Gifts, Bequests and Inheritance Flashcards
§ 102 excludes gifts as well as property acquired through
§ 102 excludes gifts as well as property acquired through bequest, devise, or inheritance. A threshold question under § 102 is whether that which is received can be characterized as a gift, bequest, or inheritance
What is critical in characterizing receipts as gifts under § 102?
Motive of the Donor:
The Supreme Court in Commissioner v. Duberstein, stated, “a gift in the statutory sense…proceeds from a ‘detached and disinterested generosity…out of affection, respect, admiration, charity or like impulses.’ And in this regard the most critical consideration is the transferor’s intention.”
Example: X gives Y a share of IBM stock. What is included and what is not?
The income from property excluded as gift, bequest, devise, or inheritance is not excluded.
The value of the stock is excluded from Y’s income but the dividends which IBM distributes to Y are not.
Mother dies leaving a portfolio of stocks and bonds in trust for the benefit of her son and her grandchildren. The trust provides that the Trust Company will manage the portfolio and will distribute all income from the stocks and bonds annually to the son. When the son dies, the trust will terminate and all of the trust property will be distributed in equal shares to the grandchildren.
§ 102(b)(2): Denies an exclusion to gifts, whether made during life or at death, of income form property.
Analysis: Net income is to include gains or profits and income derived from any source whatever, including the income from but not the value of the property acquired by the gift, bequest, devise, or inheritance. Thus the money received by son for life is income (situation presents a life estate in son with remainder to grandchildren).
§ 1015(a): If the property was acquired by gift, the basis shall be _________?
§ 1015(a): If the property was acquired by gift, the basis shall be the same as it would have been in the hands of the donor or the last preceding owner by whom it was not acquired by gift
Exceptions: If such basis is greater than the FMV of the property at the time of the gift, then for purposes of determining loss the basis shall be such FMV
Elements of § 1015 Exception for Basis: (1) Testing for loss & (2) FMV at the time of the gift is less than the donor’s basis
Claude purchases a share of XYZ stock for $200 and gives the stock to Mary when the stock is worth $400 per share. What is Mary’s basis?
Mary’s basis will be the same as Claude’s: $200 Her basis is referred to as transferred basis.
What is the basis of property acquired from a decedent?
§ 1014(a)(1): the FMV of the property at the date of the decedent’s death (unless acquired by decedent by gift w/in 1 yr before death. Then AB will be decedents AB immediately before death)
- In effect this provision “steps up” or “steps down” the basis of property acquired from a decedent to the FMV of the property at the time of the decedent’s death.
- A devisee receiving a stepped up basis can sell the property for its value as of the decedent’s death and not realize any gain. By contrast, if property decreased in value during the lifetime of the decedent so that the decedent’s basis exceeded the value of the property, § 1014(a) will negate the loss inherent in the property.
Part sale, part gift
The sale of property for less than the fair market value is common between family members and even close friends. Substantively, the transaction involves a sale in part and a gift in part.
§ 1.1001-(e)(1): Where a transfer of land is in part a sale and in part a gift, the transferor has a gain to the extent that the amount realized by him exceeds the adjusted basis in the property. However, no loss is sustained on such a transfer if the amount realized is less than the basis.
§ 1.1015-4(a): where the transfer of property is in part a sale and in part a gift, the unadjusted basis of the property in the hands of the transferee is the greater of (1) the amount paid by the transferee, or (2) the transferor’s basis at the time of transfer
Loss: in testing for loss, the unadjusted basis of the property in the hands of the transferee shall not be greater than the fair market value of the property at the time of the transfer.
