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Estate Planning > 6. Gift Tax Compliance and Tax Calculation > Flashcards

6. Gift Tax Compliance and Tax Calculation Flashcards

1
Q

Unified Transfer Tax System under

TRA 1976

A
  • Same tax rate schedules apply to gifts during life (gift tax) and at death (estate tax)
  • Taxable gifts made after 1976 are added to taxable estate for applying estate tax
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2
Q

Applicable exclusion for lifetime gift tax, estate tax, and GSTT

A

$11,400,000 in 2019

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3
Q

Max tax rate for gift, estate, GSTT

A

40% in 2019

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4
Q

Portability of applicable exclusion

A

Surviving spouse may also use unused portion of decedent’s exemption at death

  • Must have died after 2010 and executor must have filed timely estate tax return
  • If spouse has multiple predeceased spouses, only latest counts
  • May apply exclusion to gifts and estate
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5
Q

Applicability of Federal Gift Tax

A
  1. Completed transfer of interest in property to individual
    1. From another individual, not included in GI
    2. From business to EE, might be included in GI
  2. Applies to completed lifetime gifts
  3. Gifts at death are not gifts, but testamentary transfers
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6
Q

Completed Lifetime Gifts

A

Completed Inter Vivo Transers

  1. Requires all of
    1. Donor is competent
    2. Donative intent
    3. Actual or constructive delivery to donee or representative
    4. Valid acceptance by donee
  2. Subject to gift tax unless exclusions apply
  3. Incomplete gifts not subject to gift tax until completed
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7
Q

Persons subject to gift tax

A
  1. All US citizens and residents, regardless of location, tangible or intangible, personal or real, whether transfer is direct or indirect
  2. Nonresident aliens regarding transfers of real and tangible personal property located in US
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8
Q

Incomplete Transfers

A
  • Federal gift tax does not apply
  • Examples include donor retains right or did not give up total dominion and control
  • When incomplete becomes complete, it becomes subject to gift tax
  • Revocable trust becomes a gift when it becomes irrevocable
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9
Q

Annual exclusion and gift planning

A
  1. $15,000 per donee
    1. Must be of present interest
    2. If Crummey POA, $15K applies to each beneficiary or contingent beneficiary
  2. $30,000 if gift splitting with spouse
    1. Made by donor, consent by spouse
    2. Esp. if spouse has nothing to gift
    3. Both spouses sign Form 709
    4. Community and jointly-owned prop does not require gift splitting or 709
    5. Enacted as a way to equalize community and non-community property states
  3. Annual exclusion can be multiplied 5x for 529 plan
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10
Q

Exclusion vs Exemption

A
  1. $15,000 ($30,000 if splitting) exclusion
  2. $4,505,800 (2019) credit, reflecting gift tax on $11,400,000 taxable gifts. A person can make $11,400,000 in aggregate taxable gifts before having to pay gift tax
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11
Q

Transfers not subject to Gift Tax

A
  1. Qualified transfers to med or higher ed institution
  2. Divorce settlements, up to 3 years after
  3. Interest on below market gift loans
  4. Payments made under support obligation (alimony, child support)
  5. Political donations
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12
Q

Gift loans

(Below market loans)

A
  1. Loan amount <= $10K unless loan used to invest
  2. Interest on gift loans <= $100K where donee’s net investment income does not exceed $1,000
  3. If loan <=$100,000 and unearned income of borrower > $1,000, the imputed interest rate is the difference between federal rate and the rate charged, not to exceed borrower’s net investment income
  4. If loan > $100,000, imputed is Federal rate less the interest charged
  5. On loans from employer to EE, interest is deemed compensation (not a gift!)
  6. On loans from corporation to shareholder, interest is deemed dividend (not a gift!)
  7. If no imputed interest, no gift
  8. These rules don’t apply if purpose is tax avoidance
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13
Q

Support obligation donations

A

Usually determined by state law

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14
Q

Qualified disclaimers

A
  • Refusal to accept property to be transferred
  • Requirements
    1. Be in writing
    2. within 9 months of later(transfer, 21BD)
    3. Cannot previously have benefitted from the property
    4. Must pass the disclaimer without directing someone else to receive it instead
  • When to use disclaimers
    1. Spouse doesn’t need
    2. Individual wants to make a tax-free gift to the contingent benficiary
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15
Q

Transfers that are deductible for determining taxable gifts

A
  1. Qualified charities for US citizens/residents
  2. Gifts/transfers between spouses, provided they are not a terminable interest
  3. For gifts to a noncitizen spouse, only the first $155,000 (2019) each year of a present interest is deductible
  4. For gifts to a noncitizen spouse, gifts of future interest are subject to gift tax
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16
Q

Valuation of a Gift

A
  1. FMV on date
  2. Consideration received by donor reduces value
  3. For securities, mean(High, Low) on date
17
Q

Valuation of a Gift

Security that didn’t trade on the date of gift

A

Average the price on the latest previous date when it traded and the next date it trades, weighted respectively by time following and time preceding

{P-1 * T1 + P1 * T(-1)} / {T1 + T(-1)}

18
Q

Valuation of Gift

Life Estates and Remainders

A
  • Life estate is available for the rest of a person’s life
  • Remainder is a future interest
19
Q

Liability for Gift Tax

A
  1. Donor is liable
  2. If donor fails to pay, donee may be liable
  3. Net gift occurs when donor/donee agree, before the gift, donee will pay gift tax
20
Q

Liability for Gift Tax

Net Gifts

A
  1. Part sale and part gift.
    1. Donor realizes taxable income to extent gift tax paid by donee exceeds donor’s adjusted basis
  2. Appropriate when donor does not have sufficient liquid assets to pay gift tax
  3. Usually occurs when the lifetime credit is no longer available for the gift to the donee
  4. If the annual exclusion is available, it is deducted from the FMV of the gift before calculating the gift tax due.
21
Q

Net Deemed Paid Adjustment

A
  1. All post-1976 taxable gifts are added back into the gift tax calculation formula, and credit is given for the gift tax deemed paid on the prior taxable gifts.
  2. Because taxable gifts in the past may have been subject to a different rate, a donor is allowed a deemed paid credit on prior gifts, which means the credit is calculated using current tax rates.
22
Q

Gift Tax Filing Requirements

A
  1. Form 709 must be filed each year whenever
    1. Gift to one donee exceeds exclusion amount
    2. Gift of future interest has been given
    3. Gift splitting between spouses
      1. Filed by donor, signed by consenting
      2. Does not apply to community or jointly owned property
  2. Due April 15, subject to income tax return extension dates

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