Chapter 5: Gift Tax

Question 1

Define Annual Exclusion

Answer 1

An exclusion from gift taxes for present interest transfers less than or equal to $14,000 per year per done.

Question 2

Define American Taxpayer Relief Act (ATRA 2012)

Answer 2

Tax act signed by President Barack Obama in January of 2012. The act reunified estate and gift tax with a $5,340,000 exemption and a 40% marginal rate.

Question 3

Define Consideration

Answer 3

Payment or transfer of property in return for other property.

Question 4

Define Crummey Provision

Answer 4

The right of a trust beneficiary to withdraw some or all of any contribution to a trust for a limited period of time after the contribution. A Crummey provision converts what otherwise would have been a gift of future interest (not eligible for the annual exclusion) to a gift of present interest, eligible for the annual exclusion.

Question 5

Define Direct Gift

Answer 5

A direct payment of cash or transfer of property to a done.

Question 6

Define Donee

Answer 6

The person who receives the gift

Question 7

Define Donor

Answer 7

The person who gives the gift.

Question 8

Define Double-Based (or Bifurcated Basis) Rule

Answer 8

When the fair market value of the property at the date of death is less than the donor’s adjusted basis. In this case, the done will have one basis for gains and one basis for losses.

Question 9

Define Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA 2001)

Answer 9

Tax act signed by President George W. Bush in June 2001. The act phased in a repeal of the estate and generation skipping transfer tax. It also created separate applicable gift credits for gift tax and estate tax until 2011.

Question 10

Define Five-and-Five Rule

Answer 10

The lapse of a general power of appointment, like the release of such a power, results in a transfer for gift tax purposes. This rule applies only to the extent of value of the property subject to the lapsed powers exceeds the greater of $5,000 or 5% of the aggregate value of the assets out of which the powers could have been satisfied.

Question 11

Define Future Interest

Answer 11

An interest which is limited in some way by a future date or time. A gift of future interest does not qualify for the annual gift tax exclusion.

Question 12

Define Gift

Answer 12

A voluntary transfer, without full consideration, of property from one person (a donor) to another person (a done) or entity.

Question 13

Define Incomplete Transfer

Answer 13

Any transfers that include a revocable beneficiary designation or a transfer to a revocable trust. Incomplete transfers are not considered gifts for gift tax purposes.

Question 14

Define Indirect Gift

Answer 14

A payment, or transfer, to a third party on behalf of a donor for the benefit of the donee.

Question 15

Define Net Gift

Answer 15

A gift that requires the donee to pay the gift tax. The gift tax is based on the value of the transfer less the gift tax.

Question 16

Define Present Interest

Answer 16

An unrestricted right to the immediate use of property. A present interest gift qualifies for the annual exclusion.

Question 17

Define Qualified Transfers

Answer 17

A payment made directly to a qualified educational institution for tuition, excluding room and board, or a payment made directly to a medical institution for the qualified medical expenses of someone else. Qualified transfers are excluded from gift tax.

Question 18

Define Reversionary Interest

Answer 18

Interests that may have been transferred and subsequently revert back to the transferor. Also includes a possibility that property transferred by the decedent may become subject to a power of disposition by him.

Question 19

Define Split Gift Election

Answer 19

An election available to a donor of separate property which allows him to utilize his spouse’s annual exclusion and transfer up to $28,000 per year per donee without incurring gift tax.

Question 20

Define Statute of Limitations

Answer 20

The period of time allowed for the IRS to assess any additional gift tax, generally three years, unless the gift is not adequately disclosed on a filed gift tax return. If the gift is not adequately disclosed, the statute of limitations will never expire.

Question 21

Define Tax Relief, Unemployment Insurance Authorization, and Job Creation Act of 2010 (TRA 2010)

Answer 21

Tax act signed December 2010 that extended various income and estate tax provisions of EGTRRA and was made permanent by ATRA, set the tax credit equivalency amount for gift, estate, and generation skipping purposed at $5,340,000 set the maximum transfer tax rate at 40%, and introduced portability which was mad permanent by ATRA.