Wealth Transfer Taxation Flashcards
Does a legally enforceable mortgage constitute adequate and full consideration under I.R.C. § 2036(a) if the parties had an implied agreement that the seller would remain in the property and the parties did not intend for the mortgage to be paid?
Pursuant to I.R.C. § 2036(a), property transferred by a decedent inter vivos with a retained life estate will be included in the taxable estate unless the property was transferred by “a bona fide sale for an adequate and full consideration.”
Previous cases have held that an elderly person who continues to reside in her home after transferring title to a relative retained a life estate subject to estate tax under § 2036(a) and in such cases, the courts place the burden on the estate to prove that there was no agreement between the parties to reserve a life estate.
Where the estate asserts that a sale for adequate and full consideration occurred between family members by the seller taking a promissory note, the estate must also prove that there was intent to enforce payment of the debt.
Will trust assets be included in a settlor’s taxable estate if he exercises ownership control over the trust by reserving broad discretionary powers for himself as trustee that are not subject an ascertainable standard by which the court could enforce his duties to the beneficiary?
Yes. to establish ownership control over the trust, the government must show that the trustee-settlor had power over the trust that was beyond the control of the court. Thus, where there is an ascertainable standard by which the trustee exercises his discretion, and by which the court could enforce the trustee’s obligations to the trust and beneficiary, the estate will not be taxed because there is no unfettered ownership control.
However, where there is no ascertainable standard that governs the trustee’s exercise of discretion, then the estate will be taxed because the trustee’s broad discretion amounts to an ownership control.
sufficient dominion & control (to justify imposition of estate tax) + two things that are not sufficient
reservation of powers not subject to ascertainable execution standard (yes)
reservation of powers subject to ascertainable execution standard (no)
settlor designates self as trustee (no)
Does I.R.C. § 2041 require the assets of a trust to be included in the taxable estate of a trustee-beneficiary who has the power to invade principal for his own benefit if it is limited by an ascertainable standard that relates to health, education, support or maintenance and is capable of enforcement by the court?
No. Under I.R.C. § 2041, a trustee-beneficiary who had at the time of his death a power over the trust assets that enabled him to benefit himself, his estate, his creditors or the creditors of his estate, including the power to invade principal for his own benefit, is considered to have a general power of appointment. However, this power does not constitute a general power of appointment when the power is limited by an ascertainable standard that relates to health, education, support or maintenance and can be enforced by a court.
general power of appointment
Federal Gift Tax Scheme
Inter Vivos gifts that exceed the annual gift exclusion (and other exclusions) constitute a taxable gift during that year. Depending on the amount of cumulative taxable gifts, a donor may owe federal gift taxes.
Any transfer made w/in 3 years of death is subject to rebuttable presumption that it was death motivated not life motivated and therefore taxable under estate tax rate rather than gift tax rate
Taxable gifts (2 requirements)
Inadequate consideration -
Transfer of property for less than adequate and full consideration in money or money’s worth
Completion - Not taxable until donor relinquishes all “dominion and control” over gift
i. Settlor retains mandatory
interest in property in trust = no
gift tax
(e.g. No tax on revocable
trust because donor retains
right to revoke)
2 variable requiring analysis to determine whether inter vivos gift trigger gift tax consequences
(1) whether the transfer is a gift (“completed gift”)
(2) whether the amount exceeds the annual gift tax exclusion (or is otherwise excluded from gift tax)
