Taxes: Gift Tax

Question 1

Taxes:
Gift Tax
Definitions

Answer 1

Definitions

• Gift: transfer of property for less than adequate consideration
• transfer during life of owner triggers gift tax
• transfer at death triggers estate tax
• community property states, 1/2 owned by each spouse
• recipient of gift = donee, and recipient of inheritance = heir
• donee/heir secondarily liable for transfer tax
• property transferred to a trust = 2 gifts: income interest and remainder interest
  
  • beneficiary of the income interest receives the income from the trust each year
  • beneficiary of remainder interest receives property of trust when it terminates
• gift/inheritance are not income to recipient
  
  • donees assume carryover basis and holding period “tacks” from donor
  • inheritance, heir takes a “step-up” basis (FMV of estate) and holding period always long term

Question 2

Taxes:
Gift Tax
Transfer Must be Complete

Answer 2

Transfer Must be Complete

• gift is delivered to donee (posession)
• donor must give up control (control)
• donee must accept (use)

Question 3

Taxes:
Gift Tax
Joint Ownership

Answer 3

Joint Ownership

• creation of a joint ownership interest without equal consideration is considered a gift to co-owner with less contributed
  
  • regardless of type of ownership (tenancy in common or joint tenancy)
• transfers to joint bank account do not qualify until donee withdraws funds
• not purchase of joint savings bond
• joint interest with spouse not taxed (marital deduction)
• termination of joint tenancy may also trigger tax

Question 4

Taxes:
Gift Tax
Exclusions from Gift Tax

Answer 4

Exclusions from Gift Tax
- transactions not considered gifts: 
  - medical costs, or education exp, but must be paid directly to provider
  - political contributions
  - satisfaction of obligation
Annual Exclusion
- $14,000
- per donee per year
- only applies to gift of present interest (not trust)

Question 5

Taxes:
Gift Tax
Integration of Gift & Estate Tax

Answer 5

Integration of Gift & Estate Tax
- transfers only subject to one
Both
- unlimited marital deduction
- unlimited deduction for contribution to charity
Unified Credit
- first $5,430,000 of transfers from estate/gift will not trigger tax liability

Question 6

Taxes:
Gift Tax
Gift Splitting

Answer 6

Gift Splitting

• gift of community property is split between spouses
• election available each year
• gift treated as given equally by both spouses
• each must file a gift tax return

Question 7

Taxes:
Gift Tax
Deductions

Answer 7

Deductions
Marital Deduction
- deduct most gifts to spouse
- not terminal interests
- unlimited amount
- deduction = total gift - exclusion
- spouse must be US citizen, or exclusion of only $147k
Charitable Contribution
- gift to educational, scientific, religious, etc
- not cemeteries
- no limit

Question 8

Taxes:
Gift Tax
Formula

Answer 8

Formula
Current Gifts
- 1/2 split gifts
\+ 1/2 split gifts by spouse
- Annual Exclusion ($14k)
- Martial & Charitable Deductions
= current taxable gifts
\+ prior taxable gifts (not previous tax paid)
= cumulative gifts
X tax rate
= cumulative tax
- current tax on prior taxable gifts
- remaining unified credit
= gift tax payable

Question 9

Taxes:
Gift Tax
Other

Answer 9

Other

• Due April 15
• due if gift > annual exclusion or future interest
• no gift tax return required if gift to charity>exclusion
• if someone if currently receiving income it is a present interest despite the right to revoke