Gifting Strategies, Gift Tax Compliance and Gift Tax Calculation Flashcards
Inter-vivos gifting
- transfer of property made while transferor is alive
- gift includes sale, exchange, transfer for less than full consideration in money
Requirements for a valid gift
4 requirements
1. donor must be capable of transferring property
2. donee must be capable of receiving property
3. must be delivery and acceptance
4. requires donative intent
Taxation requirements for gifts
- 4 requirements for valid gift
- donative intent not required
- must be complete gift
Gift giving techniques
- forgiveness of debt
- below market loans
- assignment of benefits for LI
- transfer to trust
Appropriate gift property
- highly appreciated property: best for charity or low bracket individual (can keep for step up)
- property likely to appreciate: removes future value from estate
- income producing property: good if in lower bracket
- loss property: sell to take loss
- property subject to depreciation: keep until fully depreciated
- out of state property: gift to avoid ancillary probate
- life insurance: good to gift, tax on replacement value, benefit face value
Strategies for closely held business owners
- can use FLP, LLC, preferred stock recapitalization or gifting closely held stock to gift business interests
- transfer will reduce value of business in donors estate
- gifts could disqualify estate from making section 202 or 6166 election
- gift fully depreciated property and lease it back (income tax deduction)
Gift tax exclusion
- $17k to each donee is excluded
Gifts of present and future interests
present interest
- enjoyment can start immediately
future interest
- possession and enjoyment is delayed
- doesnt qualify for annual gift exclusion
Exceptions to future interests
exceptions to present interest requirement
- gifts in trust of future interests on behalf of minors
- 2503c trusts
- crummey trusts
- 529 plans
Gifts to noncitizen spouses
- noncitizen spouses dont get unlimited marital gift exclusion
- 175k
Basis of appreciated gifts
- value of gift is FMV on date of gift
- if FMV is greater than donors adjusted basis then donee will use donors adjusted basis
Basis of depreciated gifts
- if FMV is less than donors adjusted basis then a loss is measured using FMV and gain is measured using donors basis
- if sale is between donors basis and FMV then neither gain nor loss is recognized
Increasing basis on appreciated gift
- sometimes donee of appreciated gift is allowed to increase basis by amount of gift tax paid by donor
- 2 conditions
1. must be appreciated property
2. gift tax must be paid by donor
step 1: FMV - donors basis
step 2: multiply by 40%
step 3: add donors basis
Gift subject to indebtedness
- only net value of the gift is subject to gift tax (property - debt)
- if debt is greater than cost to donor, donor will realize taxable gain
- capital gain = debt - basis
- donee new basis is donors original basis plus gain paid by donor
Taxable gifts and estate tax
- adjusted taxable gifts exceed 17k
- adjusted taxable gifts are added to taxable estate
- gift taxes paid are allowed are credit against tentative tax
- gift taxes paid within 3 yrs of death are added to gross estate
- gift tax exemption is 12,920,000
Gift tax filing requirements
- form 709 if giving any of following
1. more than 17k
2. gift of future interest
3. gift spouses are splitting
Gift splitting
-treats gift of property from one spouse as if it were made by both
- consent on nondonor needed
- two gift tax returns filed if after split the values of the gift exceeded annual exclusion
- only donor needs to file if gift was below exclusion ( spouse still needs to sign)
- no return needed if community property or JT and under exclusion
Gifts of property in JT/ community property
- ownership considered transferred when documents evidencing transfer are titled
- some exceptions
1. JT bank account, gift as soon as funds withdrawn by donee, not creation
2. Series EE bond, gift when redeemed
Prior taxable gifts
- if person uses more than annual exclusion, part of 12,920,000 gets used
- excess gifts accumulate on 709
- when they exceed lifetime exemption, they are taxed
Deductible gifts (exempt gifts)
- fully deductible, reduce taxable gift amount to 0
1. qualified payments in any amount made directly to educational institution for tuition
2. qualified payments in any amount made directly to provider for medical care
3. gifts to spouse
4. gifts to qualified charity
5. political organization
6. to president of US
