Module 7: Estate and Gift Transactions Flashcards
What is the general rule with property transfers by gift/estate?
Property transfers (by gift during life or by will at death) = Taxable = FMV
What is the threshold for lifetime gifts?
$14,000 or less per year/per donee are excluded
What is the unified estate and gift tax credit?
$2,141,800 unified estate and gift tax credit effectively exempts from the gift tax cumulative, nonexcluded gifts having a value of $5,490,000
What is the estate tax?
Form 706
A transfer tax
Imposed on the value of property transferred by the decedent at death (FMV)
When should a Form 706 be filed?
9 months birth & death
If the gross value of the estate plus historical taxable gifts by the decedent exceed $5,490,000
Must be filed w/in 9 months after death
What is the alternate valuation date?
buried 6 feet under
The earlier of the date the property is distributed to the heirs or 6 months after the date of death
Estate Transfer Tax Calculation
Gross Estate (FMV assets) (liabilities) = Adj. Gross Estate (net worth) (Transfers) = Taxable Estate (Remainder) \+ Adj. Taxable Gifts =Tentative Tax Base at Death x Uniform Tax Rates = Tentative Estate Tax
= Gross Estate Tax
= Estate Tax Due
The gross estate is reduced by what deductions?
- Medical Expenses
- Admin Expenses
- Unlimited Charitable Deduction
- Unlimited Marital Deduction
When can medical expenses be deducted on the final income tax return of the decedent?
(Expense or liability, not both)
Provided:
- the expenses are paid w/in one year of death
- they are not deducted on decedent’s Form 706
- the executor files an appropriate waiver
What administrative expenses can be deducted?
- o/s debts of decedent
- claims against the estate
- funeral costs
- certain taxes
What is the applicable exclusion amount?
$5,490,000
What other credits reduce the gross estate tax?
- Foreign death taxes
2. Prior transfer taxes
Who pays the tax on a gift?
The person giving the gift
Gift
Transfer of money or property, whether real or personal, tangible or intangible, for less than adequate or full consideration in money
In determining the amount of gifts made in a calendar year, how much may the donor exclude?
$14,000 of gifts made to each donee
Gifts of future interest
Gift that can only be enjoyed by the donee at some future date
Which gifts have an unlimited exclusion?
- Payments made directly to an educational institution
- Payments made directly to a health care provider for medical care
- Charitable gifts
- Marital deduction
How would property qualify as a Qualified Terminable Interest Property (QTIP) in order to qualify for a marital deduction?
- Donee spouse must be entitled to all income from the property for his/her lifetime
- No one other than the donee spouse may receive any distributions of income or principal from the property for his/her lifetime
- Donee spouse must have right to require that subject property be made productive
- Property must be subject to payment of its pro rata share of estate taxes upon the death of surviving spouse
What are the 2 gift issues?
- Present vs. Future
2. Complete vs. Incomplete
Present interest
Qualifies for the annual exclusion
Future interest
Does not qualify for the annual exclusion
Required to file Form 709
What are examples of future interest gifts?
- reversions
- remainders
- trust income interests where accumulation of income by trustee is mandatory and accumulations are distributed in future
- present interest w/out ascertainable value
Complete gift
A gift is considered complete and subject to gift tax:
- even though donee is not yet born, provided his identity can later be ascertained
- despite the possibility that the property may revert to the donor at some future time
Incomplete gift
Conditional or revocable
Conditional gift
Subject to conditions precedent and will not be provided unless those conditions have been met
Revocable gifts
Donor reserves the right to revoke the gift or change the beneficiaries
General rule for basis of gifts received
Basis to the recipient equals donor’s basis plus gift tax paid due to appreciation in value inherent in the gift
Nontaxable = no income = NBV
How is the tax due on current gifts determined for calendar year?
Gross gifts for calendar yr (FMV)
= Taxable gifts this year
+ Taxable gifts of prior years
= Cumulative lifetime gifts
How is the tax due on current gifts determined for cumulative lifetime gifts?
Tax on Cumulative lifetime gifts
= Tax due on current gifts
Generation-skipping transfer tax
Separate tax imposed in addition to fed. estate and gift tax
Applies when indivs. transfer property to a person who is 2+ generations younger than donor
What four items qualify for unlimited exclusion from gift tax?
- Payments made directly to edu. institutions for donee’s tuition
- Payments made directly to health care provider for medical care
- Charitable gifts
- Marital transfers
Is income earned before the taxpayer’s death but not collected until after death included in the income of a decedent?
Yes
