7. Gifting Strategies

Question 1

Advantages of Lifetime Gifts

Answer 1

1. Qualified transfers (med, ed) -> no tax
2. Using annual exclusiont-> no tax
3. Unlimited gifts to spouse
4. Can gift up to $11,400,000 (2019)
5. Appreciation after gift not subject to transfer tax
6. Gift taxes paid not included in Gross Estate except within 3 years of death

Question 2

Types of Interest Transferred

Answer 2

1. Outright
2. Legal
3. Beneficial

Question 3

Basic Gifting Strategies for Wealth Transfer

Answer 3

1. Qualified education transfers
2. Qualified medical transfers
3. Annual exclusion
4. Unlimited gift to spouse
5. Lifetime exclusion amount

Question 4

Gifts to Minors

Custodial Accounts

Answer 4

1. Less competitive vs 529 since TCJA 2017
2. UGMA
   
   1. All states
   2. Cash, securities, typically NOT RE
   3. No bonding required
   4. Donee must receive by age of majority
3. UTMA
   
   1. More flexible
   2. All states
   3. May include RE

Question 5

Gifts to Minors

Guardianships

Answer 5

• Very restrictive! Bonding and accounting
• Court must supervise
• Donee must receive at 18

Question 6

Gifts to Minors

Irrevocable minor’s trusts

Answer 6

1. 2503(b) - Mandatory Income Trust
   
   1. All income distrib. annually, whether to minor or custodial account
   2. Not req to end at 21!
   3. Right to income qualifies as a present gift. PV of income until end is a gift, qualifies for annual exclusion. Remainder is a future gift and does not qualify
2. 2503(c) - Complex trust
   
   1. Income distrib. discretionary
   2. Principal distrib. discretionary; mandatory at 21
   3. IRC exception permits annual exclusion gift
   4. If donee dies prior to 21, goes to donee’s estate or POA
   5. Trust pays income tax annually at trust rates

Question 7

Gifts to Minors

Crummey minor’s trust

Answer 7

1. May have multiple beneficiaries
2. Donee’s brief (typ. 30-days) right to withdraw makes it a present interest, qualifying for gift tax annual exclusion
3. Advantage over 2503(b) and (c) is annual distribution of income is not mandatory

Question 8

Determination of Basis of a Gift

Answer 8

1. Date of gift
2. FMV on date
3. Donor’s adjusted basis
4. Gift tax, if any, paid by donor

Question 9

Gift of Appreciated Property

Answer 9

1. Appreciated property -> carryover basis of donor
2. Holding period also carries over to donee
3. Donee realizes gain if sells > adj. basis
4. Donee’s basis = Donor’s adj. basis + {unrealized gain / (FMV - annual exclusion)} * gift tax paid

Question 10

Gift of Loss Property

Gain Basis

Answer 10

1. Double basis rule applies
2. Basis cannot be determined until donee later disposes
3. If sale price > donor’s adjusted basis, gain based on carryover basis
4. Donor’s holding period also carries over
5. If donor paid gift tax at time of gift, gift tax is NOT allocated to donee’s basis

Question 11

Gift of Loss Property

Loss Basis

Answer 11

1. If sale price < FMV at gift date, loss based on that FMV
2. Holding period begins at date of gift
3. If gift tax was paid by donor, gift tax not allocated to donee’s basis

Question 12

Gift of Loss Property

FMV > Subsequent Sale > Donor’s Adj. Basis

Answer 12

No Gain or Loss

Question 13

Gift of Loss Property

Holding Period

Answer 13

• For Gain: Carryover
• For Loss: Date of gift

Question 14

Gift of Loss Property

Basis for Depreciation

Answer 14

• Basis is donee’s carryover basis
• Cannot depreciate more than FMV
• Holding period as if donee had purchased it