ 3 years before death 1. Retained life estate (eg, gifting a house that you still have rights for while alive) 2. Reversionary interests (eg, if you're a secondary bene) 3. Revocable trusts (eg, if made irrev) 4. Life insur policies (if you change owner) 5. **Gift tax paid on any of the above** ## Footnote For example, B makes a taxable gift of $1 million after using his $13,610,000 (2024) lifetime gift exemption, pays a gift tax of $400,000, and dies 2 years later. Although the $1 million gift is excluded from B's gross estate, the $400,000 gift tax liability, which was paid, would be included in the gross estate.
35
Taxability of gift to non-citizen spouse
$185K annual exclusion (in 2024) | (this is only for LIFETIME GIFTS, not estate or trust stuff)
36
Pooled Income Funds
A donor gifts property to a charity and receives an annual pro-rata share of income from the charity’s "commingled funds" for life. - Additional gifts can be made to the fund to increase the donor’s income stream. - The charity manages the fund which cannot invest in tax-exempt securities and receives the remainder when the donor’s income interest ends. - Donor takes an income tax deduction for the PV of the charity’s remainder interest. - The donor pays income taxes on the income received from the fund.
37
Charitable Gift Annuities
A donor transfers cash or property to a charity and the charity pays the donor or other donees an annuity payment each year for life. - Gift tax charitable deduction is the PV of the charity’s remainder interest. - Gift annuity payments to a spouse: a marital deduction is available if the spouse receives all annuity payments and has general POA over payments after the donor’s death. - Gift annuity payments to others: gift tax is the PV of the annuity payments.
38
Marital deduction for estate tax
- Unlimited for most - Not available for TIP (terminable interest property), which has strings attached - Unavail. for non-citizen spouse, only an annual exclusion
39
2 discounts available to transfers of FLP interests
1. Lack of Marketability Discount 2. Minority Interest Discount
40
what property is transferred in a Sale-Leaseback or a Gift-Leaseback? who gets to deduct lease payments?
- business property (not necessarily interests in the business) - business gets to deduct lease payments
41
SCIN
Self Canceling Installment Note Buyer pays a premium for the note to be cancellable up on the seller's death.
42
Income in Respect of a Decedent (IRD)ª - what is it? - taxed? - stepup? - covers?
- **what**? - income that decedent would've received, but didn't, so it's not on their final tax return - **taxed** to actual recipient as their ord income (also gets estate tax, which is deducted in order to lower income tax) - **stepup**? - N/A since not capital assets - **covers** annuities, retirement accts, EE bonds, other delayed income
43
TIP (Terminable Interest Property) - What is it? - Marital deduction?
- **What?** - property that gives a beneficiary (usually a surviving spouse) limited rights for a period of time, often for life, after which it passes to another person. - **Marital deduction does NOT automatically apply** (so the property is removed from decedent's estate.. could get hit with estate tax at their death... and not included in recipient spouse's estate) **unless you get an exception**: (1) spouse has General Power of Appt & can change the trust, or (2) use a Q-TIP trust

CFP 6 Estate (7 decks)

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