Chapter 5: Gift Tax

Question 0

American Taxpayer Relief Act (ATRA 2012)

Answer 0

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 (2014).

Question 1

Annual Exclusion

Answer 1

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

Question 2

Consideration

Answer 2

Payment or transfer of property in return for other property.

Question 3

Crummey Provision

Answer 3

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

Question 4

Direct Gift

Answer 4

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

Question 5

Donee

Answer 5

The person who receives the gift.

Question 6

Donor

Answer 6

The person who gives the gift.

Question 7

Double-Basis (or Bifurcated Basis) Rule

Answer 7

When the fair market value of the property at the date of the gift is less than the donors adjusted basis. In this case, the donee will have one basis for gains and one basis for losses.

Question 8

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

Answer 8

Tax act signed by President George W. Bush in June of 2002. The act phased in a repeal of the estate and generation-skipping tax. It also created separate applicable credits for gift tax and estate tax until 2011.

Question 9

Five-and-Five Rule

Answer 9

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 the value of the property subject to the lapsed powers exceeds the greater of $5,000 or 5% of the aggregate value if the assets out of which the powers could have been satisfied.

Question 10

Future interest

Answer 10

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

Question 11

Gift

Answer 11

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

Question 12

Incomplete Transfer

Answer 12

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

Question 13

Indirect gift

Answer 13

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

Question 14

Net gift

Answer 14

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

Question 15

Present interest

Answer 15

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

Question 16

Qualified transfers

Answer 16

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 17

Reversionary Interest

Answer 17

Interests that 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 18

Split Gift Election

Answer 18

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

Question 19

Statute of Limitations

Answer 19

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 20

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

Answer 20

Tax act signed December 2010 that extended various income and estate tax provision of EGTRRA and was made permanent by ATRA, set the tax credit equivalency amount for gift, estate, and generation skipping purposes at $5,250,000, set the maximum transfer tax rate at 40%, and introduced portability which was made permanent by ATRA.

Question 21

What are the elements of a gift?

Answer 21

• The donor must have the intent to make a voluntary transfer
• The donor must be competent to make the gift
• The donee must be capable of receiving the gift
• The donee must take delivery
• The donor must actually part with dominion and control over gifted property

Question 22

Transfers resulting in no gift tax:

Answer 22

• Transfers to political organizations
• Qualified transfers
• Payments for support
• Payments between divorcing spouses pursuant to a divorce decree
• Transfers within a business setting
• Gifts to spouses
• Charitable gifts