Estate/Gift Tax Flashcards
Who is liable for gift tax? Estate tax?
GT-donor (gifts made during life or upon death death)
There is an annual exclusion PER gift but it requires it must be of PRESENT interest. Value of gift = FMV of it. Spouse can split a gift and each take the exclusion.
ET-decedent’s estate (transfers triggered by death)
What does a unified credit do?
Provide an exemption from transfers an estate so that most individuals are not subject to estate tax at death. (Applies to gift tax also)
LIfetime taxable gifts/transfers at death are taxed on a cumulative basis, it reduces the credit by all amounts credited before.
What are the two gifts of a trust?
Income Interest - receives income from trust each year
Remainder Interest - receives property of trust when it terminates
Both are valued using actuarial tables (120% of applicable Federal midterm rate for month in which transfer is made)
Martial Deduction Requirements:
- Taxpayer and Spouse were married at date of gift
- Spouse is US citizen
- Property transferred is not a terminable interest
Applies to all gifts given to a spouse. There is an unlimited exclusion.
Education exclusion requirements:
There is an unlimited exclusion as long as the gift is made DIRECTLY to an educational institution (in the US) for tuition and other expenses (not room and board). Need not be a family member.
Form 709 (Gift Tax) is due:
4/15 following year the gifts were made if the exclusion doesn’t cover it all.
List of unlimited git exclusions:
- Spousal gifts
- Education gifts
- Medical gifts
- Political contributions
When is a gift a”
Present Interest
Future Interest
Not Complete
And do they qualify for exclusions and are they taxable?
PI-when they are outright gifts or when there is interest income that there is an unrestricted right to (so even if it is a flow of consistent payments)
Have a right to an exclusion, taxable when the exclusion isnt enough or if it doesnt qualify for one of the unlimited exclusions.
FI-When the distributions will- not begin until a future date (remainder interest and interest income that begins at a later date)
Does not qualify for exclusion, therefore it is fully taxation.
NC-when there is power to revoke interest. There is no relinquishment of dominion
When the trust income is actually paid to a beneficiary, it qualifies for the exclusion.
What is included in a gross estate?
FMV of all property owned at date of death.
Executor can elect alternate valuation date, which his 6 moths after death. It can only be elected if value of gross estate is less than date of death value. If property is distributed before the AVD, then FMV is determined on the distribution date.
For jointly owned property by husband and wife: 50% of property goes into estate of first spouse to die. (Tenancy by the entirety is a joint tenancy)
Joint-tenancy: property owned with a right-of-survivorship, meaning that at death, the property immediately passes to the other owner that is living. 100% of property is included in estate of first owner to die unless it can be proven that the other owner contributed to the purchase.
For married individuals with right of survivorship, it is 50% if it is a joint tenancy also.
Tenancy in common means there is no right of survivorship and the decedent’s share of property passes into probate estate and its distribution is controlled by the will.
Generation-Skipping Tax is imposed:
on an estate when a bequest skips a generation. It would not apply if the generation in between is deceased. The tax rates and unified credit are the same as for estate tax.
It is a separate tax in addition to gift and estate taxes. It is a flat tax equal to maximum gift and estate tax rate.
Proceeds from life insurance are included in gross estate under either of these conditions:
- Decedent had incidents of ownership (right to designate beneficiary, if decedent is listed as the benficiary)
- Decedent’s estate is the beneficiary
Life insurance proceeds from buy-sell agreements are generally excluded if it:
- is a bona fide business agreement
- not a device to transfer property to the decedents family for less than full and adequate consideration
- has similar terms to those entered by people at arms length transactions
When will a retained interest property be included in a gross estate?
When there is the retention of a power to alter, amend, or revoke a transfer on a property.
When there is power to designate possession or enjoyment of property/income including power created by another that can be exercised in the decedent’s favor
When will a transfer within 3 years of death be included in gross estate?
Transfers involving retained interests and revocable transfers where that retention or right to revoke was terminated, those are included in gross estate.
Transfer of life insurance are included in gross estate.
Gift tax paid on transfer are included in gross estate.
What is deductible from an estate?
Marital deduction Debts Funeral and administrative expenses Charitable Contributions Casualty Losses
Administrator of estate can waive the deductions to allow deductions on an individual tax return (medical expenses, debts) or on a fiduciary tax return (for administrative expenses)
There is no deductions for payments to beneficiaries unless the beneficiary is a charity or spouse.
Unified Credit will offset how much?
$5,430,000 in 2015, any unused credit from a spouse who died after 2010 may be used in the future by the surviving spouse.
