Federal Estate and Gift Tax

Question 1

Estate Tax Exemption

Answer 1

Congress increased the estate tax exemption to $5.2 million

For estates of decedents dying in 2013, if decedents gross estate (the estate tax base) is less than 5.2 million, Decedents executor doesn’t have to file an estate tax return

Question 2

Marital Deduction under gift and estate tax

Answer 2

Unlimited marital deduction under both the gift tax and estate tax
Any property passing into the spouses outright ownership (gift, will, intestacy, life insurance proceeds, etc) qualifies for a marital deduction
- Whatever passes outright is not included in taxable estate

Question 3

Gift Tax to Donor

Answer 3

No gift tax must be paid by a donor unless cumulative lifetime taxable gifts exceed $5 million

There is a $14,000 per donee annual exclusion under the gift tax
The exclusion is available for gifts of present interest but not for gifts of future interest. Can deplete estate by $160,000 (multiple $14,000 gifts to different peopel) without having to file a gift tax return

There is an unlimited exclusion for tuition and medical payments if (but only if) the payment is made directly to the service provider.
- Can’t give to person to pay university/hospital

Question 4

Life Insurance and Community Property Issues

Answer 4

The policy is included in the person who owned the policies estate for estate tax purposes, because the insured owned the property (not beneficiary)
- Not subject to income taxation for beneficiary

If policy was community property (acquired during marriage and paid with community funds) and there is a beneficiary that is not the spouse. It is included in insured’s gross estate for federal estate tax purposes
- And the proceeds would be like the surviving spouse was making a gift to the beneficiary and would not pay gift tax on this gift because of the 5.2.5 million gift tax exemption equivalent. Instead in computing the federal estate tax (if any) on surviving spouses death the gift would be added in as adjusted taxable gift

Question 5

Revocable Trusts are

Answer 5

Revocable Trusts are incomplete gifts
Gift is incomplete for gift tax purpose if Settlor retains the power to revoked the trust and also if they retain power to name new beneficiaries.
- Revocable Trusts are useful planning arrangements but they don’t save taxes