Gift and Estate Taxation

Question 1

What is the Gift Tax Basics?

Answer 1

o Property transferred while taxpayer living

Question 2

What is Gift Taxation – for Donor?

Answer 2

o A $14,000 exclusion for each spouse is allowed forcalculating gift tax
o If a couple gifts $30,000 cash to a friend, the amount of the gift taxable to the couple for gift tax purposes would be $2,000 ($30,000 - $28,000)
o In order to get the exclusion, the recipient must immediately acquire a present interest in the property and get unrestricted access to the property and all of its benefits
o If the gift is an annuity, use Present Value to determine the gross gift

Question 3

Must the recipient gain all rights to the gifted property?

Answer 3

Yes, recipient must gain all rights to property.

Question 4

What happens if the recipient merely gains a future ownership?

Answer 4

The present value of the gift is 100% taxable to donor and cannot exclude from gift tax calculation.

Question 5

Total Taxable Gifts Calculation

Answer 5

= Total Taxable Gifts for Current Year

+ Taxable Gifts From Prior Years

Question 6

What are some Gift Tax characteristics – Donee (Recipient)?

Answer 6

o Property received through gifts not income to recipient
o Loss on Sale of Property
" Basis is FMV on date of gift
o Gain on Sale of Property
" Basis is same as Donor
o No G/L if Donor Basis

Question 7

What are characteristics of Gift Tax Returns?

Answer 7

o Calendar-year basis only
o Due April 15
o If appreciated property is gifted and the recipient dies within one year and is transferred back to original owner after death, basis reverts back to decedent’s basis prior to death instead of basis increasing to FMV
“ Basically, if you gift an appreciated property worth $10k with a basis of $1k to someone who is about to die and then the property passes back to you from their estate, normally your basis would be the FMV at death ($10k), but the IRS won’t let you do that – your basis reverts back to the decedent’s basis ($1k) from when you gifted the property to them

Question 8

What are Complex Trusts?

Answer 8

o Income distributions are optional
o Accumulation of income OK
o Charitable contributions OK
“ Contributions using tax-exempt income are not deductible
o Distribution of Trust Corpus (Principal) is allowed
o Allowed personal exemption of $100
What are Simple Trusts?
o Income distributions are mandatory
o Accumulation of income is disallowed
o No charitable contributions allowed
o Distribution of Simple Trust Corpus disallowed
1. Remember – Distribution of Complex Trust Corpus is allowed.
2. A way to remember it is that it’s so complex that they don’t care if you distribute the Corpus
o Allowed personal exemption of $300

Question 9

Are expenses and fees from tax-exempt income deductible for either a Complex or Simple Trust?

Answer 9

No

Question 10

Can Trusts have a Net Operating Loss?

Answer 10

Yes, any unused NOL flows through to the beneficiaries

Question 11

What is an Estate?

Answer 11

Property is transferred after taxpayer’s death

Question 12

What are the 2015 Tax Year rules for estate taxes?

Answer 12

o First $5,430,000 is exempt

o 40% tax on amount > $5,430,000

Question 13

What are the tax rules for medical expenses paid after death?

Answer 13

Expenses paid after death but incurred within 1 year of death go on decedent’s personal tax return

Question 14

Are Foreign Income and Gift Tax credits allowed?

Answer 14

No, disallowed

Question 15

Can Estates have a Net Operating Loss?

Answer 15

Yes, any unused NOL flows through to the beneficiaries

Question 16

Gross Estate Calculation

Answer 16

(Cash + Property FMV @ Death/Alt)

Question 17

Taxable Estate Formula

Answer 17

+Receivables

Question 18

Total Taxable Amounts Calculation

Answer 18

Taxable Estate

+ Taxable Gifts (Post ’76)

Question 19

Transfer Tax Calculation

Answer 19

Total Taxable Amounts

X Estate Tax Rate

Question 20

Net Estate Tax Liability Calculation

Answer 20

Transfer Tax

Question 21

What is the Estate Tax on joint Tenancy?

Answer 21

When two non-spouses jointly own property

Question 22

Amount in Estate Calculation on Joint ownership

Answer 22

o FMV at death x % Ownership
 	Example:
Brother paid 75% of property
Sister paid 25%
FMV is $100k at sister’s death
$25k goes into sister’s estate

Question 23

What is the Estate Tax – Tenancy By Entirety (Marriage)?

Answer 23

½ of marital assets go to deceased spouse’s estate

Question 24

What is Estate Tax – Tenancy In Common?

Answer 24

o A, B, and C own property

o If A dies, FMV of A’s share goes to heirs

Question 25

What is the Estate Tax – Life Insurance Proceeds rule?

Answer 25

o Life insurance proceeds in husband’s name go onto his estate regardless of beneficiary
o Exception – he moved it out of his name 3 years prior to death

Question 26

What are the Estate Tax – Beneficiary rules?

Answer 26

o Property received through inheritance not income to recipient
o Property value is FMV at date of death or 6 mo. later
o If property is sold prior to 6 mo. date and the alternative date is used, FMV at date of sale is used to value property
o Basis in property automatically assumes LT holding period

Question 27

What are DISTRIBUTABLE NET INCOME (DNI)?

Answer 27

Calculated for both trusts and estates

Question 28

DNI calculation

Answer 28

Taxable Income – Expenses (from income production)

Question 29

What does “Allocable to Corpus” mean?

Answer 29

It’s not taxable to beneficiary

Question 30

When do trust beneficiaries pay taxes?

Answer 30

Trust beneficiaries only pay tax if earnings are distributed
When do estate beneficiaries pay taxes on DNI?
Estate beneficiaries pay tax on DNI, regardless if distributed

Question 31

What is the tax return if estate has $600+ gross income?

Answer 31

1041 Fiduciary return

Question 32

Where can administrative fees be deducted?

Answer 32

Either on 1041 Fiduciary or Estate tax return