Gift & Estate Taxes

Question 1

What are the rules for imputed loan interest?

Answer 1

If the loan is ≤ $10,000 there is no imputed interest.

If the loan is between 10k and 100k and

• the loanee has net investment income < $1,000, there is no imputed interest.
• Otherwise, imputed interest is the lesser of loanee net investment income or AFR interest.

If the loan > 100k the imputed interest is the AFR.

Question 2

What happens when someone receives a gift and pays the gift tax for the owner?

Answer 2

The gift tax paid is income to the owner.

Question 3

What is the 2021 annual exclusion for gifts to a foreign spouse?

Answer 3

$159,000

Question 4

What is form 709?

Who must file it?

Who must sign it?

Answer 4

The gift tax form.

A person donating property and gift-splitting with their spouse must file it.

The other spouse must also sign.

Question 5

Do gifts of community property require gift splitting?

Answer 5

No, they’re essentially already split because they’re community property.

Question 6

What is a Crummey Provision?

What does it accomplish?

Answer 6

It’s the right of a trust beneficiary to withdrawal some or all of assets placed into a trust on his behalf, typically for 30 days.

It turns the contribution to the trust, normally a future gift, into a present gift, making it eligible for the annual exclusion.

Question 7

What is the 5/5 Lapse Rule?

Answer 7

When a trust has multiple beneficiaries and one lapses his ability to withdraw an amount greater than $5,000 or 5%, he has made a gift to the other beneficiaries. This is a future interest gift, and excludes the gift from the annual exclusion.

Question 8

Do gifts to 501c3’s or governments require gift tax to be paid?

Gifts to political parties?

Answer 8

No and no.

Question 9

Are transfers in a business setting subject to gift tax (ie, if you buy your favorite employee a new car)?

Answer 9

No, they’re considered exchanged for services and must be reported as income.

Question 10

Who must file a gift tax return, form 709?

Answer 10

Anyone who makes a gift larger than the annual exclusion.

Any married couple who splits gifts.

Question 11

Gift strategies if you seek to reduce the size of your estate (4)

Answer 11

1. Give appreciating assets.
2. Give to your spouse (unlimited deduction, and you want to maximize her lifetime exclusion).
3. Give to minors via trusts.
4. Don’t give cash.

Question 12

Name 4 gifting tactics when you have multiple people to gift to.

Answer 12

1. Give the asset most likely to appreciate to the youngest person, so they have the most years to gain the appreciation.
2. Give income producing assets to the person with the lowest income, so that the marginal tax increase to them will be the smallest.
3. Never give loss property—sell it, take the loss and give the cash. Recipient can buy it back if they want.
4. When gifting to charity, give appreciated property to avoid CG tax.

Question 13

Name 3 more lifetime tactics for reducing your estate while minimizing taxes.

Answer 13

1. Pay tuition and medical bills directly for anyone you can.
2. Give to your spouse as much as possible.
3. Maximize the 15k annual exclusion as many times as possible, every year (make it 30k if married).

Question 14

What happens to gift tax paid 3 or more years before death?

Answer 14

It is reduced from your estate.

Question 15

What can you deduct from gross estate to get to adjusted gross estate (5)?

Answer 15

• Last medical expenses
• Funeral expenses
• Debts
• Estate administration expenses
• Administration expenses

Question 16

What can you deduct from Adjusted Gross Estate (AGE) to get to taxable estate (3)?

Answer 16

• Marital deduction (unlimited)
• Charitable deduction (unlimited)
• State death tax deduction

Question 17

How do you get from Taxable Estate to Tentative Tax Base?

Answer 17

Add taxable gifts post 1976.

Question 18

What 3 credits can reduce your estate tax?

Answer 18

• Credit for previous gift tax paid
• Remaining estate tax credit (if any)
• Credit for tax paid on any previous transfers.

Question 19

What does section 2035 require be included in a gross estate?

Hint: Within 3 years

Answer 19

• Gift tax paid on any gifts given within 3 years of death.
• Property given within 3 years of death if the decedent retained an interest.
• Death proceeds of any life insurance policy on the decedent’s life that was gifted in the last 3 years.

Question 20

If you transfer something into a trust but retain an interest in it, what is added to your gross estate, FMV at date of transfer, or FMV at date of death?

Answer 20

FMV at date of death.

Question 21

If someone retains the bond payments from bonds transferred to his son, but stipulates that the last payments before his death go to his son, is the value of the bonds still included in his growth estate?

Answer 21

Yes, if you need to mention your death in describing when the asset transfers it’s included in your gross estate.

Question 22

What is the ascertainable standard rule?

Hint: HEMS

Answer 22

If you have a power of appointment that is restricted to health, education, maintenance, or support, this asset is not included in your gross estate at death.

Question 23

What is the 5 and 5 rule? What happens if it lapses?

Answer 23

This is a rule that allows the beneficiary to take the greater of 5% or $5k out of a trust each year. This rule lapses if it isn’t used each year.

Normally, 5 and 5 forces the inclusion of the greater 5 into an estate at death. If lapsed there is not inclusion.

Question 24

What are 3 discounts available for closely held stock?

What is their discount range?

Answer 24

• Lack of marketability
• Minority interest
• Block (you own so much you can’t sell all at once without hurting the price).

Discounts are generally 15-50%, they can be combined.

Question 25

How is stock valued for a gross estate? What if the person dies on Saturday?

Answer 25

The valuation is the average of the high and low for the date of death (or alternate date).

If the person dies on Saturday, the value is the average of the high and low on Friday, combined with the average of the high and low on Monday.

Question 26

When are dividends included in an estate?

Answer 26

If the date of death is on or after the ex-dividend date, include the dividend.

Question 27

How do you evaluate infrequently traded stocks for an estate? Why is this tricky?

Answer 27

Value before DOD x # of bus. days to DOD + Value after DOD x # of bus. Days to DOD

All divided by sum of bus. Days b4 and after.

Tricky: to make it a true weighted average you must multiple the before value by the # of after days, and the after value by the # of before days.

Question 28

What is a reverse gift?

How is it treated in estate taxes?

Answer 28

When you give something to someone and inherit it back from them when they die. If they die within a year, you don’t get the stepped-up basis.

Question 29

How do you calculate survivor’s basis with JTWROS property?

Answer 29

What % did decedent pay at purchase? Step that up to same % of FMV. Add the survivor’s original basis back in.

Question 30

What is the basis of community property left to a spouse?

Answer 30

FMV at date of death; both halves step up to FMV. Normally only 1/2 would step up.

Question 31

Is pain and suffering from a wrongful death includable in a gross estate?

Answer 31

Yes.

Question 32

What is the weird rule about gift tax paid within 3 years of death?

Answer 32

The gift tax is included in the gross estate. The gift itself is not.