Module 7: Estate and Gift Transactions

Question 1

What is the general rule with property transfers by gift/estate?

Answer 1

Property transfers (by gift during life or by will at death) = Taxable = FMV

Question 2

What is the threshold for lifetime gifts?

Answer 2

$14,000 or less per year/per donee are excluded

Question 3

What is the unified estate and gift tax credit?

Answer 3

$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

Question 4

What is the estate tax?

Form 706

Answer 4

A transfer tax

Imposed on the value of property transferred by the decedent at death (FMV)

Question 5

When should a Form 706 be filed?

9 months birth & death

Answer 5

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

Question 6

What is the alternate valuation date?

buried 6 feet under

Answer 6

The earlier of the date the property is distributed to the heirs or 6 months after the date of death

Question 7

Estate Transfer Tax Calculation

Answer 7

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

Question 8

The gross estate is reduced by what deductions?

Answer 8

1. Medical Expenses
2. Admin Expenses
3. Unlimited Charitable Deduction
4. Unlimited Marital Deduction

Question 9

When can medical expenses be deducted on the final income tax return of the decedent?
(Expense or liability, not both)

Answer 9

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

Question 10

What administrative expenses can be deducted?

Answer 10

• o/s debts of decedent
• claims against the estate
• funeral costs
• certain taxes

Question 11

What is the applicable exclusion amount?

Answer 11

$5,490,000

Question 12

What other credits reduce the gross estate tax?

Answer 12

1. Foreign death taxes

2. Prior transfer taxes

Question 13

Who pays the tax on a gift?

Answer 13

The person giving the gift

Question 14

Gift

Answer 14

Transfer of money or property, whether real or personal, tangible or intangible, for less than adequate or full consideration in money

Question 15

In determining the amount of gifts made in a calendar year, how much may the donor exclude?

Answer 15

$14,000 of gifts made to each donee

Question 16

Gifts of future interest

Answer 16

Gift that can only be enjoyed by the donee at some future date

Question 17

Which gifts have an unlimited exclusion?

Answer 17

1. Payments made directly to an educational institution
2. Payments made directly to a health care provider for medical care
3. Charitable gifts
4. Marital deduction

Question 18

How would property qualify as a Qualified Terminable Interest Property (QTIP) in order to qualify for a marital deduction?

Answer 18

1. Donee spouse must be entitled to all income from the property for his/her lifetime
2. No one other than the donee spouse may receive any distributions of income or principal from the property for his/her lifetime
3. Donee spouse must have right to require that subject property be made productive
4. Property must be subject to payment of its pro rata share of estate taxes upon the death of surviving spouse

Question 19

What are the 2 gift issues?

Answer 19

1. Present vs. Future

2. Complete vs. Incomplete

Question 20

Present interest

Answer 20

Qualifies for the annual exclusion

Question 21

Future interest

Answer 21

Does not qualify for the annual exclusion

Required to file Form 709

Question 22

What are examples of future interest gifts?

Answer 22

1. reversions
2. remainders
3. trust income interests where accumulation of income by trustee is mandatory and accumulations are distributed in future
4. present interest w/out ascertainable value

Question 23

Complete gift

Answer 23

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

Question 24

Incomplete gift

Answer 24

Conditional or revocable

Question 25

Conditional gift

Answer 25

Subject to conditions precedent and will not be provided unless those conditions have been met

Question 26

Revocable gifts

Answer 26

Donor reserves the right to revoke the gift or change the beneficiaries

Question 27

General rule for basis of gifts received

Answer 27

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

Question 28

How is the tax due on current gifts determined for calendar year?

Answer 28

Gross gifts for calendar yr (FMV)

= Taxable gifts this year
+ Taxable gifts of prior years
= Cumulative lifetime gifts

Question 29

How is the tax due on current gifts determined for cumulative lifetime gifts?

Answer 29

Tax on Cumulative lifetime gifts

= Tax due on current gifts

Question 30

Generation-skipping transfer tax

Answer 30

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

Question 31

What four items qualify for unlimited exclusion from gift tax?

Answer 31

1. Payments made directly to edu. institutions for donee’s tuition
2. Payments made directly to health care provider for medical care
3. Charitable gifts
4. Marital transfers

Question 32

Is income earned before the taxpayer’s death but not collected until after death included in the income of a decedent?

Answer 32

Yes