Gifting Strategies, Gift Tax Compliance and Gift Tax Calculation

Question 1

Inter-vivos gifting

Answer 1

• transfer of property made while transferor is alive
• gift includes sale, exchange, transfer for less than full consideration in money

Question 2

Requirements for a valid gift

Answer 2

4 requirements
1. donor must be capable of transferring property
2. donee must be capable of receiving property
3. must be delivery and acceptance
4. requires donative intent

Question 3

Taxation requirements for gifts

Answer 3

• 4 requirements for valid gift
• donative intent not required
• must be complete gift

Question 4

Gift giving techniques

Answer 4

• forgiveness of debt
• below market loans
• assignment of benefits for LI
• transfer to trust

Question 5

Appropriate gift property

Answer 5

• highly appreciated property: best for charity or low bracket individual (can keep for step up)
• property likely to appreciate: removes future value from estate
• income producing property: good if in lower bracket
• loss property: sell to take loss
• property subject to depreciation: keep until fully depreciated
• out of state property: gift to avoid ancillary probate
• life insurance: good to gift, tax on replacement value, benefit face value

Question 6

Strategies for closely held business owners

Answer 6

• can use FLP, LLC, preferred stock recapitalization or gifting closely held stock to gift business interests
• transfer will reduce value of business in donors estate
• gifts could disqualify estate from making section 202 or 6166 election
• gift fully depreciated property and lease it back (income tax deduction)

Question 7

Gift tax exclusion

Answer 7

• $17k to each donee is excluded

Question 8

Gifts of present and future interests

Answer 8

present interest
- enjoyment can start immediately
future interest
- possession and enjoyment is delayed
- doesnt qualify for annual gift exclusion

Question 9

Exceptions to future interests

Answer 9

exceptions to present interest requirement
- gifts in trust of future interests on behalf of minors
- 2503c trusts
- crummey trusts
- 529 plans

Question 10

Gifts to noncitizen spouses

Answer 10

• noncitizen spouses dont get unlimited marital gift exclusion
• 175k

Question 11

Basis of appreciated gifts

Answer 11

• value of gift is FMV on date of gift
• if FMV is greater than donors adjusted basis then donee will use donors adjusted basis

Question 12

Basis of depreciated gifts

Answer 12

• if FMV is less than donors adjusted basis then a loss is measured using FMV and gain is measured using donors basis
• if sale is between donors basis and FMV then neither gain nor loss is recognized

Question 13

Increasing basis on appreciated gift

Answer 13

• sometimes donee of appreciated gift is allowed to increase basis by amount of gift tax paid by donor
• 2 conditions
  1. must be appreciated property
  2. gift tax must be paid by donor
  step 1: FMV - donors basis
  step 2: multiply by 40%
  step 3: add donors basis

Question 14

Gift subject to indebtedness

Answer 14

1. only net value of the gift is subject to gift tax (property - debt)
2. if debt is greater than cost to donor, donor will realize taxable gain
   - capital gain = debt - basis
   - donee new basis is donors original basis plus gain paid by donor

Question 15

Taxable gifts and estate tax

Answer 15

• adjusted taxable gifts exceed 17k
• adjusted taxable gifts are added to taxable estate
• gift taxes paid are allowed are credit against tentative tax
• gift taxes paid within 3 yrs of death are added to gross estate
• gift tax exemption is 12,920,000

Question 16

Gift tax filing requirements

Answer 16

• form 709 if giving any of following
  1. more than 17k
  2. gift of future interest
  3. gift spouses are splitting

Question 17

Gift splitting

Answer 17

-treats gift of property from one spouse as if it were made by both
- consent on nondonor needed
- two gift tax returns filed if after split the values of the gift exceeded annual exclusion
- only donor needs to file if gift was below exclusion ( spouse still needs to sign)
- no return needed if community property or JT and under exclusion

Question 18

Gifts of property in JT/ community property

Answer 18

• ownership considered transferred when documents evidencing transfer are titled
• some exceptions
  1. JT bank account, gift as soon as funds withdrawn by donee, not creation
  2. Series EE bond, gift when redeemed

Question 19

Prior taxable gifts

Answer 19

• if person uses more than annual exclusion, part of 12,920,000 gets used
• excess gifts accumulate on 709
• when they exceed lifetime exemption, they are taxed

Question 20

Deductible gifts (exempt gifts)

Answer 20

• fully deductible, reduce taxable gift amount to 0
  1. qualified payments in any amount made directly to educational institution for tuition
  2. qualified payments in any amount made directly to provider for medical care
  3. gifts to spouse
  4. gifts to qualified charity
  5. political organization
  6. to president of US