Estate and Gift Tax

Question 1

What tax exists so wealthy people don’t give away all their assets while alive in efforts to try to avoid the Estate Tax?

Answer 1

Gift tax laws

Question 2

What is the amount of the Unified Credit?

What does it do?

Answer 2

$11,500,000

It means that a person can have that amount and not pay any estate tax upon death.

Question 3

If someone begins giving money away while still alive, what form do they need to fill out?

Answer 3

Form 709, Gift Tax Return

Gift may be subject to the gift tax unless someone chooses to use the Unified Credit.

Question 4

What is the amount that a person is allowed to give away to a person per year to avoid paying gift tax?

Answer 4

$15,000 single

$30,000 MFJ

Question 5

DO you have to file a gift tax return for a gift of $15,000 or less?

Answer 5

NO

Question 6

Not all payments to others are considered gifts. What are some exceptions?

Answer 6

• Payments to minor family members
• Payments to an employee that is in reality compensation
• Property settlements in a divorce
• Child support payments
• Payments for political contributions
• Donations of time

Question 7

Besides giving money, what are some other things that can be considered a gift?

Answer 7

• Loan @ below market rates
• Debt forgiveness
• Sales @ below market prices
• Placing assets in irrevocable trust

Question 8

Is a revocable trust considered a gift?

Answer 8

No because the person can revoke it at any time.

Question 9

Are donations of personal services considered a gift

Answer 9

No

Question 10

Are gifts between spouses considered a gift?

Answer 10

No

Question 11

Are gifts to a charity considered a gift for gift tax purposes?

Answer 11

No

Question 12

Exam tip! If given a question and asked the “taxable amount” of gift, what should you remember?

Answer 12

Do not include full amount of each gift, remember to reduce each by $15,000 exclusion per person.

Question 13

In what cases are gifts unlimited?

Answer 13

• Gifts between spouses
• Gifts to charities
• Gifts given directly to the provider of medical care / provider of education (can’t give to the person first!)

Question 14

What is the estate tax return form called?

Answer 14

Form 1041

Question 15

Any income received after the date of death should be declared on where? Paid by who?

Answer 15

Declared on Form 1041, tax should be paid by the estate

Question 16

If someone who dies had an insurance policy to be paid out to others, would this be included on the 706?

Answer 16

Yes, it would be included on the 706 to determine if the person has over $11.5M in total assets for purposes of measuring the estate.

Question 17

$13,000 in medical expenses. Death July. Bill in August, person never paid. Estate paid.

Filed on final 1040 or 1041?

Answer 17

Deduction on the 1040. Waiver has to be filed to elect that medical expenses will not be taken on Form 706. Only applies to MEDICAL. Must be paid within 1 year of date of death.

Deducting on Form 1041 is NOT an option.

Question 18

Jack earned income before death, not yet collected. Income transferred to sister.

Sister collected $4,000 in the following year.

Where does this income get reported?

Answer 18

On sister’s 1040 as income because she is the beneficiary.

If it had been collected by Jack’s executor it would have gone on the 1041.

Question 19

Jack sells a tractor on 5/20/2018 for $3,000, basis $2,000.

The $3,000 was payable 7/8/2018.

Jack died 6/1/2018 (before receiving payment.

$3,000 is received by executor on 7/8/2018.

Who reports income?

Answer 19

The $1,000 gain on sale should be reported on Form 1041.

Question 20

Jack was entitled to $50,000 consulting fee at date of death.

Payments due as follows:
2/8/2018 - $10,000 (Jack)
9/1/2018 - $10,000 (Executor)
Remaining 3 - Transferred to Kay (sister)

How to report?

Answer 20

2/8/2018 - Jack’s final Form 1040
9/1/2018 - Estate Form 1041
Remaining 3 - Kay’s 1040 in year collected

Question 21

Jack receives a check for unused vacation on 5/11/2018.

Jack dies 6/1/2018, executor cashed check on 8/4/2018.

How is the income reported?

Answer 21

Earned before death, goes on Jack’s final 1040.

Question 22

Jack incurred business expenses in 5/2018.

Died 6/1/2018.

Expenses paid by executor on 7/8/2018.

How is income reported?

Answer 22

This would be reported on 1041 (estate).

Items such as business expense, taxes, income producing expenses for which the decedent was liable at death but NOT PAID before death, deducted on 1041. (Schedule C)

Question 23

Jack was a stockholder, dividend declared on 4/18/2018 to stockholders on record 5/2018. Payable 6/18/2018

Date of death 6/1/2018.

How does income get reported?

Answer 23

Any dividends declared BEFORE DEATH BUT NOT RECEIVED are included on the 1041.

Question 24

Jack was a stockholder.

Dividend paid 5/28/2018.

Jack had not cashed the check at time of death 6/1/2018.

How does this income get reported?

Answer 24

On Jack’s final 1040 because income RECEIVED BEFORE DEATH.

Question 25

Funeral expenses of $10,000 were paid by the executor on 6/6/2018.

How does this expense get reported?

Answer 25

NOT DEDUCTIBLE on the 1040 or 1041!

Would be included on the Form 706 if estate value was high enough.

Question 26

Property taxes on Jack’s home are DUE May 1 & Nov 1.

Jack paid half on 5/1/2018 in the amount of $2500.

Executor paid the property taxes on Jack’s home in the amount of $2,650 on 11/1/2018.

Answer 26

1st half, $2500 - Jack’s final 1040

2nd half - $2650 - Deductible on form 1041 (tax of the decedent paid after date of death = 1041)

Question 27

Jack’s executor paid off Jack’s sports car. Remaining loan balance on 12/5/2018 was $45,000. Interest on the loan was $5200.

How is this expense reported?

Answer 27

Personal interest is NOT reported on Form 1040 OR 1041.

Question 28

Jack has a $500,000 money market mutual fund on the date of death 6/1/2018.

Total interest for the year ended 12/31/2018 was $3,000.

Interest up to 6/1/2018 was $1480.

Answer 28

Jack’s final 1040 - $1480

Form 1041 - $1520 ($3000-1480)

Question 29

Form 706 vs. Form 1041

Answer 29

Form 1041 is used to report income taxes for both trusts and estates. For estate purposes, IRS Form 1041 is used to track the income an estate earns after the estate owner passes away and before any of the beneficiaries receive their designated assets

That is different than the estate tax return which is Form 706.