Chapter 11 - Federal Estate Taxation: The Gross Estate - Part I Flashcards
(EGTRRA)
The Economic Growth and Tax Relief Reconciliation Act (EGTRRA)
Tax Reform Act of 1976 was?
a unified estate and gift tax system
TCJA estate, gift and generational giving rules?
The Tax Cuts and Jobs Act of 2017 (TCJA) doubled the exclusion for gift, estate, and generation-skipping taxes to $11.18 million per person ($22.36 million per couple) in 2018 through 2025.
Gross Estate
The gross estate includes all property owned by a citizen or resident of the United States at death valued at its fair market value on the date of death or alternate valuation date (6 months after death). The tax is a progressive tax similar to the federal income tax. It is based on a graduated rate schedule that increases with the size of the estate.
INCLUSION OF CERTAIN GIFTS, TRANSFERS, AND GIFT TAXES (IRC SEC. 2035)
As a general rule, gifts made within 3 years of death are not included in the gross estates of
decedents dying after December 31, 1981, except for certain limited purposes. The following
are some exceptions to the general rule:
As a general rule, gifts made within 3 years of death are not included in the gross estates of
decedents dying after December 31, 1981, except for certain limited purposes. The following
are some exceptions to the general rule:
• transfers with retained interests for life
• transfers taking effect at death
• transfers in which the decedent reserves the right to alter, amend, revoke, or terminate
the transfer or the power to affect the beneficial interest in the transferred property
• transfers of life insurance policies by the insured
• gift taxes paid
Sec. 2035 gift tax rule example
Suppose the decedent made a taxable gift of $1 million to an individual on which a gift tax of $345,800 was payable, and the donor died 2 years later. The $1 million is excluded from his or her gross estate. (It is brought back as an adjusted taxable gift in computing
the estate tax liability.) However, the amount of gift tax, $345,800, is includible in the decedent’s gross estate under the gross-up rule of Sec. 2035.
Sec. 2035 gift tax return exclusion
Note that current law provides that no transfer made within 3 years of death need be included in the gross estate if no gift tax return was required to be filed. This refers to present-interest gifts worth less than the annual gift tax exclusion.
Reciprocal Trusts
The so-called “reciprocal trust” doctrine essentially states that if Person A creates a trust for B, and Person B creates an identical (i.e., reciprocal) trust for A, that the courts can “uncross” the trusts and treat the situation as though each person created a trust for his/her own benefit. Therefor includible in the decedents estate.
The gross estate is constructed of what the decedent actually owned at death and what the decedent was deemed to have owned at death?
True
Gifts of life insurance made within 3 years of death are includible in the decedent’s gross estate only if the value of the gift at the time of the transfer exceeded the amount of the annual gift tax exclusion?
False
All gifts of life insurance made by the insured within 3 years of death are includible in the decedent’s gross estate at the full value of the proceeds, regardless of whether the annual exclusion was applied and also whether a gift tax return was required to be filed.
Any property that a decedent may have owned but transferred gratuitously after 1976 is not brought back into the gross estate?
False
The gross estate also includes the value of property in which a decedent retained an interest for life, property in which the decedent had a reversionary interest valued at more than 5 percent of the value of the property at the time of death, or property previously transferred but in which the decedent retained a right to revoke, amend, or terminate the transfer. Also includible in the decedent’s estate are gifts of life insurance made within 3 years of death.
The value of gifts made to spouses within 3 years of death is included in the gross estate for the purposes of determining eligibility for Sec. 303 and Sec. 6166?
True
A decedent’s gross estate excludes all property transferred during his or her lifetime in which the decedent held any reversionary interest at the time of death?
False
Sec. 2037 provides that property transferred during a decedent’s lifetime is included in the decedent’s gross estate if the beneficiary can enjoy or possess the property only by surviving the decedent and the decedent’s reversionary interest exceeded 5 percent of the value of the property at the time of death.
A gift tax paid on completed lifetime transfers two years before death is excluded from the gross estate?
False
Any gift tax paid on transfers made within 3 years of death is included in the gross estate under the gross-up rule. This prevents a decedent from gifting substantial amounts of property in the period immediately prior to death in order to reduce the estate by the amount of the gift tax.
If income in respect of a decedent (IRD) is includible in the gross estate, the estate tax attributable to that income item is deductible by the recipient of the income on the recipient’s income tax return?
True
