GSTT Flashcards
What are notable exceptions to the GSTT?
Direct transfers to education and medical expenses
The GSTT applies to a “skip person” only. What is a “skip person”?
-A lineal descendent who is two or more generations younger than the transferor/spouse/former spouse by relation.
-A non-lineal unrelated transferee who is 37.5 years younger than the transferor
When is a trust not a skip person?
When there are non-skip persons who hold an interest to the income or remainder
What are exceptions to GSTT?
Marriage - can’t have a GSTT on a (former) spouse, even if they are 37.5+ years younger
Deceased ancestor (or parent) skip rule: if a descendent of a parent of the transferor is deceased, the transferee can move up a generation
What is a direct skip?
A transfer to a skip person that is subject to federal or estate gift tax.
What is a indirect skip?
A transfer to both a skip and nonskip persons, such as in a trust. GSTT still occurs on the skip person, but it has to be determined the amount being transferred to that person first (known as taxable termination)
What is taxable termination?
When all interest has been paid to a nonskip person and the GSTT can then be calculated for a skip person
What is a taxable distribution IRT GSTT?
When a skip person receives a distribution even while a nonskip person has a remaining interest
How can the annual gift exemption be used for the GSTT when transferring to a trust?
All beneficiaries of the trust must be skip persons
In the case that a gift is appreciating, what happens to the donee’s basis and holding period?
Both are inherited from the donor
In the case that a gift is depreciating and sold at a loss, what happens to the donee’s basis and holding period?
Neither are inherited from the donor
What is the beneficiary’s holding period from a trust asset?
The same date as the trust
What is the holding period and basis for property acquired through death?
Long-term, regardless. Can either step up or step down the basis
What are the two exceptions to the stepped up basis?
IRDs
Reverse gift if the death is less than a year from the original gift
Formula for computing new basis on an appreciating gift when gift tax has been paid?
Old basis + [(FMV - old basis / FMV - gift excl) * gift tax paid] = new basis
What is a strategy to delay recognition of gains on a low basis asset?
Spread the gain across years with:
SCIN
Installment notes
Private annuities
What are the three parts of a single installment note payment?
gain or profit
return of basis
interest
What is the second disposition rule?
If in selling property to a related person for installment payment, the buyer then sells that asset to someone else w/I two years of the original sale, the original seller can receive installment payments tax free until the payments equal the gain realized in the second sale
What is the basis and GE benefit of a SCIN?
Because the buyer pays a premium, he receives the FMV basis, even if he doesn’t complete payments
The seller rids the GE of the asset
How is basis determined in a private annuity?
By the payments actually made before the death of the seller(s), but never to exceed FMV.
What are three phantom income gains to watch out for?
Business entity formation - the transferring of indebted property from pers to the business
Net gift - if the assumption of gift tax or an encumbered loan to asset, exceeds the donor’s basis in that property, the donor will have gain
Assumption of indebtedness - the seller can incur gains if the indebtedness assumed by the buyer, exceeds the seller’s basis
How is gain/loss computed for life insurance?
Sale price - seller’s adjusted basis (sum of all premium payments - any return of premium received)
When would the build-up of interest or capital appreciation in a life insurance policy, become taxable?
If the policy violates the definition of life insurance at any time
What is taxable within a viatical settlement?
Nothing - it is part of the death benefit
