GSTT

Question 1

What are notable exceptions to the GSTT?

Answer 1

Direct transfers to education and medical expenses

Question 2

The GSTT applies to a “skip person” only. What is a “skip person”?

Answer 2

-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

Question 3

When is a trust not a skip person?

Answer 3

When there are non-skip persons who hold an interest to the income or remainder

Question 4

What are exceptions to GSTT?

Answer 4

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

Question 5

What is a direct skip?

Answer 5

A transfer to a skip person that is subject to federal or estate gift tax.

Question 6

What is a indirect skip?

Answer 6

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)

Question 7

What is taxable termination?

Answer 7

When all interest has been paid to a nonskip person and the GSTT can then be calculated for a skip person

Question 8

What is a taxable distribution IRT GSTT?

Answer 8

When a skip person receives a distribution even while a nonskip person has a remaining interest

Question 9

How can the annual gift exemption be used for the GSTT when transferring to a trust?

Answer 9

All beneficiaries of the trust must be skip persons

Question 10

In the case that a gift is appreciating, what happens to the donee’s basis and holding period?

Answer 10

Both are inherited from the donor

Question 11

In the case that a gift is depreciating and sold at a loss, what happens to the donee’s basis and holding period?

Answer 11

Neither are inherited from the donor

Question 12

What is the beneficiary’s holding period from a trust asset?

Answer 12

The same date as the trust

Question 13

What is the holding period and basis for property acquired through death?

Answer 13

Long-term, regardless. Can either step up or step down the basis

Question 14

What are the two exceptions to the stepped up basis?

Answer 14

IRDs
Reverse gift if the death is less than a year from the original gift

Question 15

Formula for computing new basis on an appreciating gift when gift tax has been paid?

Answer 15

Old basis + [(FMV - old basis / FMV - gift excl) * gift tax paid] = new basis

Question 16

What is a strategy to delay recognition of gains on a low basis asset?

Answer 16

Spread the gain across years with:
SCIN
Installment notes
Private annuities

Question 17

What are the three parts of a single installment note payment?

Answer 17

gain or profit
return of basis
interest

Question 18

What is the second disposition rule?

Answer 18

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

Question 19

What is the basis and GE benefit of a SCIN?

Answer 19

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

Question 20

How is basis determined in a private annuity?

Answer 20

By the payments actually made before the death of the seller(s), but never to exceed FMV.

Question 21

What are three phantom income gains to watch out for?

Answer 21

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

Question 22

How is gain/loss computed for life insurance?

Answer 22

Sale price - seller’s adjusted basis (sum of all premium payments - any return of premium received)

Question 23

When would the build-up of interest or capital appreciation in a life insurance policy, become taxable?

Answer 23

If the policy violates the definition of life insurance at any time

Question 24

What is taxable within a viatical settlement?

Answer 24

Nothing - it is part of the death benefit

Question 25

How is a life insurance policy taxed under the transfer for value rule?

Answer 25

The beneficiary is taxed ordinary income for the difference between the value of the policy and the sum of (premiums paid from purchase to death and purchase price)

Question 26

How are deferred annuities taxed if money is distributed prior to annuitization?

Answer 26

LIFO - capital gains first, then premium

Question 27

How are immediate payments from an annuity taxed?

Answer 27

Ordinary income on the taxable portion of payment. Other portion is return of investment.

Question 28

When would a grantor be responsible for the taxes generated from the income of a trust?

Answer 28

When the grantor or grantor spouse retains significant power or control over that trust.

Question 29

What does being a holder of a general power of appointment do in terms of taxation on a trust?

Answer 29

Considering the power, the holder could be responsible for taxes

Question 30

What does Crummey Power do for taxation of a trust?

Answer 30

Taxes or the build-up of interest in a trust in the case of a lapse, is the responsibility of the trust beneficiary

Question 31

What are the taxation rules for beneficiaries of trusts who may or may not recieve, (but are eligible for), distributions from a trust?

Answer 31

They must report the potential or actual distributions of income in their gross income in the year of (potential) distribution

Question 32

What are the 5 requirements for a charitable deduction?

Answer 32

Charity must be qualified
Gift must be cash/property, not services
Deduction is for above basis only
Cannot be of partial interest (unless by code)
Can only be deducted in tax year gifted

Question 33

What are total interest gifts to charity?

Answer 33

A gift in which all interest is given up by the donor. Outright charitable gifts, charitable bargain sales, charitable stock bailouts, charitable gift annuities, qualified charitable distributions

Question 34

What is a charitable stock bailout?

Answer 34

Highly appreciated stock given to charity. They sell and won’t pay gains. The donor gets to avoid gains and take the deduction

Question 35

What are qualified charitable distributions?

Answer 35

70.5 yrs old, uptown $100k to charity that then satisfies RMDs

Question 36

Where and when is GSTT reported in a direct skip?

Answer 36

Form 709 in life by April 15th of the year after the gift and Form 706 in death, 9 months after death

Question 37

When and where is GSTT reported in an indirect skip?

Answer 37

Same as direct, but there is only tax when there is a taxable termination or distribution to skip person